SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
The Securities Exchange Act of 1934
For March 1, 2000 - June 26, 2000
NORTRAN PHARMACEUTICALS
----------------------------------------------------------
(Translation of Registrant's name into English)
3650 Wesbrook Mall
----------------------------------------------------------
(Address of principal executive offices)
Vancouver, British Columbia, V6S 2L2, CANADA
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File No. 0-29338
[Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or For 40-F]
Form 20-F [ X ] Form 40-F [ ]
[Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange act of
1934.]
Yes [ X ] No [ ]
<PAGE>
FORM 6-K
TABLE OF CONTENTS
For March 1, 2000 - June 26, 2000
NORTRAN PHARMACEUTICALS INC.
LIST OF EXHIBITS
Exhibit 1. Annual Report - 1999
Exhibit 2. Audited annual financial statements - for the year ended November
30, 1999
Exhibit 3. Interim financial statements - English - for the three months ended
Feb. 29, 2000
Exhibit 4. Management proxy / information circular - English
Exhibit 5. Form of proxy
Exhibit 6. Press release - March 15, 2000
Exhibit 7. Press release - March 28, 2000
Exhibit 8. Press release - April 5, 2000
Exhibit 9. Press release - April 6, 2000
Exhibit 10. Press release - April 14, 2000
Exhibit 11. Press release - May 1, 2000
Exhibit 12. Press release - May 24, 2000
Exhibit 13. Press release - June 5, 2000
Exhibit 14. Press release - June 20, 2000
Exhibit 15. Material Change Report - April 6
Exhibit 16. Material Change Report - April 14
<PAGE>
Exhibit 17. Material Change Report - May 24
Exhibit 18. Material Change Report - June 5
Exhibit 19. Material Change Report - June 20
Exhibit 20. Notice of Meeting
Exhibit 21. Prospectus
<PAGE>
Exhibit 1
Nortran Pharmaceuticals Inc.
Annual Report 1999
<PAGE>
heart disease
remains the leading cause of premature
death in the developed world. Nortran Pharma-
ceuticals is a commercially focused drug discovery
company with a unique approach to eliminating life-
threatening cardiac arrhythmias through the devel-
opment of ion-channel modulating drugs. This
positions Nortran in an area of great market
potential and opportunity to prolong and
improve patient quality of life.
<PAGE>
This year, an estimated
1,100,000 Americans will have
a new or recurring coronary attack.
[GRAPHIC OMITTED]
<PAGE>
Letter to the Shareholders
In the lifetime of most biotechs there comes a year in which
the patience and persistence of management, employees and shareholders
is rewarded. We expect the first year of the new millennium to
be that kind of year. However, when the exciting achievements of the
upcoming year are celebrated, it will be important to remember
that they were built on the strong performance of the company in
the previous years. 1999 in particular has been a year of quiet
accomplishment - often in the face of adverse external circumstances.
<PAGE>
Page 3
We have driven forward our antiarrhythmic drug program, testing many new
variants of our current lead structure to find an even better drug - and we
succeeded in finding that better drug. Planning for clinical testing has now
begun. We also announced in 1999 an additional antiarrhythmic collaborative
agreement, this one with Aventis Pharma (previously Hoechst Marion Roussel,
which merged with Rhone Poulenc in 1999). Added to our ongoing collaboration
with AstraZeneca Plc., these two collaborations provide Nortran an excellent
opportunity to complete an attractive licensing agreement in the current year.
In our cough program, we have continued to move strongly in the clinical
development of our lead molecule, CP1. Phase I (safety testing) was
successfully completed in the fall of 1999, and Phase II (efficacy testing) will
begin in Q1/2000. This highly promising program can create significant value
for Nortran shareholders if the promising pre-clinical data is replicated in
these human efficacy tests. Nortran' s other programs also continued to
develop. Albeit at a less progressive pace than our two lead programs.
None of this would be possible without adequate financial resources. Nortran
completed a $5.1 million offering to mainly institutional investors in August of
1999 to ensure that sufficient cash resources would be available. This
financing, led by National Bank Financial Corp., was placed with a group of
Canada's leading institutional investors. The funds raised will be adequate to
ensure that Nortran can accomplish one or more key milestones.
[GRAPHIC OMITTED]
Looking forward, those milestones are much closer now than a year ago. They
include:
* Partnering the antiarrhythmic program;
* Completing the cough phase II trial;
* Commencement of clinical testing in the antiarrhythmic program;
* Partnering of the pro-erectile or local anesthetic program
What is exciting for Nortran is that there is potential for these milestones to
be accomplished in this current year 2000. Given the strong biotech sector
markets as this is written, this situation bodes well for both Nortran and its
stakeholders.
For those whose investment in Nortran has helped the Company to create the
opportunities that now stand before it, a hearty "Thank You" from management and
the board. It is your support that enables our success. We look forward to
providing you with an excellent return on your investment as we make our unique
contributions to the welfare of patients.
Warmest regards,
/s/ Bob Rieder
Robert Rieder
President and CEO
<PAGE>
Page 4
Focused on Antiarrhythmics
In the time that it takes to read this paragraph, someone will have
suffered from a heart attack. One heart attack occurs every 20
seconds of which a third are fatal. Very often, heart attack deaths are
the result of the arrhythmias associated with the heart attack.
Nortran focuses on developing drugs that prevent and treat such car-
diac arrhythmias, thereby reducing the mortality associated
with heart attacks and improving the quality of life for patients
suffering from other less fatal arrhythmias.
[GRAPHIC OMITTED]
Heart Attacks
-------------
The fist several minutes of a heart attack can be devastating. There is a
feeling of uncomfortable pressure that originates at the chest and spreads out
to the shoulders and arms. The pain may be mild to intense and may be
accompanies by lightheadedness, fainting, sweating, nausea or shortness of
breath. But the most deadly potential of the heart attack may not be noticed at
all: the initiation of rapid irregular heartbeats - called arrhythmia - which
prevent the heart from delivering blood to the rest of the body. Death from
such arrhythmia can occur within minutes.
Market Potential
----------------
Very often, a heart attack is the first sign of heart disease. Heart disease is
the number one cause of death in the developed world and in 1998, accounted for
7.3 million deaths worldwide (WHO, The World Health Report 1999). The main risk
factors are: age, gender, family history, obesity, diet, and smoking.
Approximately one-quarter of all heart disease mortality is associated with
cardiac arrhythmia.
A heart attack occurs when one of the arteries that supply blood to the heart
muscle becomes blocked. Oxygen-laden blood is prevented from reaching the part
of the heart served by the blocked artery. The oxygen-deprived tissue begins to
die. As the tissue dies, it becomes electrically unstable and may signal the
ventricles (the lower pumping chambers) of the heart to beat rapidly and
erratically. Although the heart attack itself may not be fatal, up to half of
all heart attack deaths result from such arrhythmias.
The heartbeat is regulated by a natural "pacemaker" which sends continuous
electrical signals that regulate the rate of the heartbeat. An arrhythmia
occurs when this natural rhythm is disrupted. This can be caused by a variety
of underlying conditions or diseases including coronary heart disease, stress,
caffeine, smoking, or hypertension. There are two principle types of cardiac
arrhythmia. Ventricular arrhythmias affect the lower chambers of the heart, are
usually associated with heart attacks, and are often fatal if untreated. Atrial
arrhythmias affect the upper chambers of the heart, are much more common and are
not directly life-threatening.
[GRAPHIC OMITTED]
Causes of Death Why Antiarrhythmics
--------------------------------------------------------------
% of total deaths Heart disease remains the largest cause
in 1997 (USA 1997 of mortality in the developed world,
[CDS NVSS accounting for almost one third of all
report]) mortality. Current antiarrhythmic drugs
have side effects which can be fatal -
1 Diseases of the and have been shown to increase rather
heart (31.4%) than decrease the mortality rate in
patients taking the drugs. In spite of
2 Cancer (23.3%) that serious drawback, as much as $1
billion of such drugs are sold each
3 Cerebrovascular year. There is an estimated additional
diseases (6.9%) $2 billion of market that is not being
served at all at this time because of
4 Chronic Obstructive the safety issue. Why antiarrhythmics?
pulmonary disease Because there is a very large unmet
(4.7%) medical need!
5 Accidents (4.1%)
6 Pneumonia &
Influenza (3.7%)
7 Diabetes
Mellitus (2.7%)
8 Other causes (23.2%)
(WHO - World Heath Organization)
<PAGE>
[GRAPHIC OMITTED]
There is currently
no effective antiarrhythmic drug
that is SAFE enough to
use as a preventative therapy for
heart disease.
<PAGE>
Page 6
The surface of each living cell is covered with many molecular structures called
"ion channels". These gateways regulate the flow of charged sodium, potassium
and calcium ions into and out of the living cells. This flow of ions mediates
all muscular and electrical activity within the human body. There are many
different kinds of such ion channels. Nortran's drugs target sodium and
potassium channels which are important in controlling cardiac arrhythmia.
--------------------------------------------------------------------------------
What is an "ion channel"
Safer Antiarrhythmic Drugs
--------------------------
Currently, available anti-arrhythmic drugs act by suppressing the electrical
signaling in the heart. This approach is successful in that these drugs
effectively prevent and treat cardiac arrhythmia. However, these drugs can also
reduce cardiac output, resulting in lower blood pressure, and can cause other
forms of fatal arrhythmias. Applied broadly across arrhythmia patient
populations, most current drugs have been shown to increase mortality in
patients taking the drugs. The statistics are shocking: the CAST study showed
that the mortality rate among patients taking the most effective antiarrhythmics
at the time was 8.5%, while the mortality rate in the placebo group was only
3.5%. Many of these drugs are still being used today. Nortran's primary focus
is the development of safe drugs to control cardiac arrhythmia.
Nortran's unique approach is to develop drugs that act only on the specific
tissue associated with the arrhythmia. In ventricular arrhythmias, Nortran's
drugs target the damaged part of the heart without interfering with the normal
functioning of the healthy cardiac tissue. This targeting is based on the
acidity of the oxygen-deprived tissue, and on the specific set of ion channels
important in damaged tissue. In atrial arrhythmias, Nortran's drugs target
selectively the ion channels which are dominant in atrial arrhythmias, leaving
the ventricle of the heart largely unaffected.
Progress to Date
----------------
Nortran has developed drug candidates that the Company believes are suitable for
clinical testing (that is, testing in human subjects). These drug candidates
are potential treatments for atrial arrhythmia. They show strong efficacy in
terminating atrial arrhythmia with little risk of the dangerous side effects
associated with current drugs. The drug candidates are highly atria-selective,
and preliminary toxicity testing suggests few CNS or cardiovascular side
effects, even at doses significantly higher than the therapeutic dose.
This progress has led to collaborative agreements with two major pharmaceutical
companies: Aventis and AstraZeneca. Under the terms of these agreements,
Nortran has conducted tests on Aventis and AstraZeneca compounds, and both
companies have conducted extensive tests on Nortran's compounds.
Atrial Fibrillation
-------------------
Atrial fibrillation is the most commonly encountered sustained arrhythmia and
occurs in upwards of 1.5 million people annually in the United States (AHA
1999). Recent studies (such as the Framingham Study, 1998) suggest even higher
numbers of people may suffer occasionally or chronically from atrial arrhythmia.
This number is expected to increase significantly as the "baby boom" population
ages. The most critical need is for an oral drug that is safe enough to be
taken on a daily basis. Pre-clinical studies have shown that Nortran's drug
candidates have a strong potential to be both safe and effective. Clinical
testing is expected to begin in the year 2000.
Ventricular Arrhythmias
-----------------------
Ventricular arrhythmias are typically associated with heart attack patients, of
whom there are approximately 1.1 million in the US each year (AHA 2000, Heart
and Stroke Statistical Update). There are two unmet needs in this application.
A safe and effective acute use (IV short acting) drug is required to treat
patients in the 72 hours immediately following a heart attack. More
importantly, a chronic (oral dosing, long acting) drug is needed to protect
patients from arrhythmias following an initial heart attack. Nortran has drugs
which show promise in each of these applications.
CAST - Cardiac Arrhythmia Suppression Trial, 1991
AHA - American Heart Association
<PAGE>
[GRAPHIC OMITTED]
Nortran is one step closer
to developing blockbuster
drugs for the prevention of sudden
cardiac death.
<PAGE>
Page 8
1999 Highlights
Over the last year, Nortran has added to its
strong research management team and built
on its relationship with pharmaceutical
collaborators AstraZeneca PLC and Aventis
Pharma. As well, Nortran made significant
progress on its exciting and novel cough
therapy.
[GRAPHIC OMITTED]
Management Team
---------------
The appointment of Dr. Paul Doherty as director of the pro-erectile program has
added greatly to Nortran's efforts in that area. Dr. Doherty's expertise in the
erectile dysfunction area has contributed greatly to partnering efforts and to
ongoing pre-clinical research. Similarly, one of the world's leading
respirologists, Professor Peter Barnes has now joined Nortran's scientific
advisory board. Professor Barnes is playing a key role in the clinical testing
of Nortran's cough drug candidate and is an important advisor to our ongoing
discovery program. Darrell Elliott, a senior vice-president of MDS Capital
Corp. has joined Nortran's board, and Dr. Stanely Nattel of the Montreal Heart
Institute has joined Nortran's scientific advisory board. Dr. Nattel has a
global reputation as a leader in antiarrhythmic drug research.
Collaborations
--------------
Nortran began 1999 with two collaborations in place, both in the antiarrhythmic
program. The agreement with F. Hoffmann-La Roche ended in June, while the
collaboration with AstraZeneca gained momentum. In October, a new collaborative
agreement was announced, this time with Aventis Pharma of Frankfurt, Germany.
Nortran has gained significant development and endorsement value from all three
collaborations. To restate the obvious: the interest shown by these major
pharmaceutical companies over a prolonged period of time is in itself a
testimony to the scientific value and pharmaceutical potential of Nortran's
antiarrhythmic program. We believe that these collaborations will form the
foundation for a mutually rewarding licensing agreement.
Cough Program
-------------
Intractable cough, Nortran's target condition, is commonly associated with
asthma, end-stage lung cancer and certain forms of emphysema. This medical
condition affects an estimated 115 million people worldwide every year. More
importantly, there is no non-narcotic therapy that is effective against such
cough. In 1999, Nortran concluded its pre-clinical toxicology program and
announced the completion of a Phase I clinical trial, which focused on the
safety aspects of the non-narcotic drug. In the therapeutic dose range, inhaled
CP1 was found to be safe, non-irritating and well-tolerated, with no serious
adverse events. Those exciting results pave the way for a Phase II trial to
measure the effectiveness of the drug in real patient populations.
--------------------------------------------------------------------------------
Overview of Programs
Project Indication Status Market Potential
Worldwide (U.S.$)
--------------------------------------------------------------------------------
Antiarrhythmic Atrial and ventricular Pre-clinical $2.9 billion
Program Arrhythmias
--------------------------------------------------------------------------------
Cough Program Intractable cough Phase I completed $1 billion +
Phase II to begin
in early 2000
--------------------------------------------------------------------------------
Pro-Erectile Pro-erectile/male Pre-clinical $250 million
Program sexual dysfunction
--------------------------------------------------------------------------------
Local Anesthetic Local anesthesia Phase II completed $100 million
Program
--------------------------------------------------------------------------------
Sources: AHA Heart and Stroke Statistical Update, 2000; American Heart
Association, Script Reports 1997; WindRiver Parters 1998; DataMonitor 1998
<PAGE>
1999 Financials
<PAGE>
Page 10
MANAGEMENT DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following information should be read in conjunction with the audited
consolidated financial statements and related notes included therein, which are
prepared in accordance with generally accepted accounting principles in Canada.
Overview
Nortran Pharmaceuticals Inc. (the "Company" or "Nortran") is a commercially
focused pharmaceutical company with a research and development program centred
on reducing mortality associated with heart disease. This program is part of a
product pipeline that also includes an inhaled therapy for chronic, idiopathic
cough.
Treatment of Cardiac Arrhythmia
Nortran's antiarrhythmic program addresses the shortcomings of current
antiarrhythmic therapeutics, which to date have shown an increased rather than
decreased mortality, caused by a lack of selectivity for the diseased areas of
the heart. Nortran's candidates have shown to be tissue-targeting in in vivo
tests and consequently offer a potentially more effective and safer
antiarrhythmic. The market for such an improved therapeutic is considerable.
Upwards of 1.5 million patients suffer from atrial arrhythmia in the United
States annually.
Nortran has currently entered into two collaborative research agreements in the
area of antiarrhythmics. The first, with AstraZeneca was executed in November
1998 to conduct collaborative research on the drug candidates developed by both
companies. The second agreement was announced in August 1999 with Aventis
Pharma. This agreement also permits the testing of investigational
antiarrhythmic candidates of both companies. Both AstraZeneca and Aventis
Pharma are testing Nortran's candidates with an interest in licensing the drugs.
Treatment of chronic, idiopathic cough - CP1
CP1, Nortran's first generation cough drug is a non-narcotic drug for the
treatment of chronic idiopathic cough. The Phase I clinical trial of CP1 was
completed in October 1999. This trial was a randomised, double-blinded study in
31 healthy volunteers conducted by Inveresk Research International Limited, a
leading global clinical research organisation. CP1 was found to be safe beyond
the normal dosage limits at which drug would be administered.
Based on the positive Phase I results, Nortran plans to initiate Phase II trials
in the first half of 2000 and accordingly is preparing a protocol for
submission.
Other Projects
Nortran continued to make progress in two additional areas of research, the
pro-erectile and local anaesthetic programs.
Results of Operations
For the fiscal year ended November 30, 1999 ("Fiscal 1999"), Nortran incurred a
net loss of $4,451,320 million or $0.16 per share. This compares to net losses
for the fiscal years ended November 30, 1998 and November 30, 1997 of $5,168,419
million (or $0.19 per share) and $2,749,088 (or $0.14 per share) respectively.
Since its inception in 1992 Nortran has been unprofitable and has accumulated a
total deficit of $16,314,589. The Company expects losses to continue for the
next several years as we pursue the research, development and commercialisation
of our products.
Revenues
Nortran currently has no product or license revenues. The Company anticipates
that future revenues will consist primarily of license fees, research and
development payments, milestone payments and royalties from licensing and
collaborative agreements with companies in the pharmaceutical industry. Total
revenue for Fiscal 1999 was $450,263 (1998: $365,862; 1997: $128,447). The
increase in revenue in Fiscal 1999 reflects additional revenue earned from
research contracts and government grants.
Costs and Expenses
Operating expenses decreased by 11% in Fiscal 1999 to $4,901,583 (1998:
5,534,281; 1997: $2,877,535). This decrease was principally due to decline in
general and administration expenditures.
Research and development expenses totalled $3,248,775 for Fiscal 1999 (1998:
$3,311,362; 1997: $1,306,147). We expect research and development expenses to
continue at this level in Fiscal 2000. A significant portion of the research
and development in Fiscal 2000 will be incurred in the Phase II clinical trial
of CP1 and preclinical and clinical development of antiarrhythmic candidates.
General and administration expenses declined to $997,890 for the fiscal year
ended November 30, 1999 (1998: $1,553,337; 1997: $1,100,747). The decrease in
general administration expenses was primarily due to the lower consulting and
professional fees, and travel and accommodation expenses incurred.
Liquidity and Capital Resources
Nortran's activities during the fiscal year ended November 30, 1999 were
financed primarily by its working capital carried forward from the previous
fiscal year and net proceeds collected from the private placement described
under Financing Activities. Working capital at November 30, 1999 was $6,237,713
(1998: $5,058,958; 1997: $7,648,879). At November 30, 1999, the Company had
$6,784,170 in cash reserves (1998: $5,283,814; 1997: $7,713,399) consisting of
$4,209,003 (1998: $3,919,564; 1997: $1,343,666) in cash and cash equivalents and
$2,575,167 (1998: $1,364,250; 1997: $6,369,733) in short-term investments. The
Company invests its cash and cash reserves in highly liquid, highly rated
financial instruments such as treasury bills, commercial paper and banker's
acceptance.
<PAGE>
Page 11
MANAGEMENT DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Financing Activities
On November 24, 1999, the Company completed a private placement of 7,285,643
special warrants (the "Special Warrants") at a price of $0.70 each for total
gross proceeds of $5.1 million. In connection with the private placement, the
Company paid a cash commission of $304,496 and granted 728,564 compensation
options (the "Compensation Options") to the lead agent of this financing, First
Marathon Securities Limited (the "Agent"). The net proceeds from this financing
support the Company's on going research and development, primarily in the areas
of antiarrhythmic drugs and acute cough suppressants, and general corporate
purposes.
Each Special Warrant was converted into one common share of the Company, without
additional payment. Each Compensation Option was converted into one share
purchase warrant (the "Agent's Warrant") at no additional cost. Each Agent's
Warrant entitles the Agent to purchase one common share of the Company at $0.70
per share until August 11, 2001.
Risks and Uncertainties
Nortran believes that its available cash, expected grant and interest income
should be sufficient to finance its operation and capital needs through 2000,
while maintaining sufficient cash reserves. Nortran's working capital
requirements may, however, vary depending upon a number of factors including
progress of our research and development programs, the costs associated with
completing clinical studies and the regulatory process, collaborative and
license arrangements with third parties, opportunities to in-license
complementary technologies, and technological and market developments.
Consequently, Nortran may need to raise additional capital to continue its
ongoing research and development programs and to commence or continue the
preclinical and clinical studies necessary. In such an event, Nortran intends
to seek additional funding through public or private financings, arrangements
with corporate partners, and from other sources. There can be no assurance that
such funds will be available on favorable terms, if at all. If adequate funding
is not available, Nortran may be required to substantially reduce its
operations.
To the extent possible, management implements strategies to reduce or mitigate
the risks and uncertainties associated with the Company's business. Operating
risks include (i) the company's ability to successfully complete pre-clinical
and clinical development of its products, (ii) the company's ability to complete
corporate alliances relating to the development and commercialization of its
technologies and products, (iii) decisions and the timing of decisions made by
health regulatory agencies regarding approval of the company's products, (iv)
the company's ability to obtain timely patent and other intellectual property
protection for its technologies and products, (v) market acceptance of the
Company's technology and products, (vi) the competitive environment and impact
of technological change, and (vii) the continued availability of capital to
finance the Company's activities.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying financial statements have been prepared by management in
accordance with generally accepted accounting principles and have been approved
by the Board of Directors. The integrity and objectivity of these consolidated
financial statements are the responsibility of management. In addition,
management is responsible for all other information in the annual report and for
ensuring that this information is consistent, where appropriate, with the
information contained in the consolidated financial statements.
In support of this responsibility, management maintains a system of internal
controls to provide reasonable assurance as to the reliability of financial
information and the safeguarding of assets. The consolidated financial
statements include amounts that are based on the best estimates and judgments of
management.
The Board of Directors is responsible for ensuring that management fulfils its
responsibility for financial reporting and internal control. The Board of
Directors exercises this responsibility principally though the Audit Committee.
The Audit Committee consists of three directors not involved in the daily
operations of the Company. The Audit Committee meets with management and the
external auditors to satisfy itself that management's responsibilities are
properly discharged and to review the consolidated financial statements prior to
their presentation to the Board of Directors for approval.
The external auditors, Ernst & Young, conduct an independent examination, in
accordance with generally accepted auditing standards, and express their opinion
on the consolidated financial statements. The external auditors have free and
full access to the Audit Committee with respect to their findings concerning the
fairness of financial reporting and the adequacy of internal controls.
/s/Michael J.A. Walker /s/ Bob Rieder
Michael J.A. Walker Robert Rieder
Chairman President and CEO
<PAGE>
MANAGEMENT DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following information should be read in conjunction with the audited
consolidated financial statements and related notes included therein, which are
prepared in accordance with generally accepted accounting principles in Canada.
OVERVIEW
Nortran Pharmaceuticals Inc. (the "Company" or "Nortran") is a commercially
focused pharmaceutical company with a research and development program centered
on reducing mortality associated with heart disease. This program is part of a
product pipeline that also includes an inhaled therapy for chronic, idiopathic
cough.
Treatment of Cardiac Arrhythmia
Nortran's antiarrhythmic program addresses the shortcomings of current
antiarrhythmic therapeutics, which to date have shown an increased rather than
decreased mortality, caused by a lack of selectivity for the diseased areas of
the heart. Nortran's candidates have shown to be tissue-targeting in in vivo
tests and consequently offer a potentially more effective and safer
antiarrhythmic. The market for such an improved therapeutic is considerable.
Upwards of 1.5 million patients suffer from atrial arrhythmia in the United
States annually.
Nortran has currently entered into two collaborative research agreements in the
area of antiarrhythmics. The first, with AstraZeneca was executed in November
1998 to conduct collaborative research on the drug candidates developed by both
companies. The second agreement was announced in August 1999 with Aventis
Pharma. This agreement also permits the testing of investigational
antiarrhythmic candidates of both companies. Both AstraZeneca and Aventis
Pharma are testing Nortran's candidates with an interest in licensing the drugs.
Treatment of chronic, idiopathic cough - CP1
CP1, Nortran's first generation cough drug is a non-narcotic drug for the
treatment of chronic idiopathic cough. The Phase I clinical trial of CP1 was
completed in October 1999. This trial was a randomised, double-blinded study in
31 healthy volunteers conducted by Inveresk Research International Limited, a
leading global clinical research organisation. CP1 was found to be safe beyond
the normal dosage limits at which drug would be administered.
Based on the positive Phase I results, Nortran plans to initiate Phase II trials
in 2000 and accordingly is preparing a protocol for submission.
Other Projects
Nortran continued to make progress in two additional areas of research, the
pro-erectile and local anaesthetic programs.
RESULTS OF OPERATIONS
For the fiscal year ended November 30, 1999 ("Fiscal 1999"), Nortran incurred a
net loss of $4,451,320 million or $0.16 per share. This compares to net losses
for the fiscal years ended November 30, 1998 and November 30, 1997 of $5,168,419
million (or $0.19 per share) and $2,749,088 (or $0.14 per share) respectively.
Since its inception in 1992 Nortran has accumulated a total deficit of
$16,314,589. The Company expects losses to continue for the next several years
as we pursue the research, development and commercialisation of our products.
Revenues
Nortran currently has no product or license revenues. The Company anticipates
that future revenues will consist primarily of license fees, research and
development payments, milestone payments and royalties from licensing and
collaborative agreements with companies in the pharmaceutical industry. Total
revenue for Fiscal 1999 was $450,264 (1998: $365,862; 1997: $128,447). The
increase in revenue in Fiscal 1999 reflects additional revenue earned from
research contracts and government grants.
Costs and Expenses
Operating expenses decreased by 11% in Fiscal 1999 to $4,901,583 (1998:
5,534,281; 1997: $2,877,535). This decrease was due to a decline in general and
administration expenditures.
Research and development expenses totaled $3,248,775 for Fiscal 1999 (1998:
$3,311,362; 1997: $1,306,147). We expect to continue incurring this level of
research and development expenditures in Fiscal 2000. A significant portion of
the research and development expenditures in Fiscal 2000 will be incurred in the
Phase II clinical trial of CP1 and preclinical and clinical development of
antiarrhythmic candidates.
General and administration expenses declined to $997,890 for Fiscal 1999 (1998:
$1,553,337; 1997: $1,100,747). The decrease in general administration expenses
is primarily due to the lower consulting and professional fees, and travel and
accommodation expenses incurred.
LIQUIDITY AND CAPITAL RESOURCES
Nortran's activities during the fiscal year ended November 30, 1999 were
financed primarily by its working capital carried forward from the previous
fiscal year and net proceeds collected from the private placement described
under Financing Activities. Working capital at November 30, 1999 was $6,237,713
(1998: $5,058,958; 1997: $7,648,879). At November 30, 1999 the Company had
$6,784,170 in cash reserves (1998: $5,283,814; 1997: $7,713,399) consisting of
$4,209,003 (1998: $3,919,564; 1997: $1,343,666) in cash and cash equivalents and
$2,575,167 (1998: $1,364,250; 1997: $6,369,733) in short-term investments. The
Company invests its cash and cash reserves in highly liquid, highly rated
financial instruments such as treasury bills, commercial paper and banker's
acceptance.
<PAGE>
MANAGEMENT DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Financing Activities
On November 18, 1999, the Company completed a private placement of 7,285,643
special warrants (the "Special Warrants") at a price of $0.70 each for total
gross proceeds of $5.1 million. In connection with the private placement, the
Company paid a cash commission of $304,496 and granted 728,564 compensation
options (the "Compensation Options") to the lead agent of this financing, First
Marathon Securities Limited (the "Agent"). The net proceeds from this financing
support the Company's on going research and development, primarily in the areas
of antiarrhythmic drugs and acute cough suppressants, and general corporate
purposes.
Each Special Warrant was converted into one common share of the Company, without
additional payment. Each Compensation Option was converted into one share
purchase warrant (the "Agent's Warrant") at no additional cost. Each Agent's
Warrant entitles the Agent to purchase one common share of the Company at $0.70
per share until August 11, 2001.
RISKS AND UNCERTAINTIES
Nortran believes that its available cash, expected grant and interest income
should be sufficient to finance its operation and capital needs through 2000,
while maintaining sufficient cash reserves. Nortran's working capital
requirements may, however, vary depending upon a number of factors including
progress of our research and development programs, the costs associated with
completing clinical studies and the regulatory process, collaborative and
license arrangements with third parties, opportunities to in-license
complementary technologies, and technological and market developments.
Consequently, Nortran may need to raise additional funds to continue its ongoing
research and development programs and to commence new preclinical and clinical
studies necessary. In such an event, Nortran intends to seek additional funding
through public or private financings, arrangements with corporate partners, and
from other sources. There can be no assurance that such funds will be available
on favorable terms, if at all. If adequate funding is not available, Nortran
may be required to substantially reduce its operations.
To the extent possible, management implements strategies to reduce or mitigate
the risks and uncertainties associated with the Company's business. Operating
risks include (i) the company's ability to successfully complete pre-clinical
and clinical development of its products, (ii) the company's ability to complete
corporate alliances relating to the development and commercialization of its
technologies and products, (iii) decisions and the timing of decisions made by
health regulatory agencies regarding approval of the company's products, (iv)
the company's ability to obtain timely patent and other intellectual property
protection for its technologies and products, (v) market acceptance of the
Company's technology and products, (vi) the competitive environment and impact
of technological change, and (vii) the continued availability of capital to
finance the Company's activities.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying financial statements have been prepared by management in
accordance with generally accepted accounting principles and have been approved
by the Board of Directors. The integrity and objectivity of these consolidated
financial statements are the responsibility of management. In addition,
management is responsible for all other information in the annual report and for
ensuring that this information is consistent, where appropriate, with the
information contained in the consolidated financial statements.
In support of this responsibility, management maintains a system of internal
controls to provide reasonable assurance as to the reliability of financial
information and the safeguarding of assets. The consolidated financial
statements include amounts that are based on the best estimates and judgements
of management.
The Board of Directors is responsible for ensuring that management fulfils its
responsibility for financial reporting and internal control. The Board of
Directors exercises this responsibility principally though the Audit Committee.
The Audit Committee consists of three directors not involved in the daily
operations of the Company. The Audit Committee meets with management and the
external auditors to satisfy itself that management's responsibilities are
properly discharged and to review the consolidated financial statements prior to
their presentation to the Board of Directors for approval.
The external auditors, Ernst & Young, LLP, conduct an independent examination,
in accordance with generally accepted auditing standards, and express their
opinion on the consolidated financial statements. The external auditors have
free and full access to the Audit Committee with respect to their findings
concerning the fairness of financial reporting and the adequacy of internal
controls.
/s/ Michael J.A. Walker /s/ Bob Rieder
Michael J.A. Walker Bob Rieder
Chairman President and CEO
<PAGE>
As at November 30 (expressed in Canadian dollars)
1999 1998
$ $
--------------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents 4,209,003 3,919,564
Short-term investments [notes 3 and 6] 2,575,167 1,364,250
Other receivables and prepaid expenses 258,516 277,260
--------------------------------------------------------------------------------
Total current assets 7,042,686 5,561,074
--------------------------------------------------------------------------------
Capital assets [note 4] 461,576 649,982
Other assets [note 5] 2,359,468 2,597,630
--------------------------------------------------------------------------------
Total assets 9,863,730 8,808,686
--------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 675,542 366,317
Current portion of obligations under capital
leases [note 10] 60,602 73,414
Current portion long-term debt [note 6] 68,829 62,385
--------------------------------------------------------------------------------
Total current liabilities 804,973 502,116
Obligations under capital leases [note 10] 41,145 99,554
Long-term debt [note 6] 50,161 118,435
--------------------------------------------------------------------------------
Total liabilities 896,279 720,105
--------------------------------------------------------------------------------
Shareholders' equity
Share capital [note 7] 25,282,040 19,951,850
Deficit (16,314,589) (11,863,269)
--------------------------------------------------------------------------------
Shareholders' equity 8,967,451 8,088,581
--------------------------------------------------------------------------------
Liabilities and shareholders' equity 9,863,730 8,808,686
--------------------------------------------------------------------------------
Commitments and contingencies [note 10]
See accompanying notes
On behalf of the Board: /s/Michael J.A. Walker /s/Bob Rieder
Director Director
<PAGE>
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
Years ended November 30 (expressed in Canadian dollars)
1999 1998 1997
$ $ $
--------------------------------------------------------------------------------
REVENUE
Interest income 258,395 320,286 106,187
Grant and other revenue [note 8] 191,868 45,576 22,260
--------------------------------------------------------------------------------
450,263 365,862 128,447
--------------------------------------------------------------------------------
EXPENSES
Research and development [note 9] 3,248,775 3,311,362 1,306,147
General and administration 997,890 1,553,337 1,100,747
Amortization 654,918 669,582 470,641
--------------------------------------------------------------------------------
4,901,583 5,534,281 2,877,535
--------------------------------------------------------------------------------
Loss for the year 4,451,320 5,168,419 2,749,088
Deficit, beginning of year 11,863,269 6,694,850 3,945,762
--------------------------------------------------------------------------------
Deficit, end of year 16,314,589 11,863,269 6,694,850
--------------------------------------------------------------------------------
Basic loss per common share 0.16 0.19 0.14
--------------------------------------------------------------------------------
Weighted average number of
common shares 28,331,730 26,780,674 19,546,048
--------------------------------------------------------------------------------
See accompanying notes
<PAGE>
AUDITORS' REPORT
To the Shareholders of Nortran Pharmaceuticals Inc.
We have audited the consolidated balance sheets of Nortran Pharmaceuticals Inc.
as at November 30, 1999 and 1998 and the consolidated statements of loss and
deficit and cash flows for each of the years in the three year period ended
November 30, 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 an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at November 30, 1999
and 1998 and the results of its operations and its cash flows for each of the
years in the three year period ended November 30, 1999 in accordance with
accounting principles generally accepted in Canada. As required by the Company
Act (British Columbia), we report that, in our opinion, these principles have
been applied on a consistent basis.
Vancouver, Canada,
January 20, 2000. /s/ Ernst &Young LLP
Chartered Accountants
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended November 30 (expressed in Canadian dollars)
1999 1998 1997
$ $ $
--------------------------------------------------------------------------------
OPERATING ACTIVITIES
Loss for the year (4,451,320) (5,168,419) (2,749,088)
Add items not affecting cash
Amortization 654,918 669,582 470,641
Loss on disposal of
capital assets - 4,256 -
Changes in non-cash working capital
Other receivables and prepaid
expenses 18,744 (127,045) (101,380)
Accounts payable and accrued
liabilities 227,062 183,605 (56,520)
--------------------------------------------------------------------------------
Cash used in operating activities (3,550,596) (4,438,021) (2,436,347)
--------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of share capital 5,412,353 2,410,659 9,623,066
Payment on obligations under
capital leases (71,221) (46,776) (34,033)
Increase in long-term debt - 200,000 -
Repayment of long-term debt (61,830) (19,180) -
--------------------------------------------------------------------------------
Cash provided by financing
activities 5,279,302 2,544,703 9,589,033
--------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (60,190) (397,059) (356,673)
Patent costs capitalized (168,160) (139,208) (71,698)
Short-term investments (1,210,917) 5,205,483 (6,569,733)
--------------------------------------------------------------------------------
Cash provided by (used in)
investing activities (1,439,267) 4,669,216 (6,998,104)
--------------------------------------------------------------------------------
Increase in cash during the year 289,439 2,775,898 154,582
Cash and cash equivalents,
beginning of year 3,919,564 1,143,666 989,084
--------------------------------------------------------------------------------
Cash and cash equivalents,
end of year 4,209,003 3,919,564 1,143,666
--------------------------------------------------------------------------------
See accompanying notes
<PAGE>
Page 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1999
--------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
Nortran Pharmaceuticals Inc. (the "Company") is a drug discovery company engaged
in the treatment of pathologies and conditions which are mediated by cellular
ion channels. The Company's primary focus is the discovery and development of
drugs designed to prevent cardiac arrhythmias and for the treatment of acute
unproductive cough. To date, the Company has not yet determined the ultimate
economic viability of the drugs and has not commenced commercial operations for
its drugs.
The continuation of the Company's research and development activities and the
commercialization of the targeted therapeutic products is dependent upon the
Company's ability to successfully complete its research and development programs
and finance its cash requirements through a combination of equity financings and
payments from potential strategic partners.
2. SIGNIFICANT ACCOUNTING POLICIES
The Company prepares its accounts in accordance with generally accepted
accounting principles ("GAAP") in Canada. A reconciliation of amounts presented
in accordance with United States GAAP is detailed in note 13. The following is
a summary of significant accounting policies used in the preparation of these
consolidated financial statements:
Use of estimates
The preparation of the financial statements in conformity with general accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts recorded in the financial statements. Actual results could
differ from those estimates.
Cash flow statement
The Company has adopted the new recommendations of the Canadian Institute of
Chartered Accountants Handbook for cash flow statements and has restated the
comparative periods to conform to this revised standard. Accordingly, the
Company has redefined cash and cash equivalents and has reclassified non-cash
transactions such as assets under capital leases within the statement of cash
flows.
Consolidation
These consolidated financial statements include the accounts of Nortran
Pharmaceuticals Inc. and its wholly-owned subsidiaries, Rhythm-Search
Developments Ltd. (RSD) and 3629490 Canada Inc.
Financial instruments
For certain of the Company's financial instruments, including cash and cash
equivalents, short-term investments, accounts receivable and accounts payable
and accrued liabilities the carrying amounts approximate fair value due to their
short-term nature. The term loan and the obligations under capital leases bear
interest at rates which, in management's opinion, approximate the current
interest rates and therefore, approximate their fair value.
Foreign currency translation
The Company follows the temporal method of accounting for the translation of
foreign currency amounts into Canadian dollars. Under this method monetary
assets and liabilities in foreign currencies are translated at the exchange
rates in effect at the balance sheet date. All other assets and liabilities are
translated at rates prevailing when the assets were acquired or liabilities
incurred. Income and expense items are translated at the exchange rates in
effect on the date of the transaction. Resulting exchange gains or losses are
included in the determination of loss for the year.
Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of
90 days or less to be cash equivalents. Cash equivalents which comprise
commercial papers, bankers' acceptances and term deposits with an average
interest rate of 4.5% [November 30, 1998 - 4.8%], are stated at cost, which
approximates market value.
Short-term investments
Short-term investments, which comprise mainly commercial papers and term
deposits with maturities to June 2001 [November 30, 1998 - June 2001] and an
average interest rate of 5.02% [November 30, 1998 - 5.06%], are recorded at the
lower of cost and market value. The carrying value of these investments
approximates their market value.
Capital assets
Capital assets are recorded at cost less accumulated amortization. The Company
records amortization of laboratory, computer and office equipment on a
straight-line basis over 3 to 5 years. Leasehold improvements are amortized on
a straight-line basis over the term of the lease plus one renewal period.
Equipment under capital lease is amortized on a straight-line basis over 5
years.
Technology, license and patent costs
The excess of the cost of investment in RSD over the fair value of the net
tangible assets acquired is ascribed to technology. Technology and licenses are
amortized on a straight-line basis over a period of ten years.
The Company capitalizes as patents the costs associated with the preparation,
filing, and obtaining of patents. The cost of the patents is amortized on a
straight-line basis over the estimated useful lives of the patents of ten years.
The amounts shown for technology, license and patent costs do not necessarily
reflect present or future values and the ultimate amount recoverable will be
dependent upon the successful development and commercialization of products
based on these rights. If management determines that such costs exceed
estimated net recoverable value, based on estimated future cash flows, the
excess of such costs are charged to operations.
<PAGE>
Page 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
November 30, 1999(expressed in Canadian dollars)
--------------------------------------------------------------------------------
2. Significant Accounting Policies, continued
Government assistance
Government assistance towards current expenses is included in revenue when there
is reasonable assurance that the Company has complied with all conditions
necessary to receive the grants.
Research and development revenues and expenses
Funding under collaborative research arrangements is not refundable, and
accordingly is recorded as research activities are performed under the term of
the arrangement. Research funding towards current expenses is deducted from the
cost of the related expenditure. Research costs are expensed in the period
incurred. Development costs are expensed in the period incurred unless the
Company believes a development project meets generally accepted accounting
criteria for deferral and amortization.
Stock based compensation
The Company grants stock options to executive officers and directors, employees,
consultants and clinical advisory board members pursuant to a stock option plan
described in note 7[e]. No compensation is recognized for these plans when
common shares are awarded or stock options are granted. Any consideration
received on exercise of stock options or the purchase of stock is credited to
share capital. If common shares are repurchased, the excess or deficiency of
the consideration paid over the carrying amount of the common shares cancelled
is charged or credited to contributed surplus or retained earnings.
Income taxes
The Company uses the deferral method in accounting for income taxes.
Loss per common share
Loss per share has been calculated using the weighted average number of common
shares outstanding in each respective period including escrow shares. Fully
diluted loss per share is not presented since the issue of shares upon the
exercise of stock options and warrants would be anti-dilutive.
3. CREDIT FACILITY
At November 30, 1999 the Company has available an unused operating line of
credit of $200,000 [1998 - $200,000] which is collateralized by a cashable
certificate of $200,000 [1998 - $200,000] which is included in short-term
investments.
4. CAPITAL ASSETS
Accumulated Net book
Cost amortization value
$ $ $
--------------------------------------------------------------------------------
1999
Laboratory equipment 380,805 184,143 196,662
Computer equipment 315,964 237,479 78,485
Equipment under capital lease 211,086 73,116 137,970
Office equipment 71,851 29,791 42,060
Leasehold improvements 6,884 485 6,399
--------------------------------------------------------------------------------
986,590 525,014 461,576
--------------------------------------------------------------------------------
1998
Laboratory equipment 318,982 87,598 231,384
Computer equipment 288,819 136,427 152,392
Equipment under capital lease 252,332 52,897 199,435
Office equipment 66,268 15,992 50,276
Leasehold improvements 128,920 112,425 16,495
--------------------------------------------------------------------------------
1,055,321 405,339 649,982
--------------------------------------------------------------------------------
5. OTHER ASSETS
Accumulated Net book
Cost amortization value
$ $ $
--------------------------------------------------------------------------------
1999
Technology 3,396,193 1,613,496 1,782,697
License 105,208 31,561 73,647
Patents 626,309 123,185 503,124
--------------------------------------------------------------------------------
Total 4,127,710 1,768,242 2,359,468
--------------------------------------------------------------------------------
1998
Technology 3,396,193 1,273,877 2,122,316
License 105,208 21,041 84,167
Patents 458,149 67,002 391,147
--------------------------------------------------------------------------------
Total 3,959,550 1,361,920 2,597,630
--------------------------------------------------------------------------------
6. LONG-TERM DEBT
1999 1998
$ $
--------------------------------------------------------------------------------
Promissory note bearing interest at
10.77% per annum, repayable in blended
monthly instalments of $6,468 per month
commencing August 1, 1998 until July 1,
2001
118,990 180,820
Less: current portion 68,829 62,385
--------------------------------------------------------------------------------
50,161 118,435
--------------------------------------------------------------------------------
As collateral, the Company has assigned term deposits with a maturity value of
$200,000 to the lender. Subsequent to November 30, 1999, $100,000 of the
assigned term deposits were released to the Company.
Interest expense during the year ended November 30, 1999 amounted to $15,786
[1998 - $6,692].
<PAGE>
Page 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
November 30, 1999(expressed in Canadian dollars)
--------------------------------------------------------------------------------
Principal amounts of the promissory note repayable over the next two years are
as follows:
$
--------------------------------------------------------------------------------
2000 68,829
2001 50,161
--------------------------------------------------------------------------------
118,990
--------------------------------------------------------------------------------
7. SHARE CAPITAL
a] Authorized
200,000,000 common shares without par value
b] Issued
Number
of shares Amount
# $
--------------------------------------------------------------------------------
Balance, November 30, 1996 15,478,503 7,918,125
Issued for cash upon exercise of options 292,000 221,730
Issued for cash upon exercise of warrants 3,124,096 2,592,891
Issued for cash pursuant to private placements,
net of issuance costs 6,200,000 6,808,445
--------------------------------------------------------------------------------
Balance, November 30, 1997 25,094,599 17,541,191
Issued for cash upon exercise of options 658,700 740,259
Issued for cash upon exercise of warrants 1,920,000 1,670,400
--------------------------------------------------------------------------------
Balance, November 30, 1998 27,673,299 19,951,850
Issued for cash upon exercise of options 5,000 5,000
Issued for cash upon exercise of warrants 939,000 845,100
Issued for cash pursuant to private placements,
net of issuance costs 7,285,643 4,480,090
--------------------------------------------------------------------------------
Balance, November 30, 1999 35,902,942 25,282,040
--------------------------------------------------------------------------------
c] Private placements
On November 18, 1999, the Company completed a private placement of 7,285,643
special warrants at a price of $0.70 each for a total gross proceeds of
$5,099,950. Each special warrant was converted into one common share at no
additional cost. In connection with the private placement, the Company paid a
cash commission of $304,496 and legal and professional fees of $315,364 and
granted 728,564 compensation options to the lead agent of this financing which
were converted into 728,564 share purchase warrants. Each share purchase
warrant entitles the holder to purchase one common share at $0.70 until August
11, 2001. All of these purchase warrants are outstanding as at November 30,
1999.
On November 10, 1997, the Company completed a non-brokered private placement of
2,700,000 units at $1.60 per unit for gross proceeds of $4,320,000. Each unit
comprised one common share and 0.3 warrant. Each full warrant entitles the
holder to acquire one common share at $2.00 expiring November 10, 1998, which
was subsequently extended to November 10, 1999. All of these warrants expired
on November 10, 1999.
On June 30, 1997, the Company completed a brokered private placement of
1,000,000 units at $0.72 per unit for gross proceeds of $720,000. Each unit
comprised one common share and one common share purchase warrant. In addition,
the underwriting agent received 100,000 share purchase warrants. Each share
purchase warrant entitled the holder to acquire one common share at $0.72 in the
first year and $0.90 in the subsequent year. Of the 1,100,000 warrants issued,
220,000 were exercised during the 1998 fiscal year and 139,000 were exercised
during the year ended November 30, 1999. The balance of 741,000 expired on June
29, 1999.
On May 9, 1997, the Company completed a non-brokered private placement of
2,500,000 units at $0.72 per unit for gross proceeds of $1,800,000. Each unit
comprised one common share and one common share purchase warrant. Each share
purchase warrant entitled the holder to acquire one common share at $0.72 in the
first year and $0.90 in the subsequent year. Of the 2,500,000 share purchase
warrants issued, 1,700,000 were exercised during the 1998 fiscal year. The
remaining 800,000 were exercised during the year ended November 30, 1999.
d] Share purchase warrants
At November 30, 1999 common share purchase warrants outstanding were as follows:
Number of common shares issuable Exercise price Date of expiry
--------------------------------------------------------------------------------
728,564 $0.70 August 11, 2001
--------------------------------------------------------------------------------
e] Stock options
In May 1998, the shareholders approved a stock option plan for which up to four
million common shares can be reserved for issuance to directors, officers,
employees and consultants of the Company. The shares available for issuance
under the stock option plan vest over a period beginning immediately to 5 years.
At November 30, 1999 the Company has 2,683,000 common shares reserved for
issuance under this plan.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
November 30, 1999(expressed in Canadian dollars)
--------------------------------------------------------------------------------
e) Stock options, continued
At November 30, 1999 stock options to directors, employees and others
outstanding were as follows:
Number of common shares
under option currently exercisable Exercise price Date of expiry
--------------------------------------------------------------------------------
63,000 63,000 $0.63 October 31, 2000
200,000 160,000 $0.70 April 10, 2001
200,000* 200,000 $1.85 April 26, 2001
190,000 190,000 $1.00 July 8, 2001
310,000 310,000 $1.40 April 2, 2002
40,000 40,000 $1.42 April 20, 2002
90,000 90,000 $1.25 May 29, 2002
20,000 20,000 $0.97 January 18, 2003
600,000 240,000 $1.49 March 17, 2003
270,000 195,000 $1.58 June 11, 2004
280,000 210,000 $1.05 October 15, 2004
60,000 - $1.26 January 10, 2005
100,000 20,000 $1.10 February 8, 2004
50,000 - $1.05 February 24, 2005
100,000 50,000 $0.61 October 31, 2002
50,000 50,000 $0.61 October 31, 2004
60,000 - $0.61 October 31, 2005
--------------------------------------------------------------------------------
2,683,000 1,838,000
--------------------------------------------------------------------------------
*During the year ended November 30, 1999 the expiry date relating to 200,000
options was extended from April 26, 1999 to April 26, 2001.
Stock options for the respective periods and the number of stock options
outstanding are summarized as follows:
Number of Weighted
common average
shares exercise
under price
option $
--------------------------------------------------------------------------------
Balance, November 30, 1996 828,000 0.78
Options granted 1,230,000 1.32
Options exercised (292,000) 0.76
Options cancelled (70,000) 1.40
--------------------------------------------------------------------------------
Balance, November 30, 1997 1,696,000 1.15
Options granted 1,755,000 1.48
Options exercised (658,700) 1.12
Options cancelled (425,000) 1.67
--------------------------------------------------------------------------------
Balance, November 30, 1998 2,367,300 1.31
Options granted 480,000 0.92
Options exercised (5,000) 1.00
Options cancelled (159,300) 1.21
--------------------------------------------------------------------------------
Balance, November 30, 1999 2,683,000 1.25
--------------------------------------------------------------------------------
The weighted average exercise price of the common shares exercisable at November
30, 1999 is $1.25.
f] Escrow shares
The Company has 1,500,000 common shares held in escrow. The release of these
shares is subject to the approval of regulatory authorities and is based on the
Company's cumulative cash flow. Any shares not released by February 22, 2000
will be cancelled.
g] Commitment to issue shares
Under the terms of a licensing agreement the Company has agreed to issue 200,000
common shares upon the achievement of certain milestones.
8. GRANT AND OTHER REVENUE
1999 1998 1997
$ $ $
--------------------------------------------------------------------------------
Grant 45,810 4,234 22,260
Other revenue 146,058 41,342 -
--------------------------------------------------------------------------------
191,868 45,576 22,260
--------------------------------------------------------------------------------
9. RESEARCH AND DEVELOPMENT
Research and development expenses are net of research funding of $336,818 [1998
- $187,425; 1997 - $nil].
10. COMMITMENTS AND CONTINGENCIES
[a] Commitments
Operating leases
The company has entered into a lease agreement for its premises requiring
minimum payments in future periods as follows:
$
--------------------------------------------------------------------------------
2000 238,000
2001 241,000
2002 80,000
--------------------------------------------------------------------------------
559,000
--------------------------------------------------------------------------------
Capital leases
Future minimum payments under capital leases together with the balances of the
obligations due under capital leases are as follows:
$
--------------------------------------------------------------------------------
2000 67,665
2001 43,416
--------------------------------------------------------------------------------
Total minimum lease payments 111,081
Less: amount representing interest (from 8.5% to 13.5%) 9,334
--------------------------------------------------------------------------------
101,747
Less: current portion of obligations under capital lease 60,602
--------------------------------------------------------------------------------
Long term portion of obligations under capital lease 41,145
--------------------------------------------------------------------------------
Interest expense during the year ended November 30, 1999 amounted to $11,918
[1998 - $5,771].
Research agreements
The Company has entered into various collaborative research agreements requiring
it to fund research expenditures approximately as follows:
$
--------------------------------------------------------------------------------
2000 320,500
2001 153,500
--------------------------------------------------------------------------------
474,000
--------------------------------------------------------------------------------
<PAGE>
Page 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
November 30, 1999(expressed in Canadian dollars)
--------------------------------------------------------------------------------
License agreements
Pursuant to a license agreement, the Company is responsible for payment of
royalties based on a percentage of revenue, subject to certain minimum annual
royalties.
Pursuant to an agreement, the Company is responsible for payment of $500,000
upon commencement of Phase III clinical trials and a further $2,000,000 upon
filing a New Drug Application in the United States or Canada for the licensed
Nociblocker technology. The agreement expires on the date of expiry of the last
patent relating to certain technology, none of which have been issued to date.
[b] Contingencies
Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or
after January 1, 2000, and, if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems failure
which could affect the Company's ability to conduct normal business operations.
It is not possible to be certain that all aspects of the Year 2000 Issue
affecting the Company, including those related to the efforts of customers,
suppliers, or other third parties will be fully resolved.
11. LOSSES AND UNUSED DEDUCTIONS CARRIED FORWARD FOR INCOME TAX PURPOSES
At November 30, 1999, the Company has non-capital losses for income tax purposes
which expire as follows:
$
--------------------------------------------------------------------------------
2000 591,000
2001 178,000
2002 331,000
2003 545,000
2004 1,530,000
2005 2,830,000
2006 2,680,000
--------------------------------------------------------------------------------
8,685,000
--------------------------------------------------------------------------------
The Company also has net timing differences relating primarily to capital
assets, share issue costs and scientific research and experimental development
expenditures of approximately $6,392,000 which may be used to reduce future
income tax. In addition, the Company has approximately $1,360,000 of unclaimed
investment tax credits expiring between 2003 and 2009, which may be used to
reduce future income taxes otherwise payable. The ability of the Company to
utilize the losses and other tax balances carried forward in the future is not
reasonably assured and therefore the benefit has not been recognized in the
financial statements.
12. RELATED PARTY TRANSACTIONS
1999 1998 1997
$ $ $
--------------------------------------------------------------------------------
Paid to companies with a common
director for:
- contract research services 163,954 48,041 -
- administrative consulting
services 6,500 - -
Paid to directors for:
- research consulting services 37,761 - -
- administrative consulting
services 3,500 - -
Paid to a partnership where a
director is a partner for
administrative consulting
services - - 21,000
Accounts payable to directors
and/or companies with a common
director 40,690 - -
--------------------------------------------------------------------------------
All transactions are recorded at their exchange amounts.
13. RECONCILIATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The Company prepares the consolidated financial statements in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP") which as
applied in these consolidated financial statements conform in all material
respects to those accounting principles generally accepted in the United States
("U.S. GAAP"), except as follows:
[a] Under U.S. GAAP, the liability method is used in accounting for income
taxes pursuant to Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" (SFAS 109). SFAS 109 requires recognition of
deferred tax assets and liabilities for the expected future tax consequences
of events that have been included in the financial statements or tax
returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial reporting and tax
bases of assets and liabilities using enacted tax rates that will be in
effect for the year in which the differences are expected to reverse.
For reconciliation to U.S. GAAP purposes, a valuation allowance has been
recognized to offset deferred tax assets totalling approximately $6,800,000
[1998 - $5,700,000] arising from temporary differences, tax credits and
non-capital loss carryforwards, for which realization is uncertain.
<PAGE>
Page 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
November 30, 1999(expressed in Canadian dollars)
--------------------------------------------------------------------------------
13. RECONCILIATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued.)
[a] continued
Certain of the Company's losses available for carryforward and deductible
temporary differences originated with the Company's 1995 acquisition of RSD.
Accordingly, when realization of these tax benefits becomes more likely than
not, they will be applied to reduce any unamortized intangible balances
recorded on this acquisition to nil before being recognized in earnings
under U.S. GAAP.
[b] Basic earnings per share under U.S. GAAP excludes any dilutive effects of
options, warrants, and escrow shares. Dilutive earnings per share are
calculated in accordance with the treasury stock method and are based on the
weighted average number of common shares and dilutive common share
equivalents outstanding.
[c] For reconciliation purposes to U.S. GAAP the Company has elected to follow
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" (APB25) in accounting for its employee stock options. Under APB
25, because the exercise price of the Company's options for common shares
granted to Employees is not less than the fair market value of the
underlying stock on the date of grant, no compensation expense has been
recognized.
[d] Under US GAAP, stock based compensation to non-employees must be recorded at
the fair market value of the options granted. This compensation, determined
using a Black-Scholes pricing model, is expensed over the vesting periods of
each option grant. For purposes of reconciliation to US GAAP, the Company
would record additional compensation expense of $51,000 in respect of
options granted to non-employees [1998 - 129,000; 1997 - $237,500].
Additional compensation expense of $18,000 will be recorded over future
vesting periods.
The effect of the above on the Company's consolidated financial statements is
set out below:
Statements of loss and deficit
1999 1998 1997
$ $ $
--------------------------------------------------------------------------------
Loss for year Canadian GAAP 4,451,320 5,168,419 2,749,088
Adjustment for stock-based
compensation 51,000 129,000 237,500
--------------------------------------------------------------------------------
Loss and comprehensive loss
for year U.S. GAAP 4,502,320 5,297,419 2,986,588
Deficit, beginning of year,
U.S. GAAP 12,359,519 7,062,100 4,075,512
--------------------------------------------------------------------------------
Deficit, end of year, U.S. GAAP 16,861,839 12,359,519 7,062,100
--------------------------------------------------------------------------------
Loss per share
The following table sets forth the computation of basic and diluted loss per
share under U.S. GAAP:
1999 1998 1997
$ $ $
--------------------------------------------------------------------------------
Numerator
Loss for of the year under U.S. GAAP 4,502,320 5,297,149 2,986,588
--------------------------------------------------------------------------------
Denominator
Weighted average of common
shares outstanding 28,331,730 26,780,674 19,546,048
Escrowed shares (1,500,000) (1,500,000) (1,500,000)
--------------------------------------------------------------------------------
26,831,730 25,280,674 18,046,048
--------------------------------------------------------------------------------
$ $ $
--------------------------------------------------------------------------------
Basic and diluted loss per
share under U.S. GAAP 0.17 0.21 0.17
--------------------------------------------------------------------------------
The Company's common shares issuable upon the exercise of stock options and the
escrowed shares were excluded from the determination of diluted loss per share
as their effect would be anti-dilutive.
Balance sheets
Material variations in balance sheet accounts under U.S. GAAP are as follows:
1999 1998
$ $
--------------------------------------------------------------------------------
Share capital 25,856,290 20,448,100
--------------------------------------------------------------------------------
14. SEGMENTED INFORMATION
The Company operates primarily in one business segment with all of its assets
and operations located in Canada. All of the Company's revenues are generated
in Canada. During the year ended November 30, 1999 in addition to the research
funding as detailed in note 9 which is derived from one entity in Switzerland,
84.6% and 15.4% of other revenue was earned from two major collaborators in
Switzerland and Sweden [1998 - 100% from one collaborator in Switzerland].
15. SUBSEQUENT EVENTS
Subsequent to the year end, options to acquire 15,000 common shares at $1.26 per
share with an expiry date of January 10, 2005 were cancelled.
<PAGE>
CORPORATE INFORMATION
Board of Directors
Michael J. A. Walker, Ph.D. (2)
Chairman
Robert Rieder
President & Chief Executive Officer
Clive Page, Ph.D. (1,2)
Director
Colin Mallet (1, 2, 3)
Director
Oh Kim Sun (1)
Director
Allen Bain, Ph.D. (3)
Director
Darrell Elliott (3)
Director
Scientific Advisory Board
Gunnar Aberg, Ph.D.
Peter John Barnes, M.A., D.M., D.Sc., F.R.C.P.
Joel Morganroth, M.D., F.A.C.C., F.A.C.P.
Stan Nattel, M.D.
Officers and Corporate Management
Robert Rieder
President & Chief Executive Officer
Gregory Beatch, Ph.D.
Vice President, Research
Sheila Grant
Director of Finance & Administration, Secretary
Investor Relations Contact
Michael Midmer
Manager, Investor Relations
Nortran Pharmaceuticals Inc.
3650 Wesbrook Mall
Vancouver, BC
Canada V6S 2L2
Tel: 604-222-5577
Fax: 604-222-6617
Toll free: 800-330-9928
Email: [email protected]
-------------------
Transfer Agent
Pacific Corporate Trust Company
625 Howe Street
Suite 830
Vancouver, BC
Canada V6C 3B8
Tel: 604-689-9853
Fax: 604-689-8144
Auditors
Ernst & Young
Pacific Centre
P.O. Box 10101
700 West Georgia Street
Vancouver, BC
Canada V7Y 1C7
Tel: 604-891-8200
Listings
Canadian Venture Exchange (NRT)
NASD Bulletin Board (NTRDF)
Internet
www.nortran.com
---------------
Annual General Meeting
Date: May 25, 2000
Time: 2:00pm (PST)
Location: Four Season's Hotel
791 West Georgia Street
Vancouver, BC
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Corporate Governance Committee
Except for the historical information presented, certain matters discussed in
this news release are forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from any future results, performance or achievements expressed or implied by
such statements. Such risks and uncertainties include among others, those
described in the Company's annual report Form 20-F, including the following
uncertainty related to early stage of development, technology and product
development, dependence on future corporate collaborations; dependence on
proprietary technology and uncertainty of patent protection; management of
growth; future capital needs and uncertainty of additional funding; intense
competition; manufacturing and market uncertainties; government regulation;
product liability exposure and insurability.
<PAGE>
Nortran Pharmaceuticals Inc.
Nortran
Pharmaceuticals Inc. 3650 Wesbrook Mall
Vancouver, British Columbia
Canada V6S 2L2
Tel: 604-222-5577
Fax: 604-222-6617
Toll Free : 800/330/9928
www.nortran.com
Printed in Canada
<PAGE>
Exhibit 2
CONSOLIDATED FINANCIAL STATEMENTS
NORTRAN PHARMACEUTICALS INC.
November 30, 1999
ERNST & YOUNG
<PAGE>
--------------------------------------------------------------------------------
AUDITORS' REPORT
--------------------------------------------------------------------------------
To the Shareholders of
Nortran Pharmaceuticals Inc.
We have audited the consolidated balance sheets of Nortran Pharmaceuticals Inc.
as at November 30, 1999 and 1998 and the consolidated statements of loss and
deficit and cash flows for each of the years in the three year period ended
November 30, 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 an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at November 30, 1999
and 1998 and the results of its operations and its cash flows for each of the
years in the three year period ended November 30, 1999 in accordance with
accounting principles generally accepted in Canada. As required by the Company
Act (British Columbia), we report that, in our opinion, these principles have
been applied on a consistent basis.
Vancouver, Canada,
January 20, 2000. /s/ Ernst & Young LLP
Chartered Accountants
ERNST & YOUNG
<PAGE>
--------------------------------------------------------------------------------
Nortran Pharmaceuticals Inc.
Incorporated under the laws of British Columbia
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
As at November 30 (expressed in Canadian dollars)
1999 1998
$ $
--------------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents 4,209,003 3,919,564
Short-term investments [notes 3 and 6] 2,575,167 1,364,250
Other receivables and prepaid expenses 258,516 277,260
--------------------------------------------------------------------------------
Total current assets 7,042,686 5,561,074
--------------------------------------------------------------------------------
Capital assets [note 4] 461,576 649,982
Other assets [note 5] 2,359,468 2,597,630
--------------------------------------------------------------------------------
Total assets 9,863,730 8,808,686
--------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 675,542 366,317
Current portion of obligations under capital
leases [note 10] 60,602 73,414
Current portion long-term debt [note 6] 68,829 62,385
--------------------------------------------------------------------------------
Total current liabilities 804,973 502,116
Obligations under capital leases [note 10] 41,145 99,554
Long-term debt [note 6] 50,161 118,435
--------------------------------------------------------------------------------
Total liabilities 896,279 720,105
--------------------------------------------------------------------------------
Shareholders' equity
Share capital [note 7] 25,282,040 19,951,850
Deficit (16,314,589) (11,863,269)
--------------------------------------------------------------------------------
Shareholders' equity 8,967,451 8,088,581
--------------------------------------------------------------------------------
Liabilities and shareholders' equity 9,863,730 8,808,686
--------------------------------------------------------------------------------
Commitments and contingencies [note 10]
See accompanying notes
On behalf of the Board: /s/Bob Rieder /s/Michael Walker
Director Director
ERNST & YOUNG
<PAGE>
--------------------------------------------------------------------------------
Nortran Pharmaceuticals Inc.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
--------------------------------------------------------------------------------
Years ended November 30 (expressed in Canadian dollars)
1999 1998 1997
$ $ $
--------------------------------------------------------------------------------
REVENUE
Interest income 258,395 320,286 106,187
Grant and other revenue [note 8] 191,868 45,576 22,260
--------------------------------------------------------------------------------
450,263 365,862 128,447
--------------------------------------------------------------------------------
EXPENSES
Research and development [note 9] 3,248,775 3,311,362 1,306,147
General and administration 997,890 1,553,337 1,100,747
Amortization 654,918 669,582 470,641
--------------------------------------------------------------------------------
4,901,583 5,534,281 2,877,535
--------------------------------------------------------------------------------
Loss for the year 4,451,320 5,168,419 2,749,088
Deficit, beginning of year 11,863,269 6,694,850 3,945,762
--------------------------------------------------------------------------------
Deficit, end of year 16,314,589 11,863,269 6,694,850
--------------------------------------------------------------------------------
Basic loss per common share 0.16 0.19 0.14
--------------------------------------------------------------------------------
Weighted average number of
common shares 28,331,730 26,780,674 19,546,048
--------------------------------------------------------------------------------
See accompanying notes
<PAGE>
--------------------------------------------------------------------------------
Nortran Pharmaceuticals Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
Years ended November 30 (expressed in Canadian dollars)
1999 1998 1997
$ $ $
--------------------------------------------------------------------------------
OPERATING ACTIVITIES
Loss for the year (4,451,320) (5,168,419) (2,749,088)
Add items not affecting cash
Amortization 654,918 669,582 470,641
Loss on disposal of
capital assets - 4,256 -
Changes in non-cash working capital
Other receivables and prepaid
expenses 18,744 (127,045) (101,380)
Accounts payable and accrued
liabilities 227,062 183,605 (56,520)
--------------------------------------------------------------------------------
Cash used in operating activities (3,550,596) (4,438,021) (2,436,347)
--------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of share capital 5,412,353 2,410,659 9,623,066
Payment on obligations under
capital leases (71,221) (46,776) (34,033)
Increase in long-term debt - 200,000 -
Repayment of long-term debt (61,830) (19,180) -
--------------------------------------------------------------------------------
Cash provided by financing
activities 5,279,302 2,544,703 9,589,033
--------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (60,190) (397,059) (356,673)
Patent costs capitalized (168,160) (139,208) (71,698)
Short-term investments (1,210,917) 5,205,483 (6,569,733)
--------------------------------------------------------------------------------
Cash provided by (used in)
investing activities (1,439,267) 4,669,216 (6,998,104)
--------------------------------------------------------------------------------
Increase in cash during the year 289,439 2,775,898 154,582
Cash and cash equivalents,
beginning of year 3,919,564 1,143,666 989,084
--------------------------------------------------------------------------------
Cash and cash equivalents,
end of year 4,209,003 3,919,564 1,143,666
--------------------------------------------------------------------------------
See accompanying notes
<PAGE>
Page 1
--------------------------------------------------------------------------------
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
November 30, 1999 (expressed in Canadian dollars)
1. NATURE OF OPERATIONS
Nortran Pharmaceuticals Inc. (the "Company") is a drug discovery company engaged
in the treatment of pathologies and conditions which are mediated by cellular
ion channels. The Company's primary focus is the discovery and development of
drugs designed to prevent cardiac arrhythmias and for the treatment of acute
unproductive cough. To date, the Company has not yet determined the ultimate
economic viability of the drugs and has not commenced commercial operations for
its drugs.
The continuation of the Company's research and development activities and the
commercialization of the targeted therapeutic products is dependent upon the
Company's ability to successfully complete its research and development programs
and finance its cash requirements through a combination of equity financings and
payments from potential strategic partners.
2. SIGNIFICANT ACCOUNTING POLICIES
The Company prepares its accounts in accordance with generally accepted
accounting principles ("GAAP") in Canada. A reconciliation of amounts presented
in accordance with United States GAAP is detailed in note 13. The following is
a summary of significant accounting policies used in the preparation of these
consolidated financial statements:
Use of estimates
The preparation of the financial statements in conformity with general accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts recorded in the financial statements. Actual results could
differ from those estimates.
Cash flow statement
The Company has adopted the new recommendations of the Canadian Institute of
Chartered Accountants Handbook for cash flow statements and has restated the
comparative periods to conform to this revised standard. Accordingly, the
Company has redefined cash and cash equivalents and has reclassified non-cash
transactions such as assets under capital leases within the statement of cash
flows.
Consolidation
These consolidated financial statements include the accounts of Nortran
Pharmaceuticals Inc. and its wholly-owned subsidiaries, Rhythm-Search
Developments Ltd. (RSD) and 3629490 Canada Inc.
<PAGE>
Page 2
--------------------------------------------------------------------------------
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
November 30, 1999 (expressed in Canadian dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Financial instruments
For certain of the Company's financial instruments, including cash and cash
equivalents, short-term investments, accounts receivable and accounts payable
and accrued liabilities the carrying amounts approximate fair value due to their
short-term nature. The term loan and the obligations under capital leases bear
interest at rates which, in management's opinion, approximate the current
interest rates and therefore, approximate their fair value.
Foreign currency translation
The Company follows the temporal method of accounting for the translation of
foreign currency amounts into Canadian dollars. Under this method monetary
assets and liabilities in foreign currencies are translated at the exchange
rates in effect at the balance sheet date. All other assets and liabilities are
translated at rates prevailing when the assets were acquired or liabilities
incurred. Income and expense items are translated at the exchange rates in
effect on the date of the transaction. Resulting exchange gains or losses are
included in the determination of loss for the year.
Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of
90 days or less to be cash equivalents. Cash equivalents which comprise
commercial papers, bankers' acceptances and term deposits with an average
interest rate of 4.5% [November 30, 1998 - 4.8%], are stated at cost, which
approximates market value.
Short-term investments
Short-term investments, which comprise mainly commercial papers and term
deposits with maturities to June 2001 [November 30, 1998 - June 2001] and an
average interest rate of 5.02% [November 30, 1998 - 5.06%], are recorded at the
lower of cost and market value. The carrying value of these investments
approximates their market value.
<PAGE>
Page 3
--------------------------------------------------------------------------------
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
November 30, 1999 (expressed in Canadian dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Capital assets
Capital assets are recorded at cost less accumulated amortization. The Company
records amortization of laboratory, computer and office equipment on a
straight-line basis over 3 to 5 years. Leasehold improvements are amortized on
a straight-line basis over the term of the lease plus one renewal period.
Equipment under capital lease is amortized on a straight-line basis over 5
years.
Technology, license and patent costs
The excess of the cost of investment in RSD over the fair value of the net
tangible assets acquired is ascribed to technology. Technology and licenses are
amortized on a straight-line basis over a period of ten years.
The Company capitalizes as patents the costs associated with the preparation,
filing, and obtaining of patents. The cost of the patents is amortized on a
straight-line basis over the estimated useful lives of the patents of ten years.
The amounts shown for technology, license and patent costs do not necessarily
reflect present or future values and the ultimate amount recoverable will be
dependent upon the successful development and commercialization of products
based on these rights. If management determines that such costs exceed
estimated net recoverable value, based on estimated future cash flows, the
excess of such costs are charged to operations.
Government assistance
Government assistance towards current expenses is included in revenue when there
is reasonable assurance that the Company has complied with all conditions
necessary to receive the grants.
Research and development revenues and expenses
Funding under collaborative research arrangements is not refundable, and
accordingly is recorded as research activities are performed under the term of
the arrangement. Research funding towards current expenses is deducted from the
cost of the related expenditure. Research costs are expensed in the period
incurred. Development costs are expensed in the period incurred unless the
Company believes a development project meets generally accepted accounting
criteria for deferral and amortization.
<PAGE>
Page 4
--------------------------------------------------------------------------------
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
November 30, 1999 (expressed in Canadian dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Stock based compensation
The Company grants stock options to executive officers and directors, employees,
consultants and clinical advisory board members pursuant to a stock option plan
described in note 7[e]. No compensation is recognized for these plans when
common shares are awarded or stock options are granted. Any consideration
received on exercise of stock options or the purchase of stock is credited to
share capital. If common shares are repurchased, the excess or deficiency of
the consideration paid over the carrying amount of the common shares cancelled
is charged or credited to contributed surplus or retained earnings.
Income taxes
The Company uses the deferral method in accounting for income taxes.
Loss per common share
Loss per share has been calculated using the weighted average number of common
shares outstanding in each respective period including escrow shares. Fully
diluted loss per share is not presented since the issue of shares upon the
exercise of stock options and warrants would be anti-dilutive.
3. CREDIT FACILITY
At November 30, 1999 the Company has available an unused operating line of
credit of $200,000 [1998 - $200,000] which is collateralized by a cashable
certificate of $200,000 [1998 - $200,000] which is included in short-term
investments.
<PAGE>
Page 5
--------------------------------------------------------------------------------
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
November 30, 1999 (expressed in Canadian dollars)
4. CAPITAL ASSETS
Accumulated Net book
Cost amortization value
$ $ $
--------------------------------------------------------------------------------
1999
Laboratory equipment 380,805 184,143 196,662
Computer equipment 315,964 237,479 78,485
Equipment under capital lease 211,086 73,116 137,970
Office equipment 71,851 29,791 42,060
Leasehold improvements 6,884 485 6,399
--------------------------------------------------------------------------------
986,590 525,014 461,576
--------------------------------------------------------------------------------
1998
Laboratory equipment 318,982 87,598 231,384
Computer equipment 288,819 136,427 152,392
Equipment under capital lease 252,332 52,897 199,435
Office equipment 66,268 15,992 50,276
Leasehold improvements 128,920 112,425 16,495
--------------------------------------------------------------------------------
1,055,321 405,339 649,982
--------------------------------------------------------------------------------
5. OTHER ASSETS
Accumulated Net book
Cost amortization value
$ $ $
--------------------------------------------------------------------------------
1999
Technology 3,396,193 1,613,496 1,782,697
License 105,208 31,561 73,647
Patents 626,309 123,185 503,124
--------------------------------------------------------------------------------
Total 4,127,710 1,768,242 2,359,468
--------------------------------------------------------------------------------
1998
Technology 3,396,193 1,273,877 2,122,316
License 105,208 21,041 84,167
Patents 458,149 67,002 391,147
--------------------------------------------------------------------------------
Total 3,959,550 1,361,920 2,597,630
--------------------------------------------------------------------------------
<PAGE>
Page 6
--------------------------------------------------------------------------------
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
November 30, 1999 (expressed in Canadian dollars)
6. LONG-TERM DEBT
1999 1998
$ $
--------------------------------------------------------------------------------
Promissory note bearing interest at
10.77% per annum, repayable in blended
monthly instalments of $6,468 per month
commencing August 1, 1998 until July 1,
2001
118,990 180,820
Less: current portion 68,829 62,385
--------------------------------------------------------------------------------
50,161 118,435
--------------------------------------------------------------------------------
As collateral, the Company has assigned term deposits with a maturity value of
$200,000 to the lender. Subsequent to November 30, 1999, $100,000 of the
assigned term deposits were released to the Company.
Interest expense during the year ended November 30, 1999 amounted to $15,786
[1998 - $6,692].
Principal amounts of the promissory note repayable over the next two years are
as follows:
$
--------------------------------------------------------------------------------
2000 68,829
2001 50,161
--------------------------------------------------------------------------------
118,990
--------------------------------------------------------------------------------
<PAGE>
Page 7
--------------------------------------------------------------------------------
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
November 30, 1999 (expressed in Canadian dollars)
7. SHARE CAPITAL
a] Authorized
200,000,000 common shares without par value
b] Issued
Number
of shares Amount
# $
--------------------------------------------------------------------------------
Balance, November 30, 1996 15,478,503 7,918,125
Issued for cash upon exercise of options 292,000 221,730
Issued for cash upon exercise of warrants 3,124,096 2,592,891
Issued for cash pursuant to private placements,
net of issuance costs 6,200,000 6,808,445
--------------------------------------------------------------------------------
Balance, November 30, 1997 25,094,599 17,541,191
Issued for cash upon exercise of options 658,700 740,259
Issued for cash upon exercise of warrants 1,920,000 1,670,400
--------------------------------------------------------------------------------
Balance, November 30, 1998 27,673,299 19,951,850
Issued for cash upon exercise of options 5,000 5,000
Issued for cash upon exercise of warrants 939,000 845,100
Issued for cash pursuant to private placements,
net of issuance costs 7,285,643 4,480,090
--------------------------------------------------------------------------------
Balance, November 30, 1999 35,902,942 25,282,040
--------------------------------------------------------------------------------
c] Private placements
On November 18, 1999, the Company completed a private placement of 7,285,643
special warrants at a price of $0.70 each for a total gross proceeds of
$5,099,950. Each special warrant was converted into one common share at no
additional cost. In connection with the private placement, the Company paid a
cash commission of $304,496 and legal and professional fees of $315,364 and
granted 728,564 compensation options to the lead agent of this financing which
were converted into 728,564 share purchase warrants. Each share purchase
warrant entitles the holder to purchase one common share at $0.70 until August
11, 2001. All of these purchase warrants are outstanding as at November 30,
1999.
<PAGE>
Page 8
--------------------------------------------------------------------------------
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
November 30, 1999 (expressed in Canadian dollars)
7. SHARE CAPITAL (cont'd.)
On November 10, 1997, the Company completed a non-brokered private placement of
2,700,000 units at $1.60 per unit for gross proceeds of $4,320,000. Each unit
comprised one common share and 0.3 warrant. Each full warrant entitles the
holder to acquire one common share at $2.00 expiring November 10, 1998, which
was subsequently extended to November 10, 1999. All of these warrants expired
on November 10, 1999.
On June 30, 1997, the Company completed a brokered private placement of
1,000,000 units at $0.72 per unit for gross proceeds of $720,000. Each unit
comprised one common share and one common share purchase warrant. In addition,
the underwriting agent received 100,000 share purchase warrants. Each share
purchase warrant entitled the holder to acquire one common share at $0.72 in the
first year and $0.90 in the subsequent year. Of the 1,100,000 warrants issued,
220,000 were exercised during the 1998 fiscal year and 139,000 were exercised
during the year ended November 30, 1999. The balance of 741,000 expired on June
29, 1999.
On May 9, 1997, the Company completed a non-brokered private placement of
2,500,000 units at $0.72 per unit for gross proceeds of $1,800,000. Each unit
comprised one common share and one common share purchase warrant. Each share
purchase warrant entitled the holder to acquire one common share at $0.72 in the
first year and $0.90 in the subsequent year. Of the 2,500,000 share purchase
warrants issued, 1,700,000 were exercised during the 1998 fiscal year. The
remaining 800,000 were exercised during the year ended November 30, 1999.
d] Share purchase warrants
At November 30, 1999 common share purchase warrants outstanding were as follows:
Number of common shares issuable Exercise price Date of expiry
--------------------------------------------------------------------------------
728,564 $0.70 August 11, 2001
--------------------------------------------------------------------------------
<PAGE>
Page 9
--------------------------------------------------------------------------------
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
November 30, 1999 (expressed in Canadian dollars)
7. SHARE CAPITAL (cont'd.)
e] Stock options
In May 1998, the shareholders approved a stock option plan for which up to four
million common shares can be reserved for issuance to directors, officers,
employees and consultants of the Company. The shares available for issuance
under the stock option plan vest over a period beginning immediately to 5 years.
At November 30, 1999 the Company has 2,683,000 common shares reserved for
issuance under this plan.
At November 30, 1999 stock options to directors, employees and others
outstanding were as follows:
Number of common shares
under option currently exercisable Exercise price Date of expiry
--------------------------------------------------------------------------------
63,000 63,000 $0.63 October 31, 2000
200,000 160,000 $0.70 April 10, 2001
200,000* 200,000 $1.85 April 26, 2001
190,000 190,000 $1.00 July 8, 2001
310,000 310,000 $1.40 April 2, 2002
40,000 40,000 $1.42 April 20, 2002
90,000 90,000 $1.25 May 29, 2002
20,000 20,000 $0.97 January 18, 2003
600,000 240,000 $1.49 March 17, 2003
270,000 195,000 $1.58 June 11, 2004
280,000 210,000 $1.05 October 15, 2004
60,000 - $1.26 January 10, 2005
100,000 20,000 $1.10 February 8, 2004
50,000 - $1.05 February 24, 2005
100,000 50,000 $0.61 October 31, 2002
50,000 50,000 $0.61 October 31, 2004
60,000 - $0.61 October 31, 2005
--------------------------------------------------------------------------------
2,683,000 1,838,000
--------------------------------------------------------------------------------
*During the year ended November 30, 1999 the expiry date relating to 200,000
options was extended from April 26, 1999 to April 26, 2001.
<PAGE>
Page 10
--------------------------------------------------------------------------------
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
November 30, 1999 (expressed in Canadian dollars)
7. SHARE CAPITAL (cont'd.)
Stock options for the respective periods and the number of stock options
outstanding are summarized as follows:
Number of Weighted
common average
shares exercise
under price
option $
--------------------------------------------------------------------------------
Balance, November 30, 1996 828,000 0.78
Options granted 1,230,000 1.32
Options exercised (292,000) 0.76
Options cancelled (70,000) 1.40
--------------------------------------------------------------------------------
Balance, November 30, 1997 1,696,000 1.15
Options granted 1,755,000 1.48
Options exercised (658,700) 1.12
Options cancelled (425,000) 1.67
--------------------------------------------------------------------------------
Balance, November 30, 1998 2,367,300 1.31
Options granted 480,000 0.92
Options exercised (5,000) 1.00
Options cancelled (159,300) 1.21
--------------------------------------------------------------------------------
Balance, November 30, 1999 2,683,000 1.25
--------------------------------------------------------------------------------
The weighted average exercise price of the common shares exercisable at November
30, 1999 is $1.25.
f] Escrow shares
The Company has 1,500,000 common shares held in escrow. The release of these
shares is subject to the approval of regulatory authorities and is based on the
Company's cumulative cash flow. Any shares not released by February 22, 2000
will be cancelled.
g] Commitment to issue shares
Under the terms of a licensing agreement the Company has agreed to issue 200,000
common shares upon the achievement of certain milestones.
<PAGE>
Page 11
--------------------------------------------------------------------------------
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
November 30, 1999 (expressed in Canadian dollars)
8. GRANT AND OTHER REVENUE
1999 1998 1997
$ $ $
--------------------------------------------------------------------------------
OPERATING ACTIVITIES
Grant 45,810 4,234 22,260
Other revenue 146,058 41,342 -
--------------------------------------------------------------------------------
191,868 45,576 22,260
--------------------------------------------------------------------------------
9. RESEARCH AND DEVELOPMENT
Research and development expenses are net of research funding of $336,818 [1998
- $187,425; 1997 - $nil].
10. COMMITMENTS AND CONTINGENCIES
[a] Commitments
Operating leases
The company has entered into a lease agreement for its premises requiring
minimum payments in future periods as follows:
$
--------------------------------------------------------------------------------
2000 238,000
2001 241,000
2002 80,000
--------------------------------------------------------------------------------
559,000
--------------------------------------------------------------------------------
<PAGE>
Page 12
--------------------------------------------------------------------------------
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
November 30, 1999 (expressed in Canadian dollars)
10. COMMITMENTS AND CONTINGENCIES (cont'd.)
Capital leases
Future minimum payments under capital leases together with the balances of the
obligations due under capital leases are as follows:
$
--------------------------------------------------------------------------------
2000 67,665
2001 43,416
--------------------------------------------------------------------------------
Total minimum lease payments 111,081
Less: amount representing interest (from 8.5% to 13.5%) 9,334
--------------------------------------------------------------------------------
101,747
Less: current portion of obligations under capital lease 60,602
--------------------------------------------------------------------------------
Long term portion of obligations under capital lease 41,145
--------------------------------------------------------------------------------
Interest expense during the year ended November 30, 1999 amounted to $11,918
[1998 - $5,771].
Research agreements
The Company has entered into various collaborative research agreements requiring
it to fund research expenditures approximately as follows:
$
--------------------------------------------------------------------------------
2000 320,500
2001 153,500
--------------------------------------------------------------------------------
474,000
--------------------------------------------------------------------------------
License agreements
Pursuant to a license agreement, the Company is responsible for payment of
royalties based on a percentage of revenue, subject to certain minimum annual
royalties.
Pursuant to an agreement, the Company is responsible for payment of $500,000
upon commencement of Phase III clinical trials and a further $2,000,000 upon
filing a New Drug Application in the United States or Canada for the licensed
Nociblocker technology. The agreement expires on the date of expiry of the last
patent relating to certain technology, none of which have been issued to date.
<PAGE>
Page 13
--------------------------------------------------------------------------------
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
November 30, 1999 (expressed in Canadian dollars)
10. COMMITMENTS AND CONTINGENCIES (cont'd.)
[b] Contingencies
Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or
after January 1, 2000, and, if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems failure
which could affect the Company's ability to conduct normal business operations.
It is not possible to be certain that all aspects of the Year 2000 Issue
affecting the Company, including those related to the efforts of customers,
suppliers, or other third parties will be fully resolved.
11. LOSSES AND UNUSED DEDUCTIONS CARRIED FORWARD FOR INCOME TAX PURPOSES
At November 30, 1999, the Company has non-capital losses for income tax purposes
which expire as follows:
$
--------------------------------------------------------------------------------
2000 591,000
2001 178,000
2002 331,000
2003 545,000
2004 1,530,000
2005 2,830,000
2006 2,680,000
--------------------------------------------------------------------------------
8,685,000
--------------------------------------------------------------------------------
The Company also has net timing differences relating primarily to capital
assets, share issue costs and scientific research and experimental development
expenditures of approximately $6,392,000 which may be used to reduce future
income tax. In addition, the Company has approximately $1,360,000 of unclaimed
investment tax credits expiring between 2003 and 2009, which may be used to
reduce future income taxes otherwise payable. The ability of the Company to
utilize the losses and other tax balances carried forward in the future is not
reasonably assured and therefore the benefit has not been recognized in the
financial statements.
<PAGE>
Page 14
--------------------------------------------------------------------------------
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
November 30, 1999 (expressed in Canadian dollars)
12. RELATED PARTY TRANSACTIONS
1999 1998 1997
$ $ $
--------------------------------------------------------------------------------
Paid to companies with a common
director for:
- contract research services 163,954 48,041 -
- administrative consulting
services 6,500 - -
Paid to directors for:
- research consulting services 37,761 - -
- administrative consulting
services 3,500 - -
Paid to a partnership where a
director is a partner for
administrative consulting
services - - 21,000
Accounts payable to directors
and/or companies with a common
director 40,690 - -
--------------------------------------------------------------------------------
All transactions are recorded at their exchange amounts.
13. RECONCILIATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The Company prepares the consolidated financial statements in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP") which as
applied in these consolidated financial statements conform in all material
respects to those accounting principles generally accepted in the United States
("U.S. GAAP"), except as follows:
[a] Under U.S. GAAP, the liability method is used in accounting for income
taxes pursuant to Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" (SFAS 109). SFAS 109 requires recognition of
deferred tax assets and liabilities for the expected future tax consequences
of events that have been included in the financial statements or tax
returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial reporting and tax
bases of assets and liabilities using enacted tax rates that will be in
effect for the year in which the differences are expected to reverse.
For reconciliation to U.S. GAAP purposes, a valuation allowance has been
recognized to offset deferred tax assets totalling approximately $6,800,000
[1998 - $5,700,000] arising from temporary differences, tax credits and
non-capital loss carryforwards, for which realization is uncertain.
<PAGE>
Page 15
--------------------------------------------------------------------------------
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
November 30, 1999 (expressed in Canadian dollars)
13. RECONCILIATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (cont'd.)
Certain of the Company's losses available for carryforward and deductible
temporary differences originated with the Company's 1995 acquisition of RSD.
Accordingly, when realization of these tax benefits becomes more likely than
not, they will be applied to reduce any unamortized intangible balances
recorded on this acquisition to nil before being recognized in earnings
under U.S. GAAP.
[b] Basic earnings per share under U.S. GAAP excludes any dilutive effects of
options, warrants, and escrow shares. Dilutive earnings per share are
calculated in accordance with the treasury stock method and are based on the
weighted average number of common shares and dilutive common share
equivalents outstanding.
[c] For reconciliation purposes to U.S. GAAP the Company has elected to follow
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" (APB25) in accounting for its employee stock options. Under APB
25, because the exercise price of the Company's options for common shares
granted to Employees is not less than the fair market value of the
underlying stock on the date of grant, no compensation expense has been
recognized.
[d] Under US GAAP, stock based compensation to non-employees must be recorded at
the fair market value of the options granted. This compensation, determined
using a Black-Scholes pricing model, is expensed over the vesting periods of
each option grant. For purposes of reconciliation to US GAAP, the Company
would record additional compensation expense of $51,000 in respect of
options granted to non-employees [1998 - 129,000; 1997 - $237,500].
Additional compensation expense of $18,000 will be recorded over future
vesting periods.
The effect of the above on the Company's consolidated financial statements is
set out below:
Statements of loss and deficit
1999 1998 1997
$ $ $
--------------------------------------------------------------------------------
Loss for year Canadian GAAP 4,451,320 5,168,419 2,749,088
Adjustment for stock-based
compensation 51,000 129,000 237,500
--------------------------------------------------------------------------------
Loss and comprehensive loss
for year U.S. GAAP 4,502,320 5,297,419 2,986,588
Deficit, beginning of year,
U.S. GAAP 12,359,519 7,062,100 4,075,512
--------------------------------------------------------------------------------
Deficit, end of year, U.S. GAAP 16,861,839 12,359,519 7,062,100
--------------------------------------------------------------------------------
<PAGE>
Page 16
--------------------------------------------------------------------------------
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
November 30, 1999 (expressed in Canadian dollars)
13. RECONCILIATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (cont'd.)
Loss per share
The following table sets forth the computation of basic and diluted loss per
share under U.S. GAAP:
1999 1998 1997
$ $ $
--------------------------------------------------------------------------------
Numerator
Loss for of the year under U.S. GAAP 4,502,320 5,297,149 2,986,588
--------------------------------------------------------------------------------
Denominator
Weighted average of common
shares outstanding 28,331,730 26,780,674 19,546,048
Escrowed shares (1,500,000) (1,500,000) (1,500,000)
--------------------------------------------------------------------------------
26,831,730 25,280,674 18,046,048
--------------------------------------------------------------------------------
$ $ $
--------------------------------------------------------------------------------
Basic and diluted loss per
share under U.S. GAAP 0.17 0.21 0.17
--------------------------------------------------------------------------------
The Company's common shares issuable upon the exercise of stock options and the
escrowed shares were excluded from the determination of diluted loss per share
as their effect would be anti-dilutive.
Balance sheets
Material variations in balance sheet accounts under U.S. GAAP are as follows:
1999 1998
$ $
--------------------------------------------------------------------------------
Share capital 25,856,290 20,448,100
--------------------------------------------------------------------------------
<PAGE>
Page 17
--------------------------------------------------------------------------------
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
November 30, 1999 (expressed in Canadian dollars)
14. SEGMENTED INFORMATION
The Company operates primarily in one business segment with all of its assets
and operations located in Canada. All of the Company's revenues are generated
in Canada. During the year ended November 30, 1999 in addition to the research
funding as detailed in note 9 which is derived from one entity in Switzerland,
84.6% and 15.4% of other revenue was earned from two major collaborators in
Switzerland and Sweden [1998 - 100% from one collaborator in Switzerland].
15. SUBSEQUENT EVENTS
Subsequent to the year end, options to acquire 15,000 common shares at $1.26 per
share with an expiry date of January 10, 2005 were cancelled.
<PAGE>
Exhibit 3
FORM 61
QUARTERLY REPORT
Incorporated as part of: X Schedule A
---
Schedules B & C
ISSUER DETAILS:
================================================================================
Name of Issuer NORTRAN PHARMACEUTICALS INC.
--------------------------------------------------------------------------------
Issuer Address 3650 Wesbrook Mall
Vancouver, British Columbia
V6S 2L2
--------------------------------------------------------------------------------
Issuer Telephone Number (604) 222 -5577
--------------------------------------------------------------------------------
Contact Person Sheila Grant
--------------------------------------------------------------------------------
Contact's Position Corporate Secretary
--------------------------------------------------------------------------------
Contact Telephone Number (604) 222 -5577
--------------------------------------------------------------------------------
For Quarter Ended February 29, 2000
--------------------------------------------------------------------------------
Date of Report April 26, 2000
================================================================================
CERTIFICATE
THE SCHEDULE(S) REQUIRED TO COMPLETE THIS QUARTERLY REPORT ARE ATTACHED AND THE
DISCLOSURE CONTAINED THEREIN HAS BEEN APPROVED BY THE BOARD OF DIRECTORS. A
COPY OF THIS QUARTERLY REPORT WILL BE PROVIDED TO ANY SHAREHOLDER WHO REQUESTS
IT. PLEASE NOTE THIS FORM IS INCORPORATED AS PART OF BOTH THE REQUIRED FILING
OF SCHEDULE A AND SCHEDULES B & C.
Robert Rieder /s/ Robert Rieder April 26, 2000
--------------------------------------------------------------------------------
Name of Director Sign (typed) Date Signed (YY/MM/DD)
Allen Bain /s/ Allen Bain April 26, 2000
--------------------------------------------------------------------------------
Name of Director Sign (typed) Date Signed (YY/MM/DD)
<PAGE>
NORTRAN PHARMACEUTICALS INC.
Incorporated under the laws of British Columbia
INTERIM CONSOLIDATED BALANCE SHEETS
(unaudited - prepared by management)
(expressed in Canadian Dollars)
As at
----------------------------------------
ASSETS February 29, February 28,
2000 1999
--------------------------------------------------------------------------------
Current
Cash and cash equivalents $ 2,383,864 $ 4,299,259
Short-term investments 3,153,770 200,000
Accounts receivable & prepaid
expenses 250,531 147,854
--------------------------------------------------------------------------------
5,788,165 4,647,113
Capital assets 439,156 595,537
License, patents and technology 2,288,544 2,517,374
--------------------------------------------------------------------------------
$ 8,515,865 $ 7,760,024
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
Current
Accounts payable and accrued
liabilities $ 476,319 $ 133,548
Current portion of obligations
under capital lease 56,391 60,325
Current portion of long-term debt 70,699 46,989
--------------------------------------------------------------------------------
603,409 240,862
Obligation under capital lease 29,816 98,929
Long-term debt 31,770 118,989
--------------------------------------------------------------------------------
Total Liabilities 664,995 458,780
--------------------------------------------------------------------------------
Shareholders' Equity
Share Capital
Authorized
200,000,000 common shares
without par value
Issued
27,673,299 at February 28, 1999
34,417,942 at February 29, 2000 24,239,024 19,951,850
Contributed surplus 1,056,266 -
Deficit (17,444,420) (12,650,606)
--------------------------------------------------------------------------------
7,850,870 7,301,244
--------------------------------------------------------------------------------
$ 8,515,865 $ 7,760,024
================================================================================
On behalf of the Board:
/s/ Robert Rieder /s/ Allen Bain
-------------------------------------- --------------------------------------
Robert Rieder, Director Allen Bain, Director
<PAGE>
NORTRAN PHARMACEUTICALS INC.
INTERIM CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
(unaudited - prepared by management)
(expressed in Canadian Dollars)
For the Three Months ended
-------------------------------
February 29, February 28,
2000 1999
--------------------------------------------------------------------------------
Revenue
Interest income $ 77,899 $ 55,996
Grant revenue and other 93,994 101,134
--------------------------------------------------------------------------------
171,893 157,130
--------------------------------------------------------------------------------
Expenses
Research and development 860,256 585,101
General and administration 307,807 194,888
Amortization 133,661 164,478
--------------------------------------------------------------------------------
1,301,724 944,467
--------------------------------------------------------------------------------
Net loss for the period 1,129,831 787,337
Deficit, beginning of period 16,314,589 11,863,269
--------------------------------------------------------------------------------
Deficit, end of period $ 17,444,420 $ 12,650,606
================================================================================
Net loss per common share $ 0.03 $ 0.03
================================================================================
Weighted average number of
outstanding shares 35,407,992 27,673,299
================================================================================
<PAGE>
NORTRAN PHARMACEUTICALS INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited - prepared by management)
(expressed in Canadian Dollars)
For the Three Months ended
-------------------------------
February 29, February 28,
2000 1999
--------------------------------------------------------------------------------
Operating Activities
Loss for the period $ (1,129,831) $ (787,337)
Add items not affecting cash
Amortization 133,661 164,478
--------------------------------------------------------------------------------
(996,170) (622,859)
Changes in non-cash working capital
components
Accounts receivable and prepaid expenses 7,985 129,406
Accounts payable and accrued liabilities (199,223) (232,769)
--------------------------------------------------------------------------------
Cash used in operating activities (1,187,408) (726,222)
--------------------------------------------------------------------------------
Financing Activities
Share capital issued, net 13,250 -
Repayment on obligations under
capital leases (15,540) (13,714)
Repayment on long-term debt (16,521) (14,842)
--------------------------------------------------------------------------------
Cash used in financing activities (18,811) (28,556)
--------------------------------------------------------------------------------
Investing Activities
Purchase of capital assets (7,221) (10,562)
License and patents (33,096) (19,215)
Short-term investments (578,603) 964,250
--------------------------------------------------------------------------------
Cash provided by (used in)
investing activities (618,920) 934,473
--------------------------------------------------------------------------------
Increase (decrease) in cash during
the period (1,825,139) 179,695
--------------------------------------------------------------------------------
Cash and cash equivalents,
beginning of period 4,209,003 4,119,564
--------------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 2,383,864 $ 4,299,259
================================================================================
<PAGE>
FORM 61
QUARTERLY REPORT
Incorporated as part of: Schedule A
X Schedules B & C
---
ISSUER DETAILS:
================================================================================
Name of Issuer NORTRAN PHARMACEUTICALS INC.
--------------------------------------------------------------------------------
Issuer Address 3650 Wesbrook Mall
Vancouver, British Columbia
V6S 2L2
--------------------------------------------------------------------------------
Issuer Telephone Number (604) 222 -5577
--------------------------------------------------------------------------------
Contact Person Sheila Grant
--------------------------------------------------------------------------------
Contact's Position Corporate Secretary
--------------------------------------------------------------------------------
Contact Telephone Number (604) 222 -5577
--------------------------------------------------------------------------------
For Quarter Ended February 29, 2000
--------------------------------------------------------------------------------
Date of Report April 26, 2000
================================================================================
CERTIFICATE
THE SCHEDULE(S) REQUIRED TO COMPLETE THIS QUARTERLY REPORT ARE ATTACHED AND THE
DISCLOSURE CONTAINED THEREIN HAS BEEN APPROVED BY THE BOARD OF DIRECTORS. A
COPY OF THIS QUARTERLY REPORT WILL BE PROVIDED TO ANY SHAREHOLDER WHO REQUESTS
IT. PLEASE NOTE THIS FORM IS INCORPORATED AS PART OF BOTH THE REQUIRED FILING
OF SCHEDULE A AND SCHEDULES B & C.
Robert Rieder /s/ Robert Rieder April 26, 2000
--------------------------------------------------------------------------------
Name of Director Sign (typed) Date Signed (YY/MM/DD)
Allen Bain /s/ Allen Bain April 26, 2000
--------------------------------------------------------------------------------
Name of Director Sign (typed) Date Signed (YY/MM/DD)
<PAGE>
NORTRAN PHARMACEUTICALS INC.
SCHEDULE B: SUPPLEMENTAL INFORMATION
FEBRUARY 29,2000
--------------------------------------------------------------------------------
1 For the quarter ended February 29, 2000:
a) Deferred costs
--------------------------------------------------------------------------------
Patents $ 33,096
================================================================================
b) Research and development expenditures
--------------------------------------------------------------------------------
Consulting and other $ 88,754
Lab supplies and operating facility 207,615
Salaries and benefits 314,829
Research agreements 139,550
Development contracts 109,506
--------------------------------------------------------------------------------
$ 860,254
================================================================================
c) General and administration expenditures
--------------------------------------------------------------------------------
Consulting and professional fees $ 47,836
Office and miscellaneous 92,432
Salaries and benefits 119,647
Travel and other 47,892
--------------------------------------------------------------------------------
$ 307,807
================================================================================
d) Aggregate amount of expenditures made to parties not at arm's length from
the issuer
--------------------------------------------------------------------------------
Research contract fees paid to directors $ 27,072
Administrative consulting fees paid to directors 2,000
Research contract fees paid to a company with directors in common 3,922
--------------------------------------------------------------------------------
$ 32,994
================================================================================
<PAGE>
NORTRAN PHARMACEUTICALS INC.
SCHEDULE B: SUPPLEMENTAL INFORMATION
FEBRUARY 29,2000
--------------------------------------------------------------------------------
2 For the quarter ended February 29, 2000:
a) Summary of securities issued during the quarter
--------------------------------------------------------------------------------
Date of Type of Number of Price Total Type of Commission
Issue Security Shares Proceeds Consideration Paid
--------------------------------------------------------------------------------
Feb 24, 2000 Common Share 5,000 $0.97 $4,850 Cash Nil
Feb 24, 2000 Common Share 5,000 $1.05 $5,250 Cash Nil
Feb 24, 2000 Common Sham 5,000 $0.63 $3,150 Cash Nil
--------------------------------------------------------------------------------
15,000
================================================================================
b) Summary of options granted during the quarter
Date Name of Optionee Number of Exercise Price Expiry Date
Granted Shares $
--------------------------------------------------------------------------------
Feb 14,2000 Michael Midmer 30,000 1.05 Feb 13, 2006
Feb 14, 2000 Xue Zhang 15,000 1.05 Feb 13, 2006
Feb 14,2000 Desiree Ferdinandi 10,000 1.05 Feb 13, 2006
Feb 14, 2000 Stanley Nattel 50,000 1.05 Feb 13, 2006
Feb 14,2000 Kapil Bhagirath 10,000 1.05 Feb 13, 2006
Feb 14, 2000 Sandro Yong 15,000 1.05 Feb 13, 2006
--------------------------------------------------------------------------------
Total 130,000
================================================================================
3 As at February 29,2000:
a) Authorized capital and summary of shares issued and outstanding
Authorized Capital
200,000,000 common shares without par value
Number of Amount
Issued and Outstanding Shares $
--------------------------------------------------------------------------------
Balance as at November 30,1999 35,902,942 25,282,040
Returned for cancellation of escrow shares (1,150,000) (1,056,266)
<PAGE>
NORTRAN PHARMACEUTICALS INC.
SCHEDULE B: SUPPLEMENTAL INFORMATION
FEBRUARY 29,2000
--------------------------------------------------------------------------------
Issued for cash upon exercise of options 15,000 13,250
--------------------------------------------------------------------------------
Balance as February 29, 2000 34,417,942 24,239,024
================================================================================
3 As at February 29,2000:
b) Summary of options, warrants and convertible securities outstanding
i) Share Purchase Warrant Outstanding
--------------------------------------------------------------------------------
Number of Exercise Price Expiry Date
Shares $
--------------------------------------------------------------------------------
728,564 $0.70 August 11, 2001
================================================================================
ii) Stock Option Outstanding
--------------------------------------------------------------------------------
Number of Exercise Price Expiry Date
Shares $
--------------------------------------------------------------------------------
58,000 0.63 Oct 31, 2000
200,000 0.70 Apr 10, 2001
200,000 1.85 Apr 26, 2001
190,000 1.00 Jul 08, 2001
310,000 1.40 Apr 02, 2002
40,000 1.42 Apr 20, 2002
90,000 1.25 May 29, 2002
15,000 0.97 Jan 18, 2003
600,000 1.49 Mar 17, 2003
270,000 1.58 Jun 11, 2004
275,000 1.05 Oct 15, 2004
45,000 1.26 Jan 10, 2005
100,000 1.10 Feb 08, 2004
50,000 1.05 Feb 24, 2005
100,000 0.61 Oct 31, 2002
50,000 0.61 Oct 31, 2004
60,000 0.61 Oct 31, 2005
130,000 1.05 Feb 13, 2006
--------------------------------------------------------------------------------
2,783,000
================================================================================
<PAGE>
NORTRAN PHARMACEUTICALS INC.
SCHEDULE B: SUPPLEMENTAL INFORMATION
FEBRUARY 29,2000
--------------------------------------------------------------------------------
3 As at February 29,2000:
c) Number of shams in escrow or subject to a pooling agreement
None. The 1,500,000 common shares previously held in escrow were cancelled
upon the expiry date of the escrow share agreement on February 22, 2000.
d) List of Directors:
Dr. Michael J.A. Walker Dr. Allen Bain
Colin Mallet Dr. Clive Page
Robert W. Rieder Oh Kim Sun
Darrell Elliott
<PAGE>
NORTRAN PHARMACEUTICALS INC.
SCHEDULE C: MANAGEMENT DISCUSSION
FEBRUARY 29,2000
--------------------------------------------------------------------------------
CLINICAL DEVELOPMENT
Cough Project (CP1)
------------------
CP 1, the Company's first generation cough drug is a non-narcotic drug for the
treatment of intractable cough. The Phase I clinical trial of CPI was
successfully completed in October 1999. The trial, conducted in Edinburgh,
Scotland by Inveresk Research International Limited, on 31 healthy male
volunteers, showed that CP I, is safe beyond the normal dosage limits at which
drug would be administered. Subsequent to February 29, 2000, the Company started
a placebo-controlled Phase R clinical trial of CP I in patients with chronic,
idiopathic cough
Idiopathic cough is a sustained cough with no diagnosable cause. Patients
suffering from idiopathic cough have a heightened sensitivity to cough-irritants
such as airborne particles, cold air or other changes in air qualities. As a
result these patients often cough without apparent reason. Nortran's Phase R
study is focused on determining if Nortran's anti-tussive compound, CPI, can
reduce patient sensitivity to such cough-causing irritants.
PRECLINICAL DEVELOPMENT
Antiarrhythmic Project
----------------------
During the quarter ended February 29, 2000, the Company continued to add to the
pre-clinical data compiled for the atrial antiarrhythmic program. In this
program, Nortran has developed candidates suitable for clinical testing as
treatments for atrial arrhythmias. Nortran has shown in its preclinical studies
that its drug candidates are both safe and effective in the suppression of such
atrial arrhythmia, with less risk of the dangerous side effects associated with
current drugs. This progress has led to collaborative research agreements with
Aventis Pharma ("Aventis", formerly Hoechst Marion Roussel Deutschland GmbH) and
AstraZeneca ("Astra", formerly Astra Hassle AB of Goteberg).
Other Projects
--------------
The Company continued to make progress in two additional areas of research, the
pro-erectile and the RSD921 local anaesthetic project.
COLLABORATIONS
in August 1999, Nortan announced the signing of a collaborative agreement with
Aventis to conduct collaborative research in the area of cardiac arrhythmias.
Under the terms of the agreement both parties will test antiarrhythmic compounds
developed by each of the companies. The companies will evaluate the
pharmacological profiles of their compounds through the use of both companies'
proprietary electrophysiological models and other pre-clinical tests. The
agreement expires on the earlier of April 2000 or completion of work program by
both parties.
<PAGE>
NORTRAN PHARMACEUTICALS INC.
SCHEDULE C: MANAGEMENT DISCUSSION
FEBRUARY 29,2000
--------------------------------------------------------------------------------
In November 1998, Nortran entered into a collaborative research agreement with
Astra. This collaboration continues, with significant progress by both parties
to date.
FINANCIAL HIGHLIGHTS
RESULTS OF OPERATIONS
For the quarter ended February 29, 2000, the Company incurred a net loss of
$1.13 million (or $0.03 per share) as compared to $790,000 (Or $0.03 per share)
for quarter ended February 28, 1999. The increase in loss was primarily due to
the higher operating expenditure in both the research and development and
general administration.
Total revenue for the quarter ended February 29, 2000 was $172,000 as compared
to $157,000 for the same quarter in the preceding fiscal year. The increase in
revenue was due to the additional interest generated from the Company's
increased cash resources after the successful completion of a financing in
November 1999 (see Special Warrant Financing).
Research and development expenses totaled $860,000 million for the quarter ended
February 29, 2000 as compared to $585,000 for the same quarter during the
preceding fiscal year. The increase in research and development expenses was
primarily due to the lower research expenditure recovery received in the quarter
ended February 29, 2000. The research expenditure recovery for the quarter ended
February 29, 2000 was $Nil as compared to $191,000 for the same quarter in the
preceding fiscal year. The amount recovered in 1999 was from F. Hoffmann-La
Roche ("Roche'), under a previous collaborative research agreement between the
Company and Roche.
General and administration expenses increased to $308,000 for the quarter ended
February 29, 2000 as compared to $195,000 for the same quarter in the preceding
fiscal year. The increase in general administration expenses is primarily due to
the higher consulting and professional fees, office and miscellaneous, and
travel and accommodation expenses incurred.
LIQUIDITY AND CAPITAL RESOURCES
The Company's activities during the quarter ended February 29, 2000 were
financed primarily by its working capital carried forward from the previous
fiscal year and net proceeds collected from the private placement described
under the Special Warrant Financing. Working capital as at February 29, 2000 was
$5.185 million as compared to $4.406 million as at February 28, 1999. Cash and
cash equivalents and short-term investments was $5.538 million as at February
29, 2000 as compared to $4.499 million as at February 28, 1999.
SPECIAL WARRANT FINANCING
On November 18, 1999, the Company completed a private placement of 7,285,643
special warrants (the "Special Warrants') at a price of $0.70 each for total
gross proceeds of S5.1 million. In connection with the private placement, the
Company paid a cash commission of $304,496 and granted 728,564 compensation
options (the "Compensation Options") to the lead agent of this financing,
National Bank Financial Corp. (the "Agent", formerly First Marathon Securities
Limited). The net proceeds from this financing will be used to support the
<PAGE>
NORTRAN PHARMACEUTICALS INC
SCHEDULE C: MANAGEMENT DISCUSSION
FEBRUARY 29,2000
--------------------------------------------------------------------------------
Company's on going research and development, primarily in the areas of
antiarrhythmic drugs and acute cough suppressants, and general corporate
purposes.
Each Special Warrant was converted into one common share of the Company, without
additional payment Each Compensation Option was converted into one share
purchase warrant (the "Agent's Warrant") at no additional cost Each Agent's
Warrant entitles the Agent to purchase once common share of the Company at $0.70
per share until August 11, 2001.
CORPORATE STRATEGY
Nortran Pharmaceuticals Inc. is a commercially focused pharmaceutical company
built around a proven approach to drug discovery, a low-risk business strategy,
and a focus on major unmet medical needs via expertise in the area of ion
channels. The company's lead programs are in the area of cardiac arrhythmia
drugs and acute unproductive cough.
PARTNERING STRATEGY
Nortran's strength lies in the ability of its personnel to research and develop
potential drug candidates to the stage where such compounds demonstrate
sufficient potential to warrant the undertaking of clinical trials. As part of
its business strategy, the Company is seeking collaborative partners with
experience in the development and marketing of drugs in the relevant therapeutic
areas. The intention is to select partners with both the human and financial
resources to spearhead the clinical development of the Company's products as
required by the Food and Drug Administration (FDA), the Health Protection Branch
(HPB) mid other international drug regulatory agencies. These partners would
also be expected to market the products.
The rationale behind this strategy can be outlined as below
- avoid the large expenses incurred in the later stages of clinical development
- obtain early returns in the form of upfront and milestone payments
- utilize expertise and resources of major multinational pharmaceutical company
- obtain long term revenue streams through royalty payments on product sales.
The Company has no plans for developing in-house marketing or manufacturing
capabilities.
<PAGE>
NORTRAN PHARMACEUTICALS INC.
SCHEDULE C: MANAGEMENT DISCUSSION
FEBRUARY 29,2000
--------------------------------------------------------------------------------
INVESTOR RELATIONS
During the first quarter ended February 29, 2000 the Company did not engage any
outside parties for investor relations. Any investor relations functions were
accomplished through Company employees whose duties include; news releases,
investor communications and general day-to-day operations of this department.
YEAR 2000
The Company initiated a program in 1998 to assess the risks of Year 2000
noncompliance, remediate all noncompliant systems, assess the readiness of key
third parties and develop contingency plans. The critical aspects of the Year
2000 readiness program were completed in the third quarter of 1999. The Company
has not experienced any significant business interruptions related to the
transition to the Year 2000, however, the Company continues to actively monitor
its systems and third party suppliers. Contingency plans are in place to prevent
the failure of critical systems from having a material effect on the Company and
address the risk of third party non-compliance. Total costs to address the Year
2000 issue were not material to the Company's financial position, results of
operations or cashflows.
STOCK LISTING
The Company's common shares trade on the Vancouver Stock Exchange under the
symbol NRT and over the counter in the United States under the trading symbol
NTRDF.
CORPORATE COMMUNICATIONS
3650 Wesbrook Mall
Vancouver, British Columbia
V6S 2L2
Toll Free: (800) 330-9928
Tel: (604) 222-5577
Fax: (604) 222-6617
E-mail: [email protected]
This Quarterly Report, including the discussion 'Highlights" contains
forward-looking statements. All such forward-looking statements are, by
necessity, only estimates of future results and actual results achieved by the
company may differ materially from these statements due to a number of factors,
including (i) the company's ability to successfully complete pre-clinical and
clinical development of its products, (ii) the company's ability to complete
corporate alliances relating to the development and commercialization of its
technologies and products, (iii) decisions and the timing of decisions made by
health regulatory agencies regarding approval of the company's products, (iv)
the company's ability to obtain timely patent and other intellectual property
protection for its technologies and products, (v) the accuracy of the company's
information regarding competitors and potential competitors. These
forward-looking statements represents the company's judgment as of the date of
this Quarterly Report and the company assumes no obligation to update these
forward-looking statements to reflect actual results or changes in factors
affecting such statements.
<PAGE>
Nortran Pharmaceuticals Inc.
3650 Wesbrook Mall, Vancouver, BC, Canada. V6S 2L2
Tel: (604) 222-5577 Fax: (604) 222-6617
--------------------------------------------------------------------------------
April 27, 2000
VIA SEDAR
---------
British Columbia Securities Commission
1100 - 865 Hornby Street
Vancouver BC
V6Z 2H4
Attention: Statutory Filings
----------------------------
Dear Sir/Madame:
Re: Nortran Pharmaceuticals Inc. (the "Company")
------------------------------------------------
We confirm that a copy of the Company's quarterly report on Form 61 for the
quarter ended February 29, 2000 has been mailed to each of the persons listed on
the Company's mailing list maintained in accordance with National Policy 41.
If you have any questions, please contact the undersigned.
Please acknowledge receipt of this letter via SEDAR at your earliest
convenience.
Yours truly,
Nortran Pharmaceuticals Inc.
/s/ Sheila Grant
Sheila Grant
Director of Finance and Administration
cc: Canadian Venture Exchange
<PAGE>
Exhibit 4
NORTRAN PHARMACEUTICALS INC.
3650 Wesbrook Mall, Vancouver, BC, V6S 2L2
Tel: (604) 222-5577 Fax: (604) 222-6617
INFORMATION CIRCULAR
as at and dated April 10, 2000
MANAGEMENT SOLICITATION OF PROXIES
----------------------------------
This information circular is furnished in connection with the solicitation of
proxies by the management of Nortran Pharmaceuticals Inc. (the "Company") for
use at the annual general meeting (the "Meeting") of the shareholders of the
Company to be held at the Four Seasons Hotel, Vancouver, British Columbia at the
hour of 2:00 p.m. (Vancouver time) on Thursday, May 25, 2000 and at any
adjournment thereof, for the purposes set forth in the accompanying Notice of
Annual General Meeting (the "Notice of Meeting").
PROXIES
-------
Appointment of Proxies
----------------------
The persons named in the enclosed Form of Proxy (the "Proxy") are nominees of
the Company's management. A shareholder wishing to appoint a person (who need
not be a shareholder) to attend and act for him on his behalf at the Meeting,
other than the persons designated as proxyholders in the enclosed Proxy, may do
so by striking out the printed names and inserting the name of such other person
in the blank space provided in the Proxy or by completing another proper form of
proxy. The completed Proxy or other proper form of proxy must be delivered or
telefaxed to Pacific Corporate Trust Company, 830 - 625 Howe Street, Vancouver,
British Columbia, V6C 3B8 (telefax: (604) 689-8144), not later than 48 hours
(excluding Saturdays, Sundays and holidays) before the time for holding the
Meeting or to the Chairman of the Meeting prior to the commencement of the
Meeting.
Revocation of Proxies
---------------------
A shareholder who has given a Proxy may revoke it at any time before it is
exercised by an instrument in writing (a) executed by the shareholder or by his
attorney authorized in writing, or, where the shareholder is a corporation, by a
duly authorized officer or attorney of the corporation; and (b) delivered or
telefaxed to Pacific Corporate Trust Company, 830 - 625 Howe Street, Vancouver,
British Columbia, V6C 3B8 (telefax: (604) 689-8144), at any time up to and
including the last business day preceding the day of the Meeting, or any
adjournment thereof, or to the Chairman of the Meeting on the day of the Meeting
or any adjournment thereof, before any vote in respect of which the Proxy is to
be used shall have been taken, or in any other manner provided by law.
Attendance at the Meeting and participation in a poll by a shareholder will
automatically revoke the Proxy.
Voting of Proxies and Exercise of Discretion By Proxyholders
------------------------------------------------------------
If the instructions as to voting indicated in the Proxy are certain, the shares
represented by the Proxy will be voted on any poll and where a choice with
respect to any matter to be acted upon has been specified in the Proxy, the
shares will be voted on any poll in accordance with the specification so made.
IF A CHOICE IS NOT SO SPECIFIED, IT IS INTENDED THAT THE PERSON DESIGNATED BY
MANAGEMENT IN THE ACCOMPANYING PROXY WILL VOTE THE SHARES REPRESENTED BY THE
PROXY IN FAVOUR OF EACH MATTER IDENTIFIED ON THE PROXY.
<PAGE>
Page 2
The Proxy confers discretionary authority upon the persons named therein with
respect to amendments or variations to any matters identified in the Notice of
Meeting and with respect to other matters which may properly come before the
Meeting. At the date of this Information Circular, management of the Company
knows of no such amendments, variations, or other matters to come before this
Meeting.
Solicitation of Proxies
-----------------------
Solicitations of proxies will be made by mail and may be supplemented by
telephone or other personal contact to be made without special compensation by
regular officers and employees of the Company. The Company may reimburse
shareholders' nominees or agents (including brokerage houses holding shares on
behalf of clients) for the cost incurred in obtaining their authorization to
execute forms of proxy. The cost of solicitation will be borne by the Company.
VOTING SHARES AND PRINCIPAL HOLDERS THEREOF
-------------------------------------------
The authorized capital of the Company as at April 10, 2000 consists of
200,000,000 Common Shares without par value, of which 35,204,506 Common Shares
are issued and outstanding.
Only the holders of Common Shares of record on April 10, 2000 are entitled to
vote at the Meeting. At the Meeting, on a show of hands, every shareholder
present in person and entitled to vote shall have one vote, and on a poll, every
shareholder present in person or represented by Proxy and entitled to vote shall
have one vote for each Common Share he or she holds on April 10, 2000.
In order to have a quorum for the Meeting, there must be in attendance at least
one member, or one proxyholder representing members, holding not less than
one-twentieth of the issued shares entitled to be voted at the Meeting.
To the knowledge of the Directors and senior officers of the Company, no person
beneficially owns, directly or indirectly, or exercises control or direction
over, shares carrying more than 10% of the voting rights attached to all shares
of the Company, except as follows:
--------------------------------------------------------------------------------
Percentage of Issued and
Name of Member Number of Shares Outstanding Shares
--------------------------------------------------------------------------------
CCM Investments Ltd. 5,604,386 15.9%
--------------------------------------------------------------------------------
RECEIPT OF DIRECTORS' REPORT AND FINANCIAL STATEMENTS
-----------------------------------------------------
The Directors' Report to the shareholders of the Company, the financial
statements of the Company for the financial year ended November 30, 1999 and the
auditor's report thereon will be presented at the Meeting.
APPOINTMENT OF AUDITORS
-----------------------
The persons named in the Proxy will vote for the re-appointment of Ernst & Young
LLP, Chartered Accountants, as Auditors for the Company to hold office until the
next annual general meeting of the shareholders, at a remuneration to be fixed
by the Directors. Ernst & Young LLP were first appointed Auditors of the
Company on April 11, 1997.
<PAGE>
Page 3
SETTING NUMBER OF DIRECTORS
---------------------------
The shareholders of the Company will be asked to vote for setting the number of
directors of the Company at seven. The shareholders will be requested at the
Meeting to pass the following ordinary resolution:
"BE IT RESOLVED, AS AN ORDINARY RESOLUTION, WITH OR WITHOUT AMENDMENT,
THAT the number of directors of the Company be set at seven."
ELECTION OF DIRECTORS
---------------------
Management proposes to nominate the persons named in the following table for
election as Directors of the Company. Each Director elected will hold office
until the next annual general meeting or until his successor is duly elected or
appointed, unless his office is earlier vacated in accordance with the Articles
of the Company or he becomes disqualified to act as a Director.
The following table sets out the names of the nominees for election as
Directors, the city in which each is ordinarily resident, all offices of the
Company now held by each of them, their principal occupations, the period of
time for which each has been a Director of the Company, and the number of Common
Shares of the Company beneficially owned by each of them, directly or
indirectly, or over which control or direction is exercised, as at the date
hereof.
Name, City of
Residence and Principal Year First
Position with the Occupation Appointed as Common
Company (1) or Employment(1) Director Shares Owned(1)
--------------------------------------------------------------------------------
Robert W. Rieder President and Chief 1997 81,100
Vancouver, 1997 to present; Vice-
British Columbia President, MDS Ventures
Director, President Pacific Inc., 1994 to
and Chief Executive 1997.
Officer
--------------------------------------------------------------------------------
Michael J.A. Walker(3) Professor of Pharmacology, 1992 2,717,600(5)
Vancouver, University of British
British Columbia Columbia.
Director and Chairman
of the Board
--------------------------------------------------------------------------------
Allen I. Bain(4) President and Chief 1996 13,700(5)
Vancouver, Executive Officer of
British Columbia Immune Network Research;
Director Former President of the
Company.
--------------------------------------------------------------------------------
Clive P. Page (2)(3) Professor of Pharmacology, 1996 nil(5)
London, England King's College, London,
Director England.
--------------------------------------------------------------------------------
Colin R. Mallet(2)(3)(4) Consultant; Former 1996 nil
Whistler, President, Sandoz Canada.
British Columbia
Director
--------------------------------------------------------------------------------
<PAGE>
Page 4
Name, City of
Residence and Principal Year First
Position with the Occupation Appointed as Common
Company (1) or Employment(1) Director Shares Owned(1)
--------------------------------------------------------------------------------
Oh Kim Sun (2) Group Executive Director, 1997 5,604,386(6)
Kuala Lumpur, Chemical Company of Malaysia
Malaysia Group of Companies.
Director
--------------------------------------------------------------------------------
Darrell Elliott(4) Senior Vice-President, 1999 nil
North Vancouver, MDS Capital Corporation and
British Columbia President, MDS Ventures
Director Pacific Inc.; Former
President, Isuma Strategies
Inc.; Former Regional Vice-
President, Royal Bank
Capital Corporation.
--------------------------------------------------------------------------------
(1) The information as to city of residence, principal occupation and Common
Shares beneficially owned or over which a Director exercises control or
direction, not being within the knowledge of the Company, has been
furnished by the respective Directors individually.
(2) Members of the Audit Committee.
(3) Members of the Compensation Committee.
(4) Members of the Corporate Governance Committee.
(5) Magic Bullets Enterprises Ltd., owns 2,717,600 common shares of the
Company. Magic Bullets Enterprises Ltd. is a wholly-owned subsidiary of
554238 B.C. Ltd., of which Drs. Walker, Page and Bain are directors,
officers and shareholders.
(6) Mr. Oh Kim Sun, a director of the Company, is also an indirect shareholder
and the Group Executive Director of the Chemical Company of Malaysia Berhad
Group, the parent company of CCM Investments Ltd.
PARTICULARS OF OTHER MATTERS TO BE ACTED UPON
---------------------------------------------
Future Financings - The Toronto Stock Exchange
----------------------------------------------
In anticipation that the company may list on the Toronto Stock Exchange ("TSE"),
it is desirable to pre-arrange compliance with TSE policies. The policies of
the TSE provide that the aggregate number of shares of a listed company which
are issued or made subject to issuance by way of one or more private placements
during any particular six month period must not exceed 25% of the number of
shares outstanding (on a non-diluted basis) prior to giving effect to such
private placements (the "25% Rule"). The application of the 25% Rule may
restrict the Company's ability to raise funds by the private placement of its
securities.
The TSE has advised that it will accept advance approval by the shareholders of
the Company in anticipation of private placements that may exceed the 25% Rule,
provided such private placements are completed within 12 months of the date such
advance shareholder approval is given. By giving the advance approval,
shareholders would only be satisfying the shareholder approval requirement of
the TSE. Each private placement would still remain subject to TSE approval.
Any private placement proposed by the Company will be subject to the following
additional restrictions:
(i) the private placement must be substantially with parties at arms-length
to the Company;
(ii) the private placement cannot materially affect control of the Company;
(iii) the private placement must be completed within a 12 month period
following the date the advance shareholder approval is given; and
(iv) the private placement must comply with the private placement pricing
rules of the TSE, which currently require that the price per security
must not be lower than the closing market price of the security on the
TSE on the trading day prior to the date notice of the private
placement is given to the TSE less the applicable discount. Maximum
permissible discounts are as follows:
<PAGE>
Page 5
Maximum Discount
Market Price Therefrom
---------------------------------------------------------
$0.50 or less 25%
$0.51 to $2.00 20%
Above $2.00 15%
The TSE retains the discretion to decide whether a particular placement is
"substantially" at arms length or will materially affect control, in which case
specific shareholder approval may be required.
The directors of the Company believe that the passing of the ordinary resolution
is in the best interests of the Company and recommend that members vote in
favour of the resolution. In the event that the resolution is not passed, the
TSE will not approve any private placements which result in the issuance or
possible issuance of a number of securities which exceeds the 25% Rule, without
specific shareholder approval. Such restriction could impede the Company's
timely access to required funds.
In anticipation that the Company may need to enter into one or more private
placements in the next 12 months that will exceed the 25% Rule, the Company
requests that the shareholders pass the following resolution:
"BE IT RESOLVED, AS AN ORDINARY RESOLUTION, WITH OR WITHOUT AMENDMENT, THAT
the issuance by the Company in one or more private placements of such number
of securities that would result in the Company issuing or making issuable a
number of common shares aggregating greater than 25% of the Company's issued
and outstanding common shares (on a non-diluted basis), to a maximum of 100%
of the Company's issued and outstanding shares (on a non-diluted basis),
subject to the restrictions described in the Information Circular of the
Company dated April 10, 2000, is hereby approved."
STATEMENT OF EXECUTIVE COMPENSATION
-----------------------------------
Chief Executive Officer and Executive Officers of the Company
-------------------------------------------------------------
For purposes of this section, "executive officer" of the Company means an
individual who at any time during the year was the Chairman or a Vice-Chairman
of the Board, where such person performed the functions of such office on a
full-time basis; the President; any Vice-President in charge of a principal
business unit such as sales, finance or production; any officer of the Company
or any of its subsidiaries; and any other person who performed a policy-making
function in respect of the Company, whether or not the individual was also a
Director of the Company or any of its subsidiaries.
The following information discloses compensation paid to:
(a) an individual who served as the Company's chief executive officer ("CEO"),
or acted in a similar capacity, during the most recently completed
financial year of the Company; and
(b) each of the Company's four most highly compensated executive officers who
served as executive officers during the most recently completed financial
year of the Company and whose total salary and bonus exceeds $100,000 per
year.
(each, a "Named Executive Officer").
During the financial year ended November 30, 1999, the Company had two Named
Executive Officers - Robert W. Rieder and Gregory N. Beatch.
<PAGE>
Page 6
Summary of Compensation
-----------------------
The following table is a summary of the compensation earned by the Named
Executive Officers during the three most recently completed financial years of
the Company.
SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
Awards Payouts
Securities Restricted
Other Under Shares or All
Name and Year Annual Options/ Restricted Other
Principal Ended Compen- SARs(1) Share LTIP(2) Compen-
Position Nov. 30 Salary Bonus sation granted Units Payouts sation
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert W. 1999 $200,000 - - - - - -
Rieder
President 1998 $125,000 - $2,500(3) 600,000 - - -
and Chief
Executive
Officer 1997 - - - 100,000 - - -
-------------------------------------------------------------------------------------------------------
Gregory N. 1999 $125,000 - - - - - -
Beatch
Vice-President
Research 1998 $101,000 - - 70,000 - - 7,400
1997 $ 65,863 $ 15,000 - 60,000 - - -
-------------------------------------------------------------------------------------------------------
</TABLE>
(1) All securities are under options granted during the year covered. No SARs
(stock appreciation rights) have been granted. SAR means a right granted by
the Company, as compensation for services rendered, to receive a payment of
cash or an issue or transfer of securities based wholly or in part on
changes in the trading price of publicly traded securities of the Company.
(2) "LTIP" or "long term incentive plan" means any plan which provides
compensation intended to serve as incentive for performance to occur over a
period longer than one financial year, but does not include option or stock
appreciation right plans or plans for compensation through restricted
shares or restricted share units. The Company does not currently have an
LTIP.
(3) This sum represents directors' fees.
Long Term Incentive Plan Awards
-------------------------------
Long term incentive plan awards ("LTIP") means "any plan providing compensation
intended to serve as an incentive for performance to occur over a period longer
than one financial year whether performance is measured by reference to
financial performance of the Company or an affiliate, or the price of the
Company's shares but does not include option or stock appreciation rights plans
or plans for compensation through restricted shares or units". The Company has
not granted any LTIP's during the past fiscal year.
Stock Appreciation Rights
-------------------------
Stock appreciation right ("SAR") means a right, granted by an issuer or any of
its subsidiaries as compensation for services rendered or in connection with
office or employment, to receive a payment of cash or an issue or transfer of
securities based wholly or in part on changes in the trading price of the
Company's shares. No SAR's were granted to or exercised by the Named Executive
Officers or directors during the fiscal year ended November 30, 1999.
Options Granted in Last Fiscal Year
-----------------------------------
There were no options granted during the financial year ended November 30, 1999
to the Named Executive Officers of the Company.
<PAGE>
Page 7
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
--------------------------------------------------------------------------
Values
------
The following table sets forth details of all exercises of stock options during
the fiscal year ended November 30, 1999 by the Named Executive Officers and the
fiscal year-end value of unexercised options on an aggregate basis:
--------------------------------------------------------------------------------
Value of
Unexercised
Unexercised In-the-Money
Options SARs at Options/SARs
Financial at Financial
Name of Securities Value Year End (#) Year-end ($)(1)
Executive Acquired on Realized Exercisable/ Exercisable/
Officer Exercise (#) ($)(1) Unexercisable Unexercisable
--------------------------------------------------------------------------------
Robert W. - - 280,000/360,000 -/-(2)
Rieder
--------------------------------------------------------------------------------
Gregory N. - - 85,000/ 40,000 -/-(2)
Beatch
--------------------------------------------------------------------------------
(1) The market value of the Company's common shares on the Canadian Venture
Exchange was $0.51 at financial year-end, November 30, 1999.
(2) The exercise or base price of these options exceeded the market value of
the Company's common shares at financial year-end and hence these options
were not in-the-money.
Pension Plans
-------------
The Company does not provide retirement benefits for directors or executive
officers.
Termination of Employment, Change in Responsibilities and Employment Contracts
------------------------------------------------------------------------------
The Company has no plans or arrangements in respect of remuneration received or
that may be received by the Named Executive Officers in the Company's most
recently completed financial year or current financial year in respect of
compensating such officers in the event of termination of employment (as a
result of resignation, retirement, change of control, etc.) or a change in
responsibilities following a change of control, where the value of such
compensation exceeds $100,000 per executive officer.
Compensation of Directors
-------------------------
The following table sets forth stock options granted by the Company during the
fiscal year ended November 30, 1999 to directors who are not Named Executive
Officers of the Company, as a group:
--------------------------------------------------------------------------------
% of Total Market
Securities Options Value of
Under Granted Securities
Options to Employees Underlying
/SARs and Directors Exercise of Options/SAR's on
Granted in Fiscal Base Price Date of Grant Expiration
Name (#)(2) Year(2) ($/Security)(3) ($/Security) Date
(a) (b) (c) (d) (e) (f)
--------------------------------------------------------------------------------
Directors 100,000 20.8% $1.10 $1.10 Feb. 8, 2004
who are not 50,000 10.4% $0.61 $0.61 Oct. 31, 2004
Named
Executive
Officers(3)
--------------------------------------------------------------------------------
(1) The exercise price of the option is the market value of the common shares
of the Company on the date of grant.
(2) Percentage of all options granted during the last fiscal period.
(3) The exercise price of stock option may only be adjusted in the event that
specified events cause dilution of the Company's share capital. During the
<PAGE>
Page 8
most recently completed financial year, directors received compensation for
services provided to the Company in their capacities as directors and/or
consultants and/or experts as follows:
COMPENSATION TABLE
--------------------------------------------------------------------------------
Name of Director Directors fees All other compensation
($) ($)
--------------------------------------------------------------------------------
Michael Walker Nil Nil(2)
--------------------------------------------------------------------------------
Clive Page 10,000 $39,261(1)(2)
--------------------------------------------------------------------------------
Allen Bain Nil Nil(2)
--------------------------------------------------------------------------------
Colin Mallet 10,000 $2,000(1)
--------------------------------------------------------------------------------
Darrell Elliott 8,333 $6,500(3)
--------------------------------------------------------------------------------
(1) Consulting fees.
(2) The Company paid $163,954 for contract research services to Pneumolabs (UK)
Ltd., a company of which Messrs. Walker, Page and Bain are directors,
officers or shareholders. An additional $40,690 is owing by the Company to
Pneumolabs (UK) Ltd.
(3) Paid to a company owned by Darrell Elliott.
INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERS
---------------------------------------------
None of the Directors or senior officers of the Company or associates or
affiliates of such persons is or has been indebted to the Company or its
subsidiaries at any time since the beginning of the last completed financial
year of the Company.
INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS
---------------------------------------------
None of the insiders of the Company, nor any associate or affiliate of such
insider has any direct or indirect material interest, direct or indirect, in any
transaction since the commencement of the Company's last financial year or in
any proposed transaction which has materially affected or will materially affect
the Company or any of its subsidiaries, other than as disclosed under the
headings "Executive Compensation" and "Particulars of Matters to be Acted Upon",
or as set forth below.
The Company closed a private placement in April 1997, issuing and allotting an
aggregate of 2,500,000 units at a price of $0.72 per unit. Each unit consisted
of one common share and one non-transferable share purchase warrant to purchase
one additional common share in the capital of the Company, the warrants expiring
on March 25, 1999. Directors Michael Walker, Allen Bain and Clive Page had an
interest in some of these units. On March 19, 1999, the directors resolved,
subject to exchange approval, to extend the term of the warrants until May 7,
1999.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
-------------------------------------------------------
Except as disclosed herein, no Person has any material interest, direct or
indirect, by way of beneficial ownership of securities or otherwise, in matters
to be acted upon at the Meeting. For the purpose of this paragraph, "Person"
shall include each person: (a) who has been a director, senior officer or
insider of the Company at any time since the commencement of the Company's last
fiscal year; (b) who is a proposed nominee for election as a director of the
Company; or (c) who is an associate or affiliate of a person included in
subparagraphs (a) or (b).
<PAGE>
Page 9
OTHER MATTERS TO BE ACTED UPON
------------------------------
The management of the Company is not aware of any other matter to come before
the Meeting other than as set forth in the Notice of Meeting and this
Information Circular. If any other matter properly comes before the Meeting, it
is the intention of the persons named in the Proxy to vote the shares
represented thereby in accordance with their best judgment on such matter.
APPROVAL OF THE BOARD OF DIRECTORS
----------------------------------
The contents of this Information Circular have been approved and, the delivery
of it to each shareholder of the Company entitled thereto and to the appropriate
regulatory agencies, has been authorized by the Board.
By Order of the Board of Directors of
NORTRAN PHARMACEUTICALS INC.
/s/ Robert W. Rieder
Robert W. Rieder,
President and Chief Executive Officer
<PAGE>
Exhibit 5
NORTRAN PHARMACEUTICALS INC.
FORM OF PROXY
-------------
THIS PROXY IS SOLICITED BY MANAGEMENT OF NORTRAN PHARMACEUTICALS INC. (THE
"COMPANY") FOR THE ANNUAL GENERAL MEETING OF SHAREHOLDERS ON MAY 25, 2000.
I, the undersigned, being a shareholder of Nortran Pharmaceuticals Inc. (the
"Company") appoint Robert W. Rieder, the Chief Executive Officer, President and
a Director of the Company, or failing him, Dr. Michael J. Walker, Chairman of
the Board and a Director of the Company, or instead of the above-mentioned
, as my proxyholder, with full power of substitution,
--------------------------
to attend on my behalf at the Annual General Meeting (the "Meeting") of
shareholders of the Company, to be held at 2 p.m. (Pacific Standard Time), on
Thursday, May 25, 2000 and at any adjournment or adjournments thereof, and to
cast the number of votes that I would be entitled to cast if personally present
with respect to the matters specified below.
I direct my proxyholder to vote as follows:
1. To re-appoint Ernst & Young LLP, Chartered Accountants, as auditor of the
Company until the next annual general meeting of the shareholders of the
Company and to authorize the Directors to fix the remuneration of the
auditor.
FOR [ ] WITHHOLD VOTE [ ]
2. To set the number of Directors of the Company at seven.
FOR [ ] AGAINST [ ]
3. To elect the following persons as Directors of the Company:
Dr. Michael J. Walker FOR [ ] WITHHOLD VOTE [ ]
Robert W. Rieder FOR [ ] WITHHOLD VOTE [ ]
Allen Ian Bain FOR [ ] WITHHOLD VOTE [ ]
Clive Peter Page FOR [ ] WITHHOLD VOTE [ ]
Colin Roger Mallet FOR [ ] WITHHOLD VOTE [ ]
Oh Kim Sun FOR [ ] WITHHOLD VOTE [ ]
Darrell Elliott FOR [ ] WITHHOLD VOTE [ ]
4. To consider, and if thought fit, to pass an ordinary resolution, with or
without amendment that:
"The issuance by the Company in one or more private placements of such
number of securities that would result in the Company making issuable during
the next twelve months an amount of securities that exceeds 25% of the
Company's issued and outstanding shares (on a non-diluted basis) to a
maximum of 100% of the Company's issued and outstanding shares (on a non-
diluted basis), subject to the restrictions described in the Company's
Information Circular dated April 10, 2000, is hereby approved."
FOR [ ] AGAINST [ ]
<PAGE>
I HEREBY REVOKE ANY PROXY PREVIOUSLY GIVEN AND AUTHORIZE THE PROXYHOLDER TO VOTE
IN FAVOUR OF THE ITEMS SET OUT ABOVE UNLESS AN INSTRUCTION TO THE CONTRARY IS
INDICATED, AND TO VOTE IN HIS OR HER SOLE DISCRETION WITH RESPECT TO ANY
AMENDMENT TO OR VARIATION OF THE ABOVE ITEMS OR ON ANY OTHER MATTER BROUGHT
BEFORE THE MEETING.
------------------------------------ ------------------------------------
Date Address of Shareholder
------------------------------------ ------------------------------------
Signature of Shareholder City/Province (State)
------------------------------------ ------------------------------------
Print Name of Shareholder Number of Shares to be voted (If not
completed all shares registered in
your name will be deemed to be
represented by this proxy)
INSTRUCTIONS
1. IF THE SHAREHOLDER DOES NOT WISH TO APPOINT EITHER OF THE PERSONS NAMED
IN THIS PROXY, HE OR SHE SHOULD STRIKE OUT THEIR NAMES AND INSERT THE NAME
OF THE PERSON HE OR SHE WISHES TO ACT AS HIS OR HER PROXYHOLDER IN THE BLANK
SPACE PROVIDED. SUCH OTHER PERSON NEED NOT BE A SHAREHOLDER OF THE COMPANY.
2. IN THE ABSENCE OF CONTRARY DIRECTION, A GENERAL AUTHORITY WILL BE DEEMED TO
BE GRANTED TO THE PROXYHOLDER WITH RESPECT TO VOTING ON AMENDMENTS TO OR
VARIATIONS OF MATTERS IDENTIFIED IN THE NOTICE OF MEETING AND ANY OTHER
MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING, OR ANY ADJOURNMENT OR
ADJOURNMENTS THEREOF.
3. THIS PROXY MAY NOT BE USED AT THE MEETING, OR ANY ADJOURNMENT OR
ADJOURNMENTS THEREOF, UNLESS IT IS DEPOSITED AT THE OFFICE OF THE PACIFIC
CORPORATE TRUST COMPANY, THE COMPANY'S REGISTRAR AND TRANSFER AGENT, BY
MAIL, TELEFAX OR BY HAND AT 830 - 625 HOWE STREET, VANCOUVER, BRITISH
COLUMBIA, V6C 3B8 (TELEFAX: (604) 689-8144), NOT LATER THAN 48 HOURS
(EXCLUDING SATURDAYS, SUNDAYS AND HOLIDAYS) BEFORE THE TIME FOR HOLDING THE
MEETING OR DELIVERED TO THE CHAIRMAN OF THE MEETING PRIOR TO THE
COMMENCEMENT OF THE MEETING.
4. THIS PROXY WILL NOT BE VALID UNLESS IT IS DATED AND SIGNED BY THE
SHAREHOLDER OR BY HIS OR HER ATTORNEY DULY AUTHORIZED BY HIM IN WRITING, OR
IN THE CASE OF A CORPORATION, IS EXECUTED UNDER ITS CORPORATE SEAL OR BY AN
OFFICER OR OFFICERS OR ATTORNEY FOR THE CORPORATION DULY AUTHORIZED. IF
THIS PROXY IS EXECUTED BY AN ATTORNEY FOR AN INDIVIDUAL SHAREHOLDER OR JOINT
SHAREHOLDERS OR BY AN OFFICER OR ATTORNEY OF A CORPORATE SHAREHOLDER AND NOT
UNDER ITS CORPORATE SEAL, THE INSTRUMENT SO EMPOWERING THE OFFICER OR THE
ATTORNEY, AS THE CASE MAY BE, OR A CERTIFIED COPY THEREOF, MUST BE ATTACHED
HERETO.
5. THIS PROXY IS REVOCABLE IN THE MANNER DESCRIBED UNDER THE HEADING
"REVOCATION OF PROXIES" IN THE ACCOMPANYING INFORMATION CIRCULAR.
<PAGE>
SUPPLEMENTAL MAILING LIST RETURN CARD
(National Policy No. 41)
NOTICE TO SHAREHOLDERS:
On October 28, 1987, the Canadian Securities Administrators gave approval to
National Policy Statement No. 41-Shareholder Communication, which essentially
established a new framework for communication between Issuers and their
registered and non--registered shareholders.
Companies incorporated in British Columbia have in the past been required to
deliver interim financial statements only to their registered shareholders. The
new policy now exempts companies from having to deliver these statements to
their registered shareholders if the companies send 1st, 2nd, and 3rd quarterly
financial statements to those shareholders, whether registered or not, who
request in writing to receive them.
As a result of this additional obligation and cost, your company has made a
decision to discontinue the practice of mailing interim financial statements
except to those shareholders who request in writing to be added to the
supplemental mailing list. If you are a shareholder of NORTRAN PHARMACEUTICALS
INC. and wish to be placed on a supplemental mailing fist for the receipt of
these financial statements, you must complete and return the Return Card below.
The supplemental list will be updated each year and, therefore, a Return Card
will be required annually in order to receive interim financial statements. All
other shareholder mailings will continue to be mailed in the normal manner
without you completing a Return Card.
================================================================================
TO: NORTRAN PHARMACEUTICALS INC. (the "Company")
The undersigned certifies that he is the owner of securities (other than debt
instruments) of the Company and requests that he/she/it be placed on the
Company's Supplemental Mailing List in respect of its quarterly financial
statements.
--------------------------------------------
Name (Please Print)
--------------------------------------------
Address
--------------------------------------------
City/Province (or State)/Postal Code
-------------------------------------------- ---------------------------
Signature of shareholder, or if shareholder is a Dated
company, signature of authorized signatory.
Please complete and return this document along with your Proxy in the attached
envelope or as indicated below. As the supplemental list will be updated each
year, a return card will be required from you annually in order for your name to
remain on the list.
Pacific Corporate Trust Company
830 - 625 Howe Street
Vancouver, BC
V6C 3B8
Attention: Stock Transfer Department
Tel: (604) 689-9853
Fax: (604) 689-8144
<PAGE>
Exhibit 6
Nortran Pharmaceuticals Inc. 3650 Wesbrook Mall Tel: 604-222-5577
Vancouver, BC Fax: 604-222-6617
V6S 2L2 CANADA Website: www.nortran.com
For Immediate Release CDNX: NRT, NASD BB: NTRDF
NORTRAN FISCAL YEAR-END 1999 RESULTS
------------------------------------
Vancouver, Canada, March 15, 2000 -- Nortran Pharmaceuticals Inc. ("Nortran" or
the "Company") today released its financial results for the fiscal year ended
November 30, 1999. Nortran incurred a net loss of $4,451,320 million or $0.16
per share for the fiscal year ended November 30, 1999. This compares to net
losses for the fiscal years ended November 30, 1998 and November 30, 1997 of
$5,168,419 million (or $0.19 per share) and $2,749,088 (or $0.14 per share)
respectively.
"Nortran has made significant advances this year and we are excited about the
year ahead" said Bob Rieder, President and CEO of Nortran. "We successfully
completed a Phase I trial in the United Kingdom for CP1, a drug candidate
targeted at treating intractable cough. Intractable cough is a debilitating
medical condition for which effective treatment options are very limited. A
Phase II clinical trial will commence in the first half of 2000 for this
indication. This Phase II trial will determine if CP1 is effective in
suppressing induced cough in patients with chronic idiopathic cough. In the
area of antiarrhythmics we have entered into our second collaborative
agreement. Both collaborators, Aventis Pharma and AstraZeneca, are testing
Nortran's drugs with an interest in licensing them. "
Total expenses were $4,901,583 for the year ended November 30, 1999 compared
with $5,534,281 in 1998, a decrease of 11%. This decrease was principally due
to decrease in general and administration expenses. Research and development
expenses were $3,248,775 compared with $3,311,362 in 1998.
Total revenue was $450,263 for the year ended November 30, 1999, an increase of
23% compared with total revenue of $365,862 for the year ended November 30,1998.
The increase in revenue principally reflects additional revenue earned from
research contracts and government grants.
Working capital at November 30, 1999 was $6,237,713 compared with $5,058,958 in
1998. At November 30, 1999 Nortran had $6,784,170 in cash reserves as compared
to $5,283,814 for 1998 consisting of $4,209,003 in cash and cash equivalents and
$2,575,167 in short-term investments.
The Company's annual general meeting will be held on May 25, 2000 at 2.00 p.m.
at the Four Seasons Hotel, Vancouver, British Columbia.
WARNING: THE COMPANY RELIES ON LITIGATION PROTECTION FOR "FORWARD-LOOKING"
STATEMENTS. THE VANCOUVER STOCK EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT
RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS NEWS RELEASE
<PAGE>
- 2 -
Selected Financial Highlights (Canadian dollars) 1
-------------------------------------------------------------------------------
At November 30
Balance Sheets 1999 1998
-------------------------------------------------------------------------------
Cash and marketable securities $4,209,003 $3,919,564
Short-term investments 2,575,167 1,364,250
Other current assets 258,516 277,260
-------------------------------------------------------------------------------
Total current assets 7,042,686 5,561,074
Capital assets 461,576 649,982
Other assets 2,359,468 2,597,630
-------------------------------------------------------------------------------
Total assets $9,863,730 $8,808,686
-------------------------------------------------------------------------------
Current liabilities $804,973 $502,116
Long-term capital lease obligations and debt 91,306 217,989
Shareholders' equity 8,967,451 8,088,581
-------------------------------------------------------------------------------
Total liabilities and shareholders' equity $9,863,730 $8,808,686
-------------------------------------------------------------------------------
Years ended November 30
Statements of Loss and Deficit 1999 1998 1997
-------------------------------------------------------------------------------
Revenue
Interest income $258,395 $320,286 $106,187
Grant and other revenue 191,868 45,576 22,260
-------------------------------------------------------------------------------
450,263 365,862 128,447
-------------------------------------------------------------------------------
Expenses
Research and Development 3,248,775 3,311,362 1,306,147
General & Administrative 997,890 1,553,337 1,100,747
Amortisation 654,918 669,582 470,641
-------------------------------------------------------------------------------
4,901,583 5,534,281 2,877,535
-------------------------------------------------------------------------------
Net Loss for the Year $(4,451,320) $(5,168,419) $(2,749,088)
Deficit Beginning of Year (11,863,269) (6,694,850) (3,945,762)
-------------------------------------------------------------------------------
Deficit End of Year $(16,314,589)$(11,863,269) $(6,694,850)
-------------------------------------------------------------------------------
Net Loss per Common Share2 $(0.16) $(0.19) $(0.14)
-------------------------------------------------------------------------------
1 Condensed from the Company's audited financial statements.
2 Loss per share is based on the weighted average number of common shares
outstanding during the period.
WARNING: THE COMPANY RELIES ON LITIGATION PROTECTION FOR "FORWARD-LOOKING"
STATEMENTS. THE VANCOUVER STOCK EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT
RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS NEWS RELEASE
<PAGE>
- 3 -
Nortran is a commercially-focused drug discovery company. Using
pathology-targeted molecules, Nortran focuses on developing treatments for
serious medical conditions and illnesses affecting large numbers of people.
Nortran's current drugs in development target life-threatening arrhythmias of
the heart and acute cough. In the area of antiarrhythmics, Nortran continues to
conduct collaborative research with AstraZeneca and Aventis Pharma with both
companies testing Nortran's candidates for a potential licensing agreement.
ON BEHALF OF THE BOARD
/s/Bob Rieder
Robert Rieder
President & Chief Executive Officer
Except for the historical information presented, certain matters discussed in
this news release are forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from any future results, performance or achievements expressed or implied by
such statements. Such risks and uncertainties include among others, those
described in the Company's annual report in Form 20-F, including the following:
uncertainty related to early stage of development, technology and product
development; dependence on future corporate collaborations; dependence on
proprietary technology and uncertainty of patent protection; management of
growth; future capital needs and uncertainty of additional funding; intense
competition; manufacturing and market uncertainties; government regulation;
product liability exposure and insurability.
WARNING: THE COMPANY RELIES ON LITIGATION PROTECTION FOR "FORWARD-LOOKING"
STATEMENTS. THE VANCOUVER STOCK EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT
RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS NEWS RELEASE
<PAGE>
Exhibit 7
Nortran Pharmaceuticals Inc. 3650 Wesbrook Mall Tel: 604-222-5577
Vancouver, BC Fax: 604-222-6617
V6S 2L2 CANADA Website: www.nortran.com
For Immediate Release CDNX: NRT, NASD BB: NTRDF
NORTRAN INITIATES PHASE II TRIAL FOR
------------------------------------
CHRONIC, IDIOPATHIC COUGH
-------------------------
Vancouver, March 28, 2000 - Nortran Pharmaceuticals Inc. today announced the
start of a placebo-controlled Phase II clinical trial of its lead product, CP1,
in patients with chronic idiopathic cough. The primary goal of the Phase II
study is to determine if CP1 is effective in reducing heightened sensitivity to
tussive stimuli. The study will be monitored by Inveresk Research, one of the
world's leading clinical research organizations.
Idiopathic cough is a sustained cough with no diagnosable cause. Such patients
in effect have a heightened sensitivity to cough-irritants such as airborne
particles, cold air, or other changes in air qualities. As a result, these
patients often cough without apparent reason. Nortran's Phase II study is
focused on determining if Nortran's anti-tussive compound CP1 can reduce patient
sensitivity to such cough-causing irritants.
Idiopathic cough is a subset of a condition called intractable cough.
Intractable cough is commonly associated with asthma, end-stage lung cancer, and
a range of other respiratory pathologies. There remains no non-narcotic therapy
that is effective against such intractable cough.
The intractable cough market is potentially large. In the "hospital-use"
segment, there are each year 29 million patients hospitalized worldwide for
respiratory disease and 75% of these patients feature cough as an important
symptom. The "non-hospital" segment is made up of patients suffering from
respiratory diseases which do not normally require hospitalization. This
category includes patients with asthma, emphysema, post-viral cough, bronchitis
and idiopathic cough. The worldwide incidence of such pathologies is estimated
to be 115 million patients per year. Together, these segments constitute a
significant unmet medical need which has not yet been met by the pharmaceutical
industry.
Nortran Pharmaceuticals is a commercially focused pharmaceutical company.
Current Nortran drugs in development target life-threatening arrhythmia of the
heart and intractable cough. Nortran has shown in pre-clinical studies that its
antiarrhythmics are both safe and effective in the suppression of arrhythmia
associated with heart disease.
ON BEHALF OF THE BOARD
/s/Bob Rieder
Bob Rieder
President & Chief Executive Officer
WARNING: THE COMPANY RELIES ON LITIGATION PROTECTION FOR "FORWARD-LOOKING"
STATEMENTS. THE VANCOUVER STOCK EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT
RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS NEWS RELEASE
<PAGE>
Exhibit 8
Nortran Pharmaceuticals Inc. 3650 Wesbrook Mall Tel: 604-222-5577
Vancouver, BC Fax: 604-222-6617
V6S 2L2 CANADA Website: www.nortran.com
For Immediate Release CDNX: NRT, NASD BB: NTRDF
NORTRAN RECEIVES SCIENCE COUNCIL OF B.C.
---------------------------------------
FUNDING FOR ANTIARRYTHMIC PROGRAM
---------------------------------
Vancouver, Canada, April 5, 2000 -- Nortran Pharmaceuticals Inc. ("Nortran" or
the "Company") announced today that it has received funding from the Science
Council of British Columbia through the province's Technology BC program, to set
up an in-house molecular electrophysiology program at Nortran.
Currently, work in the area of molecular electrophysiology utilising human ion
channels is being conducted by Dr. David Fedida of the University of British
Columbia. "Transfer of this program to Nortran will enable us to strengthen
internal expertise in a critical area for research of antiarrhythmics" said Dr.
Greg Beatch, VP of Research at Nortran. "Molecular electrophysiology is a major
contributor to our ion channel knowledge, and as such, is vital to our
understanding of how our antiarrhythmic drugs might be improved. The Science
Council's support of this program will add another dimension to our drug
research program."
The Company also announced today that 1,500,000 escrow shares have been
cancelled. The shares issued pursuant to the Company's initial public offering
in 1990 have now been returned to Treasury.
Nortran Pharmaceuticals is a commercially-focused drug discovery company. Using
pathology-targeted molecules, Nortran focuses on developing treatments for
serious medical conditions and illnesses affecting large numbers of people.
Nortran's current drugs in development target life-threatening arrhythmias of
the heart and acute cough. In the area of antiarrhythmics, Nortran continues to
conduct collaborative research with AstraZeneca and Aventis Pharma with both
companies testing Nortran's candidates for a potential licensing agreement.
ON BEHALF OF THE BOARD
/s/Bob Rieder
Bob Rieder
President & Chief Executive Officer
WARNING: THE COMPANY RELIES ON LITIGATION PROTECTION FOR "FORWARD-LOOKING"
STATEMENTS. THE VANCOUVER STOCK EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT
RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS NEWS RELEASE
<PAGE>
Exhibit 9
Nortran Pharmaceuticals Inc. 3650 Wesbrook Mall Tel: 604-222-5577
Vancouver, BC Fax: 604-222-6617
V6S 2L2 CANADA Website: www.nortran.com
For Immediate Release CDNX: NRT, NASD BB: NTRDF
THIS PRESS RELEASE IS NOT FOR DISTRIBUTION TO THE U.S. WIRE SERVICE OR
DISSEMINATION IN THE U.S.
Nortran Announces Special Warrant Financing
-------------------------------------------
Of $8 Million
-------------
Vancouver, Canada, April 6, 2000 - Nortran Pharmaceuticals Inc. (the "Company"
or "Nortran") announced today that it has engaged a syndicate of agents lead by
Dlouhy Investments Inc., co-led by Goepel McDermid Inc. and including HSBC
Securities (Canada) Inc. to market, on a best-efforts basis, a private placement
of special warrants (the "Special Warrants") for gross proceeds of $8 million.
The Special Warrants will be issued at a price of $1.40 per Special Warrant and
will be exercisable, for no additional consideration, into one common share and
one half-of one common share purchase warrant, to be qualified for distribution
by a prospectus. Each whole common share purchase warrant will entitle the
holder to purchase one common share of the Company at $1.60 for a period of two
years. Closing is expected to occur on or about April 14, 2000. The net
proceeds from the Special Warrants will be held in escrow until the clearance of
a prospectus qualifying the underlying securities.
The net proceeds from the Special Warrants will be used to fund the current
clinical trials in the Company's chronic cough program and to initiate clinical
testing of the Company's antiarrhythmic drug candidates. In addition, a portion
of the funds will be used for general corporate purposes.
The Company has agreed to pay the agents a cash commission and grant the agents
compensation options exercisable, for 18 months from the closing, for common
shares at an exercise price equal to the offering price of the Special Warrants.
Closing of the private placement is subject to receipt of all necessary
regulatory approvals.
Nortran Pharmaceuticals is a commercially-focused pharmaceutical company.
Current Nortran drugs in development target intractable cough and
life-threatening arrhythmia of the heart.
Nortran recently announced the start of a placebo-controlled Phase II clinical
trial of its lead product, CP1, in patients with chronic, idiopathic cough.
Idiopathic cough is a sustained cough with no diagnosable cause. Such patients
have a heightened sensitivity to cough-irritants such as airborne particles,
cold air or other changes in air qualities. As a result, these patients often
<PAGE>
cough without apparent reason. Nortran's Phase II study is focused on
determining if Nortran's anti-tussive compound, CP1, can reduce patient
sensitivity to such cough-causing irritants.
In its program to treat life-threatening cardiac arrhythmia, Nortran has
developed drug candidates suitable for clinical testing as treatments for atrial
arrhythmia. Nortran has shown in preclinical studies that its drug candidates
are both safe and effective in the suppression of such atrial arrhythmia, with
little risk of the dangerous side effects associated with current drugs. This
progress has led to collaborative research agreements with AstraZeneca and
Aventis Pharma, both of which are global leaders in the pharmaceutical industry.
ON BEHALF OF THE BOARD
/s/Bob Rieder
Robert Rieder
Chief Executive Officer
The statements made in this press release may contain certain forward-looking
comments. Actual events or results may differ from the Company's expectations.
Exemption from registration pursuant to Rule 12g3-2(b), Reg. No. 82-2317. The
Canadian Venture Exchange has not reviewed and does not accept responsibility
for the adequacy or accuracy of this release.
<PAGE>
Exhibit 10
Nortran Pharmaceuticals Inc. 3650 Wesbrook Mall Tel: 604-222-5577
Vancouver, BC Fax: 604-222-6617
V6S 2L2 CANADA Website: www.nortran.com
For Immediate Release CDNX: NRT, NASD BB: NTRDF
THIS PRESS RELEASE IS NOT FOR DISTRIBUTION TO THE U.S. WIRE SERVICE OR
DISSEMINATION IN THE U.S.
Nortran Closes Special Warrant Financing
----------------------------------------
Vancouver, Canada, April 14, 2000 - Nortran Pharmaceuticals Inc. (the "Company"
or "Nortran") announced today that it has successfully closed the special
warrant financing announced on April 6, 2000. The offering was subscribed to by
Canadian institutional investors and resulted in gross proceeds to the Company
of approximately $7.8 million.
A syndicate of agents led by Dlouhy Investments Inc., co-led by Goepel McDermid
Inc. and including HSBC Securities (Canada) Inc., participated in this offering.
The Special Warrants were issued at a price of $1.40 per Special Warrant and are
exercisable, for no additional consideration, into one common share and one-half
of one common share purchase warrant, to be qualified for distribution by a
prospectus. Each whole common share purchase warrant will entitle the holder to
purchase one common share of the Company at $1.60 for a period of two years. The
net proceeds from the Special Warrants will be held in escrow until the
clearance of a prospectus qualifying the underlying securities.
The net proceeds from the Special Warrants will be used to fund clinical
development of the Company's lead drug candidates, as well as for general
corporate purposes.
Bob Rieder, President and CEO commented, "We welcome the opportunity to raise
additional capital for our company. This influx of funds will allow us to move
aggressively on our product development plans which include key milestones this
year for Nortran's cough drug, CP1 which has just commenced Phase II studies.
Additionally, we intend to use these funds to push one of our antiarrhythmic
candidates forward into the clinical development track."
In connection with the offering, the Company paid the agents a cash commission
and granted the agents compensation options entitling the agents to acquire
common shares of the Company at $1.40 for a period of 18 months from the
closing.
Nortran Pharmaceuticals is a commercially-focused pharmaceutical company.
Current Nortran drugs in development target intractable cough and
life-threatening arrhythmias of the heart.
<PAGE>
Nortran recently announced the start of a placebo-controlled Phase II clinical
trial of its lead product, CP1, in patients with chronic, idiopathic cough.
Idiopathic cough is a sustained cough with no diagnosable cause. Such patients
have a heightened sensitivity to cough-irritants such as airborne particles,
cold air or other changes in air qualities. As a result, these patients often
cough without apparent reason. Nortran's Phase II study is focused on
determining if Nortran's anti-tussive compound, CP1, can reduce patient
sensitivity to such cough-causing irritants.
In its program to treat life-threatening cardiac arrhythmias, Nortran has
developed drug candidates suitable for clinical testing as treatments for atrial
arrhythmias. Nortran has shown in preclinical studies that its drug candidates
are both safe and effective in the suppression of such atrial arrhythmia, with
less risk of the dangerous side effects associated with current drugs. This
progress has led to collaborative research agreements with AstraZeneca and
Aventis Pharma, both of which are global leaders in the pharmaceutical industry.
ON BEHALF OF THE BOARD
/s/Bob Rieder
Robert Rieder
Chief Executive Officer
The statements made in this press release may contain certain forward-looking
comments. Actual events or results may differ from the Company's expectations.
Exemption from registration pursuant to Rule 12g3-2(b), Reg. No. 82-2317. The
Canadian Venture Exchange has not reviewed and does not accept responsibility
for the adequacy or accuracy of this release.
<PAGE>
Exhibit 11
Nortran Pharmaceuticals Inc. 3650 Wesbrook Mall Tel: 604-222-5577
Vancouver, BC Fax: 604-222-6617
V6S 2L2 CANADA Website: www.nortran.com
For Immediate Release CDNX: NRT, NASD BB: NTRDF
NORTRAN REPORTS FIRST QUARTER RESULTS
-------------------------------------
Vancouver, Canada, May 1, 2000 -- Nortran Pharmaceuticals Inc. ("Nortran" or the
"Company") today reported a net loss of $1,129,831 or 0.03 cents per common
share for the three months ended February 29, 2000, compared with a net loss of
$787,337 or 0.03 cents per common share for the three months ended February 28,
1999.
The increase in losses was primarily due to higher operating expenditures in
both the research and development and general administration. Research and
development expenses were $860,256, an increase of 47% from the same quarter in
the preceding fiscal year. This increase was primarily due to the lower research
expenditure recovery received in the quarter ended February 29, 2000. General
and administrative costs increased by 58% from $194,888 for the same quarter in
the preceding year to $307,807. The increase in general administration expenses
is primarily due to higher consulting and professional fees, office and
miscellaneous, and travel and accommodation expenses incurred.
At February 29, 2000, the company's cash and cash equivalents and short-term
investments were $5,537,634, (before $7.8 million special warrant financing
closed April 14, 2000 at $1.40 per special warrant) an increase of $1,038,375
from 1999. This increase was primarily attributable to the Company's special
warrants financing completed in November 1999 ($4,795,454 net of Agent's
commission).
The Company recently announced (April 14, 2000) closing a special warrants
financing for gross proceeds of $7.8 million. A syndicate of agents led by
Dlouhy Investments Inc., co-led by Goepel McDermid Inc. and including HSBC
Securities (Canada) Inc., participated in this offering. The net proceeds from
the Special Warrants will be held in escrow until the clearance of a prospectus
qualifying the underlying securities. The net proceeds from the Special
Warrants will be used to fund clinical development of the Company's lead drug
candidates, as well as for general corporate purposes.
THE CANADIAN VENTURE EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT
RESPONSIBILITY FOR THE ADEQUACY OF THIS NEWS RELEASE.
<PAGE>
- 2 -
Selected Financial Highlights (Canadian dollars) 1
-------------------------------------------------------------------------------
As at
Balance Sheets February 29, 2000 February 28, 1999
-------------------------------------------------------------------------------
Cash and cash equivalents $2,383,864 $4,299,259
Short-term investments 3,153,770 200,000
Other current assets 250,531 147,854
-------------------------------------------------------------------------------
Total current assets 5,788,165 4,647,113
Capital assets 439,156 595,537
Other assets 2,288,544 2,517,374
-------------------------------------------------------------------------------
Total assets $8,515,865 $7,760,024
-------------------------------------------------------------------------------
Current liabilities $603,409 $240,862
Long-term capital lease obligations
and debt 61,586 217,918
Shareholders' equity 7,850,870 7,301,244
-------------------------------------------------------------------------------
Total liabilities and shareholders' equity $8,515,865 $7,760,024
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
For the Three Months ended
Statements of Loss and Deficit February 29, 2000 February 28, 1999
-------------------------------------------------------------------------------
Revenue
Interest income $77,899 $55,996
Grant and other revenue 93,994 101,134
-------------------------------------------------------------------------------
171,893 157,130
-------------------------------------------------------------------------------
Expenses
Research and Development 860,256 585,101
General & Administrative 307,807 194,888
Amortisation 133,661 164,478
-------------------------------------------------------------------------------
1,301,724 944,467
-------------------------------------------------------------------------------
Net Loss for the period $(1,129,831) $(787,337)
Deficit Beginning of period (16,314,589) (11,863,269)
-------------------------------------------------------------------------------
Deficit End of period $(17,444,420) $(12,650,606)
-------------------------------------------------------------------------------
Net Loss per Common Share2 $(0.03) $(0.03)
-------------------------------------------------------------------------------
1 Condensed from the Company's unaudited financial statements.
2 Loss per share is based on the weighted average number of common shares
outstanding during the period.
THE CANADIAN VENTURE EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT
RESPONSIBILITY FOR THE ADEQUACY OF THIS NEWS RELEASE.
<PAGE>
- 3 -
Nortran is a commercially-focused drug discovery company. Using
pathology-targeted molecules, Nortran focuses on developing treatments for
serious medical conditions and illnesses affecting large numbers of people.
Nortran's current drugs in development target life-threatening arrhythmias of
the heart and acute cough. In its program to treat life-threatening cardiac
arrhythmia, Nortran has developed drug candidates suitable for clinical testing
as treatments for atrial arrhythmia. Nortran has shown in preclinical studies
that its drug candidates are both safe and effective in the suppression of such
atrial arrhythmia, with little risk of the dangerous side effects associated
with current drugs. This progress has led to collaborative research agreements
with AstraZeneca and Aventis Pharma. In the area of cough, Nortran recently
announced the start of a Phase II clinical trial of its lead product, CP1, in
patients with chronic idiopathic cough.
ON BEHALF OF THE BOARD
/s/Bob Rieder
Robert Rieder
President & Chief Executive Officer
Except for the historical information presented, certain matters discussed in
this news release are forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from any future results, performance or achievements expressed or implied by
such statements. Such risks and uncertainties include among others, those
described in the Company's annual report in Form 20-F, including the following:
uncertainty related to early stage of development, technology and product
development; dependence on future corporate collaborations; dependence on
proprietary technology and uncertainty of patent protection; management of
growth; future capital needs and uncertainty of additional funding; intense
competition; manufacturing and market uncertainties; government regulation;
product liability exposure and insurability.
THE CANADIAN VENTURE EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT
RESPONSIBILITY FOR THE ADEQUACY OF THIS NEWS RELEASE.
<PAGE>
Exhibit 12
Nortran Pharmaceuticals Inc. 3650 Wesbrook Mall Tel: 604-222-5577
Vancouver, BC Fax: 604-222-6617
V6S 2L2 CANADA Website: www.nortran.com
For Immediate Release CDNX: NRT, NASD BB: NTRDF
THIS PRESS RELEASE IS NOT FOR DISTRIBUTION TO THE U.S. WIRE SERVICE OR
DISSEMINATION IN THE U.S.
Nortran To Complete $0.5 Million Private Placement
--------------------------------------------------
Vancouver, Canada, May 24, 2000 - Nortran Pharmaceuticals Inc. (the "Company" or
"Nortran") announced today that it has entered into an agreement to complete a
non-brokered private placement to raise $0.5 million. The investment will be
made by FutureFund Capital (VCC) Corp. ("FutureFund") a publicly-traded
investment fund that manages a diversified portfolio of emerging British
Columbia-based technology companies. The investment in the Company is subject
to regulatory approval, including without limitation, that of the administrator
of the Small Business Venture Capital Act (British Columbia).
This private placement, will be for 357,143 units at a price of $1.40 per unit,
each unit consisting of one common share and one-half of one common share
purchase warrant, each whole common share purchase warrant entitling the holder
to purchase one common share of the Company at $1.60 for a period of two years.
Bob Rieder, President and CEO commented, "We are happy to become a member of
FutureFund's portfolio of technology companies. FutureFund's investment in
Nortran, and companies like Nortran, is an important contributor in helping
build our BC technology industries. This additional funding for Nortran will
allow us to carry on certain optional programs which we think have high
potential for adding value to our company."
FutureFund's balanced portfolio is comprised of emerging technology companies
located in British Columbia, primarily in biotechnology, information technology,
communications, proprietary chemistry and other leading edge technologies.
Investments in other biotechnology companies have included in recent months
investment in Kinetek Pharmaceuticals Inc. and Synapse Technologies Inc.
Nortran recently announced the start of a placebo-controlled Phase II clinical
trial of its lead product, CP1, in patients with chronic, idiopathic cough.
Idiopathic cough is a chronic cough with no diagnosable cause. Such patients
have a heightened sensitivity to cough-irritants such as airborne particles,
cold air or other changes in air qualities. As a result, these patients often
cough without apparent reason. Nortran's Phase II study is focused on
determining if Nortran's anti-tussive compound, CP1, can reduce patient
sensitivity to such cough-causing irritants.
<PAGE>
In its program to treat life-threatening cardiac arrhythmias, Nortran has
developed drug candidates suitable for clinical testing as treatments for atrial
arrhythmias. Nortran has shown in preclinical studies that its drug candidates
are both safe and effective in the suppression of such atrial arrhythmia, with
less risk of the dangerous side effects associated with current drugs. This
progress has led to collaborative research agreements with AstraZeneca and
Aventis Pharma, both of which are global leaders in the pharmaceutical industry.
ON BEHALF OF THE BOARD
/s/Bob Rieder
Robert Rieder
Chief Executive Officer
The statements made in this press release may contain certain forward-looking
comments. Actual events or results may differ from the Company's expectations.
Exemption from registration pursuant to Rule 12g3-2(b), Reg. No. 82-2317. The
Canadian Venture Exchange has not reviewed and does not accept responsibility
for the adequacy or accuracy of this release.
<PAGE>
Exhibit 13
Nortran Pharmaceuticals Inc. 3650 Wesbrook Mall Tel: 604-222-5577
Vancouver, BC Fax: 604-222-6617
V6S 2L2 CANADA Website: www.nortran.com
For Immediate Release CDNX: NRT, NASD BB: NTRDF
THIS PRESS RELEASE IS NOT FOR DISTRIBUTION TO THE U.S. WIRE SERVICE OR
DISSEMINATION IN THE U.S.
Nortran Closes $0.5 Million Private Placement
---------------------------------------------
Vancouver, Canada, June 5, 2000 - Nortran Pharmaceuticals Inc. (the "Company" or
"Nortran") announced today that it has closed the non-brokered private placement
announced on May 24, 2000. The $0.5 million investment has been made by
FutureFund Capital (VCC) Corp. ("FutureFund") a publicly-traded investment fund
that manages a diversified portfolio of emerging British Columbia-based
technology companies.
This private placement was for 357,142 units at a price of $1.40 per unit, each
unit consisting of one common share and one-half of one common share purchase
warrant, with each whole common share purchase warrant entitling the holder to
purchase one common share of the Company at $1.60 for a period of two years.
Bob Rieder, President and CEO commented, "Future Fund is a knowledgeable and
sophisticated firm. We are pleased to have been selected for their investment.
The funds will be very useful in carrying out certain optional programs which we
think can bring great value to the company."
FutureFund's balanced portfolio is comprised of emerging technology companies
located in British Columbia, primarily in biotechnology, information technology,
communications, proprietary chemistry and other leading edge technologies.
Investments in other biotechnology companies have included in recent months
investment in Kinetek Pharmaceuticals Inc. and Synapse Technologies Inc.
Nortran recently announced the start of a placebo-controlled Phase II clinical
trial of its lead product, CP1, in patients with chronic, idiopathic cough.
Idiopathic cough is a chronic cough with no diagnosable cause. Such patients
have a heightened sensitivity to cough-irritants such as airborne particles,
cold air or other changes in air qualities. As a result, these patients often
cough without apparent reason. Nortran's Phase II study is focused on
determining if Nortran's anti-tussive compound, CP1, can reduce patient
sensitivity to such cough-causing irritants.
<PAGE>
- 2 -
In its program to treat life-threatening cardiac arrhythmias, Nortran has
developed drug candidates suitable for clinical testing as treatments for atrial
arrhythmias. Nortran has shown in preclinical studies that its drug candidates
are both safe and effective in the suppression of such atrial arrhythmia, with
less risk of the dangerous side effects associated with current drugs. This
progress has led to collaborative research agreements with AstraZeneca and
Aventis Pharma, both of which are global leaders in the pharmaceutical industry.
ON BEHALF OF THE BOARD
/s/Robert Rieder
Robert Rieder
Chief Executive Officer
The statements made in this press release may contain certain forward-looking
comments. Actual events or results may differ from the Company's expectations.
Exemption from registration pursuant to Rule 12g3-2(b), Reg. No. 82-2317. The
Canadian Venture Exchange has not reviewed and does not accept responsibility
for the adequacy or accuracy of this release.
<PAGE>
Exhibit 14
Nortran Pharmaceuticals Inc. 3650 Wesbrook Mall Tel: 604-222-5577
Vancouver, BC Fax: 604-222-6617
V6S 2L2 CANADA Website: www.nortran.com
For Immediate Release CDNX: NRT, NASD BB: NTRDF
THIS PRESS RELEASE IS NOT FOR DISTRIBUTION TO THE U.S. WIRE SERVICE OR
DISSEMINATION IN THE U.S.
Nortran Files Final Prospectus for
----------------------------------
$7.8 Million Special Warrant Financing
--------------------------------------
Vancouver, Canada, June 20, 2000 - Nortran Pharmaceuticals Inc. (the "Company"
or "Nortran") announced today that it has obtained receipts for a final
prospectus filed in British Columbia, Ontario, Alberta and Yukon, in connection
with the previously announced Special Warrant financing of approximately $7.8
million, which closed on April 14, 2000. A syndicate of agents co-led by Dlouhy
Investments Inc., and Goepel McDermid Inc. and including HSBC Securities
(Canada) Inc., participated in this financing.
The prospectus qualifies for distribution 5,549,200 common shares issuable upon
exercise of the Special Warrants. The Special Warrants were issued at a price
of $1.40 per Special Warrant and are exercisable, for no additional
consideration, into one common share and one-half of one common share purchase
warrant. Each whole common share purchase warrant will entitle the holder to
purchase one common share of the Company at $1.60 for a period of two years.
The net proceeds from the Special Warrants will be used to fund clinical
development of the Company's lead drug candidates, as well as for general
corporate purposes.
Nortran Pharmaceuticals is a commercially-focused pharmaceutical company.
Current Nortran drugs in development target intractable cough and
life-threatening arrhythmia of the heart.
Nortran recently announced the start of a placebo-controlled Phase II clinical
trial of its lead product, CP1, in patients with chronic, idiopathic cough.
Idiopathic cough is a sustained cough with no diagnosable cause. Such patients
have a heightened sensitivity to cough-irritants such as airborne particles,
cold air or other changes in air qualities. As a result, these patients often
cough without apparent reason. Nortran's Phase II study is focused on
determining if Nortran's anti-tussive compound, CP1, can reduce patient
sensitivity to such cough-causing irritants.
In its program to treat life-threatening cardiac arrhythmia, Nortran has
developed drug candidates suitable for clinical testing as treatments for atrial
arrhythmia. Nortran has shown in preclinical studies that its drug candidates
are both safe and effective in the suppression of such atrial arrhythmia, with
<PAGE>
little risk of the dangerous side effects associated with current drugs. This
progress has led to collaborative research agreements with AstraZeneca and
Aventis Pharma, both of which are global leaders in the pharmaceutical industry.
ON BEHALF OF THE BOARD
/s/Bob Rieder
Robert Rieder
Chief Executive Officer
The statements made in this press release may contain certain forward-looking
comments. Actual events or results may differ from the Company's expectations.
Exemption from registration pursuant to Rule 12g3-2(b), Reg. No. 82-2317. The
Canadian Venture Exchange has not reviewed and does not accept responsibility
for the adequacy or accuracy of this release.
<PAGE>
Exhibit 15
ONTARIO
BRITISH COLUMBIA
QUEBEC
FORM 27
SECURITIES ACT
MATERIAL CHANGE REPORT UNDER
SECTION 75(2) OF THE SECURITIES ACT (ONTARIO),
SECTION 85(1) OF THE SECURITIES ACT (BRITISH COLUMBIA), AND
SECTION 73 OF THE SECURITIES ACT (QUEBEC)
ITEM 1. REPORTING ISSUER
State the full name and address of the principal office in Canada of
the reporting issuer:
Nortran Pharmaceuticals Inc.
3650 Wesbrook Mall
Vancouver, British Columbia V6S 2L2
ITEM 2. DATE OF MATERIAL CHANGE
April 6, 2000
ITEM 3. PRESS RELEASE
State the date and place(s) of issuance of the press release.
April 6, 2000 - Vancouver, British Columbia
ITEM 4. SUMMARY OF MATERIAL CHANGE
Provide a brief but accurate summary of the nature and substance of the material
change.
The Company has engaged a syndicate of agents lead by Dlouhy Investments Inc.,
co-lead by Goepel McDermid Inc. and including HSBC Securities (Canada) Inc. to
market, on a best-efforts basis, a private placement of special warrants (the
"Special Warrants") for gross proceeds of $8 million. The Special Warrants will
be issued at a price of $1.40 per Special Warrant and will be exercisable into
one common share purchase warrant will entitle the holder to purchase one common
share of the Company at $1.60 for a period of two years. Closing is expected to
occur on or before April 14, 2000.
ITEM 5. FULL DESCRIPTION OF MATERIAL CHANGE
See attached press release dated April 6, 2000 for further details.
<PAGE>
ITEM 6. RELIANCE ON SECTION 75(3) OF THE SECURITIES ACT (ONTARIO) AND
EQUIVALENT SECTIONS OF OTHER JURISDICTIONS
If the report is being filed on a confidential basis, state the
reasons for such reliance.
Not applicable.
ITEM 7. OMITTED INFORMATION
Not applicable.
ITEM 8. SENIOR OFFICERS
To facilitate any necessary follow-up by the Commission, give the name
and business telephone number of a senior officer of the reporting
issuer who is knowledgeable about the material change and the report
or an officer through whom such senior officer may be contacted by the
Commission.
Name: Dr. Michael J. Walker
Title: Chairman of the Board
Phone No.: (604) 822.9531
ITEM 9. STATEMENT OF SENIOR OFFICER
The foregoing accurately discloses the material change referred to
herein.
Dated at Vancouver, B.C., this 11th day of April, 2000
NORTRAN PHARMACEUTICALS INC.
Per: /s/Dr. Michael J. Walker
--------------------------
Signature
Dr. Michael J. Walker
Chairman of the Board
IT IS AN OFFENCE FOR A PERSON TO MAKE A STATEMENT IN A DOCUMENT REQUIRED TO BE
FILED OR FURNISHED UNDER THE ACT OR THIS REGULATION THAT, AT THE TIME AND IN THE
LIGHT OF THE CIRCUMSTANCES UNDER WHICH IT IS MADE, IS A MISREPRESENTATION.
<PAGE>
Nortran Pharmaceuticals Inc. 3650 Wesbrook Mall Tel: 604-222-5577
Vancouver, BC Fax: 604-222-6617
V6S 2L2 CANADA Website: www.nortran.com
For Immediate Release CDNX: NRT, NASD BB: NTRDF
THIS PRESS RELEASE IS NOT FOR DISTRIBUTION TO THE U.S. WIRE SERVICE OR
DISSEMINATION IN THE U.S.
Nortran Announces Special Warrant Financing
-------------------------------------------
Of $8 Million
-------------
Vancouver, Canada, April 6, 2000 - Nortran Pharmaceuticals Inc. (the "Company"
or "Nortran") announced today that it has engaged a syndicate of agents lead by
Dlouhy Investments Inc., co-led by Goepel McDermid Inc. and including HSBC
Securities (Canada) Inc. to market, on a best-efforts basis, a private placement
of special warrants (the "Special Warrants") for gross proceeds of $8 million.
The Special Warrants will be issued at a price of $1.40 per Special Warrant and
will be exercisable, for no additional consideration, into one common share and
one half-of one common share purchase warrant, to be qualified for distribution
by a prospectus. Each whole common share purchase warrant will entitle the
holder to purchase one common share of the Company at $1.60 for a period of two
years. Closing is expected to occur on or about April 14, 2000. The net
proceeds from the Special Warrants will be held in escrow until the clearance of
a prospectus qualifying the underlying securities.
The net proceeds from the Special Warrants will be used to fund the current
clinical trials in the Company's chronic cough program and to initiate clinical
testing of the Company's antiarrhythmic drug candidates. In addition, a portion
of the funds will be used for general corporate purposes.
The Company has agreed to pay the agents a cash commission and grant the agents
compensation options exercisable, for 18 months from the closing, for common
shares at an exercise price equal to the offering price of the Special Warrants.
Closing of the private placement is subject to receipt of all necessary
regulatory approvals.
Nortran Pharmaceuticals is a commercially-focused pharmaceutical company.
Current Nortran drugs in development target intractable cough and
life-threatening arrhythmia of the heart.
Nortran recently announced the start of a placebo-controlled Phase II clinical
trial of its lead product, CP1, in patients with chronic, idiopathic cough.
Idiopathic cough is a sustained cough with no diagnosable cause. Such patients
have a heightened sensitivity to cough-irritants such as airborne particles,
cold air or other changes in air qualities. As a result, these patients often
<PAGE>
cough without apparent reason. Nortran's Phase II study is focused on
determining if Nortran's anti-tussive compound, CP1, can reduce patient
sensitivity to such cough-causing irritants.
In its program to treat life-threatening cardiac arrhythmia, Nortran has
developed drug candidates suitable for clinical testing as treatments for atrial
arrhythmia. Nortran has shown in preclinical studies that its drug candidates
are both safe and effective in the suppression of such atrial arrhythmia, with
little risk of the dangerous side effects associated with current drugs. This
progress has led to collaborative research agreements with AstraZeneca and
Aventis Pharma, both of which are global leaders in the pharmaceutical industry.
ON BEHALF OF THE BOARD
/s/Bob Rieder
Robert Rieder
Chief Executive Officer
The statements made in this press release may contain certain forward-looking
comments. Actual events or results may differ from the Company's expectations.
Exemption from registration pursuant to Rule 12g3-2(b), Reg. No. 82-2317. The
Canadian Venture Exchange has not reviewed and does not accept responsibility
for the adequacy or accuracy of this release.
<PAGE>
Exhibit 16
ONTARIO
BRITISH COLUMBIA
QUEBEC
FORM 27
SECURITIES ACT
MATERIAL CHANGE REPORT UNDER
SECTION 75(2) OF THE SECURITIES ACT (ONTARIO),
SECTION 85(1) OF THE SECURITIES ACT AND SECTION 151 OF THE
SECURITIES RULES (BRITISH COLUMBIA)
ITEM 1. REPORTING ISSUER
Nortran Pharmaceuticals Inc.
3650 Wesbrook Mall
Vancouver, British Columbia V6S 2L2
ITEM 2. DATE OF MATERIAL CHANGE
April 14, 2000
ITEM 3. PRESS RELEASE
April 14, 2000 - Vancouver, British Columbia
ITEM 4. SUMMARY OF MATERIAL CHANGE
The Issuer has closed the special warrant private placement announced by the
Issuer on April 2, 2000 for gross proceeds of approximately &7.8 million.
ITEM 5. FULL DESCRIPTION OF MATERIAL CHANGE
The Issuer has closed the special warrant private placement announced by the
Issuer on April 6, 2000 for gross proceeds of approximately $7.8 million.
A total of 5,549,200 special warrants were issued to Subscribers to the private
placements. Each Special Warrant entitles the holder to acquire one common
share in the capital of the Issuer at a price of $1.40 per share and one-half
common share purchase warrant (the "Warrant"). Each whole Warrant entitles the
holder to purchase one common share in the capital of the Issuer at a price of
$1.60 per share until April 14, 2002.
A syndicate of agents lead by Dlouhy Investments Inc., co-lead by Goepel
McDermid Inc. and including HSBC Securities (Canada) Inc. participated in this
offering. The agents received an aggregate of $543,821.60 in cash and 554,920
Compensation Options. Each Compensation Option entitles the holder to one
agent's warrant (the "Agent's Warrant"). Each Agent's Warrant entitles the
NPI500.219
<PAGE>
holder to acquire on exercise one common share in the capital of the Issuer at a
deemed price of $1.40 per share until October 14, 2001. The net proceeds of the
financing will be held in escrow pending clearance of a prospectus. If a final
prospectus is not receipted within 90 days of closing, holders of special
warrants will have 21 days to either have their special warrants repurchased or
receive 1.1 shares and one-half warrant upon exercise of their Special Warrants.
The net proceeds from the private placement will be used to fund clinical
development of the Issuer's lead drug candidates, as well as for general
corporate purposes.
ITEM 6. RELIANCE ON SECTION 75(3) OF THE SECURITIES ACT (ONTARIO) AND
EQUIVALENT SECTIONS OF OTHER JURISDICTIONS
Not applicable.
ITEM 7. OMITTED INFORMATION
Not applicable.
ITEM 8. SENIOR OFFICERS
Name: Robert W. Rieder
Title: President and Chief Executive Officer
Phone No.: (604) 222-5577
ITEM 9. STATEMENT OF SENIOR OFFICER
The foregoing accurately discloses the material change referred to herein.
April 20, 2000 Per: /s/Robert W. Rieder
--------------------------- ---------------------------
Date Signature
Robert W. Rieder
----------------------------
Name of Officer
President and Chief Executive Officer
-------------------------------------
Title of Officer
Vancouver, British Columbia
-------------------------------------
Place
<PAGE>
Nortran Pharmaceuticals Inc. 3650 Wesbrook Mall Tel: 604-222-5577
Vancouver, BC Fax: 604-222-6617
V6S 2L2 CANADA Website: www.nortran.com
For Immediate Release CDNX: NRT, NASD BB: NTRDF
THIS PRESS RELEASE IS NOT FOR DISTRIBUTION TO THE U.S. WIRE SERVICE OR
DISSEMINATION IN THE U.S.
Nortran Closes Special Warrant Financing
----------------------------------------
Vancouver, Canada, April 14, 2000 - Nortran Pharmaceuticals Inc. (the "Company"
or "Nortran") announced today that it has successfully closed the special
warrant financing announced on April 6, 2000. The offering was subscribed to by
Canadian institutional investors and resulted in gross proceeds to the Company
of approximately $7.8 million.
A syndicate of agents led by Dlouhy Investments Inc., co-led by Goepel McDermid
Inc. and including HSBC Securities (Canada) Inc., participated in this offering.
The Special Warrants were issued at a price of $1.40 per Special Warrant and are
exercisable, for no additional consideration, into one common share and one-half
of one common share purchase warrant, to be qualified for distribution by a
prospectus. Each whole common share purchase warrant will entitle the holder to
purchase one common share of the Company at $1.60 for a period of two years. The
net proceeds from the Special Warrants will be held in escrow until the
clearance of a prospectus qualifying the underlying securities.
The net proceeds from the Special Warrants will be used to fund clinical
development of the Company's lead drug candidates, as well as for general
corporate purposes.
Bob Rieder, President and CEO commented, "We welcome the opportunity to raise
additional capital for our company. This influx of funds will allow us to move
aggressively on our product development plans which include key milestones this
year for Nortran's cough drug, CP1 which has just commenced Phase II studies.
Additionally, we intend to use these funds to push one of our antiarrhythmic
candidates forward into the clinical development track."
In connection with the offering, the Company paid the agents a cash commission
and granted the agents compensation options entitling the agents to acquire
common shares of the Company at $1.40 for a period of 18 months from the
closing.
Nortran Pharmaceuticals is a commercially-focused pharmaceutical company.
Current Nortran drugs in development target intractable cough and
life-threatening arrhythmias of the heart.
<PAGE>
Nortran recently announced the start of a placebo-controlled Phase II clinical
trial of its lead product, CP1, in patients with chronic, idiopathic cough.
Idiopathic cough is a sustained cough with no diagnosable cause. Such patients
have a heightened sensitivity to cough-irritants such as airborne particles,
cold air or other changes in air qualities. As a result, these patients often
cough without apparent reason. Nortran's Phase II study is focused on
determining if Nortran's anti-tussive compound, CP1, can reduce patient
sensitivity to such cough-causing irritants.
In its program to treat life-threatening cardiac arrhythmias, Nortran has
developed drug candidates suitable for clinical testing as treatments for atrial
arrhythmias. Nortran has shown in preclinical studies that its drug candidates
are both safe and effective in the suppression of such atrial arrhythmia, with
less risk of the dangerous side effects associated with current drugs. This
progress has led to collaborative research agreements with AstraZeneca and
Aventis Pharma, both of which are global leaders in the pharmaceutical industry.
ON BEHALF OF THE BOARD
/s/Bob Rieder
Robert Rieder
Chief Executive Officer
The statements made in this press release may contain certain forward-looking
comments. Actual events or results may differ from the Company's expectations.
Exemption from registration pursuant to Rule 12g3-2(b), Reg. No. 82-2317. The
Canadian Venture Exchange has not reviewed and does not accept responsibility
for the adequacy or accuracy of this release.
<PAGE>
Exhibit 17
ONTARIO
BRITISH COLUMBIA
QUEBEC
FORM 27
SECURITIES ACT
MATERIAL CHANGE REPORT UNDER
SECTION 75(2) OF THE SECURITIES ACT (ONTARIO),
SECTION 85(1) OF THE SECURITIES ACT (BRITISH COLUMBIA), AND
SECTION 73 OF THE SECURITIES ACT (QUEBEC)
ITEM 1. REPORTING ISSUER
State the full name and address of the principal office in Canada of
the reporting issuer:
Nortran Pharmaceuticals Inc.
3650 Wesbrook Mall
Vancouver, British Columbia V6S 2L2
ITEM 2. DATE OF MATERIAL CHANGE
May 24, 2000
ITEM 3. PRESS RELEASE
State the date and place(s) of issuance of the press release.
May 24, 2000 - Vancouver, British Columbia
ITEM 4. SUMMARY OF MATERIAL CHANGE
Provide a brief but accurate summary of the nature and substance of the material
change.
The Company announced that it has arranged a private placement to raise gross
proceeds of $500,000.
ITEM 5. FULL DESCRIPTION OF MATERIAL CHANGE
The Company has entered into an agreement to complete a non-brokered private
placement to raise $500,000. The investment will be made by FutureFund Capital
(VCC) Corp., a publicly traded investment fund that manages a diversified
portfolio of emerging British Columbia-based technology companies. The
investment in the Company is subject to regulatory approval, including without
limitation, that of the administrator of the Small Business Venture Capital Act
(British Columbia). This private placement will be for 357,142 units at a price
of $1.40 per unit, each unit consisting of one common share and one-half of one
non-transferable share purchase warrant, each whole share purchase warrant
entitling the holder to purchase one additional common share of the Company at a
price of $1.60 for a period of two years.
Reference is made to the attached press release dated May 24, 2000.
ITEM 6. RELIANCE ON SECTION 75(3) OF THE SECURITIES ACT (ONTARIO) AND
EQUIVALENT SECTIONS OF OTHER JURISDICTIONS
If the report is being filed on a confidential basis, state the
reasons for such reliance.
Not applicable.
ITEM 7. OMITTED INFORMATION
Not applicable.
ITEM 8. SENIOR OFFICERS
To facilitate any necessary follow-up by the Commission, give the name
and business telephone number of a senior officer of the reporting
issuer who is knowledgeable about the material change and the report
or an officer through whom such senior officer may be contacted by the
Commission.
Name: Sheila Grant
Title: Corporate Secretary
Phone No.: (604) 222-5577
ITEM 9. STATEMENT OF SENIOR OFFICER
The foregoing accurately discloses the material change referred to herein.
NORTRAN PHARMACEUTICALS INC.
May 31, 2000 Per: /s/Sheila Grant
------------ ------------------------
Date Signature
Sheila Grant
-------------
Name of Officer
Corporate Secretary
--------------------
Title of Officer
Vancouver, British Columbia
Place
IT IS AN OFFENCE FOR A PERSON TO MAKE A STATEMENT IN A DOCUMENT REQUIRED TO BE
FILED OR FURNISHED UNDER THE ACT OR THIS REGULATION THAT, AT THE TIME AND IN THE
LIGHT OF THE CIRCUMSTANCES UNDER WHICH IT IS MADE, IS A MISREPRESENTATION.
<PAGE>
Nortran Pharmaceuticals Inc. 3650 Wesbrook Mall Tel: 604-222-5577
Vancouver, BC Fax: 604-222-6617
V6S 2L2 CANADA Website: www.nortran.com
For Immediate Release CDNX: NRT, NASD BB: NTRDF
THIS PRESS RELEASE IS NOT FOR DISTRIBUTION TO THE U.S. WIRE SERVICE OR
DISSEMINATION IN THE U.S.
Nortran To Complete $0.5 Million Private Placement
--------------------------------------------------
Vancouver, Canada, May 24, 2000 - Nortran Pharmaceuticals Inc. (the "Company" or
"Nortran") announced today that it has entered into an agreement to complete a
non-brokered private placement to raise $0.5 million. The investment will be
made by FutureFund Capital (VCC) Corp. ("FutureFund") a publicly-traded
investment fund that manages a diversified portfolio of emerging British
Columbia-based technology companies. The investment in the Company is subject
to regulatory approval, including without limitation, that of the administrator
of the Small Business Venture Capital Act (British Columbia).
This private placement, will be for 357,143 units at a price of $1.40 per unit,
each unit consisting of one common share and one-half of one common share
purchase warrant, each whole common share purchase warrant entitling the holder
to purchase one common share of the Company at $1.60 for a period of two years.
Bob Rieder, President and CEO commented, "We are happy to become a member of
FutureFund's portfolio of technology companies. FutureFund's investment in
Nortran, and companies like Nortran, is an important contributor in helping
build our BC technology industries. This additional funding for Nortran will
allow us to carry on certain optional programs which we think have high
potential for adding value to our company."
FutureFund's balanced portfolio is comprised of emerging technology companies
located in British Columbia, primarily in biotechnology, information technology,
communications, proprietary chemistry and other leading edge technologies.
Investments in other biotechnology companies have included in recent months
investment in Kinetek Pharmaceuticals Inc. and Synapse Technologies Inc.
Nortran recently announced the start of a placebo-controlled Phase II clinical
trial of its lead product, CP1, in patients with chronic, idiopathic cough.
Idiopathic cough is a chronic cough with no diagnosable cause. Such patients
have a heightened sensitivity to cough-irritants such as airborne particles,
cold air or other changes in air qualities. As a result, these patients often
cough without apparent reason. Nortran's Phase II study is focused on
determining if Nortran's anti-tussive compound, CP1, can reduce patient
sensitivity to such cough-causing irritants.
<PAGE>
In its program to treat life-threatening cardiac arrhythmias, Nortran has
developed drug candidates suitable for clinical testing as treatments for atrial
arrhythmias. Nortran has shown in preclinical studies that its drug candidates
are both safe and effective in the suppression of such atrial arrhythmia, with
less risk of the dangerous side effects associated with current drugs. This
progress has led to collaborative research agreements with AstraZeneca and
Aventis Pharma, both of which are global leaders in the pharmaceutical industry.
ON BEHALF OF THE BOARD
/s/Bob Rieder
Robert Rieder
Chief Executive Officer
The statements made in this press release may contain certain forward-looking
comments. Actual events or results may differ from the Company's expectations.
Exemption from registration pursuant to Rule 12g3-2(b), Reg. No. 82-2317. The
Canadian Venture Exchange has not reviewed and does not accept responsibility
for the adequacy or accuracy of this release.
<PAGE>
Exhibit 18
ONTARIO
BRITISH COLUMBIA
QUEBEC
FORM 27
SECURITIES ACT
MATERIAL CHANGE REPORT UNDER
SECTION 75(2) OF THE SECURITIES ACT (ONTARIO),
SECTION 85(1) OF THE SECURITIES ACT AND SECTION 151
OF THE SECURITIES RULES (BRITISH COLUMBIA)
ITEM 1. REPORTING ISSUER
Nortran Pharmaceuticals Inc.
3650 Wesbrook Mall
Vancouver, British Columbia V6S 2L2
ITEM 2. DATE OF MATERIAL CHANGE
June 5, 2000
ITEM 3. PRESS RELEASE
June 5, 2000 - Vancouver, British Columbia
ITEM 4. SUMMARY OF MATERIAL CHANGE
The Issuer has closed a non-brokered private placement made on May 24, 2000. The
$0.5 million investment has been made by FutureFund Capital (VCC) Corp., a
publicly traded investment fund that manages a diversified portfolio of emerging
British Columbia-based technology companies.
ITEM 5. FULL DESCRIPTION OF MATERIAL CHANGE
See attached press release for further details.
ITEM 6. RELIANCE ON SECTION 75(3) OF THE SECURITIES ACT (ONTARIO) AND
EQUIVALENT SECTIONS OF OTHER JURISDICTIONS
Not applicable.
ITEM 7. OMITTED INFORMATION
Not applicable.
<PAGE>
ITEM 8. SENIOR OFFICERS
Name: Robert W. Rieder
Title: President and Chief Executive Officer
Phone No.: (604) 222-5577
ITEM 9. STATEMENT OF SENIOR OFFICER
The foregoing accurately discloses the material change referred to herein.
June 7, 2000 Per: /s/Robert W. Rieder
--------------------------- ---------------------------
Date Signature
Robert W. Rieder
----------------------------
Name of Officer
President and Chief Executive Officer
-------------------------------------
Title of Officer
Vancouver, British Columbia
-------------------------------------
Place
IT IS AN OFFENCE FOR A PERSON TO MAKE A STATEMENT IN A DOCUMENT REQUIRED TO BE
FILED OR FURNISHED UNDER THE ACT OR THIS REGULATION THAT, AT THE TIME AND IN THE
LIGHT OF THE CIRCUMSTANCES UNDER WHICH IT IS MADE, IS A MISREPRESENTATION.
<PAGE>
Nortran Pharmaceuticals Inc. 3650 Wesbrook Mall Tel: 604-222-5577
Vancouver, BC Fax: 604-222-6617
V6S 2L2 CANADA Website: www.nortran.com
For Immediate Release CDNX: NRT, NASD BB: NTRDF
THIS PRESS RELEASE IS NOT FOR DISTRIBUTION TO THE U.S. WIRE SERVICE OR
DISSEMINATION IN THE U.S.
Nortran Closes $0.5 Million Private Placement
---------------------------------------------
Vancouver, Canada, June 5, 2000 - Nortran Pharmaceuticals Inc. (the "Company" or
"Nortran") announced today that it has closed the non-brokered private placement
announced on May 24, 2000. The $0.5 million investment has been made by
FutureFund Capital (VCC) Corp. ("FutureFund") a publicly-traded investment fund
that manages a diversified portfolio of emerging British Columbia-based
technology companies.
This private placement was for 357,142 units at a price of $1.40 per unit, each
unit consisting of one common share and one-half of one common share purchase
warrant, with each whole common share purchase warrant entitling the holder to
purchase one common share of the Company at $1.60 for a period of two years.
Bob Rieder, President and CEO commented, "Future Fund is a knowledgeable and
sophisticated firm. We are pleased to have been selected for their investment.
The funds will be very useful in carrying out certain optional programs which we
think can bring great value to the company."
FutureFund's balanced portfolio is comprised of emerging technology companies
located in British Columbia, primarily in biotechnology, information technology,
communications, proprietary chemistry and other leading edge technologies.
Investments in other biotechnology companies have included in recent months
investment in Kinetek Pharmaceuticals Inc. and Synapse Technologies Inc.
Nortran recently announced the start of a placebo-controlled Phase II clinical
trial of its lead product, CP1, in patients with chronic, idiopathic cough.
Idiopathic cough is a chronic cough with no diagnosable cause. Such patients
have a heightened sensitivity to cough-irritants such as airborne particles,
cold air or other changes in air qualities. As a result, these patients often
cough without apparent reason. Nortran's Phase II study is focused on
determining if Nortran's anti-tussive compound, CP1, can reduce patient
sensitivity to such cough-causing irritants.
<PAGE>
- 2 -
In its program to treat life-threatening cardiac arrhythmias, Nortran has
developed drug candidates suitable for clinical testing as treatments for atrial
arrhythmias. Nortran has shown in preclinical studies that its drug candidates
are both safe and effective in the suppression of such atrial arrhythmia, with
less risk of the dangerous side effects associated with current drugs. This
progress has led to collaborative research agreements with AstraZeneca and
Aventis Pharma, both of which are global leaders in the pharmaceutical industry.
ON BEHALF OF THE BOARD
/s/Robert Rieder
Robert Rieder
Chief Executive Officer
The statements made in this press release may contain certain forward-looking
comments. Actual events or results may differ from the Company's expectations.
Exemption from registration pursuant to Rule 12g3-2(b), Reg. No. 82-2317. The
Canadian Venture Exchange has not reviewed and does not accept responsibility
for the adequacy or accuracy of this release.
<PAGE>
Exhibit 19
ONTARIO
BRITISH COLUMBIA
ALBERTA
QUEBEC
FORM 27
SECURITIES ACT
MATERIAL CHANGE REPORT UNDER
SECTION 75(2) OF THE SECURITIES ACT (ONTARIO),
SECTION 85(1) OF THE SECURITIES ACT (BRITISH COLUMBIA),
SECTION 118(1) OF THE SECURITIES ACT (ALBERTA) AND
SECTION 73 OF THE SECURITIES ACT (QUEBEC)
ITEM 1. REPORTING ISSUER
Nortran Pharmaceuticals Inc.
3650 Wesbrook Mall
Vancouver, British Columbia V6S 2L2
ITEM 2. DATE OF MATERIAL CHANGE
June 19, 2000
ITEM 3. PRESS RELEASE
June 20, 2000 - Vancouver, British Columbia
ITEM 4. SUMMARY OF MATERIAL CHANGE
The Issuer has obtained receipts for a final prospectus filed in
British Columbia, Ontario, Alberta and Yukon, in connection with the
previously announced special warrant financing of approximately $7.8
million, which closed on April 14, 2000.
ITEM 5. FULL DESCRIPTION OF MATERIAL CHANGE
See attached press release for further details.
ITEM 6. RELIANCE ON SECTION 75(3) OF THE SECURITIES ACT (ONTARIO) AND
EQUIVALENT SECTIONS OF OTHER JURISDICTIONS
Not applicable.
<PAGE>
ITEM 7. OMITTED INFORMATION
Not applicable.
ITEM 8. SENIOR OFFICERS
Name: Robert W. Rieder
Title: President and Chief Executive Officer
Phone No.: (604) 222-5577
ITEM 9. STATEMENT OF SENIOR OFFICER
The foregoing accurately discloses the material change referred to
herein.
June 20, 2000 Per: /s/Robert W. Rieder
--------------------------------- ----------------------------------------
Date Signature
Robert W. Rieder
----------------------------------------
Name of Officer
President and Chief Executive Officer
----------------------------------------
Title of Officer
Vancouver, British Columbia
----------------------------------------
Place
<PAGE>
Nortran Pharmaceuticals Inc. 3650 Wesbrook Mall Tel: 604-222-5577
Vancouver, BC Fax: 604-222-6617
V6S 2L2 CANADA Website: www.nortran.com
For Immediate Release CDNX: NRT, NASD BB: NTRDF
THIS PRESS RELEASE IS NOT FOR DISTRIBUTION TO THE U.S. WIRE SERVICE OR
DISSEMINATION IN THE U.S.
Nortran Files Final Prospectus for
----------------------------------
$7.8 Million Special Warrant Financing
--------------------------------------
Vancouver, Canada, June 20, 2000 - Nortran Pharmaceuticals Inc. (the "Company"
or "Nortran") announced today that it has obtained receipts for a final
prospectus filed in British Columbia, Ontario, Alberta and Yukon, in connection
with the previously announced Special Warrant financing of approximately $7.8
million, which closed on April 14, 2000. A syndicate of agents co-led by Dlouhy
Investments Inc., and Goepel McDermid Inc. and including HSBC Securities
(Canada) Inc., participated in this financing.
The prospectus qualifies for distribution 5,549,200 common shares issuable upon
exercise of the Special Warrants. The Special Warrants were issued at a price
of $1.40 per Special Warrant and are exercisable, for no additional
consideration, into one common share and one-half of one common share purchase
warrant. Each whole common share purchase warrant will entitle the holder to
purchase one common share of the Company at $1.60 for a period of two years.
The net proceeds from the Special Warrants will be used to fund clinical
development of the Company's lead drug candidates, as well as for general
corporate purposes.
Nortran Pharmaceuticals is a commercially-focused pharmaceutical company.
Current Nortran drugs in development target intractable cough and
life-threatening arrhythmia of the heart.
Nortran recently announced the start of a placebo-controlled Phase II clinical
trial of its lead product, CP1, in patients with chronic, idiopathic cough.
Idiopathic cough is a sustained cough with no diagnosable cause. Such patients
have a heightened sensitivity to cough-irritants such as airborne particles,
cold air or other changes in air qualities. As a result, these patients often
cough without apparent reason. Nortran's Phase II study is focused on
determining if Nortran's anti-tussive compound, CP1, can reduce patient
sensitivity to such cough-causing irritants.
In its program to treat life-threatening cardiac arrhythmia, Nortran has
developed drug candidates suitable for clinical testing as treatments for atrial
arrhythmia. Nortran has shown in preclinical studies that its drug candidates
are both safe and effective in the suppression of such atrial arrhythmia, with
<PAGE>
little risk of the dangerous side effects associated with current drugs. This
progress has led to collaborative research agreements with AstraZeneca and
Aventis Pharma, both of which are global leaders in the pharmaceutical industry.
ON BEHALF OF THE BOARD
/s/Bob Rieder
Robert Rieder
Chief Executive Officer
The statements made in this press release may contain certain forward-looking
comments. Actual events or results may differ from the Company's expectations.
Exemption from registration pursuant to Rule 12g3-2(b), Reg. No. 82-2317. The
Canadian Venture Exchange has not reviewed and does not accept responsibility
for the adequacy or accuracy of this release.
<PAGE>
Exhibit 20
PACIFIC CORPORATE TRUST COMPANY
Suite 830 - 625 Howe Street
Vancouver, B.C. V6C 3B8
Telephone: (604) 689-9853
Fax: (604) 689-8144
March 15, 2000
The B.C. Securities Commission
2nd Floor - 865 Hornby Street
Vancouver, B.C.
V6Z 2H4
Dear Sirs:
As per National Policy 41 requirements, including Addendum "A" to the Policy,
please be advised of the following:
Company: Nortran Pharmaceuticals Inc.
(Cusip 66877L104)
Meeting: Annual General Meeting
Record Date: April 10, 2000
Meeting Date: May 25, 2000
If you require further information, please contact:
/s/ Heather Davey
Heather Davey
Pacific Corporate Trust Company
cc: Alberta Securities Commission cc: P.E.I. Securities Commission
cc: Manitoba Securities Commission cc: Quebec Securities Commission
cc: New Brunswick Securities Commission cc: Saskatchewan Securities Commission
cc: Newfoundland Securities Commission cc: Northwest Territory
cc: Nova Scotia Securities Commission cc: Yukon Territory
cc: Ontario Securities Commission cc: Canadian Venture Exchange
<PAGE>
NORTRAN PHARMACEUTICALS INC.
2000
ANNUAL Notice of Annual General Meeting of Members
GENERAL Management Proxy Circular
MEETING
Place: The Four Seasons Hotel
791 West Georgia Street
Vancouver, BC V6C 2T4
Telephone: (604) 844-6714
Time: 2:00 p.m. (Vancouver time)
Date: Thursday, May 25, 2000
<PAGE>
NORTRAN PHARMACEUTICALS INC.
CORPORATE Head Office
DATA 3650 Wesbrook Mall
Vancouver, BC
V6S 2L2
Telephone: 604-222-5577
Facsimile: 604-222-6617
Web: www.nortran.com
---------------
Directors & Officers
Michael J. A. Walker, Ph.D. Chairman of the Board &
Director
Robert W. Rieder, M.B.A. President, CEO, and Director
Allen I. Bain, Ph.D. Director
Clive P. Page, Ph.D. Director
Colin R. Mallet Director
Oh Kim Sun Director
Darrel Elliott Director
Gregory N. Beatch, Ph.D. Vice-President of Research
Sheila M. Grant, M.B.A. Secretary,
Director of Finance
& Administration
Registrar & Transfer Agent
Pacific Corporate Trust Company
830 - 625 Howe Street
Vancouver, BC V6C 3B8
Solicitors
Catalyst Corporate Finance Lawyers
1100 - 1055 W. Hastings St
Vancouver, BC V6E 2E9
Auditors
Ernst & Young
Pacific Centre, P.O. Box 10101
700 West Georgia Street
Vancouver, BC V7Y 1C7
Listing
Canadian Venture Exchange Symbol: NRT
NASD OTC BB Symbol: NTRDF
<PAGE>
NOTICE OF ANNUAL GENERAL MEETING
NOTICE IS HEREBY GIVEN that the annual general meeting (the "Meeting") of the
shareholders of Nortran Pharmaceuticals Inc. (the "Company") will be held at The
Four Seasons Hotel, 791 West Georgia Street, Vancouver, British Columbia, on
Thursday, May 25, 2000 at the hour of 2:00 p.m., Vancouver time, for the
following purposes:
1. to receive the report of the Directors of the Company;
2. to receive the audited financial statements of the Company for the year
ended November 30, 1999, and the report of the auditors thereon;
3. to re-appoint Ernst & Young LLP, Chartered Accountants, as auditor of the
Company until the next annual general meeting of the shareholders of the
Company and to authorize the Directors to fix the remuneration of the
auditor;
4. to set the number of Directors of the Company at seven;
5. to elect seven persons as Directors of the Company;
6. to consider, and if thought fit, pass an ordinary resolution, with or
without amendment that:
"The issuance by the Company in one or more private placements of such
number of securities that would result in the Company making issuable
during the next twelve months an amount of securities that exceeds 25% of
the Company's issued and outstanding shares (on a non-diluted basis) to a
maximum of 100% of the Company's issued and outstanding shares (on a non-
diluted basis), subject to the restrictions described in the Company's
Information Circular dated April 10, 2000, is hereby approved."; and
7. to consider such other matters as may properly be brought before the
Meeting or any adjournment thereof.
The accompanying Information Circular provides additional information relating
to the matters to be dealt with at the Meeting and is supplemental to and
expressly made a part of this Notice of Meeting.
If you are a registered shareholder of the Company and are unable to attend the
Meeting in person, please complete, date and execute the accompanying form of
proxy and deposit it with Pacific Corporate Trust Company, 830 - 625 Howe
Street, Vancouver, British Columbia, V6C 3B8, by mail, telefax or by hand
(telefax: (604) 689-8144), not less than 48 hours (excluding Saturdays, Sundays
and holidays) prior to the Meeting or deliver it to the Chairman at the Meeting.
DATED at Vancouver, British Columbia as of the 10th day of April, 2000.
By Order of the Board of Directors of
NORTRAN PHARMACEUTICALS INC.
/s/ Robert W. Rieder
Robert W. Rieder,
President and Chief Executive Officer
<PAGE>
Exhibit 21
THIS PROSPECTUS CONSTITUTES A PUBLIC OFFERING OF THESE SECURITIES ONLY IN THOSE
JURISDICTIONS WHERE THEY MAY BE LAWFULLY OFFERED FOR SALE AND THEREIN ONLY BY
PERSONS PERMITTED TO SELL SUCH SECURITIES. NO SECURITIES COMMISSION OR SIMILAR
AUTHORITY HAS IN ANY WAY PASSED UPON THE MERITS OF THE SECURITIES OFFERED
HEREUNDER AND ANY REPRESENTATION TO THE CONTRARY IS AN OFFENCE.
NEW ISSUE DATED: JUNE 19, 2000
PROSPECTUS
[GRAPHIC OMITTED]
Nortran Pharmaceuticals Inc.
5,549,200 Common Shares on Exercise of Special Warrants
2,774,600 Warrants on Exercise of Special Warrants
554,920 Agents' Warrants on Exercise of Compensation Options in British Columbia
(277,460 Agents' Warrants in Ontario)
Nortran Pharmaceuticals Inc. (the "Issuer") is qualifying the distribution of
5,549,200 common shares in the capital of the Issuer (the "Common Shares") and
2,774,600 share purchase warrants (the "Warrants") which will be issued upon
exercise of special warrants (the "Special Warrants"). Each Special Warrant
entitles the holder to receive without payment of additional consideration, one
Common Share and 0.5 Warrant. Each whole Warrant entitles the holder thereof to
purchase one additional Common Share at a price of $1.60 on or before 4:00 p.m.
(Vancouver time) on April 14, 2002. The Issuer is also qualifying the
distribution of 554,920 Agents' Warrants in British Columbia, 277,460 of which
are being qualified in Ontario. The Special Warrants were issued on April 14,
2000, on a private placement basis (the "Private Placement"), pursuant to an
agency agreement (the "Agency Agreement") among the Issuer, Dlouhy Investments
Inc., Goepel McDermid Inc. and HSBC Securities (Canada) Inc. (collectively, the
"Agents").
THE SECURITIES OFFERED HEREUNDER HAVE NOT AND WILL NOT BE REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (the "1933 Act"), AND, SUBJECT
TO CERTAIN EXCEPTIONS, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO
A "US PERSON" AS DEFINED IN REGULATION S UNDER THE 1933 ACT.
The Special Warrants are exercisable until 4:00 p.m. (Vancouver time) on the day
which is the earlier of: (a) the fifth business day following the date on which
the last of the receipts (the "Receipts") is issued for this Prospectus by the
appropriate securities regulatory authorities; and (b) April 14, 2001. If the
Receipts have not been issued by July 13, 2000, the holders will be entitled to
have their Special Warrants repurchased by the Issuer at the aggregate issue
price plus interest earned thereon or, alternatively, to retain their Special
Warrants and receive 1.1 Common Shares (rather than one Common Share) and 0.5
Warrant upon exercise of each Special Warrant held.
================================================================================
Price Agents' Commission(1) Proceeds to Issuer(2)
--------------------------------------------------------------------------------
Per Special Warrant $1.40 $0.098 $1.302
--------------------------------------------------------------------------------
Total: $7,768,880 $543,822 $7,225,058
================================================================================
(1) In connection with the Private Placement, the Issuer paid a cash commission
to the Agents of $543,822 from the proceeds of the Offering. Additionally,
the Agents received compensation options (the "Compensation Options"). See
"Plan of Distribution" for further particulars.
(2) Before deducting the balance of the expenses of the Private Placement and
and this Prospectus, estimated at $200,058, which will be borne by the
Issuer. See "Use of Proceeds" for further particulars.
As part of the Agents' commission for their services rendered in connection with
the Private Placement, the Issuer issued 554,920 Compensation Options to the
<PAGE>
Page ii
Agents, representing 10% of the number of Special Warrants sold under the
Private Placement. Upon exercise, each Compensation Option entitles the Agents
to receive, without payment of additional consideration, one Agents' Warrant.
Each Agents' Warrant entitles the holder to purchase one Common Share at a price
of $1.40 until 4:00 p.m. (Vancouver time) on October 14, 2001. If the Receipts
have not been issued by July 13, 2000, then each Agents' Warrant will entitle
the Agents to purchase 1.1 Common Shares (rather than one Common Share) upon
exercise.
As of the date of this Prospectus, none of the Special Warrants or Compensation
Options have been exercised. No additional commission or fee will be paid to
the Agents and no additional proceeds will be received by the Issuer in
connection with the exercise of the Special Warrants and Compensation Options.
The net proceeds of the Private Placement received from the subscribers were
placed in escrow pursuant to a special warrant indenture dated April 14, 2000
between the Issuer and Pacific Corporate Trust Company (the "Special Warrant
Indenture"). The escrowed proceeds will be released from escrow upon the
earlier to occur of (i) the fifth business day following the date on which the
last of the Receipts for this Prospectus is issued by the appropriate securities
regulatory authorities; and (ii) August 3, 2000. See "Plan of Distribution" for
further particulars.
The Special Warrants are subject to restrictions on resale until such time as
the hold period prescribed by the Securities Act in the applicable jurisdiction
has expired, a further statutory exemption may be relied upon by the investor, a
discretionary order is obtained from the applicable securities regulatory
authority or a receipt for this Prospectus is issued by the applicable
securities regulatory authority.
By approval of the Private Placement, the Canadian Venture Exchange Inc. (the
"CDNX") has approved the listing of the Common Shares issuable upon exercise of
the Special Warrants, Warrants and the Agents' Warrants.
An investment in Common Shares of the Issuer should be regarded as highly
speculative due to the nature of the Issuer's business and its present stage of
development. The Common Shares issued upon exercise of the Special Warrants are
suitable only for investors who have no need for liquidity in their investments.
The price of each Special Warrant exceeded the net tangible book value of the
common shares as at February 29, 2000, after giving effect to the Private
Placement by $1.09, representing dilution of 77.86% ($0.94 and 67.14% on a fully
diluted basis). See "Risk Factors" and "Dilution" for further particulars.
After giving effect to the issuance of the Common Shares upon exercise of the
Special Warrants and exercise of the Warrants and Agents' Warrants, 79.5%
(35,326,062) of the voting securities of the Issuer will be held by the public
and the remaining 20.5% (9,114,306) of the voting securities will be held by
promoters, insiders, the Agents and holders of performance shares (assuming
Receipts are issued by July 13, 2000). See "Directors, Management and Officers"
for further particulars.
The Common Shares are listed and posted for trading on the CDNX (Symbol: "NRT")
and are quoted on the OTC Electronic Bulletin Board (Symbol: "NTRDF"). On April
6, 2000, the date on which the Private Placement was announced, the closing
price of the Common Shares on the CDNX was $1.46. On April 14, 2000, the date
of closing of the Private Placement, the closing price of the Common Shares on
the CDNX was $1.25. The purchase price of $1.40 per Special Warrant was
established by negotiation between the Issuer and the Agents. The Special
Warrants and Compensation Options were issued pursuant to exemptions from the
prospectus requirements of applicable securities legislation.
Certain legal matters relating to the distribution of the Common Shares and
Warrants upon exercise of the Special Warrants and the Agents' Warrants upon
exercise of the Compensation Options will be passed upon on behalf of the Issuer
by Catalyst Corporate Finance Lawyers and on behalf of the Agents by Blake,
Cassels & Graydon LLP.
<PAGE>
Page iii
TABLE OF CONTENTS
Page No.
--------
PROSPECTUS SUMMARY V
GLOSSARY IX
THE ISSUER 1
BUSINESS OF THE ISSUER 1
Overview 1
Commercial Focus 1
Business Strategy 2
Stated Business Objectives 3
Milestones 3
Products Under Development 4
Market 10
Summary and Analysis of Financial Operations 12
Management Discussion and Analysis 13
Acquisitions 15
Licenses and Collaborative Research Agreements 16
Management 17
Organizational Structure and Facilities 18
Regulatory Environment 19
Proprietary Protection 21
Administration 24
USE OF PROCEEDS 25
Funds Available 25
Principal Purposes 25
RISK FACTORS 25
DIRECTORS, MANAGEMENT AND OFFICERS 32
Name, Address, Occupation and Security Holdings 32
Aggregate Ownership of Securities 33
Other Reporting Issuers 34
Corporate Cease Trade Orders or Bankruptcies 34
Penalties or Sanctions 34
Individual Bankruptcies 35
Interest of Management and Others in Material Transactions 35
Scientific Advisory Board 35
Consulting Arrangements 35
INDEBTEDNESS OF DIRECTORS, OFFICERS, AND MANAGEMENT 36
PAYMENTS TO INSIDERS 36
Executive Compensation 36
Compensation of Directors 38
Related Party Transactions 38
Proposed Compensation 38
Directors and Officers Insurance 39
DILUTION 39
<PAGE>
Page iv
CAPITALIZATION 39
Options and Other Rights to Purchase Securities 40
Fully Diluted Share Capital 43
Principal Holders of Voting Securities 43
Dividend Policy 43
PLAN OF DISTRIBUTION 44
Terms of the Agency Agreement 44
Distribution of Securities 44
Escrowed Proceeds 44
DESCRIPTION OF SECURITIES OFFERED 45
Special Warrant Indenture 45
Warrant Indenture 46
Common Shares 46
Agents' Warrants 46
PRICE RANGE AND TRADING VOLUMES OF COMMON SHARES 47
PRIOR SALES 48
INVESTOR RELATIONS ARRANGEMENTS 48
LEGAL PROCEEDINGS 49
AUDITOR 49
REGISTRAR AND TRANSFER AGENT 49
MATERIAL CONTRACTS 49
CONTRACTUAL RIGHT OF ACTION FOR RESCISSION 50
PURCHASERS' STATUTORY RIGHTS 50
FINANCIAL STATEMENTS
CERTIFICATE OF THE ISSUER
CERTIFICATE OF THE AGENTS
Unless otherwise stated, all dollar amounts in this Prospectus refer to Canadian
dollars. On June 6, 2000, the noon rate of exchange of the New York Federal
Reserve Bank was $1.4780 Canadian dollars for each US dollar.
<PAGE>
Page v
PROSPECTUS SUMMARY
The following is a summary of the information set out in this prospectus (the
"Prospectus") and is qualified by the detailed information contained elsewhere
in this Prospectus. Certain capitalized terms and technical terms used but not
defined in this Summary are defined in the glossary.
The Offering
Issuer: Nortran Pharmaceuticals Inc. (the "Issuer")
The Issue: This Prospectus qualifies the distribution by the Issuer of:
1. 5,549,200 Common Shares to be issued upon the exercise or deemed exercise
of the Special Warrants previously distributed by the Issuer pursuant to
the Private Placement;
2. 2,774,600 Warrants to be issued upon the exercise or deemed exercise of
the Special Warrants previously distributed by the Issuer pursuant to the
Private Placement; and
3. 554,920 Agents' Warrants to be issued upon the exercise or deemed exercised
exercise of the Compensation Options, only 277,460 of which are also being
qualified in Ontario. Each Agents' Warrant entitles the holder to acquire
one Common Share at $1.40 until October 14, 2001.
See "Plan of Distribution" and "Description of Securities Offered".
Private Placement: On April 14, 2000, the Issuer completed the distribution of
5,549,200 Special Warrants at a subscription price of $1.40 per Special Warrant
pursuant to the Private Placement, for gross proceeds of $7,768,880. Each
Special Warrant is exercisable, without payment of additional consideration,
into one Common Share and 0.5 Warrant. On the earlier to occur of (a) the fifth
business day after the last of the Receipts is issued, and (b) April 14, 2001,
any unexercised Special Warrants will be deemed to have been exercised by the
holder.
In connection with the Private Placement, the Issuer paid a cash commission of
$543,822 to the Agents, and granted the Agents 554,920 Compensation Options.
Each Compensation Option entitles the Agents to acquire, without payment of
additional consideration, one Agents' Warrant. Each Agents' Warrant entitles the
holder to purchase one Common Share at a price of $1.40 until October 14, 2001.
On the earlier to occur of (a) the fifth business day after the last of the
Receipts is issued, and (b) April 14, 2001, any unexercised Compensation Options
will be deemed to have been exercised by the holder.
If the Special Warrants and Compensation Options are exercised prior to the
issuance of the Receipts, the Common Shares and Warrants and the Agents'
Warrants will be subject to trading restrictions under applicable securities
legislation.
If the Receipts are not issued by July 13, 2000, each Special Warrant will be
exercisable into 1.1 Common Shares and 0.5 Warrant rather than one Common Share
and 0.5 Warrant and each Agents' Warrant will be exercisable into 1.1 Common
Shares rather than one Common Share; provided, however, that the holders of the
Special Warrants shall have the right to require the Issuer to repurchase their
respective Special Warrants at the issue price plus interest earned thereon.
<PAGE>
Page vi
Funds Available: The Issuer has, as of April 30, 2000, the following funds
available for its use (the "Funds Available"):
Net Proceeds from sale of Special Warrants (1) $ 7,025,000
Estimated working capital as of April 30, 2000 $ 4,969,000
-----------
Total Funds Available $11,994,000
===========
Use of Proceeds: The Issuer anticipates using the Funds Available as follows:
Antiarrhythmic Project pre-clinical toxicology studies including GMP
manufacture of drug candidate(2) $ 700,000
Antiarrhythmic Project, Phase I trial (2) 1,000,000
Antiarrhythmic Project, Phase II trial (2) 2,300,000
Cough Project, Phase II trial (3) 300,000
Patents (4) 500,000
Administration costs (5) 2,288,000
Working capital to fund ongoing operations 4,906,000
-------------
TOTAL: $11,994,000
=============
(1) Net of estimated Offering expenses, including a cash commission of
$543,822 paid by the Issuer to the Agents. See "Plan of Distribution".
(2) See "Business of the Issuer - Products Under Development - The
Antiarrhythmic Project".
(3) See "Business of the Issuer - Products Under Development - The Cough
Project".
(4) See "Business of the Issuer - Stated Business Objectives" and "Proprietary
Protection - Patents".
(5) For a breakdown of estimated administration expenses, see "Business of the
Issuer - Administration".
All proceeds received from the exercise of the Warrants and Agents' Warrants
will be added to working capital. Also see "Use of Proceeds" and "Business of
the Issuer - Stated Business Objectives".
Risk Factors: An investment in the securities offered under this Prospectus is
subject to certain significant risk factors and should be considered highly
speculative. These risk factors include, but are not limited to: uncertainties
related to early stage of development; limited revenues; history of significant
losses; accumulated deficit; future capital needs; uncertainties of additional
funding; biopharmaceutical company stocks have historically been volatile;
escrowed proceeds; no assurance of regulatory approval; potential delays; no
assurance of market acceptance; substantial competition; dependence upon key
personnel; no assurance regarding licensing of proprietary technology owned by
others; unpredictability of patent protection; management of growth; no
assurance of successful manufacturing; delays from non-compliance with Good
Manufacturing Practices; no assurance of successful marketing; dependence on and
management of future corporate collaborations; exposure from product liability
claims; dilution; conflicts of interest; and no history of or present intention
to declare dividends. See "Risk Factors".
Business of the Issuer
The Issuer is a drug discovery company engaged in the treatment of pathologies
and conditions which are mediated by cellular ion channels. The Issuer's core
research is focussed on the discovery and development of drugs designed to
prevent cardiac arrhythmias and for the treatment of acute unproductive cough.
Ion Channel Focus
The Issuer focuses on developing drugs for diseases involving ion channels.
This focus allows the Issuer to work in multiple therapeutic areas, each with
major unmet medical needs. The therapeutic areas of cardiology, respiratory and
<PAGE>
Page vii
analgesia are the Issuer's primary areas of interest. The Issuer currently has
four projects in pre-clinical/clinical development in the following therapeutic
fields: (1) antiarrhythmics (to treat arrhythmia and prevent Sudden Cardiac
Death); (2) antitussives (to treat unproductive cough); (3) local anaesthetics;
and (4) pro-erectile compounds (to treat male sexual dysfunction).
Antiarrhythmic Project
The Issuer's core therapeutic focus is the research and development of drugs
which treat cardiac arrhythmias. There are two broad types of arrhythmia:
atrial arrythmia and ventricular arrythmia. Atrial arrhythmias affect the upper
chambers of the heart and are less directly life-threatening but more widespread
than ventricular arrythmias. Ventricular arrhythmias affect the lower chamber of
the heart and have immediate life-threatening implications whenever they occur.
The Issuer's antiarrhythmic project addresses both types.
Atrial fibrillation is the most common form of cardiac arrhythmia. A recent
study by the American Heart Association (1999 - Heart and Stroke Statistical
Update) has indicated that up to 4% of the US population suffers occasionally or
chronically from atrial arrhythmias. The main danger from such arrhythmias is
that they may cause stroke or if prolonged may lead to heart failure. The
Issuer has developed a series of compounds which appear to be selective for the
atria while offering little risk of cardiac side effects.
Ventricular tachycardia and ventricular fibrillation are two types of life
threatening ventricular arrhythmias that may result directly in Sudden Cardiac
Death. In 1999, an estimated 1.1 million Americans will have a new or recurrent
coronary attack (defined as myocardial infarction or fatal (CHD). About 650,000
of these will be first attacks and 450,000 will be recurrent attacks. About one
third of the people experiencing these attacks will die of them (American Heart
Association, 1999 - Heart & Stroke Statistical Update). Through the Issuer's
novel approach of "ischemia-activated" molecules, the Issuer believes it can
develop effective and safe compounds for the treatment of arrhythmia.
The Issuer entered into an agreement with AstraZeneca AB ("Astra"), formerly
Astra Hassle AB of Goteberg, Sweden, under which the Issuer and Astra conducted
collaborative research pertaining to antiarrhythmic compounds developed by both
companies. The collaboration included testing antiarrhythmic compounds
developed by each of the companies. The studies encompassed tests in the
Issuer's models as well as testing in Astra's laboratories. Astra funded the
majority of these studies. This collaboration agreement was originally due for
expiry on November 16, 1999 but was extended to February 29, 2000 under an
amendment agreement. The studies under this collaboration have now been
completed, and the Issuer and Astra are continuing discussions regarding a
potential extended alliance. No assurance can be given that any such extension
will be entered into. See "Business of the Issuer - Products Under Development -
Collaboration Agreements" and "Risk Factors".
The Issuer entered into a collaborative research agreement with Aventis Pharma
Deutschland GmbH ("Aventis"), formerly Hoechst Marion Roussel Deutschland GmbH,
under which the parties conducted collaborative research pertaining to
antiarrhythmic compounds developed by each of the companies. The studies
encompassed tests in the Issuer's specialized models as well as testing in the
laboratories of Aventis. This collaborative agreement expired in April 2000. The
Issuer and Aventis are continuing to collaborate on research. See "Business of
the Issuer - Products under Development - Collaboration Agreements" and "Risk
Factors".
Cough Project
Cough is a reflex triggered by either a mechanical or other stimulus. In most
incidences, this reflex provides critical protection to the airways, ensuring
that unwanted material is expelled. It can also be triggered apparently
needlessly resulting in an undesirable, unproductive cough. Such a cough (known
<PAGE>
Page viii
as "acute unproductive cough") may last for days or hours, may be distressing to
the patient and may lead to extreme fatigue in certain cases. No satisfactory
non-narcotic treatments have been developed for an acute unproductive cough.
The Issuer has identified a clinical candidate, CP1, which appears to be highly
effective in suppressing attacks of such cough. The Issuer successfully
completed Phase I human clinical trials for its CP1 in October 1999 and started
Phase II trials to test the drug's efficacy in chronic idiopathic cough in April
2000.
Other Projects
The Issuer has two other development projects underway relating to local
anaesthetics and therapeutics for male erectile dysfunction. See "Business of
the Issuer - Products Under Development".
Stage of Development
For information on the current status of the Issuer's research and development
programs, including the targeted clinical market and the stage of development,
reference should be made to disclosure under the heading "Business of the Issuer
- Products Under Development - Project Development Status".
Over the next two years, it is anticipated that significant advancements will be
made in the Issuer's drug discovery and development programs. In the Issuer's
primary area of research, it is expected that a drug candidate in the
antiarrhythmic program will be advanced through a pre-clinical toxicology
programme and commence Phase I and Phase II trials. In the Issuer's cough
program, it is anticipated that Phase II trials will be completed on the
Issuer's drug candidate, CP1, for the treatment of chronic, idiopathic cough.
In the Issuer's local anaesthetic and pro-erectile programs, additional
pre-clinical studies will continue during the year 2000 with the intention of
seeking regional partnerships for further development of these programs.
<PAGE>
Page ix
GLOSSARY
Where used herein, the following technical terms shall have the corresponding
meanings:
action potential voltage change generated across the membrane of a nerve or
muscle cell when the cell is activated by electrical,
chemical or mechanical stimuli;
anaesthetics drugs which block the transmission of impulses;
(local)
analogue a compound which is derived from another by chemical
modifications;
antiarrhythmic an agent which has the ability to decrease the incidence of
arrhythmia;
arrhythmia an abnormal electrical signal in the heart, or an abnormal
heart beat resulting from such a signal;
atrial arrhythmia arrhythmia in the atria of the heart;
atrial fibrillation an arrhythmia in which the atria, instead of intermittently
contracting, quivers continuously in a chaotic pattern,
causing totally irregular, often rapid ventricular rate;
fibrillation a small, local involuntary contraction of muscle;
Good Manufacturing regulations to which the Issuer's pharmaceutical products
Practices or GMP will be subject, prescribed by the FDA in the United
States, the HPB in Canada and other similar authorities
governing the commercial manufacture of any such products
in the countries where the products are manufactured;
ion channels specialized pores in the membrane of cells which assist in
controlling and transferring electrical impulses, called
action potentials, in the cell;
ischemia deficiency of blood in a part, usually due to functional
constriction or actual obstruction of blood vessel;
ischemic tissue tissue where blood supply is inadequate for its
requirements for oxygen, nutrients and removal of metabolic
by-products;
IV cannulation intravenous cannulation (the insertion of a tube into a
vein);
myocardial death of heart muscle which usually occurs in the region
infarction of the heart where blood flow has been stopped, commonly
referred to as a heart attack;
myocardial ischemia lack of blood flow to the heart, often due to a block in a
coronary artery during a heart attack;
nociceptor pain receptors at peripheral nerve endings that detect
noxious stimuli;
nociblocker an agent which blocks or inhibits the nociceptor;
<PAGE>
Page x
pathology the structural and functional manifestations of disease;
pathology targeting developing drugs based on the pathological conditions of a
disease rather than based on a specific molecular target;
pharmacology the science that deals with the origin, nature, chemistry,
effects, and uses of drugs;
Phase I clinical the initial introduction of a product into human subjects.
trials The compound is tested for safety, dosage, tolerance,
metabolic interaction, distribution, excretion and
pharmacodynamics;
Phase II clinical involves studies in a limited patient population to (i)
trials determine the efficacy of the product for specific
targeted indications; (ii) determine optimal dosage; and
(iii) identify possible adverse effects and safety risks;
Phase III clinical undertaken to further evaluate clinical efficacy of the
trials product and to further test for its safety within an
expanded population at geographically dispersed clinical
study sites;
pre-clinical includes pharmacological and efficacy testing in animals,
studies toxicology testing and formulation work based on in vitro
results;
psychogenic produced or caused by psychic or mental factors rather than
organic factors;
Sudden Cardiac the term applied to those patients who, during the onset of
Death (or "SCD") a heart attack, abruptly die due to the sudden onset of
ventricular fibrillation;
tachycardia rapid beating of the heart, usually referring to a heart
rate exceeding 100 beats per minute;
therapeutic index experimental index of the relative safety of a compound;
ventricles the lower chambers of the heart, where the majority of the
muscular pumping action of the heart takes place;
ventricular arrhythmia in the ventricles of the heart;
arrhythmia
ventricular a form of ventricular arrhythmia most often associated with
fibrillation SCD where the associated electrical activity results in a
complete cessation of the pumping of blood by the heart;
ventricular middle layer of heart wall composed of cardiac muscle; and
myocardium
ventricular an arrhythmia originating in the ventricles of the heart
tachycardia where aberrant electrical activity is triggering the heart
to beat much too frequently; this often prevents proper
blood circulation, resulting in fainting and possibly
death.
When used herein and except as otherwise defined, the following terms shall have
the following meanings:
<PAGE>
Page xi
Atriven the Issuer's wholly-owned subsidiary, Atriven Cardiology
Corp.;
CDNX Canadian Venture Exchange Inc.;
Commissions the BC, Alberta and Ontario Securities Commissions and the
Yukon Registrar of Securities;
Expiry Date 4:00 p.m. (Vancouver time) on the earlier of the fifth
business day following the Receipt Date and April 14, 2001;
Offering the distribution of the Common Shares and Warrants issuable
upon exercise of the Special Warrants and the Agents'
Warrants upon exercise of the Compensation Options pursuant
to this Prospectus;
Private Placement the private placement completed by the Issuer pursuant to
the Agency Agreement on April 14, 2000, which resulted in
the issuance of the Special Warrants and Compensation
Options;
Qualification July 13, 2000;
Deadline
Receipts receipts issued by the Commissions for this Prospectus;
Receipt Date the date on which Receipts for this Prospectus have been
issued by all of the Commissions; and
Rhythm-Search the Issuer's wholly-owned subsidiary, Rhythm-Search
Developments Ltd.
When used herein and except as otherwise defined, the following acronyms shall
have the following meanings:
FDA the Food & Drug Administration of the United States of
America;
HPB the Health Protection Branch of Health & Welfare Canada;
and
TPP Therapeutic Products Program of Health Canada (Canadian
enforcement of Food and Drug Act).
<PAGE>
Page 1
THE ISSUER
The Issuer was incorporated under the Company Act (British Columbia) on December
12, 1986 under the name Nortran Resources Ltd. On June 24, 1992, the Issuer
changed its name to Nortran Pharmaceuticals Inc. The address of the head office
of the Issuer is 3650 Wesbrook Mall, Vancouver, British Columbia, V6S 2L2, and
the address of its registered office is 1100 - 1055 West Hastings St.,
Vancouver, British Columbia, V6E 2E9.
The Issuer owns 100% of the issued and outstanding shares of Rhythm-Search, a
private company incorporated pursuant to the Company Act (British Columbia) on
February 12, 1992. See "Business of the Issuer - Acquisitions - Acquisition of
Rhythm-Search Developments Ltd.". The Issuer also owns 100% of the issued and
outstanding shares of Atriven, a private company incorporated pursuant to the
Canada Business Corporations Act on November 30, 1999. The Issuer's business
activities were previously carried out by Rhythm-Search. Neither Rhythm-Search
nor Atriven carries on business activities independent of the Issuer's business.
BUSINESS OF THE ISSUER
Overview
The Issuer is a drug discovery company engaged in the treatment of pathologies
and conditions which are mediated by cellular ion channels. The Issuer's core
research is focussed on the discovery and development of drugs designed to
prevent cardiac arrhythmias and for the treatment of acute unproductive cough.
The Issuer's research and development activities involve technology licensed to
it by third parties as well as technology it has itself developed.
Commercial Focus
The Issuer is a commercially focussed pharmaceutical discovery company. This
commercial focus is based on a recognized approach to drug discovery and
development, a business strategy to contain risk, and a focus on ion channel
modulating drugs which the Issuer's management believe will capitalize on
significant market opportunities.
Approach to Drug Discovery
The Issuer's approach to drug research and development is the approach that has
historically been used by the major multinational pharmaceutical companies and
which has led to the discovery and development of many of the drugs currently in
the market. The Issuer uses this approach to pharmaceutical discovery to
identify and develop novel proprietary drugs. The Issuer's approach to drug
discovery is based on the specific steps outlined below.
Novel Idea
----------
The Issuer attempts to address major unmet medical needs by beginning with a
novel idea about treating a disease. This step is critical and underlies all of
the Issuer's programs as well as those of its competitors. Such novel ideas may
come from within the Issuer, from its network of scientific collaborators, or
from other sources.
<PAGE>
Page 2
Pathology Targeting
-------------------
Some diseases have specific molecules in the disease pathway which are critical
to the disease process. For these diseases, individual molecules can be
targeted and high affinity drugs can be developed which may be potent against
that particular disease. The Issuer has chosen to specialize in those diseases,
such as ventricular arrhythmias in the setting of myocardial ischemia, for which
no specific single molecule plays a critical role in the pathology. The Issuer
therefore uses "pathology targeting" to discover new drugs. Pathology targeting
involves understanding the physiology, biochemistry and pathology of a
particular disease, developing a model which best represents the human
pathology, and then using that model to develop a treatment with the required
pharmacological properties.
Known Molecule as Lead
----------------------
After the pathology of a particular disease has been identified and an
appropriate model developed, the Issuer uses the known universe of existing
drugs as a starting point for the identification of potential drug candidates.
The Issuer then initiates a program to synthesize and screen analogues and
derivatives of the lead molecule, identifying the relationship between drug
structure and activity to maximize potency and minimize unwanted side effects.
Business Strategy
A central principle of the Issuer's business strategy is to minimize the risk
inherent in an early stage drug discovery company. See "Risk Factors". The
Issuer emphasizes a project portfolio approach to diversify risk across multiple
independent projects. This portfolio approach also enables the Issuer to source
projects both internally and externally, for a more diverse selection of
projects.
The Issuer operates as a "semi-virtual" organization. This means that the
internal operating expenses are minimized to allow the Issuer flexibility and to
maintain a low level of operating losses. The Issuer maintains a small, core
team of scientists and staff with the necessary generalist skill base, and
contracts out the specialized work required for its projects. The Issuer's
strategy is to have the costly late stage clinical trials and product marketing
activities handled by its licensing partners. See "Business of the Issuer -
Products under Development - Collaboration Strategy".
Ion Channel Focus
The Issuer's research and development program is focussed on developing drugs
for diseases involving ion channels disorders. See "Business of the Issuer -
Products Under Development". This allows the Issuer to work in multiple
therapeutic areas with major unmet medical needs. Cardiology and respirology
are the Issuer's primary therapeutic areas of interest. The Issuer currently
has four projects in development in the following therapeutic fields:
* antiarrhythmics (to treat atrial and ventricular arrhythmias)
* antitussives (to treat unproductive cough)
* local anaesthetics
* pro-erectile compounds (to treat male sexual dysfunction)
See "Business of the Issuer - Products Under Development" for further
information.
The Issuer commenced operations as a pharmaceutical research and development
company in 1992. During the past six financial years, the Issuer has
accomplished the following:
<PAGE>
Page 3
* with respect to its antiarrhythmic project, the Issuer has made significant
progress toward the identification of a clinical candidate, while entering
into collaborative research arrangements with three major pharmaceutical
companies;
* with respect to its cough project, the Issuer completed a Phase I human
clinical trial and has initiated a Phase II clinical trial; and
* in association with the Chemical Company of Malaysia Berhad, the Issuer has
advanced RSD921, its local anaesthetic product, through a successful Phase
II clinical trial.
Stated Business Objectives
The Issuer expects to use the Funds Available to accomplish the following
business objectives over the next two years:
(1) advance a drug candidate in the antiarrhythmic project through a pre-
clinical toxicology program;
(2) subject to successful completion of pre-clinical toxicology program,
continue development of an antiarrhythmic candidate through Phase I
clinical trials;
(3) subject to successful completion of (1) and (2) above, undertake Phase
II clinical trials on an antiarrhythmic candidate;
(4) continue the development of CP1 for acute, unproductive cough through
Phase II clinical trials which are expected to be completed by mid-2000;
and
(5) maintain and expand the Issuer's patent portfolio.
Milestones
The following are the targeted milestones relating to the Issuer's stated
business objectives shown above:
Objective (1):
A significant milestone relating to this stated business objective is the final
selection of the clinical candidate and the subsequent scale-up synthesis, prior
to commencement of the pre-clinical toxicology program. This objective is
expected to be achieved in 2000 with an estimated cost of $700,000.
Objective (2):
A significant milestone relating to this stated business objective is the
successful completion of pre-clinical toxicology program. The Issuer expects to
incur approximately $1,000,000 in the Phase I clinical trial of the
antiarrhythmic candidate. It is anticipated that this trial would be completed
by the third quarter of 2001.
<PAGE>
Page 4
Objective (3):
A significant milestone relating to this stated business objective is the
successful completion of the Phase II clinical trials on an antiarrhythmic
candidate to demonstrate the drug candidate's safety in humans. The estimated
costs associated with the Phase II clinical trials are $2,300,000.
Objective (4):
A significant milestone relating to this stated business objective is the
successful completion of the Phase II clinical trial of the cough project which
was initiated in April 2000. The Issuer expects to incur approximately $300,000
in this clinical trial which will be paid from current working capital and
anticipates that the trial will be completed by the third quarter of 2000.
Objective (5):
A significant milestone relating to this business objective is the preparation,
maintenance, filing and execution internally, and by the Issuer's patent
attorneys, of required provisional patent applications, non-provisional patent
applications and patents on a regional and global basis. The estimated cost of
patent applications, maintenance and prosecution over the next two years is
$500,000.
Products Under Development
Ion Channel Focus
The Issuer's research and development strategy is based upon the utilization of
its expertise in the field of ion channels. The Issuer focuses on the
development of drugs which will modulate the activity of ion channels in a way
that cures or ameliorates the impact of a particular pathology.
Ion channels are cell membrane spanning proteins that permit the movement of
selected ions through the channel when it is in an open state. The molecular
structure of the ion channel protein determines whether the channel is in one of
three states; rested (closed but able to be opened by a stimulus), activated
(open), or inactivated (closed and unable to be opened by a stimulus).
The Issuer's drugs are developed to target these ion channels and modulate their
activity by either blocking or controlling the flow of ions through these pores.
See Figure 1.
Ion channel Ion channel
Closed Open
[GRAPHIC OMITTED]
Figure 1.
Voltage-gated ion channel showing structure
<PAGE>
Page 5
An example of ion channel modulators used therapeutically is the Issuer's
antiarrhythmic program. The mechanism of action of the Issuer's drug candidate
is mixed sodium and potassium channel modulation. In effect, the drug
candidates bind to a site associated with the ion channel which causes the ion
channel to close.
The Issuer's research and development programs are centered around four
projects. Of these four projects, the Issuer has to date focussed the majority
of its resources on the development of the antiarrhythmic project and the cough
project.
The Antiarrhythmic Project
Arrhythmia are abnormal rhythms of the heart. The term arrhythmia refers to a
deviation from the normal sequence of initiation and conduction of electrical
impulses which cause the heart to beat.
Atrial Fibrillation Antiarrhythmic (AFA) Program
------------------------------------------------
Atrial fibrillation is a condition affecting the upper chamber of the heart.
This condition is common but not acutely life-threatening. A recent study by
the American Heart Association (1999 - Heart and Stroke Statistical Update) has
indicated that up to 4% of the US population suffers occasionally or chronically
from atrial arrhythmias. The main danger from such arrhythmias is that they may
cause stroke or if prolonged may lead to heart failure. Atrial fibrillation
occurs in up to 1.5 million patients annually in the United States (American
Heart Association, 1995 - Atrial Arrhythmias). Several drug candidates
developed in the course of the Issuer's antiarrhythmic program have shown
efficacy in models of atrial fibrillation. The Issuer intends to develop one of
these candidates for treatment of atrial fibrillation.
The Issuer's candidates selectively target those ion channels which are uniquely
important for such atrial arrhythmias. Blockade of these channels with the
Issuer's atrial fibrillation clinical candidates has been shown in pre-clinical
studies to effectively terminate atrial fibrillation. Results from pre-clinical
studies show that the Issuer's potential clinical candidates appear to target
these channels which control susceptibility to atrial arrhythmia without
disrupting potassium channels that control normal functioning of the ventricular
myocardium. Based on these results, the Issuer's management expects that its
clinical candidates will display a superior cardiovascular safety profile
compared with other available and emerging therapies.
The Issuer's antiarrhythmic clinical candidates are currently being developed
internally. To date, the Issuer has filed several patent applications in
relation to this program. See "Business of the Issuer - Proprietary Protection
- Patents".
The Issuer recently completed collaborative research with Aventis of Frankfurt,
Germany on its antiarrhythmic project and the Issuer and Aventis are exploring
the possibility of extending the research collaboration. The Issuer also
recently completed a research collaboration with Astra and is also discussing
with Astra an extension of the collaboration. See "Business of the Issuer -
Products Under Development - Collaboration Agreements".
The antiarrhythmic project is in the pre-clinical stage. Management anticipates
that this project will be advanced to Phase II clinical trials as a result of
the application of the portion of the Private Placement proceeds allocated to
this project.
<PAGE>
Page 6
Ventricular Antiarrhythmic Program
----------------------------------
Ventricular tachycardia and ventricular fibrillation are two types of life
threatening arrhythmias. In humans, ventricular tachycardias are arrhythmia
that originate in, and drive, the ventricles at rates above normal, and may be
non-sustained, lasting a few seconds, or sustained, which may last for minutes
or hours. During ventricular fibrillation, the ventricles are unable to
contract rhythmically and are unable to pump blood to the body. Ventricular
tachycardia and fibrillation can reduce the heart's ability to maintain blood
pressure; both conditions can cause Sudden Cardiac Death ("SCD"). It is
estimated that, in the United States alone, 0.25 million people die annually
from SCD brought on by ventricular arrhythmia (American Heart Association, 1999
- Heart & Stroke Statistical Update).
Ventricular arrhythmia are often caused by the occurrence of ischemia during a
heart attack. Ischemia causes misfiring of ion channels which leads to the
generation of aberrant electrical signals that interfere with the normal
electrical signal that controls the operation of the heart. While ischemic
tissue from a heart attack may only develop in a portion of the heart, the
electrical effect can be profound in that the disruption of the electrical
signal caused in this area may disrupt the electrical impulse for the entire
heart. See Figure 2. Such a malfunction may result in SCD.
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
Normal Heart Ischemic Heart
Figure 2.
Normal electrical conduction in the heart vis-a-vis conduction in ischemic
tissue
Most drugs currently used to prevent arrhythmia following myocardial infarctions
have effects on the entire heart muscle, including both healthy and damaged
tissue. Drugs that globally block ion channels in the heart have been
associated with other forms of life-threatening arrhythmia called torsades de
points.
In contrast to currently available antiarrhythmic drugs, the Issuer's
antiarrhythmic clinical candidates are designed to be ischemia selective.
Instead of having activity throughout the heart, the Issuer's clinical
candidates are designed to be activated by the conditions found in ischemic
heart tissue, and preferentially block ion channels in such ischemic tissue.
Consequently, these compounds are designed to have much less activity in healthy
tissue and therefore should be much safer than existing drugs.
<PAGE>
Page 7
The Cough Project
Cough is a reflex triggered by either a mechanical or other stimulus. In most
incidences, this reflex provides critical protection to the airways, ensuring
that unwanted material is expelled. It can also be triggered apparently
needlessly resulting in an undesirable, unproductive cough. Such acute
unproductive cough may last for days or hours, may be distressing to the patient
and may lead to extreme fatigue in certain cases.
Many individuals suffer from episodes of acute unproductive cough. No
satisfactory non-narcotic treatments have been developed for this type of cough.
Aerosolized lidocaine (a local anaesthetic) may be used clinically to create
numbness in the lungs which somewhat lessens the coughing compulsion. For
extreme cases, aerosolized or systemic morphine is used. Side effects of
morphine use include addiction, constipation and respiratory depression.
The Issuer is investigating certain compounds shown in pre-clinical studies
conducted internally to block ion channel transport. The Issuer believes that
one class of its compounds might be effective in the treatment of the cough
reflex by blocking transmission of stimuli at the local nerve endings in the
airway. The Issuer has identified a clinical candidate, CP1, which has been
shown in pre-clinical studies conducted by the Issuer to be highly effective in
suppressing cough. In October 1999, the Phase I human clinical trial of CP1 was
successfully completed. This trial was conducted at Inveresk Research UK, a
clinical research organization offering contract clinical and regulatory
services to the pharmaceutical industry. A Phase II clinical trial to test the
compound's efficacy in chronic, idiopathic cough was initiated in April 2000 in
the UK. This project will be funded from current working capital.
The technology underlying the clinical candidate, CP1, was derived from the
Nociblocker Agreement with D. Quastel and B. MacLeod, and from the internal
research of the Issuer, and is subject to four pending patent applications filed
by the Issuer. See "Business of the Issuer - Proprietary Protection - Patents".
The RSD921 Local Anaesthetic Project
Local anaesthetic drugs work by reversibly interrupting the conduction of
impulses in peripheral nerves. Local anaesthetics can be applied directly on
the skin and mucous membranes for superficial surgery, or be used to block pain
impulses by means of injection near the nerve tracts or spinal cord, preventing
the pain signal from being relayed to the central nervous system.
The Issuer has internally assembled extensive pre-clinical and clinical data
which indicate that the Issuer's proprietary compound, RSD921, is an excellent
local anaesthetic, featuring rapid onset and an attractive safety profile. The
Issuer has completed a successful Phase II clinical trial providing dose-ranging
data as well as proof of efficacy as compared to current leading local
anaesthetic drugs. In this Phase II clinical trial, RSD921 was injected
sub-cutaneously in patients to demonstrate its utility in blocking pain
associated with IV cannulation. The Issuer intends to present this Phase II
data to seek potential partners for the project in each of Europe, North America
and Japan. Such partners may then fund the clinical and regulatory development
programs in their respective jurisdiction. No assurance can be given that any
such proposed partnership arrangements will be entered into, or, if entered
into, will be successful in completing the development programs for the drug
candidate in any particular jurisdiction. See "Risk Factors".
This project is in the clinical development stage in Asia and in the clinical
candidate stage elsewhere. The Phase II clinical trial conducted with the
Issuer's development partner, Chemical Company of Malaysia Berhad, provided
"proof of concept" data supporting the use of RSD921 in humans. None of the
Private Placement proceeds are allocated to this project.
<PAGE>
Page 8
UBC holds three patents and has two pending patent applications directed to the
use of a series of compounds that includes RSD921. The technology under these
patents and patent applications has been licensed exclusively to the Issuer in
the fields of antiarrhythmics and local anaesthetics. The Issuer has also filed
six other patent applications that relate to RSD921 and other closely related
analogs.
The Pro-Erectile Project for Sexual Dysfunction
Erectile dysfunction ("ED") is a common condition with an incidence estimated at
90 million men worldwide. Given the link of aging and diabetes to ED, the
incidence is expected to continue to rise as the population ages and the
incidence of diabetes increases. Of the approximately 28 million men in the
United States suffering from ED, 80-90% have some organic component to their
dysfunction. The remaining 10-20% have ED resulting from purely psychogenic
causes. It is believed by researchers in the area, however, that the majority
of ED sufferers have both organic and psychogenic components to their
dysfunction. The organic causes of ED can be sub-divided into: hormonal - 5%,
neurological - 15%, vascular - 60% and drug related - 25%. There is
considerable overlap in the neurological and vascular categories (increasing the
total beyond 100%) due to cross indications from diseases such as diabetes.
(Scrip Reports: New Treatments for Erectile Dysfunction, 1998).
The Issuer has discovered that a specific series of its proprietary compounds
appear to have erectogenic properties in in vivo studies. A detailed
investigation has been undertaken by the Issuer which has indicated the likely
mechanism of action. The investigation included receptor-binding studies and
further pre-clinical work, the results of which suggest a central nervous system
locus of action. The Issuer has five patent applications pending in respect of
the technology it has developed in its pro-erectile project. See "Business of
the Issuer - Proprietary Protection - Patents".
The Issuer believes that sexual dysfunction is a complex therapeutic area both
scientifically and sociologically, and is therefore seeking a development and
marketing partner to move this program forward. No assurance can be given that
any such proposed partnership arrangements will be entered into, or, if entered
into, will be successful in completing the development programs in any
particular jurisdiction. See "Risk Factors".
This project is in the pre-clinical stage. None of the Private Placement
proceeds are allocated to this project.
Nociblocker Project
The Issuer has ceased research and development activities with respect to a
fifth project based on the Nociblocker series of compounds to be used in the
treatment of pain. The Issuer continues to pursue partnership opportunities for
its Nociblocker project but currently does not devote any resources to this
project, other than for patent purposes, and none of the Private Placement
proceeds are allocated to this project. See "Business of the Issuer - Licenses
and Collaborative Research Agreements - Nociblocker Agreement".
<PAGE>
Page 9
Project Development Status
The following chart summarizes the Issuer's current research and development
programs and product candidates, including the targeted clinical market and the
stage of development.
================================================================================
Product Candidate Therapeutic Focus Stage of Development
--------------------------------------------------------------------------------
RSD11XX, 12XX Arrhythmia (cardiovascular) Pre-clinical (1)
--------------------------------------------------------------------------------
CP1 Cough Phase II (2)
--------------------------------------------------------------------------------
RSD921 Local Anaesthetics Phase II (3)
--------------------------------------------------------------------------------
RSD992 Erectile Dysfunction Pre-clinical
================================================================================
(1) "Pre-clinical" includes pharmacological and efficacy testing in animals,
toxicology testing and formulation work based on in vitro results. After
completing pre-clinical studies, the product must be taken through Phase I,
II and III clinical trials before the Issuer can apply for regulatory
approval to market the product. See "Business of the Issuer - Regulatory
Environment".
(2) The Issuer commenced a Phase II clinical trial in the UK. in April 2000.
(3) A Phase II clinical trial was completed in November 1998.
Research and Development Costs
During the year ended November 30, 1999, the Issuer spent $3,248,775 (1998:
$3,311,362; 1997: $1,306,147) on research and development. The Issuer believes
research and development costs will continue to increase in proportionate share
to its overall budget as the Issuer moves its lead compounds in each of the four
project areas toward and through clinical trials.
Collaboration Strategy
The Issuer's current core of expertise lies in the ability of its personnel to
research and develop potential drug candidates to the stage where such compounds
demonstrate sufficient potential to warrant the undertaking of clinical trials.
As part of its business strategy, the Issuer will seek collaborative partners
with experience in the development and marketing of drugs in the relevant
therapeutic areas. The intention is to select partners with both the human and
financial resources to spearhead the clinical development of the Issuer's
products as required by the FDA, the HPB, and drug regulatory agencies in other
countries. The form of collaboration would depend in part on the product
candidate, the stage of development, and the partner's expertise. The Issuer
would also expect any potential partner to market the products. No assurance
can be given that any such proposed partnership arrangements will be entered
into, or, if entered into, will be successful in completing the development
programs for any drug candidate in any particular jurisdiction. See "Risk
Factors".
The rationale behind this strategy is to:
* avoid the large expenses incurred in the later stages of clinical
development
* obtain early returns in the form of upfront fees and milestone
payments
* utilize expertise and resources of major multinational pharmaceutical
companies
* obtain long term revenue streams through royalty payments on product sales
The Issuer presently has no plans for developing an in-house marketing or
manufacturing capability.
<PAGE>
Page 10
Collaboration Agreements
Astra Agreement
The Issuer entered into an arm's length agreement dated November 17, 1998 (the
"Astra Agreement") with Astra of Goteberg, Sweden under which the Issuer and
Astra conducted collaborative research to test four antiarrhythmic compounds
developed by each of the companies. The studies encompassed tests in the
Issuer's specialized models as well as testing in Astra's laboratories. Under
the terms of the Astra Agreement, Astra funded US $45,000 of the costs which
accounted for the major portion of the costs of these studies. The Astra
Agreement was originally due for expiry on November 16, 1999 but was extended to
February 29, 2000 under an amendment agreement by both parties. This
collaboration is now completed and the Issuer and Astra are continuing
discussions regarding a potential extended alliance.
Aventis Agreement
By an arm's length agreement dated May 1999 (the "Aventis Agreement") between
the Issuer and Aventis of Frankfurt, Germany, the parties conducted
collaborative research in the areas of cardiac arrhythmias. The terms of the
Aventis Agreement provided that the Issuer and Aventis test antiarrhythmic
compounds developed by each of the companies. The companies have evaluated the
pharmacological profiles of their compounds through the use of both the Issuer's
and Aventis' proprietary electrophysiological models. Each party bore its own
costs for research on its compounds under the Aventis Agreement. The Aventis
Agreement expired in April 2000. The Issuer and Aventis are continuing to
collaborate on research.
Market
Introduction
The Issuer's focus on developing drugs for diseases involving ion channels
allows it to work in multiple therapeutic areas, each with major unmet medical
needs. The Issuer's programs are in varying stages of development. Products
that may result from the Issuer's research and development programs are not
expected to be commercially available for a number of years, if at all, and it
will be a number of years, if ever, before the Issuer will receive any revenues
from commercial sales of such products. See "Risk Factors - Uncertainties
Related to Early Stage of Development". Therefore, any discussion of a market
for the Issuer's products is of a very preliminary nature.
Antiarrhythmic Project
The primary focus of the Issuer is the design and development of new
antiarrhythmic drugs to treat life-threatening heart malfunctions known as
arrhythmias in patients who are undergoing or have suffered a myocardial
infarction (heart attack). In 1999, an estimated 1.1 million Americans will have
a new or recurrent coronary attack (defined as myocardial infarction or fatal
CHD). About 650,000 of these will be first attacks and 450,000 will be
recurrent attacks. About one third of the people experiencing these attacks
will die of them (American Heart Association, 1999 - Heart & Stroke Statistical
Update).
There is extensive competition within the areas of antiarrhythmic drugs from
existing therapies and therapies under development. The US annual sales of
antiarrythmics in 1999 were approximately U.S.$655 million (both oral and i.v.
applications). The top selling antiarrhythmic, amiodarone, had sales of
approximately U.S.$264 million (oral and i.v. combined) in the United States in
1999 (IMS Data, 1999). Many drugs are currently sold in this marketplace, and
several new products are in the development phase. Although there are several
companies involved in the development of antiarrhythmic drugs, to the best of
the Issuer's knowledge only one other company is using the same
ischemia-selective approach as the Issuer for the development of antiarrhythmic
drugs.
<PAGE>
Page 11
Cough Project
There are two classifications of cough: productive cough in which fluids and
secretions are expelled; and a dry, unproductive cough. Acute unproductive cough
is a secondary diagnosis of a broad range of primary airway and pulmonary
diseases. Acute unproductive cough is presently treated by two groups of
agents: those which are centrally active, affecting the cough centre of the
central nervous system; and those which are peripherally active, affecting the
airway tissues or the local airway tissue surface.
Over 115 million patients worldwide are affected by intractable cough. Patients
suffering from: lung cancer, emphysema, asthma, pneumonia and influenza are
included in this estimate. The hospital use nebulizer delivery market for
intractable cough treatments is estimated at US$500 million worldwide (based on
assumptions of cost of treatment US$100 per annum) (Wind River Partners -
Chronic Cough, A Market Assessment, 1998).
Some currently prescribed therapeutics in the chronic cough market include
benzonatate, quaifenesin, beta-agonists, xanthines, phenergan, dextromethorphan,
and hydrocodone. As well, aerosolized lidocaine and aerosolized or systemic
morphine are also used in a hospital setting. In addition to the established
treatments mentioned above, there are several novel cough treatments in the
development pipeline (Pharmaprojects, July 1998). The Issuer believes its
product candidates may serve the unmet medical need for an effective and safe
non-narcotic acute unproductive cough suppressant.
RSD921 Local Anaesthetic Project
Sales of the top three anaesthetic compounds in 1999 were: lidocaine, US$249
million; bupivacaine, US$88 million; and ropivacaine, US$44 million (Astra
Annual Report, 1999). Astra Pain Control AB, with these three compounds and
other products, is the market leader in the area of treatment of pain. The
total local anaesthetic market is estimated to exceed US$1 billion worldwide
(Datamonitor - Market Dynamics - Pain, 1997).
The Issuer's product candidate appears to have a wider therapeutic index
(relative to the cardiotoxicity risk caused by accidental intravenous
administration) than currently available drugs.
Pro-Erectile Project
It has been estimated that 90 million men worldwide suffer from erectile
dysfunction ("ED"). The US market for erectile dysfunction treatments is
presently dominated by Pfizer Inc.'s Viagra. Viagra, since its launch in 1998,
has reached approximately 17.5 million prescriptions with sales of US$2 billion.
Viagra is effective in only 75% of all patients suffering from ED. This leaves
an implied market of US$500 million for which Viagra is ineffective (Scrip
Magazine, 1999).
This project is not within the Issuer's area of expertise, ion channels. It is,
therefore, the Issuer's intention to seek a development partner at the earliest
opportunity to further develop this therapeutic area.
Competition
The pharmaceutical and related biotechnology industries are characterized by
extensive research efforts, rapid technology change and intense competition.
See "Risk Factors". Competition in the biopharmaceutical industry is based
primarily on product performance, including efficacy, safety, ease of use and
adaptability to various modes of administration, patient compliance, price,
acceptance by physicians, marketing, and distribution. Barriers to entry into
the market include the availability of patent protection in the United States
and other jurisdictions of commercial interest and the ability and time needed
and cost to obtain governmental approval for testing, manufacturing and
marketing.
<PAGE>
Page 12
The Issuer is aware of a number of companies engaged in the development of drugs
in all of its therapeutic areas of interest. Additionally, there is a
significant number of other pharmaceutical and biotechnology companies
developing and/or marketing ion channel focussed therapeutics. Some of these
companies have substantially more financial and technical resources, more
extensive research and development capabilities, products at a later stage of
development, and greater marketing, distribution, production and human resources
than the Issuer. See "Risk Factors".
Summary and Analysis of Financial Operations
The following is a summary of the Issuer's financial operations during the last
three financial years and the three month periods ended February 29, 2000 and
February 28, 1999. The following is intended as a summary only and reference is
made to the financial statements contained in this Prospectus.
================================================================================
<TABLE>
<CAPTION>
Three Month Three Month
Period Ended Period Ended Year Ended Year Ended Year Ended
February 29, February 28, November 30, November 30, November 30,
2000 1999 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------
REVENUE
<S> <C> <C> <C> <C> <C>
Grants and other revenue $ 93,994 $ 101,134 $ 191,868 $ 45,576 $ 22,260
Interest income 77,899 55,996 258,395 320,286 106,187
------------ ------------ ------------ ------------ ------------
Total: $ 171,893 $ 157,130 $ 450,263 $ 365,862 $ 128,447
-------------------------------------------------------------------------------------------------------------------
EXPENSES
Research and development $ 860,256 $ 585,101 $ 3,248,775 $ 3,311,362 $ 1,306,147
expenses
General and administration 307,807 194,888 997,890 1,553,337 1,100,747
expenses
Amortization 133,661 164,478 654,918 669,582 470,641
------------ ------------ ------------ ------------ ------------
Total: $ 1,301,724 $ 944,467 $ 4,901,583 $ 5,534,281 $ 2,877,535
-------------------------------------------------------------------------------------------------------------------
Net Loss for the period $ (1,129,831) $ (787,337) $ (4,451,320) $ (5,168,419) $ (2,749,088)
-------------------------------------------------------------------------------------------------------------------
Weighted average number of
outstanding shares(1) 35,407,992 27,673,299 28,331,730 26,780,674 19,546,048
-------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Working capital $ 5,184,756 $ 4,406,251 $ 6,237,713 $ 5,058,958 $ 7,648,879
Capital assets 439,156 595,537 461,576 649,982 400,765
Technology, license & patents 2,288,544 2,517,374 2,359,468 2,597,630 2,847,151
Long term liabilities 61,586 217,918 91,306 217,989 50,454
Shareholders' Equity
Share capital 24,329,024 19,951,850 25,282,040 19,951,850 17,541,191
Contributed surplus 1,056,266 - - - -
Deficit $(17,444,420) $(12,650,606) $(16,314,589) $(11,863,269) $ (6,694,850)
===================================================================================================================
</TABLE>
(1) There are 35,561,648 Common Shares issued and outstanding as of the date
of this Prospectus. 1,500,000 escrowed shares were cancelled and returned
to treasury effective February 22, 2000. Following the exercise or deemed
exercise of the Special Warrants and Warrants but prior to the exercise of
the Agents' Warrants or FF Warrants (see "Recent Development" below), there
will be a total of 43,885,448 Common Shares issued and outstanding. If the
Receipts are not issued by the Qualification Deadline, then 1.1 Common
Shares and 0.5 Warrant will be issued on exercise of each Special Warrant,
rather than one Common Share and 0.5 Warrant, in which case a total of
44,440,368 Common Shares will be issued and outstanding.
<PAGE>
Page 13
Recent Development
On June 5, 2000, the Issuer received $499,999 pursuant to a non-brokered private
placement of 357,142 units of the Issuer at $1.40 per unit, to FutureFund
Capital (VCC) Corp., a publicly traded investment fund that manages a
diversified portfolio of emerging British Columbia-based technology companies.
Each unit consists of one Common Share and one-half of one Common Share purchase
warrant. Accordingly, 357,142 Common Shares and 178,571 Common Share purchase
warrants (the "FF Warrants') have been issued. Each whole FF Warrant entitles
the holder to purchase one Common Share of the Issuer at $1.60 for a period of
two years.
Financial Consulting
The Issuer has entered into a service agreement dated November 1, 1999 with
Breakwater Financial Corporation ("Breakwater") with respect to the provision of
advice on corporate strategic and financial initiatives. Pursuant to this
agreement, the Issuer has granted to Breakwater options to purchase 100,000
Common Shares at $0.61 per Common Share. Additionally, by an engagement letter
between the parties dated February 1, 2000, the Issuer has also appointed
Breakwater as exclusive agent for mergers and acquisitions or any debt or
private equity financing of the Issuer's securities until February 1, 2001.
Breakwater has waived these rights with respect to the Private Placement of
Special Warrants completed on April 14, 2000 and the private placement of units
on June 5, 2000.
Management Discussion and Analysis
Three Months Ended February 29, 2000
Expenditures
------------
During the three months ended February 29, 2000, the Issuer expended $860,256 on
its research and development activities as compared to $585,101 during the three
months ended February 28, 1999. The increase in research and development
expenditures was primarily due to an increase in lab supplies and operating
facility as the Issuer moved into a new facility in April 1999, and a decline in
research expense recovery. Total research expense recovered during the three
months ended February 29, 2000 was nil as compared to $190,868 recovered during
the three months ended February 28, 1999. The amount recovered in 1999 was from
F. Hoffmann-La Roche ("Roche"), under a previous collaborative research
agreement between the Issuer and Roche.
During the three months ended February 29, 2000, the Issuer expended $307,807 on
its administrative activities as compared to $194,888 during the three months
ended February 28, 1999. The increase in administrative expenses was primarily
due to an increase in general overhead expenditures as the Issuer moved into a
new facility in April 1999 and an increase in consulting and professional fees,
and travel and accommodation expenditures.
Revenues
--------
The Issuer received $93,994 from grants and other revenue and $77,899 from
interest income during this period, as compared to $101,134 received from grants
and other revenue and $55,996 received from interest income during the three
months ended February 28, 1999. The decrease in grants and other revenue was
primarily due to a decline in research contract fees generated. The increase in
interest income was due to the Issuer having more cash available for investment.
<PAGE>
Page 14
Losses
------
For the three month period ended February 29, 2000, the Issuer reported a
consolidated net loss of $1,129,831 ($0.03 per share) as compared to $787,337
($0.03 per share) for the same period in 1999.
Year Ended November 30, 1999
Expenditures
------------
For the year ended November 30, 1999, the Issuer expended $3,248,775 on its
research and development activities as compared to $3,311,362 during the year
ended November 30, 1998. During the year ended November 30, 1999, the Issuer
expended $997,890 on its administrative activities as compared to $1,553,337
during the year ended November 30, 1998. The decrease in general administration
expenses was primarily due to the lower consulting and professional fees, and
travel and accommodation expenses incurred.
Revenues
--------
The Issuer received $191,868 from grants and other revenue and $258,395 from
interest income during this period, as compared to $45,576 received from grants
and other revenue and $320,286 received from interest income during the year
ended November 30, 1998. The increase in grants and other revenues was
attributable to increased research funding. The decrease in interest was due to
the Issuer having lower cash balances available for investment.
Losses
------
For the year ended November 30, 1999, the Issuer reported a consolidated net
loss of $4,451,320 ($0.16 per share) as compared to $5,168,419 ($0.19 per share)
for the same period in 1998.
Year Ended November 30, 1998
Expenditures
------------
For the year ended November 30, 1998, the Issuer expended $3,311,362 on its
research and development activities as compared to $1,306,147 during the year
ended November 30, 1997. The increase was attributable in part to the overall
expansion of research activities arising from clinical trials and other research
initiatives, with the result that research personnel costs, research contract
costs, laboratory supplies, and patent and related expenses increased. During
the year ended November 30, 1998, the Issuer expended $1,553,337 on its
administrative activities as compared to $1,100,747 during the year ended
November 30, 1997. The increase in administrative expenses was primarily due to
the expansion of the Issuer's administrative support staff with associated
increases in overhead.
Revenues
--------
The Issuer received $45,576 from grants and other revenue and $320,286 from
interest income during this period, as compared to $22,260 received from grants
and other revenue and $106,187 received from interest income during the year
ended November 30, 1997. The increase in grants and other revenues was
attributable to increased research funding. The increase in interest was due to
the Issuer having higher cash balances available for investment.
<PAGE>
Page 15
Losses
------
For the year ended November 30, 1998, the Issuer reported a consolidated net
loss of $5,168,419 ($0.19 per share) as compared to $2,749,088 ($0.14 per share)
for the same period in 1997.
Liquidity and Capital Resources
Since its change of business to pharmaceutical research and development in 1992,
the Issuer has financed its operations through equity financing, research fees,
government grants and tax credits. In fiscal 1999 the Issuer received
$5,412,353 in net proceeds from the sale of equity securities. On a prospective
basis, the Issuer intends to meet its financial requirements through such means
as strategic alliances with multinational drug companies, and a combination of
private and public equity financings. At February 29, 2000, the Issuer had
working capital of approximately $5,184,756. Under its various research
programs, the Issuer is obligated to make minimum research expenditures of
approximately $478,000 over the next two years ($324,500 and $153,500 in fiscal
2000 and 2001, respectively). In addition, the Issuer has operating lease
commitments of approximately $500,000 over the next three years ($179,000,
$241,000 and $80,000 in each of fiscal 2000, 2001 and 2002, respectively).
At February 29, 2000, the Issuer's cash and cash equivalents and short term
investments aggregated $5,537,634 as compared to $4,499,259 at February 28,
1999. The Issuer's working capital at February 29, 2000 was $5,184,756 compared
to $4,406,251 at February 28, 1999.
The Issuer expects that reliance on equity financing will continue during
pre-clinical development and through the early clinical stages of development.
The longer term sustainability of the Issuer is expected to be achieved through
collaborative and licensing arrangements and the creation, development and
ultimate licensing or sale of intellectual property. As much as possible, the
licensing or sale of intellectual property will be carried out so as to ensure
an appropriate balance between future earnings potential and current liquidity.
The Issuer believes that the Funds Available will be sufficient to fund
operations to February 2002. However, the Issuer's future cash requirements may
vary materially from those now expected due to a number of factors, including
the progress of clinical trials, progress in product development and changes in
the focus and direction of the Issuer's product development programs. The
Issuer will continue to rely on outside sources of financing to meet its capital
needs beyond the next two years. However, there can be no assurance that
additional financing will be available on acceptable terms, if at all. If the
Issuer is unable to raise funds to satisfy its varying cash requirements, the
Issuer's business, financial condition and results of operations could be
materially adversely affected. See "Risk Factors".
Acquisitions
The Issuer is actively seeking access to other technologies that will enable it
to maintain a competitive advantage and accelerate product development. The
Issuer's strategy is to acquire licenses only for those technologies which the
Issuer believes will add demonstrable value to its technology portfolio.
Certain key technologies utilized by the Issuer have been obtained under
licenses described below. The Issuer expects to rely on these licenses for the
development of certain key product candidates.
Acquisition of Rhythm-Search Developments Ltd.
By agreement dated February 1, 1995 (the "RSD Share Exchange Agreement") made
among the Issuer, Magic Bullets Enterprises Ltd. ("MBE") and the shareholders of
MBE, the Issuer, which already owned 50% of Rhythm-Search, acquired the
remaining 50% of Rhythm-Search (valued by the parties at $3 million) in
<PAGE>
Page 16
consideration for the issuance of 3,000,000 Common Shares of the Issuer to MBE.
As a result of this transaction, Rhythm-Search became a wholly-owned subsidiary
of the Issuer. At the time of the transaction Dr. Michael Walker was an insider
of both MBE and the Issuer.
Licenses and Collaborative Research Agreements
UBC License Agreement and UBC Research Agreement
By agreement dated February 12, 1992, the Issuer acquired an option from the
University of British Columbia ("UBC") to license the inventions which underlie
some of the Issuer's novel antiarrhythmic compounds. These compounds form the
basis of part of the Issuer's research and development efforts, being certain
technology relating to aminocyclohexylamides for antiarrhythmic and local
anaesthetic uses (the "Technology"). On March 29, 1996, the Issuer entered into
a formal license agreement with UBC (the "UBC License Agreement") whereby UBC
granted the Issuer, in consideration for the sum of $20,000 and the issuance of
100,000 Common Shares, an exclusive, world-wide license to use and, subject to
the consent of UBC, sublicense the Technology, and any improvements thereto, for
antiarrhythmic and local anaesthetic uses, and to manufacture, distribute and
sell products derived therefrom to the general public during the term of the UBC
License Agreement. The UBC License Agreement will terminate upon the expiration
of the last patent obtained under it.
Under the terms of the UBC License Agreement, the Issuer has agreed to issue to
UBC a further 100,000 Common Shares within 30 days of the commencement of Phase
III clinical trials and an additional 100,000 Common Shares within 30 days of
receipt of notice of new drug approval for the first drug covered by a patent of
the Technology. The Issuer is also required to pay to UBC quarterly royalties
from manufacturing revenues ranging from 1.5% for products developed from
improvements to the Technology made by the Issuer to 3.5% for products developed
from the Technology or improvements to the Technology made by UBC or UBC and the
Issuer together, and further royalties from sublicensing revenues, subject to
minimum annual royalties of $10,000 in the first two years of commercial sale
and $50,000 thereafter. In addition, the Issuer will pay all costs associated
with patent applications.
The Issuer is required to pay UBC a $75,000 grant in each of the first five
years of the UBC License Agreement, to be used at UBC's discretion to fund basic
scientific research related to some aspects of the Technology to be undertaken
by UBC in the laboratory of Dr. Michael Walker or his successor. The Issuer
does not have any rights in any intellectual property arising from such
research.
In addition, the Issuer and UBC have entered into a five year research agreement
(the "UBC Research Agreement") dated March 1, 1997, under which the Issuer is
required to fund a specific and mutually agreed upon research project with
respect to the Technology by paying to UBC a further $75,000 plus a further sum
equal to 38% of overhead costs associated with the project, estimated at
$28,500, in each of the first five years of the UBC Research Agreement. Under
the UBC Research Agreement, the Issuer has an option to license, on an exclusive
world-wide basis, any intellectual property arising from the work at UBC under
the UBC Research Agreement.
The UBC License Agreement and the UBC Research Agreement constituted arm's
length transactions. The consideration payable under both agreements was
determined through negotiations between the Issuer and UBC.
Nociblocker Agreement
By agreement dated November 19, 1997 (the "Nociblocker Agreement") entered into
between the Issuer and Drs. MacLeod and Quastel, the Issuer acquired ownership
to certain intellectual property related to Nociblocker technology and all their
therapeutic uses. The Nociblocker Agreement provides that the Issuer will pay
to each of Drs. MacLeod and Quastel $25,000 in each of the first five years as a
<PAGE>
Page 17
University grant-in-aid, commencing April 1, 1997. The Issuer is also required
to pay to each of Drs. MacLeod and Quastel $250,000 upon commencement of Phase
III clinical trials on a Nociblocker compound licensed to the Issuer under the
Nociblocker Agreement, and a further $1,000,000 upon the filing of a new drug
application in the United States or Canada for a Nociblocker licensed by the
Issuer under the Nociblocker Agreement. The Nociblocker Agreement further
requires the Issuer to spend a minimum of $200,000 each year for five years on
the research and development of Nociblocker drugs, including expenditures under
the cough project. To February 29, 2000, the Issuer has spent approximately
$2,478,000 on the research and development of Nociblocker drugs for multiple
indications. The Issuer does not currently devote any resources to research on
this Nociblocker Project, other than for patent purposes. See "Business of the
Issuer - Products Under Development - Nociblocker Project". However, the Issuer
continues to fund the clinical development of the Cough Project (see "Business
of the Issuer - Products Under Development - The Cough Project") which is based
on research under the Nociblocker Agreement. None of the proceeds of the Private
Placement are allocated for the Cough Project or to further develop Nociblockers
for use in the treatment of pain.
The consideration payable under the Nociblocker Agreement was determined by
arm's length negotiations between the Issuer and Drs. MacLeod and Quastel.
CCM Heads of Agreement
By agreement in principle (the "CCM Heads of Agreement") dated October 21, 1997,
Chemical Company of Malaysia Berhad ("CCM") was granted exclusive rights by the
Issuer to make, and have made, promote, sell and distribute the Issuer's
clinical compound RSD921 in the People's Republic of China, Taiwan and any of
the member countries of ASEAN (the "Territory"). The CCM Heads of Agreement
provides that the Issuer and CCM will share equally the out-of-pocket expenses
of the Phase II and Phase III clinical trials of RSD921 to be conducted in the
Territory until the Issuer has expended a maximum of $1,200,000. To date the
Issuer has expended an estimated $310,000 of out-of-pocket expenses on Phase I
and Phase II clinical trials. Further clinical development of RSD921 (Phase III
clinical trials) is not currently scheduled. The Phase II clinical trial
provided "proof of concept" data supporting the use of RSD921 in man.
Management is currently focussing on further development and partnership
opportunities in North America and Europe. The CCM Heads of Agreement provides
that the CCM will pay the Issuer a royalty on net sales of RSD921 at a rate
which is to be negotiated but will be in the range of 5% to 12%.
The CCM Heads of Agreement contemplates that a detailed license agreement will
be negotiated but this has not yet been finalized. Under the CCM Heads of
Agreement, CCM is also required to make certain milestone payments to the Issuer
upon the achievement of certain milestones. The first milestone has been
reached but the first payment has not yet been made by CCM.
Management
The following is a summary of information for each director, officer, employee
and contractor whose expertise is critical to the Issuer and its subsidiaries,
Rhythm-Search and Atriven. Each person listed has entered into an agreement
with the Issuer which includes non-disclosure provisions.
MICHAEL JOHN ALFRED WALKER, Ph.D. - Chairman of the Board and Director
Dr. Walker has been Chairman of the board of directors since January 16, 1996
and a director since February 12, 1992. Dr. Walker devotes approximately 15% of
his time towards the scientific direction (as an independent contractor) and
general corporate development of the Issuer (in his roles as an officer and
director). Dr. Walker has been a Professor of Pharmacology in the Faculty of
Medicine at UBC since 1986. He graduated with a specialized degree in
pharmacology at the University of London, UK, trained in industrial pharmacology
at Pfizer, UK, and has held teaching positions in Europe, Asia and Africa. Dr.
Walker is also the President and the sole director of Rhythm-Search and a
director of Atriven.
<PAGE>
Page 18
ROBERT WILLIAM RIEDER, M.B.A. - President, Chief Executive Officer and Director
Mr. Rieder has been a director since April 1997, and has been employed by the
Issuer on a full-time basis as its President and CEO since April 1998. Mr.
Rieder has extensive experience in venture capital and in operational
management. He was most recently (1994 to 1998) Vice-President at MDS Ventures
Pacific Inc., the Vancouver-based affiliate of MDS Capital Corp., Canada's
largest medical investment fund. Mr. Rieder was Chief Operating Officer for
Telecom Inc. in 1994, and was a director of SFG Technology Inc., all
Vancouver-based technology companies and to the best of Mr. Rieder's knowledge,
all of which still carry on business. Mr. Rieder currently serves as a director
of Micrologix Biotech Inc. Mr. Rieder received his M.B.A. from the University of
Western Ontario. Mr. Rieder is the President, Chief Executive Officer and a
director of Atriven.
CLIVE PETER PAGE, Ph.D. - Director
Dr. Page has been a director of the Issuer since January 16, 1996. He is
presently responsible for the Issuer's cough project (see "Business of the
Issuer - Products Under Development - The Cough Project" for further
information) on which he spends approximately 50% of his time. Dr. Page has
been a Professor of Pharmacology at King's College, University of London, UK,
since 1994 and a consultant to the pharmaceutical industry for over 10 years.
He is recognized by his peers as a world expert in asthma and other inflammatory
diseases and has published widely on these subjects as well as on pharmacology
in general. Professor Page has had pharmaceutical industry experience in his
previous work for Novartis AG (formerly Sandoz) of Switzerland, a pharmaceutical
company.
GREGORY NORBERT BEATCH, Ph.D. - Vice President, Research
Dr. Beatch has been employed on a full-time basis as the Issuer's VP Research
since June 1997. Dr. Beatch joined the Issuer in September 1996 as Head of
Pharmacology on a one year renewable exchange program from the Health Protection
Branch. Dr. Beatch was a Research Scientist for the Drugs Directorate of the
HPB from 1990 to September 1996. Dr. Beatch was also with the University of
Ottawa Heart Institute from 1992 to September 1997 and, from 1996, held an
Assistant Professorship in Cardiology & Pharmacology at this facility. In these
capacities, Dr. Beatch has been involved in the new drug submission and approval
process. Dr. Beatch also is an adjunct professor at the Department of
Pharmacology and Therapeutics, UBC. Dr. Beatch has published numerous papers
proceeding from peer reviewed grants in the field of cardiovascular drug
research.
SHEILA GRANT, M.B.A. - Corporate Secretary and Director of Finance and
Administration
Ms. Grant has been employed on a full-time basis by the Issuer as its Secretary
and Director of Finance and Administration since May 1997. Ms. Grant joined the
Issuer as Director of Business Operations in September 1996. Prior to this
date, Ms. Grant acted as business consultant to De Novo Enzyme Corporation and
Coopers & Lybrand from 1995 to 1996.
Organizational Structure and Facilities
The Issuer currently has 31 full-time employees, 26 of which are employed in
research and development and five of which are engaged in administration. Of the
26 engaged in research and development, 14 have Ph.D. or Masters degrees in a
scientific field. At this time, none of the Issuer's employees are subject to
collective bargaining agreements.
<PAGE>
Page 19
The Issuer anticipates hiring two additional full-time personnel during the
remainder of 2000 in order to meet its business objectives, of which one of the
new personnel will fall within administration and one will fall within research
and development.
The Issuer has a Scientific Advisory Board which it uses to assist it in
analysing its product candidates. See "Directors, Management and Officers -
Scientific Advisory Board".
The Issuer operates as a "semi-virtual" organization. "Semi-virtual" is a term
used to describe an organization that adopts, in part, the concept of a
"virtual" organization, i.e. an organization that operates without any physical
infrastructure and with consultants and contractors in place of employees. A
semi-virtual organization operates with a minimum set of core staff and minimal
physical infrastructure, contracting out a large part of the non-essential
business activities. Given the small, core team of scientists and staff
maintained by the Issuer, a significant amount of the specialized work required
by the Issuer for its projects is contracted out. See "Business of the Issuer -
Products Under Development - Collaboration Strategy".
The Issuer, Rhythm-Search and Atriven currently lease 10,030 square feet of
office and laboratory space for research, development and administrative
purposes in Vancouver, British Columbia. The premises are located on the
University of British Columbia ("UBC") Endowment Lands. The term of the lease
is 36 months and commenced on April 1, 1999. The Issuer may, at its option,
extend the term of the lease for an additional three 24 month periods. Annual
rental arrangements are $237,000 per annum until June 30, 2000, after which time
the rental arrangements increase to $241,000 per annum.
Regulatory Environment
The research and development, manufacture and marketing of pharmaceutical
products are subject to regulation for safety and efficacy. Drug licensing laws
require licensing of manufacturing facilities, carefully controlled research and
testing of products, governmental review and approval of results prior to
marketing of therapeutic products, and adherence to Good Manufacturing Practices
("GMP") during production. In Canada, these activities are regulated by the Food
and Drug Act (Canada) and the rules and regulations promulgated thereunder,
which are enforced by the TPP. In the United States, drugs are subject to
rigorous regulation by the FDA.
The Issuer's success is ultimately dependent on obtaining marketing approval for
drugs currently under development and will depend on its ability to comply with
world-wide regulations governing the manufacturing, quality control,
pre-clinical evaluation, and clinical testing of investigational new drugs.
Depending upon the circumstances surrounding the clinical evaluation of a
product, the Issuer may itself undertake clinical trials, contract clinical
trial activities to contract research organizations or rely upon corporate
partners for such development. The Issuer believes that this approach will allow
it to make cost effective developmental decisions in a timely fashion. See
"Business of the Issuer - Products Under Development - Collaboration Strategy"
and "Risk Factors".
The principal activities that must be completed after initial research and
before obtaining approval for marketing in Canada and the United States are as
follows:
(a) pre-clinical studies, being laboratory and animal toxicology tests
performed to assess the safety and potential efficacy of the product;
(b) submission of an investigational new drug application ("IND"), which must
become effective before human clinical trials commence;
<PAGE>
Page 20
(c) Phase I clinical trials, the initial introduction of the product into human
subjects, under which the compound is tested for safety, dosage, tolerance,
metabolic interaction, distribution, excretion and pharmacodynamics;
(d) Phase II clinical trials involving studies in a limited patient population
to: (i) determine the efficacy of the product for specific, targeted
indications; (ii) determine optimal dosage; and (iii) identify possible
adverse effects and safety risks;
(e) Phase III clinical trials which are undertaken to further evaluate clinical
efficacy of the product and to further test for its safety within an
expanded patient population at geographically dispersed clinical study
sites;
(f) the submission of a new drug application ("NDA") to the government
authorities in the United States, or a new drug submission ("NDS") in
Canada; and
(g) FDA approval of an NDA and HPB approval of an NDS prior to any commercial
sale or shipment of the product, including pre-approval and post-approval
inspections of its manufacturing facilities.
Two key factors influencing the rate of progression of clinical trials are the
rate at which patients are available to participate in the research program and
whether effective treatments are currently available for the disease that the
drug is intended to treat.
An IND must be filed and accepted by the TPP or FDA, as applicable, before each
phase of human clinical trials may begin. The IND application must contain
specified information including the results of the pre-clinical studies or
clinical tests completed at the time of the IND application. In addition, since
the method of manufacture may affect the safety and efficacy of a drug,
information on manufacturing methods and standards and the stability of the drug
substance and the dosage form must be presented so that the TPP or FDA can
ensure that the product that may eventually be sold to the public has the same
composition as that determined to be effective and safe in the clinical trials.
Production methods and quality control procedures must be in place to ensure a
relatively pure compound, essentially free of contamination and uniform with
respect to all quality aspects.
Upon completion of all clinical studies the results are submitted to the TPP as
part of a Canadian NDS or to the FDA as part of a Product License Application or
NDA to obtain approval to commence marketing the product. Management of the
Issuer anticipates that TPP and FDA marketing approval for the majority of its
products will take between 12 and 24 months from the date an NDS or an NDA is
submitted. In addition, an establishment license application must be filed and
approved by the FDA or TPP for the production of a product and test sites must
demonstrate that Good Laboratory Practices and Good Clinical Practices have been
maintained during pre-clinical and clinical evaluation. The Issuer intends to
partner later stage development of its drug candidates with companies that have
experience in manufacturing in accordance with Good Laboratory Practices and
Good Clinical Practices see "Risk Factors".
Even after marketing approval for a drug has been obtained, further studies may
be required (sometimes called Phase IV studies). Post-market studies may
provide additional data on safety and efficacy necessary to gain approval for
the use of a product as a treatment for clinical indications other than those
for which the product was initially tested and approved.
<PAGE>
Page 21
Proprietary Protection
General
The cornerstone of the Issuer's patent strategy is to pursue in selected
jurisdictions the broadest possible patent protection on its proprietary
products and technology. Based on what is known to the Issuer in the prior art
on the subject matter to be protected, the strongest possible patent claims will
be filed. Accordingly, for novel compounds, claims for the compound,
composition and use will be made. Whereas for known compounds, claims directed
to novel composition and/or use will be made in the patent application. The
Issuer plans to protect its technology, inventions and improvements to its
inventions by filing patent applications in selected key countries according to
industry standards in a timely fashion.
In addition to its patents and licenses, the Issuer also relies upon trade
secrets, know-how and continuing technological innovations to develop its
competitive position. It is the Issuer's policy to require its directors,
employees, consultants, members of its scientific advisory board and parties to
collaborative agreements to execute confidentiality agreements upon the
commencement of employment, consulting or collaborative relationships with the
Issuer. In the case of employees and consultants, the agreements provide that
all inventions resulting from work performed for the Issuer utilizing property
of the Issuer or relating to the Issuer's business and conceived or completed by
the individual during employment are the exclusive property of the Issuer to the
extent permitted by law.
Patents
The Issuer, and technology licensors who have granted the Issuer commercial
rights, have been granted patents or have filed patent applications in the
United States and other jurisdictions in respect of certain core technologies
utilized by the Issuer. Given that the patent applications for these
technologies involve complex legal, scientific and factual questions, there can
be no assurance that patent applications relating to the technology used by the
Issuer will result in patents being issued or that, if issued, the patents will
provide a competitive advantage or will afford protection against competitors
with similar technology, or will not be challenged successfully or circumvented
by competitors. See "Risk Factors".
UBC was granted a patent in each of the United States, Australia and Europe
directed to the use of a series of compounds, including RSD921. Two additional
patent applications in this family are pending in Japan and Canada. This
technology has been licensed exclusively to the Issuer. To further broaden the
coverage of this series of compounds, the Issuer filed, on its own behalf, a US
provisional patent application ("PPA") on certain mixtures in 1997. In 1998,
this PPA was converted to a regular US non-provisional patent application
("NPA") and the corresponding Patent Cooperation Treaty ("PCT") application.
Concurrently, applications in several non-PCT Asian countries were also filed
for additional protection. The pending applications related to this technology
are directed to composition and use.
The PCT is a multilateral treaty that was concluded in Washington in 1970 and
entered into force in 1978. It is administered by the International Bureau of
the World Intellectual Property Organization ("WIPO"), headquartered in Geneva,
Switzerland. The PCT facilitates the obtaining of protection for inventions
where such protection is sought in any or all of the PCT contracting states
(total of 104 at July 1999). It provides for the filing of one patent
application (the "international application"), with effect in several
contracting states, instead of filing several separate national and/or regional
patent applications. At the present time, an international application may
include designations for regional patents in respect of contracting states party
to any of the following regional patent treaties: the Protocol on Patents and
Industrial Designs within the framework of the African Regional Industrial
Property Organization, the Eurasian Patent Convention, the European Patent
Convention, and the Agreement Establishing the African Intellectual Property
Organization. The PCT does not eliminate the necessity of prosecuting the
international application in the national phase of processing before the
<PAGE>
Page 22
national or regional offices, but it does facilitate such prosecution in several
important respects by virtue of the procedures carried out first on all
international applications during the international phase of processing under
the PCT. The formalities check, the international search and (optionally) the
international preliminary examination carried out during the international
phase, as well as the automatic deferral of national processing which is
entailed, give the applicant more time and a better basis for deciding whether
and in what countries to further pursue the application. Further information
may be obtained from the WIPO official internet website (http://www.wipo.int).
-------------------
UBC has been granted two US patents covering another series of antiarrhythmic
compounds which the Issuer has licensed under the UBC License Agreement (see
"Business of the Issuer - Licenses and Collaborative Research Agreements").
Additional patent applications in the United States and a number of other
countries are pending. The Issuer has also filed a total of four PPAs with
respect to other antiarrhythmic compounds developed internally, all of which
have been converted to the corresponding NPA and PCT applications. The pending
applications related to this technology are directed to use, use and compound,
or composition.
In 1998, the Issuer converted the PPA filed in respect of the use of the
Issuer's first series of Nociblockers to a NPA and the corresponding PCT
application. Applications in several non-PCT Asian countries were also filed.
A second PPA has also been filed to broaden the coverage of the Issuer's
Nociblocker technology. The pending applications related to this technology are
directed to use.
The Issuer filed two PPAs in 1998 protecting the proprietary technology of its
cough project. Both PPAs have been converted to the corresponding NPA and PCT
applications. The pending applications related to this technology are directed
to compound and use, or composition and use.
The Issuer has five pending patent applications covering various compounds that
have demonstrated efficacy as pro-erectile agents in animal models and may be
useful in the treatment of sexual dysfunction including impotence. The pending
applications related to this technology are directed to compound and use, or
composition and use.
The following table sets forth the issued patents licensed by the Issuer from
UBC relating to the antiarrhythmic project and local anaesthetic project:
Issued Patents
================================================================================
Patent No. Scope of Patents Country Date Issued
--------------------------------------------------------------------------------
5,506,257 Use US 09 April 1996
--------------------------------------------------------------------------------
668,932 Use Australia 10 September 1996
--------------------------------------------------------------------------------
632,806 Use Europe(1) 02 July 1997
--------------------------------------------------------------------------------
5,637,583 Compound & Use US 10 June 1997
--------------------------------------------------------------------------------
5,885,984 Compound & Use US 23 March 1999
================================================================================
(1) Registration of the granted European patent has been effected in the
following countries: France, Germany, Great Britain, Ireland, Italy, Spain
and Switzerland. Extension of the Great Britain registration to Hong Kong
and Brunei has been made.
The following table sets forth the patent applications owned or licensed from
UBC by the Issuer relating to the five projects:
<PAGE>
Page 23
Patent Applications
================================================================================
Patent Application No. Country Date Filed Owned/Licensed
--------------------------------------------------------------------------------
Antiarrhythmic Project and the RSD Local Anaesthetic Project
--------------------------------------------------------------------------------
2,132,841 Canada 26 March 1993 (1) Licensed
--------------------------------------------------------------------------------
5-516,135 Japan 26 March 1993 (1) Licensed
--------------------------------------------------------------------------------
09/271,087 US 17 March 1999 Licensed
--------------------------------------------------------------------------------
2,172,513 Canada 23 September 1994 (2) Licensed
--------------------------------------------------------------------------------
94/926,755.3 Europe 23 September 1994 (2) Licensed
--------------------------------------------------------------------------------
PCT/CA00/00117 PCT 10 February 2000 (3) Owned
--------------------------------------------------------------------------------
09/283,873 US 31 March 1999 (4) Owned
--------------------------------------------------------------------------------
PCT/CA99/00280 PCT 1 April 1999 (4) Owned
--------------------------------------------------------------------------------
2,268,590 Canada 12 April 1999 Owned
--------------------------------------------------------------------------------
09/160,734 US 25 September 1998 (5) Owned
--------------------------------------------------------------------------------
PCT/CA98/00905 PCT 25 September 1998 (5) Owned
--------------------------------------------------------------------------------
87115941 Taiwan 25 September 1998 Owned
--------------------------------------------------------------------------------
046295 Thailand 24 September 1998 Owned
--------------------------------------------------------------------------------
98/2526 The Philippines 25 September 1998 Owned
--------------------------------------------------------------------------------
PI 9804386 Malaysia 25 September 1998 Owned
--------------------------------------------------------------------------------
PCT/CA00/TBA PCT 3 March 2000 (6) Owned
--------------------------------------------------------------------------------
TBA Canada 12 June 2000 Owned
--------------------------------------------------------------------------------
Cough Project
--------------------------------------------------------------------------------
09/328,540 US 9 June 1999 (7) Owned
--------------------------------------------------------------------------------
PCT/CA99/00535 PCT 9 June 1999 (7) Owned
--------------------------------------------------------------------------------
09/328,541 US 9 June 1999 (8) Owned
--------------------------------------------------------------------------------
PCT/CA99/00534 PCT 9 June 1999 (8) Owned
--------------------------------------------------------------------------------
2,292,351 Canada 15 December 1999 Owned
--------------------------------------------------------------------------------
2,292,343 Canada 15 December 1999 Owned
--------------------------------------------------------------------------------
2,292,350 Canada 15 December 1999 Owned
--------------------------------------------------------------------------------
Pro-Erectile Project
--------------------------------------------------------------------------------
09/111,684 US 8 July 1998 (9) Owned
--------------------------------------------------------------------------------
PCT/CA98/00662 PCT 9 July 1998 (9) Owned
--------------------------------------------------------------------------------
87113676 Taiwan 19 August 1998 Owned
--------------------------------------------------------------------------------
PCT/US99/27484 PCT 9 November 1999 (10) Owned
--------------------------------------------------------------------------------
PCT/US99/15571 PCT 8 July 1999 (11) Owned
--------------------------------------------------------------------------------
Nociblocker Project
--------------------------------------------------------------------------------
09/140,027 US 26 August 1998 (12) Owned
--------------------------------------------------------------------------------
PCT/CA98/00842 PCT 3 September 1998 (12) Owned
--------------------------------------------------------------------------------
045858 Thailand 31 August 1998 Owned
--------------------------------------------------------------------------------
87114395 Taiwan 31 August 1998 Owned
--------------------------------------------------------------------------------
<PAGE>
Page 24
================================================================================
Patent No. Scope of Patents Country Date Issued
--------------------------------------------------------------------------------
1-1998-02246 The Philippines 31 August 1998 Owned
--------------------------------------------------------------------------------
PI 9804017 Malaysia 2 September 1998 Owned
--------------------------------------------------------------------------------
60/154,436 US 17 September 1999 Owned
================================================================================
NOTE: In the foregoing table, "PCT" refers to a filing pursuant to the
International Patent Cooperation Treaty.
(1) Claims priority to US application filed 26 March 1992.
(2) Claims priority to US application filed 24 September 1993.
(3) Claims priority to US application (#60/119,887) filed 12 February 1999.
(4) Claims priority to US application (#60/080,347) filed 1 April 1998 and
US application (#60/118,954) filed 5 February 1999.
(5) Claims priority to US application (#60/060,154) filed 26 September 1997.
(6) Claims priority to US application (#60/122,858) filed 4 March 1999.
(7) Claims priority to US application (#60/088,597) filed 9 June 1998.
(8) Claims priority to US application (#60/088,587) filed 9 June 1998.
(9) Claims priority to US application (#60/052,051) filed 9 July 1997.
(10) Claims priority to US application (#60/109,225) filed 19 November 1998.
(11) Claims priority to US application (#60/092,097) filed 8 July 1998.
(12) Claims priority to US application (#60/056,312) filed 3 September 1997.
Administration
The estimated monthly and total administration costs that will be incurred in
order for the Issuer to achieve its stated business objectives (see "Business of
the Issuer - Stated Business Objectives") are as follows:
================================================================================
Item Monthly Costs Total Costs (1)
--------------------------------------------------------------------------------
Salaries & Benefits: $ 40,000 $ 880,000
Legal, Accounting & Audit: 8,000 176,000
Fees (2): 8,000 176,000
Travel & Accommodation: 6,500 143,000
Office Expenses (3): 26,500 583,000
Investor Relations: 5,500 121,000
Corporate Communications: 3,000 66,000
Regulation & Transfer Agent Fees: 2,000 44,000
Bank Charges & Interest: 2,000 44,000
Taxes: 2,500 55,000
--------------------------------------------------------------------------------
TOTAL: $ 104,000 $ 2,288,000
================================================================================
(1) Covering the 22 month period from May 1, 2000 through February 28, 2002.
(2) Fees include directors' and consultant fees. See "Material Contracts" and
"Payments to Insiders".
(3) Office expenses include rent, telephone, fax, supplies, etc.
<PAGE>
Page 25
USE OF PROCEEDS
Funds Available
The Issuer has, as of April 30, 2000, the following funds available for its use
(the "Funds Available"):
Net Proceeds from sale of Special Warrants (1) $ 7,025,000
Estimated working capital as of April 30, 2000 4,969,000
------------
Total Funds Available $ 11,994,000
============
Principal Purposes
The Funds Available are intended to be utilized by the Issuer as follows:
Antiarrhythmic Project pre-clinical toxicology studies including
GMP manufacture of drug candidate(2) $ 700,000
Antiarrhythmic Project, Phase I clinical trial (2) 1,000,000
Antiarrhythmic Project, Phase II clinical trial (2) 2,300,000
Cough Project, Phase II trial (3) 300,000
Patents (4) 500,000
Administration costs (5) 2,288,000
Working capital to fund ongoing operations 4,906,000
------------
Total: $ 11,994,000
============
(1) Net of Offering expenses, including a cash commission of $543,822 paid by
the Issuer to the Agents. See "Plan of Distribution". These funds are
currently in escrow.
(2) See "Business of the Issuer - Products Under Development - The
Antiarrhythmic Project".
(3) See "Business of the Issuer - Products Under Development - The Cough
Project".
(4) See "Business of the Issuer - Stated Business Objectives" and
"Proprietary Protection - Patents".
(5) For a breakdown of estimated administration expenses, see "Business of
the Issuer - Administration".
The Issuer will spend the Funds Available to further the Issuer's stated
business objectives set out in "Business of the Issuer". There may be
circumstances where, for sound business reasons, a reallocation of funds may be
necessary in order for the Issuer to achieve its stated business objectives.
RISK FACTORS
Investment in the securities offered under this Prospectus must be considered
highly speculative due to the nature of the Issuer's business and its present
stage of development. Specific risk factors to be considered by a prospective
investor include, but are not limited to, the following:
Uncertainties Related to Early Stage of Development. The Issuer is at an early
stage of development. The Issuer has not completed the development of any
commercial products, and, accordingly, has no profitable operating history upon
which investors may rely. The Issuer has received limited revenues from
operations and expects that most of its revenues in the foreseeable future will
result from further corporate collaborations, if any. The Issuer's product
candidates will require significant additional investment in research and
development and in clinical trials, requiring substantial resources. There can
be no assurance that any of the Issuer's products will meet applicable health
regulatory standards, obtain required regulatory approvals, or be capable of
being produced in commercial quantities at reasonable costs. Products that may
<PAGE>
Page 26
result from the Issuer's research and development programs are not expected to
be commercially available for a number of years, if at all, and it will be a
number of years, if ever, before the Issuer will receive any significant
revenues from commercial sales of such products. There is no assurance that the
Issuer will be able to enter into any corporate collaborations or that the
Issuer will ever achieve profitability.
Limited Revenues; History of Significant Losses; Accumulated Deficit. The
Issuer has had no sales revenue to date. Although the Issuer has been involved
with pharmaceuticals since 1992, it has been engaged only in research and
development. The Issuer has generated limited non-sales revenue and has
incurred significant operating losses, including net losses of $4,451,320,
$5,168,419, and $2,749,088 for the years ended November 30, 1999, 1998, and 1997
respectively, and $1,129,831 and $787,337 for the three month periods ending
February 29, 2000 and February 28, 1999, respectively. The Issuer's revenues
were $450,263 for the year ended November 30, 1999, and $171,893 for the three
months ending February 29, 2000. The future growth and profitability of the
Issuer will be principally dependent upon its ability to successfully complete
development of, obtain regulatory approvals for, and market or license its
proposed products. Accordingly, the Issuer's prospects must be considered in
light of the risks, expenses and difficulties frequently encountered in
connection with the establishment of a new business in a highly competitive
industry, characterized by frequent new product introductions. The Issuer
anticipates that it will incur substantial operating expenses in connection with
the research, development, testing and approval of its proposed products and
expects these expenses to result in continuing and significant operating losses
until such time as the Issuer is able to achieve adequate revenue levels. There
can be no assurance that the Issuer will be able to significantly increase
revenues or achieve profitable operations.
Future Capital Needs; Uncertainties of Additional Funding. The Issuer will
require substantial capital resources in order to conduct its operations. The
Issuer's future capital requirements will depend on many factors, including,
among other things, the following: continued scientific progress in its
discovery, research and development programs; the magnitude and scope of these
activities; the ability of the Issuer to establish corporate collaborations and
licensing arrangements; progress with pre-clinical studies and clinical trials;
the time and costs involved in obtaining regulatory approvals; the costs
involved in preparing, filing, prosecuting, maintaining, defending and enforcing
patent claims; the potential need to develop, acquire or license new
technologies and products; and other factors not within the Issuer's control.
The Issuer intends to seek such additional funding through corporate
collaborations, public or private equity or debt financings and capital lease
transactions; however, there can be no assurance that additional financing will
be available on acceptable terms, if at all. Additional equity financings could
result in significant dilution to shareholders. If sufficient capital is not
available, the Issuer may be required to delay, reduce the scope of, eliminate
or divest of one or more of its discovery, research or development programs, any
of which could have a material adverse effect on the Issuer's business,
financial condition and results of operations.
Volatility of Share Price. The market prices for the securities of
biotechnology companies have historically been highly volatile. The market has
from time to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of any particular company. See "Price
Range and Trading Volumes of Common Shares". Certain factors such as
announcements by the Issuer, competition by new therapeutic products or
technological innovations, government regulations, fluctuations in the operating
results of the Issuer, results of clinical trials, public concern on safety of
drugs generally, general market conditions and developments in patent and
proprietary rights can have an adverse impact on the market price of the Common
Shares.
Escrowed Proceeds. The net proceeds of the Private Placement were placed into
escrow pursuant to a special warrant indenture between the Issuer and Pacific
Corporate Trust Company (as escrow agent) on the closing of the Private
Placement. The proceeds will be released to the Issuer on the earlier to occur
<PAGE>
Page 27
of the fifth business day following the Receipt Date and August 3, 2000, unless
a holder of a Special Warrant requests the Issuer to repurchase its Special
Warrants prior to that date. Each holder of a Special Warrant has the right to
request the Issuer to repurchase its Special Warrants for a period of 21 days if
the Issuer fails to obtain a Receipt for this Prospectus by July 13, 2000 in the
jurisdiction in which the holder is resident.
No Assurance of Regulatory Approval: Potential Delays. The pre-clinical studies
and clinical trials of any products developed by the Issuer or its corporate
collaborators and the manufacturing, labelling, sale, distribution, export or
import, marketing, advertising and promotion of any products resulting therefrom
are subject to regulation by federal, provincial, state and local governmental
authorities in the United States, principally by the FDA, in Canada by the HPB
and by other similar agencies in other countries. Any product developed by the
Issuer or its corporate collaborators must receive all relevant regulatory
approvals or clearances before it may be marketed and sold in a particular
country. The regulatory process, which includes extensive pre-clinical studies
and clinical trials of each product in order to establish its safety and
efficacy, is uncertain, can take many years and requires the expenditure of
substantial resources. Data obtained from pre-clinical and clinical activities
are susceptible to varying interpretations which could delay, limit or prevent
regulatory approval or clearance. In addition, delays or rejections may be
encountered based upon changes in regulatory policy during the period of product
development and/or the period of review of any application for regulatory
approval or clearance for a product. Delays in obtaining regulatory approvals or
clearances would adversely affect the marketing of any products developed by the
Issuer or its corporate collaborators, impose significant additional costs on
the Issuer and its corporate collaborators, diminish any competitive advantages
that the Issuer or its corporate collaborators may attain and adversely affect
the Issuer's ability to receive royalties and generate revenues and profits.
There can be no assurance that, even after such time and expenditures, any
required regulatory approvals or clearances will be obtained for any products
developed by or in collaboration with the Issuer.
Regulatory approval, if granted, may entail limitations on the indicated uses
for which a new product may be marketed that could limit the potential market
for such product, and product approvals, once granted, may be withdrawn if
problems occur after initial marketing. Furthermore, manufacturers of approved
products are subject to pervasive review, including compliance with detailed
regulation governing Good Manufacturing Practices. Failure to comply with
applicable regulatory requirements can result in, among other things, warning
letters, fines, injunctions, civil penalties, recall or seizure of products,
total or partial suspension of production, refusal of the government to renew
marketing applications and criminal prosecution.
The Issuer is also subject to numerous federal, provincial and local laws,
regulations and recommendations relating to safe working conditions, laboratory
and manufacturing practices, the experimental use of animals, the environment
and the use and disposal of hazardous substances, used in connection with the
Issuer's discovery, research and development work. In addition, the Issuer
cannot predict the extent of government regulations which might have an adverse
effect on the discovery, development, production and marketing of the Issuer's
products, and there can be no assurance that the Issuer will not be required to
incur significant costs to comply with current or future laws or regulations or
that the Issuer will not be adversely affected by the cost of such compliance.
No Assurance of Market Acceptance. There can be no assurance that any products
successfully developed by the Issuer or its corporate collaborators, if approved
for marketing, will ever achieve market acceptance. The Issuer's products, if
successfully developed, may compete with a number of traditional drugs and
therapies manufactured and marketed by major pharmaceutical and biotechnology
companies, as well as new products currently under development by such companies
and others. The degree of market acceptance of any products developed by the
Issuer or its corporate collaborators will depend on a number of factors,
including the establishment and demonstration of the clinical efficacy and
safety of the product candidates, their potential advantage over alternative
<PAGE>
Page 28
treatment methods and reimbursement policies of government and third party
payors. There can be no assurance that physicians, patients or the medical
community in general will accept and utilize any products that may be developed
by the Issuer or its corporate collaborators.
Substantial Competition. The pharmaceutical industry is very competitive. Many
companies, as well as research organizations, currently engage in or have in the
past engaged in efforts related to the development of products in the same
therapeutic areas as the Issuer.
Many of the companies developing competing technologies and products have
significantly greater financial resources and expertise in discovery, research
and development, manufacturing, pre-clinical studies and clinical testing,
obtaining regulatory approvals and marketing than the Issuer. Other smaller
companies may also prove to be significant competitors, particularly through
collaborative arrangements with large and established companies. Academic
institutions, government agencies and other public and private research
organizations may also conduct research, seek patent protection and establish
collaborative arrangements for discovery, research, clinical development and
marketing of products similar to those of the Issuer. These companies and
institutions compete with the Issuer in recruiting and retaining qualified
scientific and management personnel as well as in acquiring technologies
complementary to the Issuer's programs. The Issuer will face competition with
respect to product efficacy and safety, ease of use and adaptability to various
modes of administration, acceptance by physicians, the timing and scope of
regulatory approvals, availability of resources, reimbursement coverage, price
and patent position, including potentially dominant patent positions of others.
There can be no assurance that competitors will not develop more effective or
more affordable products, or achieve earlier patent protection or product
commercialization than the Issuer and its corporate collaborators, or that such
competitive products will not render the Issuer's products obsolete. See
"Business of the Issuer - Market".
Dependence Upon Key Personnel. The Issuer is dependent on certain key
employees, the loss of whose services might significantly delay or prevent the
Issuer's achievement of its scientific or business objectives. Competition among
biotechnology and pharmaceutical companies for qualified employees is intense,
and the ability to retain and attract qualified individuals is critical to the
success of the Issuer. There can be no assurance that the Issuer will be able
to attract and retain such individuals currently or in the future on acceptable
terms, or at all, and the failure to do so would have a material adverse effect
on the Issuer's business, financial condition and results of operations. In
addition, the Issuer does not maintain "key person" life insurance on any of its
officers, employees or consultants. The Issuer also has relationships with
scientific collaborators at academic and other institutions, some of whom
conduct research at the Issuer's request or assist the Issuer in formulating its
research and development strategy. These scientific collaborators are not
employees of the Issuer and may have commitments to, or consulting or advisory
contracts with, other entities that may limit their availability to the Issuer.
In addition, these collaborators may have arrangements with other companies to
assist such other companies in developing technologies that may prove
competitive to those of the Issuer.
No Assurance Regarding Licensing of Proprietary Technology Owned by Others. The
manufacture and sale of any products developed by the Issuer will involve the
use of processes, products, or information, the rights to certain of which are
owned by others. Although the Issuer has obtained licenses or rights with
regard to the use of certain of such processes, products, and information, there
can be no assurance that such licenses or rights will not be terminated or
expire during critical periods, that the Issuer will be able to obtain licenses
or other rights which may be important to it, or, if obtained, that such
licenses will be obtained on favourable terms. Some of these licenses provide
for limited periods of exclusivity that may be extended only with the consent of
the licensor. There can be no assurance that extensions will be granted on any
or all such licenses. This same restriction may be contained in licenses
obtained in the future.
<PAGE>
Page 29
Proprietary Technology: Unpredictability of Patent Protection. The Issuer's
success will depend in part upon its ability and that of its future corporate
collaborators, if any, to obtain strong patent protection or licenses to well
protected patents. The Issuer intends to file, when appropriate, patent
applications with respect to inventions. There can be no assurance, however,
that any patents will be issued or that, if issued, they will be of commercial
value. In addition, it is impossible to anticipate the breadth or degree of
protection that patents will afford products developed by the Issuer or the
underlying technology. There can be no assurance that (i) any patents issued
covering such products or any patents licensed to the Issuer will not be
successfully challenged, (ii) such products will not infringe the patents of
third parties, or (iii) patents of third parties may not have to be designed
around, potentially causing increased costs and delays in product development
and introduction or precluding the Issuer from developing, manufacturing, or
selling its planned products. The scope and validity of patents which may be
obtained by third parties, the extent to which the Issuer may wish or need to
obtain licenses thereunder, and the cost and availability of such licenses are
currently unknown. If such licenses are obtained, it is likely they would be
royalty-bearing and in that case the income of the Issuer could be reduced: if
licenses cannot be obtained on an economical basis, delays in market
introduction of the Issuer's planned products could occur or introduction could
be prevented, in some cases after the expenditure of substantial funds. If the
Issuer determines to defend or contest the validity of patents relating to its
products or the products of a third party, the Issuer could incur substantial
legal expenses with no assurance of success.
In certain instances, the Issuer may elect not to seek patent protection but
instead rely on the protection of its technology by secrecy and confidentiality
agreements. The value of the Issuer's assets so protected could be reduced to
the extent that other persons obtain patents, or such secrecy and
confidentiality agreements are breached or become unenforceable. There can be
no assurance that others may not independently develop or obtain similar
technology and such others may be able to market competing products and obtain
regulatory approval through a showing of equivalency to an Issuer product which
has obtained regulatory approvals, without being required to undertake the same
lengthy and expensive clinical studies that the Issuer would have already
completed.
Litigation may also be necessary to enforce patents issued or licensed to the
Issuer or its corporate collaborators or to determine the scope and validity of
a third party's proprietary rights. The Issuer could incur substantial costs if
litigation is required to defend itself in patent suits brought by third
parties, if the Issuer participates in patent suits brought against or initiated
by its corporate collaborators of if the Issuer initiates such suits. There can
be no assurance that funds or resources would be available to the Issuer in the
event of any such litigation. Additionally, there can be no assurance that the
Issuer or its corporate collaborators would prevail in any such action. An
adverse outcome in litigation or an interference to determine priority or other
proceeding in a court or patent office could subject the Issuer to significant
liabilities, require disputed rights to be licensed from other parties or
require the Issuer or its corporate collaborators to cease using certain
technology or products, any of which may have a material adverse effect on the
Issuer's business, financial condition and results of operations.
Management of Growth. The Issuer's future growth, if any, may cause a
significant strain on its management, operational, financial and other
resources. The Issuer's ability to manage its growth effectively will require
it to implement and improve its operational, financial, manufacturing and
management information systems and to expand, train, manage and motivate its
employees. These demands may require the addition of new management personnel
and the development of additional expertise by management. Any increase in
resources devoted to research, product development and marketing and sales
efforts without a corresponding increase in the Issuer's operational, financial,
manufacturing and management information systems could have a material adverse
effect on the Issuer's business, financial condition, and results of operations.
<PAGE>
Page 30
No Assurance of Successful Manufacturing. The Issuer has no experience
manufacturing commercial quantities of products and does not currently have the
resources to manufacture any products which it may develop. Accordingly, if the
Issuer were able to develop any products with commercial potential, the Issuer
would either be required to develop the facilities to manufacture independently
or be dependent upon securing a contract manufacturer or entering into another
arrangement with third parties to manufacture such products. There can be no
assurance that the Issuer would be able independently to develop such
capabilities or that the terms of any such arrangement would be favourable
enough or available to permit the products to compete effectively in the
marketplace.
Delays from Non-compliance with Good Manufacturing Practices ("GMP"). The
manufacture of the Issuer's pharmaceutical products will be subject to current
GMP or similar regulations prescribed by the FDA in the United States, the HPB
in Canada and similar authorities prior to the commercial manufacture of any
such products in the countries where the products are manufactured. There can
be no assurance that the Issuer or any entity manufacturing products on behalf
of the Issuer will be able to comply with GMP or satisfy certain regulatory
inspections in connection with the manufacture of the Issuer's proposed
products. Failure or delay by any manufacturer of the Issuer's products to
comply with GMP or similar regulations or satisfy regulatory inspections would
have a material adverse effect on the Issuer.
No Assurance of Successful Marketing. Although certain members of the Issuer
have experience in marketing pharmaceutical products, the Issuer does not
currently have the resources to market the products which it may develop.
Marketing of new products and processes presents greater risks than are posed by
the continued marketing of proven products and processes. Accordingly, if the
Issuer is able to develop any products with commercial potential, the Issuer
would either have to develop a marketing capability (including a sales force) or
attempt to enter into a joint venture, license, or other arrangement with third
parties to provide a substantial portion of the financial and other resources
needed to market such products. There can be no assurance that the Issuer would
be able to develop such a marketing capability or enter into such joint venture,
license or other arrangement with a third party on favourable terms or at all.
In any event, extensive licensing or joint venture agreements might result in
lower level of income to the Issuer than if the Issuer marketed the products
itself.
Dependence on and Management of Future Corporate Collaborations. The success of
the Issuer's business strategy is largely dependent on its ability to enter into
corporate collaborations and to effectively manage the relationships that may
come to exist as a result of this strategy. The Issuer is currently seeking
corporate collaborators, but there can be no assurance that such efforts will
lead to the establishment of any corporate collaborations on favourable terms,
or at all, or that if established, any such corporate collaborations will result
in the successful development of the Issuer's products or the generation of
significant revenues.
Because the Issuer plans to enter into research and development collaborations
at an early stage of product development, the Issuer's success is highly reliant
upon the performance of its future corporate collaborators, if any. The amount
and timing of resources to be devoted to activities by corporate collaborators
are not within the direct control of the Issuer, and there can be no assurance
that any of the Issuer's future or existing corporate collaborators will commit
sufficient resources to the Issuer's research and development programs or the
commercialization of its products. There can be no assurance that the Issuer's
corporate collaborators, if any, will perform their obligations as expected.
There can also be no assurance that the Issuer's future and existing corporate
collaborators will not pursue existing or other development-stage products or
alternative technologies in preference to those being developed in collaboration
with the Issuer or that disputes will not arise with respect to ownership of
technology developed under any such corporate collaborations.
<PAGE>
Page 31
Because the success of the Issuer's business is largely dependent upon its
ability to enter into corporate collaborations and to effectively manage issues
that arise from such collaborations, management of these relationships will
require significant time and effort from the Issuer's management team and
effective allocation of the Issuer's resources. There can be no assurance that
the Issuer will be able to simultaneously manage a number of corporate
collaborations.
Exposure from Product Liability Claims. The products the Issuer will attempt to
develop will, in most cases, undergo extensive clinical testing and will require
FDA and HPB approval prior to sale in the United States and Canada,
respectively. However, despite all reasonable efforts to ensure safety, it is
possible that products which are defective or to which patients react in an
unexpected manner, or which are alleged to have side effects, will be sold. The
sale of such products may expose the Issuer to potential liability resulting
from the use of such products. Additionally, the Issuer may be exposed to
product liability claims in the development of the products through
administration of the drug candidates to volunteers and patients in clinical
trials. Such liability might result from claims made directly by consumers or
by pharmaceutical companies or others selling such products. It is impossible
to predict the scope of injury or liability from such defects or unexpected
reactions, or the impact on the market for such products of any allegations of
these claims (even if unsupported), or the measure of damages which might be
imposed as a result of any claims or the cost of defending such claims.
Although the Issuer's shareholders would not have personal liability for such
damages, the expenses of litigation in connection with any such injuries or
alleged injuries and the amount of any award imposed on the Issuer in excess of
existing insurance coverage, if any, may have a material adverse impact on the
Issuer. In addition, any liability that the Issuer may have as a result of the
manufacture of any products could have a material adverse effect on the Issuer's
financial condition, business and operations, to the extent insurance covering
any such liability is not available. At present, the Issuer has secured product
liability coverage for the phase I clinical trial of its cough candidate, CP1.
Currently, the Issuer has no other product liability insurance. It is
anticipated that insurance equivalent to that customarily maintained by other
entities in the Issuer's industry and of its approximate size will be carried by
the Issuer against such product liability claims in the future. However,
obtaining insurance of all kinds has become increasingly more costly and
difficult and there can be no assurance that any such insurance will be
available at all, available on commercial terms or, if obtained, will be
sufficient to satisfy asserted claims.
Dilution. The Issuer has a number of warrants and options outstanding. In
addition, the Issuer may raise additional funding through equity financings.
The exercise of warrants and issuance of shares and the completion of equity
financings, if available, may result in substantial dilution to shareholders.
See "Dilution".
Conflicts of Interest. Certain of the Issuer's directors and officers may serve
as directors or officers of other companies or have shareholdings in other
companies and, to the extent that such other companies may participate in
ventures in which the Issuer may participate, conflicts of interest may arise
which may be harmful to the interests of the Issuer. In the event that such a
conflict of interest arises at a meeting of the Issuer's directors, a director
who has such a conflict is required to advise the board of his or her conflict,
and abstain from voting for or against the approval of the matter before the
meeting. In accordance with the corporate laws affecting the Issuer, the
directors of the Issuer are required to act honestly, in good faith and in the
best interests of the Issuer. See "Directors, Management and Officers -
Conflicts of Interest".
No Dividends. To date, the Issuer has not paid any dividends on its Common
Shares and does not intend to declare any dividends in the foreseeable future.
<PAGE>
Page 32
DIRECTORS, MANAGEMENT AND OFFICERS
Name, Address, Occupation and Security Holdings
The names and municipality of residence of each of the directors and officers of
the Issuer, the principal occupations in which each has been engaged during the
immediately preceding five years and their respective ownership of shares of the
Issuer are as follows:
================================================================================
Common Shares Percentage of
Beneficially Share
Owned or Over Ownership
Which Control After Giving
Name and Municipality Principal Occupation or Direction of Effect to the
of Residence for last Five Years Exercised (1) Offering (2)
--------------------------------------------------------------------------------
MICHAEL J. A.WALKER, Ph.D. Professor of 2,777,900(3) 6.3%
Vancouver, B.C. Pharmacology at
Chairman of the Board the University of
and a Director of Issuer British Columbia;
President and Director of also the President of
Rhythm-Search; Director Rhythm-Search. (See
of Atriven "Business of the
Issuer - Management"
for additional
disclosure).
--------------------------------------------------------------------------------
ROBERT W. RIEDER, M.B.A. President and CEO 109,600 0.2%
Vancouver, B.C. since April 1998;
President, Chief also the President
Executive Officer and CEO of Atriven.
and a Director of Previously he was
Issuer; President, Vice-President at MDS
Chief Executive Ventures Pacific Inc.
Officer and a (See "Business of the
Director of Atriven Issuer - Management" for
additional disclosure).
--------------------------------------------------------------------------------
ALLEN IAN BAIN, Ph.D. (4) President and CEO of 22,500 0.05%
Vancouver, B.C. Immune Network Research
Director of Issuer; Ltd., a publicly traded
Corporate Secretary corporation. since May
of Rhythm-Search 1999. From March 1997
to April 1998, he was
President of the Issuer.
--------------------------------------------------------------------------------
CLIVE PETER PAGE, Ph.D. Professor of Pharmacology Nil Nil
London, UK at King's College, London,
Director of Issuer England. (See "Business
of the Issuer - Management"
for additional disclosure).
--------------------------------------------------------------------------------
COLIN ROGER MALLET (4) Consultant; formerly the Nil Nil
Vancouver, B.C. President of Sandoz Canada.
Director of Issuer
--------------------------------------------------------------------------------
OH KIM SUN (4), C.A., Group Executive Director, 5,604,386 (5) 12.8%
Kuala Lumpur, Malaysia Chemical Company of
Director of Issuer Malaysia Berhad.
--------------------------------------------------------------------------------
DARRELL ELLIOTT From August 1999, Senior Nil Nil
North Vancouver, B.C. Vice President, MDS
Director of Issuer Capital Corp.; prior
thereto, President of
Isuma Strategies; and prior
to August 1998, Vice
President of Royal Bank Corp.
--------------------------------------------------------------------------------
<PAGE>
Page 33
================================================================================
Common Shares Percentage of
Beneficially Share
Owned or Over Ownership
Which Control After Giving
Name and Municipality Principal Occupation or Direction of Effect to the
of Residence for last Five Years Exercised (1) Offering (2)
--------------------------------------------------------------------------------
GREGORY N. BEATCH, Ph.D. Vice-President, Research 45,000 0.1%
Vancouver, B.C. of the Issuer since 1997
Vice-President, Research and Head of Pharmacology
of the Issuer of the Issuer since
September 1996; previously
a Research Scientist for the
Drugs Directorate of the
Health Protection Branch.
(See "Business of the
Issuer - Management" for
additional disclosure).
--------------------------------------------------------------------------------
SHEILA M. GRANT, M.B.A. Corporate Secretary of Nil Nil
Vancouver, B.C. the Issuer since May 1997
Director of Finance & and Director of Business
Administration and Operations of the Issuer
Corporate Secretary since September 1996;
of the Issuer previously a Consultant
for De Novo Enzyme Corporation
and Coopers & Lybrand.
(See "Business of the
Issuer - Management" for
additional disclosure).
================================================================================
(1) As at June 5, 2000.
(2) Including the Common Shares to be issued upon exercise of the Special
Warrants and Warrants but excluding Agents' Warrants. Reference should be
made to "Share Capital - Options and Other Rights to Purchase Securities -
Incentive Stock Options" for details of the options expected to be held by
the directors as of the conclusion of the Offering.
(3) Held by Magic Bullets Enterprises Ltd., a wholly-owned subsidiary of 554238
B.C. Ltd., of which Drs. Walker, Page and Bain are directors, officers and
shareholders.
(4) Member of Audit Committee.
(5) Indirectly held and controlled as to 1,500,000 Common Shares through
Chemical Company of Malaysia Berhad, of which Mr. Oh is an indirect
shareholder and Group Executive Director and as to 4,104,386 Common Shares
through CCM Investments Ltd., a wholly-owned subsidiary of Chemical Company
of Malaysia Berhad.
Aggregate Ownership of Securities
As at June 5, 2000, and assuming exercise or deemed exercise of the Special
Warrants and Warrants, the aggregate number of Common Shares that are
beneficially owned, or directly or indirectly controlled, by all directors,
officers and other members of management of the Issuer as a group is 8,559,386
Common Shares, representing approximately 24% of the total issued and
outstanding Common Shares prior to the Offering and 20.8% of the total issued
and outstanding Common Shares after giving effect to the Offering, excluding the
exercise of the Warrants and Agent's Warrants.
<PAGE>
Page 34
Other Reporting Issuers
The directors and officers of the Issuer who have been directors or officers of
other British Columbia reporting issuers within the five years prior to the date
of this Prospectus, including the periods during which they acted in such
capacity are as follows:
================================================================================
Name of Individual Name of Reporting Issuer Position Term of Office
--------------------------------------------------------------------------------
Robert W. Rieder Micrologix Biotech Inc. Director Oct. 1994 -
Present
StressGen Biotechnologies Director Feb.1992 -
Corp. May 2000
--------------------------------------------------------------------------------
Colin Roger Mallet Micrologix Biotech Inc. Director Dec.1995 -
Present
Axcan Pharma Inc. Director Nov. 1995 -
Present
Anormed Inc. Director May 1996 -
Present
--------------------------------------------------------------------------------
Allen I. Bain Immune Network Research Director May 1999 -
Ltd. Present
President May 1999 -
Present
--------------------------------------------------------------------------------
Darrell Elliott Peace Arch Entertainment Director July 1998 -
Group Inc. May 2000
Chromos Molecular Systems Director June 1996 -
Inc. Present
Consolidated Envirowaste Director May 1996 -
Industries Inc. Sept. 1999
A.R.C. Resins International Director April 1996 -
Corp. Present
Inex Pharmaceuticals Inc. Director Aug. 1995 -
Present
BC Research Inc. Director May 1995 -
Sept. 1999
Develcon Electronics Ltd. Director Nov. 1995 -
May 1999
GenSci Regeneration Director Feb. 1997 -
Sciences Inc. Aug. 1998
Director Dec. 1999 -
Present
Biostar Inc. Director Jan. 1998 -
Aug. 1998
Director Sept. 1999 -
Present
Philom Bios Inc. Director Oct. 1991 -
Oct. 1995
Stressgen Biotechnologies Director Jan. 2000 -
Corp. Present
================================================================================
None of the directors or officers of the Issuer have been directors, officers or
promoters of other British Columbia reporting issuers during the five years
prior to the date of this Prospectus.
Corporate Cease Trade Orders or Bankruptcies
A.R.C. Resins International Corp., a company of which Darrell Elliott is a
director, was cease traded by the British Columbia Securities Commission on
October 8, 1997 for failure to file financial statements.
Other than as disclosed herein, no director or officer of the Issuer is or has
been, within the preceding five years, a director, officer or promoter of any
other issuer that, while that person was acting in that capacity:
(a) was the subject of a cease trade order or similar order or an order that
denied the issuer access to any statutory exemptions for a period of more
than 30 consecutive days, or
(b) was declared bankrupt or made a voluntary assignment in bankruptcy, made a
proposal under any legislation relating to bankruptcy or insolvency or been
subject to or instituted any proceedings, arrangement, or compromise with
creditors or had a receiver, receiver manager or trustee appointed to hold
its assets.
Penalties or Sanctions
No director or officer of the Issuer is or has, within the past ten years, been
subject to any penalties or sanctions imposed by a court or securities
regulatory authority relating to trading in securities, promotion or management
of a publicly traded issuer, or theft or fraud.
<PAGE>
Page 35
Individual Bankruptcies
No director or officer of the Issuer is or has, within the preceding five years,
been declared bankrupt or made a voluntary assignment in bankruptcy, made a
proposal under any legislation relating to bankruptcy or insolvency or been
subject to or instituted any proceedings, arrangement, or compromise with
creditors or had a receiver, receiver manager or trustee appointed to hold the
assets of that individual.
Interest of Management and Others in Material Transactions
Other than as disclosed under "Payments to Insiders - Related Party
Transactions", no director, senior officer or holder of more than 10% of the
Issuer's share capital or any associate or affiliate of the foregoing persons,
has any material interest, direct or indirect, in any transaction of the Issuer
within three years of the date of this Prospectus or in any proposed transaction
of the Issuer, which has materially affected or would materially affect the
Issuer.
Certain of the directors, officers and shareholders of the Issuer are also
directors, officers and shareholders of other companies and conflicts of
interest may arise between their duties as directors of the Issuer and as
directors of other companies. Reference should be made to specific disclosure
under the heading "Directors, Management and Officers - Other Reporting
Issuers". All such possible conflicts are required to be disclosed in
accordance with the requirements of the Company Act (British Columbia) and the
directors concerned are required to govern themselves in accordance with the
obligations imposed on them by law.
Scientific Advisory Board
The Issuer receives guidance from its scientific advisory board, primarily to
assist the Issuer in analysing its product candidates. The members of the
scientific advisory board are:
* Peter John Barnes, M.A., D.M., D.Sc., F.R.C.P.
* Gunnar Aberg, Ph.D.
* Joel Morganroth, M.D., F.A.C.C., F.A.C.P.
* Stanley Nattel, M.D.C.M
Drs. Barnes and Aberg are each paid the sum of US$8,500 per annum for their
services as advisory board members. Dr. Nattel is paid the sum of US$10,000 per
annum for his services as Chair of the antiarrhythmic advisory board. Dr.
Morganroth is presently not paid for his services as an advisory board member.
The members are selected by management based on their expertise in the
therapeutic area under review by the Issuer.
Consulting Arrangements
As discussed above under "Business of the Issuer - Organizational Structure and
Facilities", the Issuer operates as a "semi-virtual" organization. Given the
small, core team of scientists and staff maintained by the Issuer, a significant
amount of the specialized work required by the Issuer for its projects is
contracted out. See "Business of the Issuer - Licenses and Collaborative
Research Agreements - Nociblocker Agreement", "Licenses and Collaborative
Research Agreements - CCM Heads of Agreement" and "Products Under Development -
Collaboration Strategy".
<PAGE>
Page 36
INDEBTEDNESS OF DIRECTORS, OFFICERS, AND MANAGEMENT
No director, officer, or member of management of the Issuer, or any of their
respective associates or affiliates, is or has been indebted to the Issuer at
any time since the commencement of its 1999 financial year.
PAYMENTS TO INSIDERS
Executive Compensation
"Executive Officer" means the chairman and any vice-chairman of the board of
directors of the Issuer, where the functions of the office are performed on a
full-time basis, the president, any vice-president in charge of a principal
business unit, division or function such as sales, finance or production and an
officer of the Issuer or of a subsidiary of the Issuer who performed a
policy-making function in respect of the Issuer, whether or not the officer is
also a director of the Issuer or a subsidiary of the Issuer.
"Named Executive Officer" means the chief executive officer, despite the amount
of compensation of that individual, each of the Issuer's four highest
compensated executive officers, other than the chief executive officer, who were
serving as executive officers at the end of the most recently completed
financial year, and any individual for whom disclosure would have been provided
but for the fact that the individual was not serving as an executive officer at
the end of the most recently completed financial year end and whose total salary
and bonus exceeds $100,000.
Long term incentive plan ("LTIP") means any plan providing compensation intended
to serve as an incentive for performance to occur over a period longer than one
financial year whether performance is measured by reference to financial
performance of the Issuer or an affiliate of the Issuer, or the price of the
Issuer's securities but does not include option or stock appreciation rights
plans or plans for compensation through restricted shares or units.
Stock appreciation rights ("SAR") means a right, granted by an issuer or any of
its subsidiaries as compensation for services rendered or in connection with
office or employment, to receive a payment of cash or an issue or transfer of
securities based wholly or in part on changes in the trading price of the
Issuer's shares.
The following table is a summary of the compensation paid by the Issuer to its
Named Executive Officers during the financial years ended November 30, 1999,
1998 and 1997.
<PAGE>
Page 37
Summary Compensation Table
for Financial Years Ended November 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
----------------------------------------------------------
Awards Payouts
--------------------------
Securities Restricted
Other Under Shares or
Annual Options/ Restricted All
Name and Compen- SARs Share LTIP Other
Principal Period Salary Bonus sation Granted Units Payouts Compen-
Position Ended ($) ($) ($) (#) ($) ($) sation(1)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert W. Nov. 30
Rieder (2) 1999 $200,000 Nil Nil Nil Nil Nil Nil
President 1998 $125,000 Nil $2,500 (3) 600,000 Nil Nil Nil
and CEO 1997 Nil Nil Nil 100,000 Nil Nil Nil
----------------------------------------------------------------------------------------------------------------------------------
Gregory N. Nov. 30
Beatch (4) 1999 $125,000 Nil Nil Nil Nil Nil Nil
V.P. Research 1998 $101,000 Nil Nil 70,000 Nil Nil $7,400
1997 $ 65,863 $15,000 Nil 60,000 Nil Nil Nil
==================================================================================================================================
</TABLE>
(1) This sum represents the difference between the exercise price and the
closing price of the Issuer's Common Shares on the date of exercise, and
does not necessarily represent the actual profits realized or losses
incurred on the exercise of stock options.
(2) Mr. Rieder was appointed President and CEO of the Issuer on April 16, 1998.
Pursuant to an agreement (the "Employment Agreement") dated March 19, 1998,
the Issuer pays a salary of $200,000 per year to Mr. Rieder. Under the
Employment Agreement, if the Issuer terminates Mr. Rieder's employment
without cause, the Issuer must pay Mr. Rieder a severance amount in the
amount of 12 months' remuneration.
(3) This sum represents directors' fees.
(4) Dr. Beatch commenced employment with the Issuer on September 1, 1996 and
became an officer of the Issuer effective June 26, 1997.
No incentive stock options were granted to the Named Executive Officers during
the financial year ended November 30, 1999. There was no repricing of stock
options held by the Named Executive Officers during the financial year ended
November 30, 1999.
The following table sets forth information concerning stock option exercises by
the Named Executive Officers during the financial year ended November 30, 1999.
Table of Option and SAR Exercises
--------------------------------------------------------------------------------
Value of Unexercised
Securities Unexercised in-the-Money
Acquired Options/SARs at Options/SARs at
on Aggregate November 30, 1999 November 30, 1999
Exercise Value (#) Exercisable/ ($) Exercisable/
Name (#) Realized ($) (Unexercisable) (Unexercisable)
--------------------------------------------------------------------------------
Robert W. Nil Nil 280,000 N/A
Rieder (360,000)
--------------------------------------------------------------------------------
Gregory N. 10,000 Nil 85,000 N/A
Beatch (40,000)
--------------------------------------------------------------------------------
<PAGE>
Page 38
Compensation of Directors
The following directors of the Issuer have received remuneration from Issuer in
their capacity as directors during the financial year ended November 30, 1999 as
follows:
--------------------------------------------------------------------------------
Director Salary Directors' Fees Consulting Fees
--------------------------------------------------------------------------------
Darrell Elliott Nil $8,333 $6,500 (1)
--------------------------------------------------------------------------------
Colin Roger Mallet Nil $10,000 $2,000
--------------------------------------------------------------------------------
Clive Peter Page Nil $10,000 $39,261
--------------------------------------------------------------------------------
(1) Paid to a private company owned by Mr. Elliott.
Other than as disclosed herein, none of the directors of the Issuer, in their
role as directors, have received any remuneration, other than reimbursement for
travel and other out-of-pocket expenses incurred for the benefit of the Issuer
during the most recently completed financial year.
The Issuer does not have any non-cash compensation plans, long-term incentive
plans, pension or retirement plans for its officers or directors and it does not
propose to pay or distribute any non-cash compensation during the current
financial year, other than the granting of stock options. See "Capitalization -
Share Capital - Options and Other Rights to Purchase Securities".
Related Party Transactions
Dr. Michael Walker, the Chairman of the board and a director of the Issuer, and
Allen Ian Bain, a director of the Issuer, were insiders of MBE at the time that
the Issuer purchased from MBE the remaining 50% of Rhythm-Search. Reference
should be made to disclosure under "Business of the Issuer - Acquisitions -
Rhythm-Search Developments Ltd." for further details regarding this transaction.
The Issuer has contracted out pre-clinical studies relating to its cough
project. These studies have been conducted at Pneumolabs Inc., a private
contract research organization based in the UK. Several of the Issuer's
directors, namely Drs. Allen Bain, Michael Walker and Clive Page, are directors,
officers and indirect shareholders of Pneumolabs Inc. As at April 30, 2000, the
Issuer has paid a cumulative total of approximately $216,000 in research
expenses to Pneumolabs Inc., $48,000 of which were paid during the financial
year ended November 30, 1998, $164,000 of which were paid during the financial
year ended November 30, 1999 and $4,000 of which were paid during the three
month period ended February 29, 2000.
Proposed Compensation
The Issuer expects to pay a total of $325,000 in salaries/consulting fees to its
current Named Executive Officers over the 12 month period ending February 28,
2001 as follows:
============================================================
Named Executive Officer Proposed Compensation
------------------------------------------------------------
Robert W. Rieder $200,000
------------------------------------------------------------
Gregory N. Beatch $125,000
============================================================
<PAGE>
Page 39
Directors and Officers Insurance
The Issuer maintains liability insurance for its directors and officers in the
aggregate amount of $5,000,000, subject to a $25,000 deductible loss payable by
the Issuer.
DILUTION
The following table illustrates the per share dilution to the Common Shares of
the Issuer attributable to the issuance of Common Shares on exercise of the
Special Warrants, based on the consolidated balance sheet of the Issuer as at
February 29, 2000:
Issue Price $1.40
Net tangible book value per share (excluding technology,
license and patents) before the distribution of Special
Warrants $0.16
Increase in net tangible book value per share
attributable to the distribution of Special Warrants $0.15
-----
Net tangible book value per share (excluding technology,
license and patents) after the distribution of Special
Warrants (1) $0.31
-----
Dilution to subscribers $1.09
=====
Percentage of dilution in relation to issue price 77.86%
(1) After deducting the estimated expenses of the Offering ($743,880,
including the Agents' commissions), and assuming all the Special
Warrants are exchanged for Common Shares on a one for one basis.
CAPITALIZATION
The following table sets forth the capitalization of the Issuer, as adjusted to
give effect to this Offering. See "Capitalization - Fully Diluted Share
Capital".
================================================================================
Outstanding at April
30, 2000 after giving
Outstanding at effect to the Offering
February 29, Outstanding at and other
Authorized 2000 April 30, 2000 Adjustments (1)
--------------------------------------------------------------------------------
Obligations
under Capital
Lease N/A $ 86,207 $ 73,615 $ 73,615
--------------------------------------------------------------------------------
Long-Term Debt N/A $ 102,469 $ 91,205 $ 91,205
--------------------------------------------------------------------------------
Shareholders'
Equity
--------------------------------------------------------------------------------
Common Shares 200,000,000 $24,239,024 $ 24,811,109 $31,836,109 (2)
shares (34,417,942 shs)(35,204,506 shs)(40,753,706 shs)(3)
--------------------------------------------------------------------------------
Contributed 1,056,266 1,056,266 1,056,266
Surplus
--------------------------------------------------------------------------------
Deficit (17,444,420) (17,444,420)(4) (17,444,420)(4)
--------------------------------------------------------------------------------
Total
Shareholders'
Equity(5) $ 7,850,870 $ 8,422,958 $ 15,444,955
--------------------------------------------------------------------------------
Total Capitalization $ 8,039,546 $ 8,587,775 $ 15,612,775
================================================================================
Notes:
(1) Reflects the issuance of 5,549,200 Special Warrants to the public at a
price of $1.40 per Special Warrant exercisable into Common Shares (see
"Plan of Distribution"). Assumes Receipts for this Prospectus are issued
on or before July 13, 2000.
(2) After deducting the expenses of the Offering estimated at $743,880
including the Agents' commissions.
<PAGE>
Page 40
(3) Excludes 3,297,500 Common Shares reserved for issuance upon the exercise of
options granted to certain of the Issuer's executive officers, directors,
employees and consultants (see "Capitalization - Options and Other Rights
to Purchase Securities" and "Incentive Stock Options"), 2,774,600 Common
Shares reserved for issuance upon exercise of the Warrants and 178,571
Common Shares reserved for issuance upon exercise of the FF Warrants. Does
not give effect to the exercise of Agents' Warrants.
(4) As at February 29, 2000.
(5) See Note 11 of the Issuer's financial statements for a description of
commitments under operating leases.
Options and Other Rights to Purchase Securities
As at June 5, 2000, together with the addition of all rights to purchase
securities other than the Special Warrants and Warrants, the Issuer has granted
persons rights to purchase or acquire an aggregate of 4,030,991 Common Shares as
described below. The closing market price of the Common Shares on June 5, 2000
was $1.26.
Incentive Stock Options
The following table sets forth details, as at June 5, 2000, of the incentive
stock options entitling the holders to purchase an aggregate of 3,297,500 Common
Shares of the Issuer. Currently the directors of the Issuer who are not also
executive officers (5) as a group hold an aggregate of options to purchase
550,000 Common Shares and the executive officers of the Issuer (3) hold options
to purchase an aggregate of 1,105,000 Common Shares. All other employees of the
Issuer as a group hold options to purchase an aggregate of 797,500 Common
Shares. As at June 5, 2000, the market value of the Common Shares subject to
incentive stock options was $1.26.
================================================================================
No. of Common Market Value
Shares Subject Exercise on Date of
Name of Optionees to Option Date of Grant Price Expiry Date Grant
--------------------------------------------------------------------------------
Michael J.A. Walker 30,000 Nov. 1, 1995 $0.63 Oct. 31, 2000 $0.55
--------------------------------------------------------------------------------
Alexander Zolotoy 10,000 May 25, 2000 $1.27 May 24, 2006 $1.30
40,000 Apr. 3, 1997 $1.40 Apr. 2, 2002 $1.52
--------------------------------------------------------------------------------
Shlomo Abraham 5,000 Nov. 1, 1995 $0.63 Oct. 31, 2000 $0.55
--------------------------------------------------------------------------------
Michael Pugsley 5,000 Nov. 1, 1995 $0.63 Oct. 31, 2000 $0.55
--------------------------------------------------------------------------------
Bertrand Plouvier 25,000 May 25, 2000 $1.27 May 24, 2006 $1.30
5,000 Nov. 1, 1995 $0.63 Oct. 31, 2000 $0.55
40,000 Apr. 3, 1997 $1.40 Apr. 2, 2002 $1.52
10,000 June 12, 1998 $1.58 June 11, 2004 $1.35
--------------------------------------------------------------------------------
Wei Qun Wang 7,500 May 25, 2000 $1.27 May 24, 2006 $1.30
15,000 Jan. 11, 1999 $1.26 Jan. 10, 2005 $1.29
--------------------------------------------------------------------------------
Sandro Yong 15,000 Feb. 14, 2000 $1.05 Feb. 13, 2006 $1.18
--------------------------------------------------------------------------------
Clive Peter Page 100,000 Apr. 11, 1996 $0.70 Apr. 10, 2001 $0.68
50,000 Nov. 1, 1999 $0.61 Oct. 31, 2004 $0.60
--------------------------------------------------------------------------------
Colin Roger Mallet 100,000 Apr. 11, 1996 $0.70 Apr. 10, 2001 $0.68
--------------------------------------------------------------------------------
Richard A. Wall 75,000 July 9, 1996 $1.00 July 8, 2001 $0.88
--------------------------------------------------------------------------------
David Quastel 50,000 July 9, 1996 $1.00 July 8, 2001 $0.88
--------------------------------------------------------------------------------
Bernard MacLeod 50,000 July 9, 1996 $1.00 July 8, 2001 $0.88
--------------------------------------------------------------------------------
<PAGE>
Page 41
================================================================================
No. of Common Market Value
Shares Subject Exercise on Date of
Name of Optionees to Option Date of Grant Price Expiry Date Grant
--------------------------------------------------------------------------------
Joel Morganroth 120,000 Apr. 3, 1997 $1.40 Apr. 2, 2002 $1.52
--------------------------------------------------------------------------------
Sheila M. Grant 30,000 May 25, 2000 $1.27 May 24, 2006 $1.30
60,000 Apr. 3, 1997 $1.40 Apr. 2, 2002 $1.52
--------------------------------------------------------------------------------
Sue Milne 10,000 May 25, 2000 $1.27 May 24, 2006 $1.30
20,000 Apr. 3, 1997 $1.40 Apr. 2, 2002 $1.52
--------------------------------------------------------------------------------
Ganesan Adaiken 30,000 Apr. 3, 1997 $1.40 Apr. 2, 2002 $1.52
--------------------------------------------------------------------------------
Robert W. Rieder 200,000 May 25, 2000 $1.27 May 24, 2006 $1.30
40,000 Apr. 21, 1997 $1.42 Apr. 20, 2002 $1.33
600,000 Mar. 18, 1998 $1.49 Mar. 17, 2003 $1.59
55,000 Mar. 30, 2000 $1.81 Mar. 29, 2005 $1.63
--------------------------------------------------------------------------------
Gregory N. Beatch 65,000 May 25, 2000 $1.27 May 24, 2006 $1.30
60,000 May 30, 1997 $1.25 May 29, 2002 $1.14
55,000 Oct. 16, 1998 $1.05 Oct. 15, 2004 $1.02
--------------------------------------------------------------------------------
David Dickenson 30,000 May 30, 1997 $1.25 May 29, 2002 $1.14
--------------------------------------------------------------------------------
Tao Sheng 7,500 May 25, 2000 $1.27 May 24, 2006 $1.30
15,000 Jan. 19, 1998 $0.97 Jan. 18, 2003 $0.92
--------------------------------------------------------------------------------
Allen Ian Bain 200,000 Mar. 27, 1998 $1.85 Apr. 26, 2001 $1.85
--------------------------------------------------------------------------------
Gunnar Aberg 120,000 June 12, 1998 $1.58 June 11, 2004 $1.35
--------------------------------------------------------------------------------
Lewis Choi 17,500 May 25, 2000 $1.27 May 24, 2006 $1.30
25,000 June 12, 1998 $1.58 June 11, 2004 $1.35
10,000 Oct. 16, 1998 $1.05 Oct. 15, 2004 $1.02
--------------------------------------------------------------------------------
Lilian Clohs 20,000 May 25, 2000 $1.27 May 24, 2006 $1.30
40,000 June 12, 1998 $1.58 June 11, 2004 $1.35
--------------------------------------------------------------------------------
Herman Fernandes 10,000 June 12, 1998 $1.58 June 11, 2004 $1.35
5,000 Jan. 11, 1999 $1.26 Jan. 10, 2005 $1.29
--------------------------------------------------------------------------------
Sara Harrison 5,000 May 25, 2000 $1.27 May 24, 2006 $1.30
10,000 June 12, 1998 $1.58 June 11, 2004 $1.35
--------------------------------------------------------------------------------
Jeff Zhu 10,000 May 25, 2000 $1.27 May 24, 2006 $1.30
20,000 June 12, 1998 $1.58 June 11, 2004 $1.35
--------------------------------------------------------------------------------
Yuzhong Liu 7,500 May 25, 2000 $1.27 May 24, 2006 $1.30
15,000 June 12, 1998 $1.58 June 11, 2004 $1.35
--------------------------------------------------------------------------------
Salome Mbofana 5,000 May 25, 2000 $1.27 May 24, 2006 $1.30
10,000 June 12, 1998 $1.58 June 11, 2004 $1.35
--------------------------------------------------------------------------------
Grace Jung 25,000 May 25, 2000 $1.27 May 24, 2006 $1.30
50,000 Oct. 16, 1998 $1.05 Oct. 15, 2004 $1.02
--------------------------------------------------------------------------------
<PAGE>
Page 42
================================================================================
No. of Common Market Value
Shares Subject Exercise on Date of
Name of Optionees to Option Date of Grant Price Expiry Date Grant
--------------------------------------------------------------------------------
Ying Dong 7,500 May 25, 2000 $1.27 May 24, 2006 $1.30
15,000 Oct. 16, 1998 $1.05 Oct. 15, 2004 $1.02
--------------------------------------------------------------------------------
Leah Monds 5,000 May 25, 2000 $1.27 May 24, 2006 $1.30
10,000 Oct. 16, 1998 $1.05 Oct. 15, 2004 $1.02
--------------------------------------------------------------------------------
James King 125,000 Oct. 16, 1998 $1.05 Oct. 15, 2004 $1.02
--------------------------------------------------------------------------------
Christina Yip 22,500 May 25, 2000 $1.27 May 24, 2006 $1.30
15,000 Jan. 11, 1999 $1.26 Jan. 10, 2005 $1.29
--------------------------------------------------------------------------------
Darrell Elliott 100,000 Feb. 9, 1999 $1.10 Feb. 8, 2004 $1.10
--------------------------------------------------------------------------------
Peter Barnes 50,000 Feb. 25, 1999 $1.05 Feb. 24, 2005 $1.02
--------------------------------------------------------------------------------
David Fedida 50,000 Nov. 1, 1999 $0.61 Oct. 31, 2005 $0.60
--------------------------------------------------------------------------------
Breakwater Financial 100,000 Nov. 1, 1999 $0.61 Oct. 31, 2002 $0.60
Corporation
--------------------------------------------------------------------------------
Judy Wong 5,000 May 25, 2000 $1.27 May 24, 2006 $1.30
10,000 Nov. 1, 1999 $0.61 Oct. 31, 2005 $0.60
--------------------------------------------------------------------------------
Michael Midmer 15,000 May 25, 2000 $1.27 May 24, 2006 $1.30
30,000 Feb. 14, 2000 $1.05 Feb. 13, 2006 $1.18
--------------------------------------------------------------------------------
Xue Zhang 7,500 May 25, 2000 $1.27 May 24, 2006 $1.30
15,000 Feb. 14, 2000 $1.05 Feb. 13, 2006 $1.18
--------------------------------------------------------------------------------
Desireee Ferdinandi 5,000 May 25, 2000 $1.27 May 24, 2006 $1.30
10,000 Feb. 14, 2000 $1.05 Feb. 13, 2006 $1.18
--------------------------------------------------------------------------------
Stanley Nattel 50,000 Feb. 14, 2000 $1.05 Feb. 13, 2006 $1.18
--------------------------------------------------------------------------------
Kapil Bhagirath 10,000 Feb. 14, 2000 $1.05 Feb. 13, 2006 $1.18
--------------------------------------------------------------------------------
Mark Buss 5,000 May 25, 2000 $1.27 May 24, 2006 $1.30
--------------------------------------------------------------------------------
TOTAL: 3,297,500
--------------------------------------------------------------------------------
The options have been granted as incentives and not in lieu of any compensation
for services, and are subject to cancellation should the optionee cease to act
in a designated capacity. There can be no assurance that the options described
above will be exercised.
Agents' Warrants
Pursuant to the terms of the Agency Agreement, the Issuer has issued
Compensation Options, which will entitle the Agents to receive, without
additional payment, 554,920 Agents' Warrants. The following table sets forth
details of the Agents' Warrants:
================================================================================
No. of Common Market
Shares to be Market Value
Issued On Value on on
Name of Exercise of Date of Exercise Expiry Date of April
Warrant Holder Agents' Warrants Issue Price Date Issue 14, 2000
--------------------------------------------------------------------------------
Dlouhy 249,714 N/A $1.40 Oct. 14/01 N/A $1.25
Investments
Inc.
--------------------------------------------------------------------------------
Goepel McDermid 194,222 N/A $1.40 Oct. 14/01 N/A $1.25
Inc.
--------------------------------------------------------------------------------
HSBC Securities 110,984 N/A $1.40 Oct. 14/01 N/A $1.25
(Canada) Inc.
--------------------------------------------------------------------------------
<PAGE>
Page 43
Other Warrants
Pursuant to the non-brokered private placement financing completed by the Issuer
on June 5, 2000, the Issuer has issued 178,571 FF Warrants to FutureFund Capital
(VCC) Corp. Each FF Warrant entitles the holder to purchase one Common Share at
$1.60 at any time prior to June 5, 2002. See "Business of the Issuer - Summary
and Analysis of Financial Operations - Recent Development".
Fully Diluted Share Capital
The following sets forth information in respect of the Issuer's share capital on
a fully diluted basis:
================================================================================
Shares Issued Number of Shares Percentage of Total
--------------------------------------------------------------------------------
Issued as of June 5, 2000: 35,561,648 74.2%
--------------------------------------------------------------------------------
Offering under this Prospectus:
To be issued upon exercise of Special
Warrants (1) 5,549,200 11.6%
To be issued upon exercise of Warrants 2,774,600 5.8%
To be issued upon exercise of Agents'
Warrants (1) 554,920 1.2%
--------------------------------------------------------------------------------
To be issued upon exercise of FF Warrants 178,571 0.3%
--------------------------------------------------------------------------------
Reserved for issue pursuant to exercise of
incentive stock options as at June 5, 2000: 3,297,500 6.9%
--------------------------------------------------------------------------------
Total: 47,916,439 100.0%
================================================================================
(1) Assuming the Receipt Date is on or before July 13, 2000.
Principal Holders of Voting Securities
As at June 5, 2000, the following table illustrates each person who has or is
known by the Issuer to have a direct or indirect beneficial ownership of,
control or direction over, or a combination of direct or indirect beneficial
ownership of and control or direction over voting securities that will
constitute more than ten percent (10%) of the issued share capital of the Issuer
upon completion of the Offering:
================================================================================
Number of Percentage Percentage of
Name and Number of Securities Prior of Class Class After
Municipality Securities Prior Giving Effect to Prior to the Giving Effect
of Residence to the Offering the Offering Offering to the Offering
--------------------------------------------------------------------------------
Chemical 5,604,386 (1) 5,604,386 (1) 15.8% 12.8%
Company of
Malaysia
Berhad
Kuala Lumpur,
Malaysia
================================================================================
(1) 4,104,386 of which are held by CCM Investments Ltd., of the British Virgin
Islands, a wholly-owned subsidiary of Chemical Company of Malaysia Berhad,
a publicly traded company. Tekun Sepadu Sdn Bhd (beneficially owned by
Dato' Lim Say Chong and Oh Kim Sun, a director of the Issuer), Permodalan
Nasional Bhd (a Government owned investment company, and Lembaran Megah Sdn
Bhd (beneficially owned by MUI Group, a company listed on the Kuala Lumpur
Stock Exchange) each own 10% or more of Chemical Company of Malaysia
Berhad.
Dividend Policy
The Issuer has not, since its inception, declared or paid any dividends on its
Common Shares and does not anticipate that it will do so in the foreseeable
future. The declaration of dividends on the Common Shares is within the
<PAGE>
Page 44
discretion of the Issuer's board of directors and will depend on the assessment
of, among other factors, earnings, capital requirements and the operating and
financial condition of the Issuer. At the present time, the Issuer's
anticipated capital requirements are such that it intends to follow a policy of
retaining earnings in order to finance the further development of its business.
PLAN OF DISTRIBUTION
Terms of the Agency Agreement
Pursuant to the Agency Agreement, the Agents acted as the Issuer's exclusive
agents for the sale of 5,549,200 Special Warrants pursuant to the Private
Placement. The Special Warrants were sold to purchasers resident in British
Columbia, Alberta, Ontario and the Yukon. In accordance with the Agency
Agreement, the Issuer paid the Agents a cash commission of $543,822 (paid from
the proceeds of the Offering), and issued to the Agents an aggregate of 554,920
Compensation Options. Each Compensation Option entitles the Agents to receive,
for no additional consideration, one Agents' Warrant. Each Agents' Warrant is
exercisable for one Common Share at a price of $1.40 until October 14, 2001. If
Receipts for this Prospectus are not issued on or before July 13, 2000, each
Agents' Warrant will be exercisable for 1.1 Common Shares at a price of $1.40
until October 14, 2001.
Distribution of Securities
All unexercised Special Warrants and Compensation Options will be deemed to be
exercised on the earlier to occur of the fifth business day following the
Receipt Date and April 14, 2001. No additional commission or fee will be paid
to the Agents, and no proceeds will be realized by the Issuer in connection with
the issuance of the Common Shares and Warrants on exercise of the Special
Warrants and the Agents' Warrants on exercise of the Compensation Options.
Escrowed Proceeds
The proceeds of the Private Placement, less the Agents' commission, were placed
into escrow pursuant to the special warrant indenture (the "Special Warrant
Indenture") dated April 14, 2000 between the Issuer and Pacific Corporate Trust
Company (as escrow agent) on the closing of the Private Placement. The proceeds
will be released to the Issuer on the earlier to occur of the fifth business day
following the Receipt Date and August 3, 2000, unless a holder of a Special
Warrant requests the Issuer to repurchase its Special Warrants prior to that
date. Each holder of a Special Warrant has 21 days from July 13, 2000 to
request the Issuer to repurchase its Special Warrants if the Issuer fails to
obtain a Receipt for this Prospectus by July 13, 2000 in the jurisdiction in
which the holder is resident.
The Escrow Agent will release the escrowed proceeds to the Issuer on the
earliest to occur of:
(a) the dates on which holders convert, from time to time, their Special
Warrants into the underlying securities, with respect only to the
subscription proceeds pertaining to the Special Warrants converted;
(b) the date specified in writing by the Issuer's solicitors, Catalyst
Corporate Finance Lawyers, as being the fifth business day following the
date on which the Receipts for the Prospectus have been issued; and
(c) August 3, 2000.
<PAGE>
Page 45
DESCRIPTION OF SECURITIES OFFERED
The securities being qualified by this Prospectus are as follows:
1. 5,549,200 Common Shares to be issued, without payment of any additional
consideration, upon the exercise of 5,549,200 Special Warrants of the Issuer
previously distributed by the Issuer under the Private Placement;
2. 2,774,600 Warrants to be issued, without payment of any additional
consideration, upon the exercise of 5,549,200 Special Warrants of the
Issuer. Each Warrant entitles the holder to purchase one additional common
share of the Issuer at $1.60 until April 14, 2002.
3. 554,920 Agents' Warrants to be issued, without payment of any additional
consideration, upon the exercise of the Compensation Options, only 277,460
of which are also being qualified in Ontario. Each Agents' Warrant entitles
the holder to acquire one Common Share at $1.40 until October 14, 2001.
By approval of the Private Placement, the CDNX has approved the listing of the
Common Shares issuable upon exercise of the Special Warrants, Warrants and the
Agents' Warrants.
If the Receipts have not been issued by the Qualification Deadline (July 13,
2000), the holders of the Special Warrants will have the right, exercisable
within 21 days from the Qualification Deadline, to require the Issuer to
repurchase the Special Warrants and, if the right of repurchase is not
exercised, the Special Warrants will, after the Qualification Deadline,
automatically be exercisable into 1.1 Common Shares and 0.5 Warrant for each
Special Warrant held, without payment of any additional consideration, on the
exercise thereof. In addition, if the Receipts are not issued by July 13, 2000,
the holders of the Agents' Warrants will be entitled to receive 1.1 Common
Shares rather than one Common Share for each Agents' Warrant held.
Special Warrant Indenture
All of the Special Warrants were issued pursuant to the Special Warrant
Indenture between the Issuer and Pacific Corporate Trust Company and are
identical in all respects. Among others, the following terms and conditions
apply to the Special Warrants:
(a) no fractional Common Shares will be issued;
(b) the Special Warrants, including the number of Common Shares issuable upon
exercise or deemed exercise thereof, may be subject to adjustment upon the
occurrence of certain stated events, including the subdivision or
consolidation of Common Shares, certain distributions of Common Shares, or
securities convertible into or exchangeable for Common Shares, or of other
securities or assets of the Issuer, certain offerings of rights, warrants
or options and certain capital reorganizations;
(c) the holder of Special Warrants will not constitute such holder a
shareholder of the Issuer; and
(d) Special Warrants may be exercised by the holder at any time to and until
the Expiry Date, and Special Warrants not exercised by the Expiry Date
shall, immediately prior to the Expiry Date, be deemed to have been
exercised without any further action on the part of the holder.
<PAGE>
Page 46
Warrant Indenture
The Warrants to be issued upon the exercise of the Special Warrants will be
issued pursuant to a share purchase warrant indenture between the Issuer and
Pacific Corporate Trust Company dated April 14, 2000 (the "Warrant Indenture").
Among others, the following terms and conditions will apply to the Warrants:
(a) no fractional Common Shares will be issued;
(b) the Warrants, including the number of Common Shares issuable upon
exercise or deemed exercise thereof, may be subject to adjustment upon the
occurrence of certain stated events, including the subdivision or
consolidation of Common Shares, certain distributions of Common Shares, or
securities convertible into or exchangeable for Common Shares, or of other
securities or assets of the Issuer, certain offerings of rights, warrants
or options and certain capital reorganizations;
(c) the holder of Warrants will not constitute such holder a shareholder of the
Issuer;
(d) Warrants may be exercised by the holder at any time to and until April 14,
2002, and Warrants not exercised by that date shall be void and have no
effect; and
(e) the Warrants include a provision which entitles the holder to exercise the
Warrants on a cashless basis. The number of Common Shares issuable upon
exercise will be determined by dividing the "in-the-money" value of the
Warrants by the market price per Common Share at the time of exercise. The
maximum number of Common Shares issuable on a cashless exercise will be the
number of Common Shares issuable upon a cash exercise of the Warrants.
Common Shares
The authorized capital of the Issuer consists of 200,000,000 Common Shares.
Currently, 35,561,648 Common Shares are issued and outstanding. All of the
authorized shares of the Issuer are of the same class and, once issued, rank
equally as to dividends, voting powers and participation in assets. No Common
Shares have been issued subject to call or assessment. There are no pre-emptive
or conversion rights and no provisions for redemption or purchase for
cancellation, surrender, or sinking or purchase funds. Provisions as to the
modification, amendment or variation of such rights or provisions are contained
in the Company Act (British Columbia).
The Common Shares issuable upon exercise of the Special Warrants will not, upon
their issuance, be subject to any future call or assessments and will not have
any pre-emptive rights, conversion rights or redemption rights.
Agents' Warrants
The Agents' Warrants contain provisions that, in the event of:
(a) the subdivision or consolidation of Common Shares;
(b) any issue or distribution by the Issuer of any securities to its
shareholders, including rights, options, or warrants or securities
convertible or exchangeable into Common Shares of the Issuer or property or
assets; or
<PAGE>
Page 47
(c) any reclassification or capital reorganization (other than as a result of a
subdivision or consolidation) or any consolidation, amalgamation or merger
of the Issuer or any sale or conveyance to another corporation of the
property and assets of the Issuer as an entirety or substantially as an
entirety, the number of Common Shares issuable upon exercise of the Agents'
Warrants will be adjusted, if necessary, so that the holders will be in the
same position, to the extent reasonably possible, as they would have been
in had the Agents' Warrants been exercised prior to the occurrence of each
such event.
The Agents' Warrants include a provision which entitles the
holder to exercise the Agents' Warrants on a cashless basis. The number of
Common Shares issuable upon exercise will be determined by dividing the
"in-the-money" value of the Agents' Warrants by the market price per Common
Share at the time of exercise. The maximum number of Common Shares issuable
on a cashless exercise will be the number of Common Shares issuable upon a
cash exercise of the Agents' Warrants.
To the extent that the holder of an Agents' Warrant would otherwise be entitled
to purchase a fraction of a Common Share, such right may be exercised only in
combination with other rights which in the aggregate entitle the holder to
purchase a whole number of Common Shares. Holders of Agents' Warrants will be
entitled to cash payment in respect of fractional entitlements. No adjustments
as to dividends will be made upon any exercise of the Agents' Warrants. Holders
of the Agents' Warrants do not have any voting or pre-emptive rights or any
other rights as shareholders of the Issuer.
If the Issuer has not obtained Receipts for this Prospectus on or before July
13, 2000, each Agents' Warrant shall be exercisable into 1.1 Common Shares
rather than one Common Share.
The Agents' Warrants may be exercised at a price of $1.40 per Common Share by
the holder at any time before October 14, 2001, and any Compensation Options not
exercised by the Expiry Date shall, immediately prior to the Expiry Date, be
deemed to have been exercised into Agents' Warrants without any further action
on the part of the holder.
PRICE RANGE AND TRADING VOLUMES OF COMMON SHARES
The following table sets forth the trading history of the Issuer's Common Shares
on the CDNX (or its predecessors) during the periods noted:
================================================================================
Period High (Cdn$) Low (Cdn$) Volume (#)
--------------------------------------------------------------------------------
Quarter ended May 31, 1998 3.15 1.34 24,790,979
--------------------------------------------------------------------------------
Quarter ended August 31, 1998 1.83 0.92 7,483,854
--------------------------------------------------------------------------------
Quarter ended November 30, 1998 1.42 0.87 6,112,534
--------------------------------------------------------------------------------
Quarter ended February 28, 1999 1.39 0.97 2,794,730
--------------------------------------------------------------------------------
Quarter ended May 31, 1999 1.59 0.89 5,285,336
--------------------------------------------------------------------------------
Quarter ended August 31, 1999 1.73 0.62 5,685,287
--------------------------------------------------------------------------------
Quarter ended November 30, 1999 0.77 0.50 1,163,929
--------------------------------------------------------------------------------
Month ended December 31, 1999 0.59 0.47 1,156,409
--------------------------------------------------------------------------------
Month ended January 31, 2000 1.00 0.50 1,493,218
================================================================================
<PAGE>
Page 48
================================================================================
Period High (Cdn$) Low (Cdn$) Volume (#)
--------------------------------------------------------------------------------
Month ended February 29, 2000 1.55 0.47 5,958,977
--------------------------------------------------------------------------------
Month ended March 31, 2000 2.71 1.35 8,432,682
--------------------------------------------------------------------------------
Month ended April 30, 2000 1.73 1.08 1,469,000
--------------------------------------------------------------------------------
Month ended May 31, 2000 1.40 1.11 1,197,460
--------------------------------------------------------------------------------
June 1 to June 15, 2000 1.37 1.20 511,090
================================================================================
The closing price on June 15, 2000 was $1.20.
PRIOR SALES
During the 12 months preceding the date of this Prospectus, the Issuer has sold
the following Common Shares in its capital stock:
================================================================================
Date Number of Price per Share Commission Net Cash
Shares Received
--------------------------------------------------------------------------------
June 5, 2000 357,142 $1.40 (1) Nil $ 499,999
--------------------------------------------------------------------------------
March 27, 2000 728,564 $0.70 Nil $ 509,995(2)
--------------------------------------------------------------------------------
March 21, 2000 5,000 $0.63 Nil $ 3,150(3)
--------------------------------------------------------------------------------
March 15, 2000 10,000 $1.26 Nil $ 12,600(3)
--------------------------------------------------------------------------------
March 14, 2000 10,000 $1.05 Nil $ 10,500(3)
--------------------------------------------------------------------------------
March 13, 2000 15,000 $1.00 Nil $ 15,000(3)
--------------------------------------------------------------------------------
March 10, 2000 5,000 $0.63 Nil $ 3,150(3)
--------------------------------------------------------------------------------
March 9, 2000 3,000 $0.63 Nil $ 1,890(3)
--------------------------------------------------------------------------------
March 6, 2000 10,000 $1.58 Nil $ 15,800(3)
--------------------------------------------------------------------------------
November 30, 1999 7,285,643 $0.70 $304,496 $4,795,454(4)
--------------------------------------------------------------------------------
June 30, 1999 139,000 $0.90 Nil $125,100(5)
--------------------------------------------------------------------------------
June 4, 1999 5,000 $1.00 Nil $5,000(3)
================================================================================
(1) Price per unit of the Issuer, each unit consisting of one Common Share and
one-half of one Common Share purchase warrant, each whole warrant entitling
the holder to purchase one Common Share of the Issuer at $1.60 until June
5, 2002.
(2) Exercise of Agents' Warrants issued on August 11, 1999.
(3) Stock option exercise.
(4) Deemed exercise of special warrants issued on August 11, 1999.
(5) Exercise of share purchase warrants.
INVESTOR RELATIONS ARRANGEMENTS
The Issuer's employees are responsible for the preparation of any investor
relations package containing the Issuer's corporate profile, management and
director profiles, corporate information and product sheet. These individuals
will also coordinate communication with shareholders on a continuing basis to
keep them advised of the Issuer's plans and activities by providing them with
news releases, financial information and annual reports.
<PAGE>
Page 49
Other than as disclosed herein, the Issuer has not entered into any written or
oral agreement or understanding with any person to provide any promotional or
investor relations services for the Issuer or its securities, or to engage in
activities for the purposes of stabilizing the market, either now or in the
future.
LEGAL PROCEEDINGS
To the knowledge of the signatories hereto, the Issuer is not a party to any
outstanding legal proceedings or any contemplated legal proceedings that are
material to the business and affairs of the Issuer.
AUDITOR
The Issuer's auditor is Ernst & Young LLP, Chartered Accountants, located at
Pacific Centre, 700 West Georgia Street, Vancouver, British Columbia, V7Y 1C7.
REGISTRAR AND TRANSFER AGENT
The Issuer's registrar and transfer agent is Pacific Corporate Trust Company,
located at Suite 830, 625 Howe Street, Vancouver, British Columbia, V6C 3B8.
MATERIAL CONTRACTS
The material contracts which the Issuer and/or Rhythm-Search and Atriven are a
party to are as follows:
Nociblocker Agreement
Reference is made to disclosure under the heading "Business of the Issuer -
Licenses and Collaborative Research Agreements - Nociblocker Agreement" for
details of the Nociblocker Agreement.
UBC License Agreement & UBC Research Agreement
Reference is made to disclosure under the heading "Business of the Issuer -
Licenses and Collaborative Research Agreements - UBC License Agreement and UBC
Research Agreement" for details of the UBC License Agreement and UBC Research
Agreement.
CCM Heads of Agreement
Reference is made to disclosure under the heading "Business of the Issuer -
Licenses and Collaborative Research Agreements - CCM Heads of Agreement" for
details of the CCM Heads of Agreement.
Employment/Consulting Agreements
* Consultancy Agreement dated May 6, 1999 between the Issuer and Michael J.
A. Walker, Chairman of the Board, pursuant to which the Issuer has agreed
to pay Dr. Walker a fee of $100 per hour for his services, to a maximum of
$5,000 per month.
* Employment Agreement dated March 19, 1998 between the Issuer and Robert W.
Rieder, President and CEO, pursuant to which the Issuer has agreed to pay
Mr. Rieder a salary of $200,000 per year.
* Employment Agreement dated June 25, 1997 between the Issuer and Gregory N.
<PAGE>
Page 50
Beatch, Vice-President, Research, pursuant to which the Issuer has agreed
to pay Dr. Beatch a salary of $125,000 per year.
* Employment Agreement dated April 15, 1997 between the Issuer and Sheila M.
Grant, Director of Finance and Administration and Secretary, pursuant to
which the Issuer has agreed to pay Ms. Grant a salary of $80,000 per year.
Incentive Stock Option Agreements
Reference is made to disclosure under the heading "Capitalization - Options and
Other Rights to Purchase Securities", for details of outstanding incentive stock
option agreements.
Special Warrant Indenture
Reference is made to disclosure under the heading "Plan of Distribution" for
details of the Special Warrant Indenture.
Warrant Indenture
Reference is made to disclosure under the heading "Plan of Distribution" for
details of the Warrant Indenture.
Agency Agreement
Reference is made to disclosure under the heading "Plan of Distribution", for
details of the Agency Agreement.
The above agreements may be inspected at the office of counsel for the Issuer,
Catalyst Corporate Finance Lawyers, at Suite 1100, 1055 West Hastings St.,
Vancouver, B.C, during normal business hours while the distribution of the
Common Shares offered hereunder is in progress and for a period of 30 days
thereafter.
CONTRACTUAL RIGHT OF ACTION FOR RESCISSION
In the event that a holder of a Special Warrant, who acquires a Common Share
upon the exercise of a Special Warrant as provided for in this Prospectus, is or
becomes entitled under applicable securities legislation to the remedy of
rescission by reason of this Prospectus or any amendment thereto containing a
misrepresentation, such holder shall be entitled to rescission not only of the
holder's exercise of the Special Warrant(s), but also of the Private Placement
pursuant to which the Special Warrant(s) were initially acquired, and shall be
entitled in connection with such rescission to a full refund of all
consideration paid on the acquisition of the Special Warrant(s). In the event
such holder is a permitted assignee of the interest of the original Special
Warrant subscriber, such permitted assignee shall be entitled to exercise the
rights of rescission and refund granted hereunder as if such permitted assignee
was such original subscriber. The foregoing is in addition to any other right
or remedy available to a holder of a Special Warrant under applicable securities
legislation or otherwise at law.
PURCHASERS' STATUTORY RIGHTS
Securities legislation in certain of the provinces of Canada provides purchasers
with the right to withdraw from an agreement to purchase securities within two
business days after receipt or deemed receipt of a prospectus and any amendment
thereto. In several provinces, securities legislation further provides a
purchaser with remedies for rescission or damages where the prospectus and any
<PAGE>
Page 51
amendment thereto contains a misrepresentation or is not delivered to the
purchaser, provided that such remedies for rescission or damages are exercised
by the purchaser within the time limit prescribed by the securities legislation
of the province.
The purchaser should refer to the applicable provisions of the securities
legislation of the purchaser's province for the particulars of these rights or
consult with a legal advisor.
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
NORTRAN PHARMACEUTICALS INC.
February 29, 2000
<PAGE>
AUDITORS' REPORT
To the Directors of
Nortran Pharmaceuticals Inc.
We have audited the consolidated balance sheets of Nortran Pharmaceuticals Inc.
as at November 30, 1999 and 1998 and the consolidated statements of loss and
deficit and cash flows for each of the years in the three year period ended
November 30, 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 auditing standards generally accepted
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at November 30, 1999
and 1998 and the results of its operations and its cash flows for each of the
years in the three year period ended November 30, 1999 in accordance with
accounting principles generally accepted in Canada. As required by the Company
Act (British Columbia), we report that, in our opinion, these principles have
been applied on a consistent basis.
Vancouver, Canada,
January 20, 2000 (except as to note 15(b) /s/ Ernst & Young LLP
which is as of June 19, 2000). Chartered Accountants
<PAGE>
REVIEW ENGAGEMENT REPORT
To the Directors of
Nortran Pharmaceuticals Inc.
We have reviewed the consolidated balance sheet of Nortran Pharmaceuticals Inc.
as at February 29, 2000 and the consolidated statements of loss and deficit and
cash flows for the three months ended February 29, 2000 and February 28, 1999.
Our review was made in accordance with standards for review engagements
generally accepted in Canada and accordingly consisted primarily of enquiry,
analytical procedures and discussion related to information supplied to us by
the company.
A review does not constitute an audit and, consequently, we do not express an
audit opinion on these consolidated financial statements.
Based on our review, nothing has come to our attention that causes us to believe
that these consolidated financial statements are not, in all material respects,
in accordance with accounting principles generally accepted in Canada.
Vancouver, Canada,
April 26, 2000 (except as to notes 15(b) and (e) /s/ Ernst & Young LLP
which is as of June 19, 2000). Chartered Accountants
<PAGE>
Nortran Pharmaceuticals Inc.
Incorporated under the laws of British Columbia
CONSOLIDATED BALANCE SHEETS
As at (expressed in Canadian dollars)
February 29, November 30,
2000 1999 1998
$ $ $
--------------------------------------------------------------------------------
(unaudited)
ASSETS
Current
Cash and cash equivalents 2,383,864 4,209,003 3,919,564
Short-term investments [notes 3 and 6] 3,153,770 2,575,167 1,364,250
Other receivables and prepaid expenses 250,531 258,516 277,260
-------------------------------------------------------------------------------
Total current assets 5,788,165 7,042,686 5,561,074
-------------------------------------------------------------------------------
Capital assets [note 4] 439,156 461,576 649,982
Other assets [note 5] 2,288,544 2,359,468 2,597,630
-------------------------------------------------------------------------------
Total assets 8,515,865 9,863,730 8,808,686
-------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued
liabilities 476,319 675,542 366,317
Current portion of obligations under
capital leases [note 11] 56,391 60,602 73,414
Current portion long-term debt [note 6] 70,699 68,829 62,385
-------------------------------------------------------------------------------
Total current liabilities 603,409 804,973 502,116
-------------------------------------------------------------------------------
Obligations under capital leases
[note 11] 29,816 41,145 99,554
Long-term debt [note 6] 31,770 50,161 118,435
--------------------------------------------------------------------------------
Total liabilities 664,995 896,279 720,105
--------------------------------------------------------------------------------
Shareholders' equity
Share capital [note 7] 24,239,024 25,282,040 19,951,850
Contributed surplus [note 7] 1,056,266 - -
Deficit (17,444,420) (16,314,589) (11,863,269)
--------------------------------------------------------------------------------
Shareholders' equity 7,850,870 8,967,451 8,088,581
--------------------------------------------------------------------------------
Liabilities and shareholders' equity 8,515,865 9,863,730 8,808,686
--------------------------------------------------------------------------------
Commitments [note 11]
See accompanying notes
On behalf of the Board:
/s/ Robert W. Rieder /s/ Allen I. Bain
Director Director
<PAGE>
Nortran Pharmaceuticals Inc.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
Three months ended
-------------------------
February 29, February 28, Years ended November 30,
------------------------------------------------------
2000 1999 1999 1998 1997
$ $ $ $ $
------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUE
Interest income 77,899 55,996 258,395 320,286 106,187
Grant and other
revenue [note 8] 93,994 101,134 191,868 45,576 22,260
------------------------------------------------------------------------------------------------------------------
171,893 157,130 450,263 365,862 128,447
EXPENSES
Research and development
[note 9] 860,256 585,101 3,248,775 3,311,362 1,306,147
General and
administration
[note 10] 307,807 194,888 997,890 1,553,337 1,100,747
Amortization 133,661 164,478 654,918 669,582 470,641
------------------------------------------------------------------------------------------------------------------
1,301,724 944,467 4,901,583 5,534,281 2,877,535
------------------------------------------------------------------------------------------------------------------
Loss for the period 1,129,831 787,337 4,451,320 5,168,419 2,749,088
Deficit, beginning
of period 16,314,589 11,863,269 11,863,269 6,694,850 3,945,762
------------------------------------------------------------------------------------------------------------------
Deficit, end of period 17,444,420 12,650,606 16,314,589 11,863,269 6,694,850
------------------------------------------------------------------------------------------------------------------
Basic loss per
common share 0.03 0.03 0.16 0.19 0.14
------------------------------------------------------------------------------------------------------------------
Weighted average
number of common
shares 35,407,992 27,673,299 28,331,730 26,780,674 19,546,048
------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE>
Nortran Pharmaceuticals Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
Three months ended
-------------------------
February 29, February 28, Years ended November 30,
-------------------------------------------------------
2000 1999 1999 1998 1997
$ $ $ $ $
-------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Loss for the period (1,129,831) (787,337) (4,451,320) (5,168,419) (2,749,088)
Add items not
affecting cash
Amortization 133,661 164,478 654,918 669,582 470,641
Loss on disposal of
capital assets - - - 4,256 -
Changes in non-cash
working capital
Other receivables and
prepaid expenses 7,985 129,406 18,744 (127,045) (101,380)
Accounts payable and
accrued liabilities (199,223) (232,769) 227,062 183,605 (56,520)
-------------------------------------------------------------------------------------------------------------------
Cash used in operating
activities (1,187,408) (726,222) (3,550,596) (4,438,021) (2,436,347)
-------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of share
capital 13,250 - 5,412,353 2,410,659 9,623,066
Payment on
obligations under
capital leases (15,540) (13,714) (71,221) (46,776) (34,033)
Increase in long-term
debt - - - 200,000 -
Repayment of long-
term debt (16,521) (14,842) (61,830) (19,180) -
-------------------------------------------------------------------------------------------------------------------
Cash provided by
(used in) financing
activities (18,811) (28,556) 5,279,302 2,544,703 9,589,033
-------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital
assets (7,221) (10,562) (60,190) (397,059) (356,673)
Patent costs
capitalized (33,096) (19,215) (168,160) (139,208) (71,698)
Short-term investments (578,603) 1,164,250 (1,210,917) 5,205,483 (6,569,733)
-------------------------------------------------------------------------------------------------------------------
Cash provided by
(used in) investing
activities (618,920) 1,134,473 (1,439,267) 4,669,216 (6,998,104)
-------------------------------------------------------------------------------------------------------------------
Increase (decrease)
in cash during the
period (1,825,139) 379,695 289,439 2,775,898 154,582
Cash and cash
equivalents,
beginning of
period 4,209,003 3,919,564 3,919,564 1,143,666 989,084
-------------------------------------------------------------------------------------------------------------------
Cash and cash
equivalents,
end of period 2,383,864 4,299,259 4,209,003 3,919,564 1,143,666
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE>
Page 1
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Information as at February 29, 2000 and for
the three months ended February 29, 2000 and
February 28, 1999 are unaudited (expressed in Canadian dollars)
1. NATURE OF OPERATIONS
Nortran Pharmaceuticals Inc. (the "Company") is a drug discovery company engaged
in the treatment of pathologies and conditions which are mediated by cellular
ion channels. The Company's primary focus is the discovery and development of
drugs designed to prevent cardiac arrhythmias and for the treatment of acute
unproductive cough. To date, the Company has not yet determined the ultimate
economic viability of the drugs and has not commenced commercial operations for
its drugs.
The continuation of the Company's research and development activities and the
commercialization of the targeted therapeutic products is dependent upon the
Company's ability to successfully complete its research and development programs
and finance its cash requirements through a combination of equity financings and
payments from potential strategic partners.
2. SIGNIFICANT ACCOUNTING POLICIES
The Company prepares its accounts in accordance with accounting principles
generally accepted in Canada. The following is a summary of significant
accounting policies used in the preparation of these consolidated financial
statements:
Use of estimates
The preparation of the financial statements in conformity with general accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts recorded in the financial statements. Actual results could
differ from those estimates.
Consolidation
These consolidated financial statements include the accounts of Nortran
Pharmaceuticals Inc. and its wholly-owned subsidiaries, Rhythm-Search
Developments Ltd. (RSD) and Atriven Cardiology Corp. (formerly 3629490 Canada
Inc.).
Financial instruments
For certain of the Company's financial instruments, including cash and cash
equivalents, short-term investments, other receivables and prepaid expenses and
accounts payable and accrued liabilities the carrying amounts approximate fair
value due to their short-term nature. The term loan and the obligations under
capital leases bear interest at rates which, in management's opinion,
approximate the current interest rates and therefore, approximate their fair
value.
<PAGE>
Page 2
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Information as at February 29, 2000 and for
the three months ended February 29, 2000 and
February 28, 1999 are unaudited (expressed in Canadian dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Foreign currency translation
The Company follows the temporal method of accounting for the translation of
foreign currency amounts into Canadian dollars. Under this method monetary
assets and liabilities in foreign currencies are translated at the exchange
rates in effect at the balance sheet date. All other assets and liabilities are
translated at rates prevailing when the assets were acquired or liabilities
incurred. Income and expense items are translated at the exchange rates in
effect on the date of the transaction. Resulting exchange gains or losses are
included in the determination of loss for the year.
Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of
90 days or less to be cash equivalents. Cash equivalents which comprise
commercial papers, bankers' acceptances and term deposits with an average
interest rate of 5.0% [November 30, 1999 - 4.5%; November 30, 1998 - 4.8%], are
stated at cost, which approximates market value.
Short-term investments
Short-term investments, which comprise mainly commercial papers and term
deposits with maturities to June 2001 [November 30, 1999 - June 2001; November
30, 1998 - June 2001] and an average interest rate of 5.14% [November 30, 1999 -
5.02%; November 30, 1998 - 5.06%], are recorded at the lower of cost and market
value. The carrying value of these investments approximates their market value.
Capital assets
Capital assets are recorded at cost less accumulated amortization. The Company
records amortization of laboratory, computer and office equipment on a
straight-line basis over 3 to 5 years. Leasehold improvements are amortized on
a straight-line basis over the term of the lease plus one renewal period.
Equipment under capital lease is amortized on a straight-line basis over 5
years.
<PAGE>
Page 3
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Information as at February 29, 2000 and for
the three months ended February 29, 2000 and
February 28, 1999 are unaudited (expressed in Canadian dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Technology, license and patent costs
The excess of the cost of investment in RSD over the fair value of the net
tangible assets acquired is ascribed to technology. Technology and licenses are
amortized on a straight-line basis over a period of ten years.
The Company capitalizes as patents the costs associated with the preparation,
filing, and obtaining of patents. The cost of the patents is amortized on a
straight-line basis over the estimated useful lives of the patents of ten years.
The amounts shown for technology, license and patent costs do not necessarily
reflect present or future values and the ultimate amount recoverable will be
dependent upon the successful development and commercialization of products
based on these rights. If management determines that such costs exceed
estimated net recoverable value, based on estimated future cash flows, the
excess of such costs are charged to operations.
Government assistance
Government assistance towards current expenses is included in revenue when there
is reasonable assurance that the Company has complied with all conditions
necessary to receive the grants.
Research and development revenues and expenses
Funding under collaborative research arrangements is not refundable, and
accordingly is recorded as research activities are performed under the terms of
the arrangement. Research funding towards current expenses is deducted from the
cost of the related expenditure. Research costs are expensed in the period
incurred. Development costs are expensed in the period incurred unless the
Company believes a development project meets generally accepted accounting
criteria for deferral and amortization.
<PAGE>
Page 4
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Information as at February 29, 2000 and for
the three months ended February 29, 2000 and
February 28, 1999 are unaudited (expressed in Canadian dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Stock based compensation
The Company grants stock options to executive officers and directors, employees,
consultants and clinical advisory board members pursuant to a stock option plan
described in note 7[e]. No compensation is recognized for these plans when
common shares are awarded or stock options are granted. Any consideration
received on exercise of stock options or the purchase of stock is credited to
share capital. If common shares are repurchased, the excess or deficiency of
the consideration paid over the carrying amount of the common shares cancelled
is charged or credited to contributed surplus or retained earnings.
Income taxes
The Company uses the deferral method in accounting for income taxes.
Loss per common share
Loss per share has been calculated using the weighted average number of common
shares outstanding in each respective period including escrow shares. Fully
diluted loss per share is not presented since the issue of shares upon the
exercise of stock options and warrants would be anti-dilutive.
3. CREDIT FACILITY
At February 29, 2000 the Company has available an unused operating lines of
credit of $400,000 [November 30, 1999 - $200,000; November 30, 1998 - $200,000]
which are collateralized by cashable certificates with a total value of $400,000
[November 30, 1999 - $200,000; November 30, 1998 - $200,000] which is included
in short-term investments.
<PAGE>
Page 5
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Information as at February 29, 2000 and for
the three months ended February 29, 2000 and
February 28, 1999 are unaudited (expressed in Canadian dollars)
4. CAPITAL ASSETS
Accumulated Net book
Cost amortization value
$ $ $
--------------------------------------------------------------------------------
February 29, 2000
Laboratory equipment 383,045 194,300 188,745
Computer equipment 315,964 242,359 73,605
Equipment under capital lease 211,086 83,670 127,416
Office equipment 76,831 33,496 43,335
Leasehold improvements 6,884 829 6,055
--------------------------------------------------------------------------------
993,810 554,654 439,156
--------------------------------------------------------------------------------
November 30, 1999
Laboratory equipment 380,805 184,143 196,662
Computer equipment 315,964 237,479 78,485
Equipment under capital lease 211,086 73,116 137,970
Office equipment 71,851 29,791 42,060
Leasehold improvements 6,884 485 6,399
--------------------------------------------------------------------------------
986,590 525,014 461,576
--------------------------------------------------------------------------------
November 30, 1998
Laboratory equipment 318,982 87,598 231,384
Computer equipment 288,819 136,427 152,392
Equipment under capital lease 252,332 52,897 199,435
Office equipment 66,268 15,992 50,276
Leasehold improvements 128,920 112,425 16,495
--------------------------------------------------------------------------------
1,055,321 405,339 649,982
--------------------------------------------------------------------------------
<PAGE>
Page 6
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Information as at February 29, 2000 and for
the three months ended February 29, 2000 and
February 28, 1999 are unaudited (expressed in Canadian dollars)
5. OTHER ASSETS
Accumulated Net book
Cost amortization value
$ $ $
--------------------------------------------------------------------------------
February 29, 2000
Technology 3,396,193 1,698,401 1,697,792
License 105,208 34,192 71,016
Patents 659,406 139,670 519,736
--------------------------------------------------------------------------------
Total 4,160,806 1,872,263 2,288,544
--------------------------------------------------------------------------------
November 30, 1999
Technology 3,396,193 1,613,496 1,782,697
License 105,208 31,561 73,647
Patents 626,309 123,185 503,124
--------------------------------------------------------------------------------
Total 4,127,710 1,768,242 2,359,468
--------------------------------------------------------------------------------
November 30, 1998
Technology 3,396,193 1,273,877 2,122,316
License 105,208 21,041 84,167
Patents 458,149 67,002 391,147
--------------------------------------------------------------------------------
Total 3,959,550 1,361,920 2,597,630
--------------------------------------------------------------------------------
<PAGE>
Page 7
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Information as at February 29, 2000 and for
the three months ended February 29, 2000 and
February 28, 1999 are unaudited (expressed in Canadian dollars)
6. LONG-TERM DEBT
February 29, November 30,
------------------
2000 1999 1998
$ $ $
--------------------------------------------------------------------------------
Promissory note bearing interest at
10.77% per annum, repayable in blended
monthly instalments of $6,468 per
month commencing August 1, 1998 until
July 1, 2001
102,469 118,990 180,820
Less: current portion 70,699 68,829 62,385
--------------------------------------------------------------------------------
31,770 50,161 118,435
--------------------------------------------------------------------------------
As collateral, the Company has assigned term deposits with a maturity value of
$100,000 to the lender.
Interest expense during the period ended February 29, 2000 amounted to $2,882
[February 28, 1999 - $4,562; November 30, 1999 - $15,786; November 30, 1998 -
$6,692; November 30, 1997 - $nil].
Principal amounts of the promissory note repayable over the next three years are
as follows:
$
--------------------------------------------------------------------------------
2000 (nine months) 52,307
2001 50,162
--------------------------------------------------------------------------------
102,469
--------------------------------------------------------------------------------
<PAGE>
Page 8
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Information as at February 29, 2000 and for
the three months ended February 29, 2000 and
February 28, 1999 are unaudited (expressed in Canadian dollars)
7. SHARE CAPITAL
a] Authorized
200,000,000 common shares without par value
b] Issued
Number
of shares Amount
# $
--------------------------------------------------------------------------------
Balance, November 30, 1996 15,478,503 7,918,125
Issued for cash upon exercise of options 292,000 221,730
Issued for cash upon exercise of warrants 3,124,096 2,592,891
Issued for cash pursuant to private placements,
net of issuance costs 6,200,000 6,808,445
--------------------------------------------------------------------------------
Balance, November 30, 1997 25,094,599 17,541,191
Issued for cash upon exercise of options 658,700 740,259
Issued for cash upon exercise of warrants 1,920,000 1,670,400
--------------------------------------------------------------------------------
Balance, November 30, 1998 27,673,299 19,951,850
Issued for cash upon exercise of options 5,000 5,000
Issued for cash upon exercise of warrants 939,000 845,100
Issued for cash pursuant to private placements,
net of issuance costs 7,285,643 4,480,090
--------------------------------------------------------------------------------
Balance, November 30, 1999 35,902,942 25,282,040
Cancelled upon expiration of an escrow share agreement (1,500,000) (1,056,266)
Issued for cash upon exercise of options 15,000 13,250
--------------------------------------------------------------------------------
Balance, February 29, 2000 34,417,942 24,239,024
--------------------------------------------------------------------------------
<PAGE>
Page 9
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Information as at February 29, 2000 and for
the three months ended February 29, 2000 and
February 28, 1999 are unaudited (expressed in Canadian dollars)
7. SHARE CAPITAL (cont'd.)
c] Private placements
On November 18, 1999, the Company completed a private placement of 7,285,643
special warrants at a price of $0.70 each for a total gross proceeds of
$5,099,950. Each special warrant was converted into one common share at no
additional cost. In connection with the private placement, the Company paid a
cash commission of $304,496 and legal and professional fees of $315,364 and
granted 728,564 compensation options to the lead agent of this financing which
were converted into 728,564 share purchase warrants. Each share purchase
warrant entitled the holder to purchase one common share at $0.70 until August
11, 2001. All of these purchase warrants were outstanding as at February 29,
2000 and November 30, 1999.
On November 10, 1997, the Company completed a non-brokered private placement of
2,700,000 units at $1.60 per unit for gross proceeds of $4,320,000. Each unit
comprised one common share and 0.3 warrant. Each full warrant entitled the
holder to acquire one common share at $2.00 expiring November 10, 1998, which
was subsequently extended to November 10, 1999. All of these warrants expired
on November 10, 1999.
On June 30, 1997, the Company completed a brokered private placement of
1,000,000 units at $0.72 per unit for gross proceeds of $720,000. Each unit
comprised one common share and one common share purchase warrant. In addition,
the underwriting agent received 100,000 share purchase warrants. Each share
purchase warrant entitled the holder to acquire one common share at $0.72 in the
first year and $0.90 in the subsequent year. Of the 1,100,000 warrants issued,
220,000 were exercised during the 1998 fiscal year and 139,000 were exercised
during the year ended November 30, 1999. The balance of 741,000 expired on June
29, 1999.
On May 9, 1997, the Company completed a non-brokered private placement of
2,500,000 units at $0.72 per unit for gross proceeds of $1,800,000. Each unit
comprised one common share and one common share purchase warrant. Each share
purchase warrant entitled the holder to acquire one common share at $0.72 in the
first year and $0.90 in the subsequent year. Of the 2,500,000 share purchase
warrants issued, 1,700,000 were exercised during the 1998 fiscal year. The
remaining 800,000 were exercised during the year ended November 30, 1999.
<PAGE>
Page 10
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Information as at February 29, 2000 and for
the three months ended February 29, 2000 and
February 28, 1999 are unaudited (expressed in Canadian dollars)
7. SHARE CAPITAL (cont'd.)
d] Share purchase warrants
At February 29, 2000 common share purchase warrants outstanding were as follows:
Number of common shares issuable Exercise price Date of expiry
--------------------------------------------------------------------------------
728,564 $0.70 August 11, 2001
--------------------------------------------------------------------------------
e] Stock options
In May 1998, the shareholders approved a stock option plan for which up to four
million common shares can be reserved for issuance to directors, officers,
employees, consultants and clinical advisory board members of the Company. The
shares available for issuance under the stock option plan vest over a period
beginning immediately to 5 years. At February 29, 2000 the Company has
2,783,000 common shares reserved for issuance under this plan.
At February 29, 2000 stock options to directors, employees and others
outstanding were as follows:
Number of common shares
under option currently exercisable Exercise price Date of expiry
--------------------------------------------------------------------------------
58,000 58,000 $0.63 October 31, 2000
200,000 160,000 $0.70 April 10, 2001
200,000 200,000 $1.85 April 26, 2001
190,000 190,000 $1.00 July 8, 2001
310,000 310,000 $1.40 April 2, 2002
40,000 40,000 $1.42 April 20, 2002
90,000 90,000 $1.25 May 29, 2002
15,000 15,000 $0.97 January 18, 2003
600,000 240,000 $1.49 March 17, 2003
270,000 195,000 $1.58 June 11, 2004
275,000 205,000 $1.05 October 15, 2004
45,000 45,000 $1.26 January 10, 2005
100,000 40,000 $1.10 February 8, 2004
50,000 - $1.05 February 24, 2005
100,000 50,000 $0.61 October 31, 2002
50,000 50,000 $0.61 October 31, 2004
60,000 - $0.61 October 31, 2005
130,000 15,000 $1.05 February 13, 2006
--------------------------------------------------------------------------------
2,783,000 1,903,000
--------------------------------------------------------------------------------
<PAGE>
Page 11
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Information as at February 29, 2000 and for
the three months ended February 29, 2000 and
February 28, 1999 are unaudited (expressed in Canadian dollars)
7. SHARE CAPITAL (cont'd.)
Stock options for the respective periods and the number of stock options
outstanding are summarized as follows:
Number of Weighted average
common shares exercise price
under option $
--------------------------------------------------------------------------------
Balance, November 30, 1996 828,000 0.78
Options granted 1,230,000 1.32
Options exercised (292,000) 0.76
Options cancelled (70,000) 1.40
--------------------------------------------------------------------------------
Balance, November 30, 1997 1,696,000 1.15
Options granted 1,755,000 1.48
Options exercised (658,700) 1.12
Options cancelled (425,000) 1.67
--------------------------------------------------------------------------------
Balance, November 30, 1998 2,367,300 1.31
Options granted 480,000 0.92
Options exercised (5,000) 1.00
Options cancelled (159,300) 1.21
--------------------------------------------------------------------------------
Balance, November 30, 1999 2,683,000 1.25
Options granted 130,000 1.05
Options exercised (15,000) 0.88
Options cancelled (15,000) 1.26
--------------------------------------------------------------------------------
Balance, February 29, 2000 2,783,000 1.24
--------------------------------------------------------------------------------
The weighted average exercise price of the stock options exercisable at February
29, 2000 is $1.24 [November 30, 1999 - $1.25; November 30, 1998 - $1.31].
f] Escrow shares
The 1,500,000 common shares previously held in escrow were cancelled effective
February 22, 2000 upon the expiry of the escrow agreement. Accordingly, the
weighted average per share amount attributed to the cancelled shares of
$1,056,266 has been allocated to contributed surplus.
<PAGE>
Page 12
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Information as at February 29, 2000 and for
the three months ended February 29, 2000 and
February 28, 1999 are unaudited (expressed in Canadian dollars)
7. SHARE CAPITAL (cont'd.)
g] Commitment to issue shares
Under the terms of a licensing agreement the Company has agreed to issue 200,000
common shares upon the achievement of certain milestones.
8. GRANT AND OTHER REVENUE
<TABLE>
<CAPTION>
Three months ended
-------------------------------
February 29, February 28, Years ended November 30,
------------------------------------------------------
2000 1999 1999 1998 1997
$ $ $ $ $
------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Grant 14,500 13,555 45,810 4,234 22,260
Other revenue 79,494 87,579 146,058 41,342 -
------------------------------------------------------------------------------------------------------------------
93,994 101,134 191,868 45,576 22,260
------------------------------------------------------------------------------------------------------------------
</TABLE>
9. RESEARCH AND DEVELOPMENT
<TABLE>
<CAPTION>
Three months ended
-------------------------------
February 29, February 28, Years ended November 30,
------------------------------------------------------
2000 1999 1999 1998 1997
$ $ $ $ $
------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Consulting and other 88,756 102,647 457,675 539,130 341,839
Lab supplies and
operating facility 207,615 120,539 626,321 486,310 59,607
Salaries and benefits 314,829 304,448 1,211,697 917,455 356,369
Research and development 249,056 248,335 1,289,899 1,555,892 548,332
agreements
Research funding - (190,868) (366,817) (187,425) -
------------------------------------------------------------------------------------------------------------------
860,256 585,101 3,248,775 3,311,362 1,306,147
------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Page 13
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Information as at February 29, 2000 and for
the three months ended February 29, 2000 and
February 28, 1999 are unaudited (expressed in Canadian dollars)
10. GENERAL AND ADMINISTRATION
<TABLE>
<CAPTION>
Three months ended
--------------------------------
February 29, February 28, Years ended November 30,
------------------------------------------------------
2000 1999 1999 1998 1997
$ $ $ $ $
------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Consulting and
professional fees 47,836 23,954 191,509 687,798 419,308
Office and miscellaneous 92,432 48,184 317,197 309,559 310,585
Salaries and benefits 119,647 103,123 406,796 325,171 256,243
Travel and other 47,892 19,627 82,388 230,809 225,897
Settlement of prior
years' rent - - - - (111,286)
-------------------------------------------------------------------------------------------------------------------
307,807 194,888 997,890 1,553,337 1,100,747
-------------------------------------------------------------------------------------------------------------------
</TABLE>
11. COMMITMENTS
Operating leases
The company has entered into a lease agreement for its premises requiring
minimum payments in future periods as follows:
$
--------------------------------------------------------------------------------
2000 (nine months) 179,000
2001 241,000
2002 80,000
--------------------------------------------------------------------------------
500,000
--------------------------------------------------------------------------------
<PAGE>
Page 14
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Information as at February 29, 2000 and for
the three months ended February 29, 2000 and
February 28, 1999 are unaudited (expressed in Canadian dollars)
11. COMMITMENTS (cont'd.)
Capital leases
Future minimum payments under capital leases together with the balances of the
obligations due under capital leases are as follows:
$
--------------------------------------------------------------------------------
2000 (nine months) 49,823
2001 43,416
--------------------------------------------------------------------------------
Total minimum lease payments 93,239
Less: amount representing interest (from 8.5% to 13.5%) 7,033
--------------------------------------------------------------------------------
86,206
Less: current portion of obligations under capital lease 56,391
--------------------------------------------------------------------------------
Long term portion of obligations under capital lease 29,816
--------------------------------------------------------------------------------
Interest expense during the three months ended February 29, 2000 amounted to
$2,301 [February 28, 1999 - $2,804; years ended November 30, 1999 - $11,918;
1998 - $5,771; 1997 - $5,376].
Research agreements
The Company has entered into various collaborative research agreements requiring
it to fund research expenditures approximately as follows:
$
--------------------------------------------------------------------------------
2000 (nine months) 324,500
2001 153,500
--------------------------------------------------------------------------------
478,000
--------------------------------------------------------------------------------
License agreements
Pursuant to a license agreement, the Company is responsible for payment of
royalties based on a percentage of revenue, subject to certain minimum annual
royalties.
Pursuant to an agreement, the Company is responsible for payment of $500,000
upon commencement of Phase III clinical trials and a further $2,000,000 upon
filing a New Drug Application in the United States or Canada for the licensed
Nociblocker technology. The agreement expires on the expiry date of the last
patent relating to certain technology.
<PAGE>
Page 15
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Information as at February 29, 2000 and for
the three months ended February 29, 2000 and
February 28, 1999 are unaudited (expressed in Canadian dollars)
12. LOSSES AND UNUSED DEDUCTIONS CARRIED FORWARD FOR INCOME TAX PURPOSES
At November 30, 1999, the Company has non-capital losses for income tax purposes
which expire as follows:
$
--------------------------------------------------------------------------------
2000 591,000
2001 178,000
2002 331,000
2003 545,000
2004 1,530,000
2005 2,830,000
2006 2,680,000
--------------------------------------------------------------------------------
8,685,000
--------------------------------------------------------------------------------
The Company also has net timing differences relating primarily to capital
assets, share issue costs and scientific research and experimental development
expenditures of approximately $6,392,000 which may be used to reduce future
income tax. In addition, the Company has approximately $1,360,000 of unclaimed
investment tax credits expiring between 2003 and 2009, which may be used to
reduce future income taxes otherwise payable. The ability of the Company to
utilize the losses and other tax balances carried forward in the future is not
reasonably assured and therefore the benefit has not been recognized in the
financial statements.
<PAGE>
Page 16
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Information as at February 29, 2000 and for
the three months ended February 29, 2000 and
February 28, 1999 are unaudited (expressed in Canadian dollars)
13. RELATED PARTY TRANSACTIONS
<TABLE>
<CAPTION>
Three months ended
-------------------------------
February 29, February 28, Years ended November 30,
------------------------------------------------------
2000 1999 1999 1998 1997
$ $ $ $ $
------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Paid to companies with
a common director for:
- contract research
services 3,922 77,880 163,954 48,041 -
- administrative
consulting services - - 6,500 - -
Paid to directors for:
- research consulting
services 27,072 - 37,761 - -
- administrative
consulting services 2,000 - 3,500 - -
Paid to a partnership
where a director is
a partner for
administrative consulting
services - - - - 21,000
Accounts payable to
directors and/or
companies with a
common director 9,646 33,175 40,690 - -
------------------------------------------------------------------------------------------------------------------
</TABLE>
All transactions are recorded at their exchange amounts.
14. SEGMENTED INFORMATION
The Company operates primarily in one business segment with all of its assets
and operations located in Canada. All of the Company's revenues are generated
in Canada. During the three months ended February 29, 2000 in addition to the
research funding as detailed in note 9 which is derived from one entity in
Switzerland, 54.6% and 45.4% of other revenue was earned from two entities in
Sweden and Germany [February 28, 1999 - 74.4% and 25.6% from two entities in
Switzerland and Sweden; year ended November 30, 1999 - 84.6% and 15.4% from two
entities in Switzerland and Sweden; year ended November 30, 1998 - 100% from one
entity in Switzerland].
<PAGE>
Page 17
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Information as at February 29, 2000 and for
the three months ended February 29, 2000 and
February 28, 1999 are unaudited (expressed in Canadian dollars)
15. SUBSEQUENT EVENTS
The following events occurred subsequent to February 29, 2000:
[a] The Company completed a private placement of 5,549,200 Special Warrants at
a price of $1.40 per Special Warrant for gross proceeds of $7.8 million
before deducting the agent's commission of 7% and additional estimated
expenses of $200,058. Each Special Warrant is exchangeable into one common
share of the Company and 0.5 warrants to purchase common shares, without
additional payment. Each whole warrant entitles the holder to acquire one
common share at $1.60 per share for a period up to April 14, 2002. Holders
of the warrants may exercise their warrants by way of a "cashless" exercise
whereby they may elect to satisfy their obligation to pay the cash exercise
price to the Company by accepting a lesser number of common shares. The
agent was also granted compensation options exercisable for no additional
consideration into warrants ("Agent's warrants") to purchase 554,920 common
shares at $1.40 per share for a period up to October 14, 2001.
The proceeds from the financing will be held in escrow until the earlier to
occur of receipts being issued by the applicable Securities Commission for
the Company's prospectus qualifying the distribution of common shares upon
the exercise of the Special Warrants and August 3, 2000. If the Company
does not obtain receipts for its prospectus by July 13, 2000, then the
holder of the Special Warrants will be entitled to have their Special
Warrants repurchased by the Company at the issue price plus interest earned
thereon, or alternatively, to retain their Special Warrants and receive 1.1
common shares upon exercise. In addition, the agent will be entitled to
acquire 1.1 common shares for each Agent warrant held.
[b] On June 19, 2000, the Company filed a prospectus for the purpose of
qualifying the distribution of common shares upon the exercise of 5,549,200
previously issued Special Warrants and 554,920 Agent's warrants in British
Columbia with only 277,460 in Ontario, upon the exercise of compensation
options.
[c] The Company issued 58,000 common shares at an average price of $1.07 per
share, upon exercise of stock options with various expiry dates ranging
from October 31, 2000 to January 10, 2005. In addition, the Company granted
55,000 options to acquire common shares at an exercise price of $1.81 per
share expiring March 29, 2005.
[d] The Company issued 728,564 common shares at $0.70 each upon exercise of
share purchase warrants with an expiry date of August 11, 2001.
<PAGE>
Page 18
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Information as at February 29, 2000 and for
the three months ended February 29, 2000 and
February 28, 1999 are unaudited (expressed in Canadian dollars)
15. SUBSEQUENT EVENTS (cont'd.)
[e] The Company issued by way of private placement, 357,142 units at a price of
$1.40 per unit for gross proceeds of $499,999. Each unit comprised one
common share and one-half common share purchase warrant. Each whole common
share purchase warrant entitles the holder to acquire to acquire one common
share at $1.40 for a period of two years.
<PAGE>
CERTIFICATE OF THE ISSUER
Dated: June 19, 2000
The foregoing constitutes full, true and plain disclosure of all material facts
relating to the securities offered by this Prospectus as required by Part 9 of
the Securities Act (British Columbia), by Part 8 of the Securities Act
(Alberta), by Part XV of the Securities Act (Ontario) and by Part 3 of the
Securities Act (Yukon) and the respective rules and regulations thereunder.
/s/ Robert W. Rieder /s/ Michael J. A. Walker
------------------------------------ ------------------------------------
ROBERT W. RIEDER MICHAEL J. A. WALKER
President and Chief Executive Officer Chairman of the Board as
Chief Financial Officer
ON BEHALF OF THE BOARD OF DIRECTORS
/s/ Colin Roger Mallet /s/ Darrell Elliott
------------------------------------ ------------------------------------
COLIN ROGER MALLET DARRELL ELLIOTT
Director Director
<PAGE>
CERTIFICATE OF THE AGENTS
Dated: June 19, 2000
To the best of our knowledge, information and belief, the foregoing constitutes
full, true and plain disclosure of all material facts relating to the securities
offered or referred to in this Prospectus as required by Part 9 of the
Securities Act (British Columbia), by Part 8 of the Securities Act (Alberta), by
Part XV of the Securities Act (Ontario) and by Part 3 of the Securities Act
(Yukon) and the respective rules and regulations thereunder.
DLOUHY INVESTMENTS INC. GOEPEL MCDERMID INC.
Per: /s/ Peter Dlouhy Per: /s/ Patrick J. Wolfe
------------------------------------ ------------------------------------
Peter Dlouhy Patrick J. Wolfe
Vice President Vice President and Director
HSBC SECURITIES (CANADA) INC.
Per: /s/ John Philp
------------------------------------
John Philp
Senior Vice President and Director
The following includes the names of every person or company having an interest,
either directly or indirectly, to the extent of not less than 5% in the capital
of:
DLOUHY INVESTMENTS INC.: Dominik Dlouhy.
GOEPEL MCDERMID INC.: owned by K.A. Shields, D.E. Roberts, R.E.T. Goepel, N.
Dargan, K.N. Aune, G.M. Medland, I.S. Brown, J.B. van Koll, M. Hagerman, R.L.
Sakkal and T.A. Raidl.
HSBC Securities (Canada) Inc.: a wholly-owned subsidiary of a Canadian
chartered bank.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
NORTRAN PHARMACEUTICALS INC.
----------------------------
(REGISTRANT)
Date: June 26, 2000
/s/ Sheila Grant
----------------------------
Sheila Grant
Secretary
<PAGE>
