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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-1
ON
FORM S-3*
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
GENETRONICS BIOMEDICAL LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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BRITISH COLUMBIA, CANADA 3841 33-002-4450
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) FOR GENETRONICS, INC.)
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11199 SORRENTO VALLEY ROAD
SAN DIEGO, CA 92121-1334
(858) 597-6006
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
MARTIN NASH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
GENETRONICS BIOMEDICAL LTD.
11199 SORRENTO VALLEY ROAD
SAN DIEGO, CA 92121-1334
(858) 597-6006
(NAME,ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
M. WAINWRIGHT FISHBURN, ESQ.
CHRISTOPHER J. KEARNS, ESQ.
COOLEY GODWARD LLP
4365 EXECUTIVE DRIVE, SUITE 1100
SAN DIEGO, CA 92121
(858) 550-6000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
----------------
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended (the "Securities Act") check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) of the Securities Act, please check the following box
and list the Securities Act registration serial number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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*EXPLANATORY NOTE
We hereby amend our Registration Statement on Form S-1 (File No.
333-88427), filed October 5, 1999, by filing this Pre-Effective Amendment No. 1
on Form S-3 to the Form S-1 relating to 4,142,611 shares of our Common Stock, no
par value, held by Smallcap World Fund, Inc., American Variable Insurance and
Johnson & Johnson Development Corporation.
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND DOES NOT CONSTITUTE A SOLICITATION OF OFFERS TO
BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
(SUBJECT TO COMPLETION, DATED JULY 14, 2000)
4,142,611 SHARES
GENETRONICS BIOMEDICAL LTD.
COMMON SHARES
---------------
THE SELLING SHAREHOLDERS IDENTIFIED IN THIS PROSPECTUS ARE
SELLING 4,142,611 SHARES OF OUR COMMON STOCK. THESE SHARES MAY BE OFFERED FROM
TIME TO TIME BY THE SELLING SHAREHOLDERS THROUGH PUBLIC OR PRIVATE TRANSACTIONS,
ON OR OFF THE AMERICAN STOCK EXCHANGE, AT PREVAILING MARKET PRICES OR AT
PRIVATELY NEGOTIATED PRICES. THE SELLING SHAREHOLDERS WILL RECEIVE ALL OF THE
PROCEEDS FROM THE SALE OF THE SHARES AND WILL PAY ALL UNDERWRITING DISCOUNTS AND
SELLING COMMISSIONS, IF ANY, APPLICABLE TO THE SALE OF THE SHARES. WE WILL PAY
THE EXPENSES OF REGISTRATION OF THE SALE OF THE SHARES.
---------------
OUR COMMON STOCK IS LISTED ON THE AMERICAN STOCK EXCHANGE UNDER
THE SYMBOL "GEB." OUR STOCK IS ALSO LISTED ON THE TORONTO STOCK EXCHANGE UNDER
THE SYMBOL "GEB." ON JULY 13, 2000, THE LAST SALE PRICE OF A COMMON SHARE ON THE
AMERICAN STOCK EXCHANGE WAS US$3.06 PER SHARE AND ON THE TORONTO STOCK
EXCHANGE WAS CDN$4.75. SEE "PRICE RANGE OF STOCK."
---------------
INVESTING IN THE COMMON SHARES INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
---------------
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
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________, 2000
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.........................................................................................3
Summary Financial Data.....................................................................................4
Risk Factors.............................................................................................. 5
Selling Shareholders......................................................................................15
Plan of Distribution......................................................................................15
Use of Proceeds...........................................................................................17
Dividend Policy.......................................................................................... 17
Common Share Price Range..................................................................................17
American Stock Exchange...................................................................................17
Toronto Stock Exchange....................................................................................17
Capitalization............................................................................................20
Selected Financial Data...................................................................................21
Management's Discussion and Analysis of Financial Condition And Operating Results.........................22
Business..................................................................................................30
Management................................................................................................41
Certain Transactions and Relationships....................................................................51
Principal Shareholders....................................................................................52
Description of Capital Stock..............................................................................54
Legal Matters.............................................................................................56
Experts...................................................................................................56
Where You Can Find More Information.......................................................................56
Index to Consolidated Financial Statements...............................................................F-1
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. THE SELLING SHAREHOLDERS ARE
OFFERING TO SELL, AND SEEKING OFFERS TO BUY, COMMON SHARES ONLY IN JURISDICTIONS
WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE
TIME OF DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THE COMMON SHARES. IN THIS
PROSPECTUS, "GENETRONICS," "WE," "US" AND "OUR" REFER TO GENETRONICS BIOMEDICAL
LTD. AND ITS SUBSIDIARIES, TAKEN AS A WHOLE, UNLESS THE CONTEXT OTHERWISE
REQUIRES.
We are a Canadian corporation and our principal executive offices
are located at 11199 Sorrento Valley Road, San Diego, California 92121-1334, and
our telephone number is (858) 597-6006. Our fiscal year ends on March 31. We
maintain a Web site at www.genetronics.com. The reference to our Web site does
not constitute incorporation by reference of the information contained at this
site. We have registered on the Principal Register of the United States Patent
and Trademark Office the following trademarks: BTX, ELECTRONIC GENETICS,
MANIPULATOR, OPTIMIZOR, HUMAN IN SQUARE (Design), ENHANCER, and MEDPULSER. The
following United States trademark applications are pending: COSMETRONICS,
GENETRODES and GENETRONICS. We have registered the BTX and MEDPULSER trademarks
in Canada, and have applied to trademark GENETRONICS in Canada. We have a
European Community Trade Mark registration for GENETRONICS, BTX and for
MEDPULSER. We have registered the MEDPULSER and BTX marks in Japan. We have
registered the BTX mark in South Korea and have registered the GENETRONICS mark
in the United Kingdom. We are not aware of any claims of infringement or other
challenges to our rights to use our marks. All other brand names or trademarks
appearing in this Prospectus are the property of their respective holders.
2.
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PROSPECTUS SUMMARY
You should read this summary together with the more detailed
information and/or financial statements and notes appearing elsewhere in this
prospectus. You should carefully consider, among other things, the matters set
forth in "Risk Factors." ALL DOLLAR AMOUNTS SET FORTH IN THE PROSPECTUS ARE
STATED IN UNITED STATES DOLLARS, EXCEPT WHERE OTHERWISE INDICATED.
THE COMPANY
We were incorporated in British Columbia, Canada on August 8,
1979 under the name of Concord Energy Corp. We changed our name to United Safety
Technology Inc. on February 17, 1988, to Consolidated United Safety Technology
Inc. on January 3, 1990, and then to Genetronics Biomedical Ltd., on September
29, 1994. We carry on our business through our operating subsidiary Genetronics,
Inc., a California corporation. Genetronics, Inc. was incorporated in California
on June 29, 1983. Genetronics, Inc. had a subsidiary called Genetronics S.A.,
which was incorporated in France on January 30, 1998. Genetronics S.A. was
formed primarily to manage clinical trials that were being conducted in France,
and was closed in May 2000. All our business activities are conducted through
Genetronics, Inc.
We are a San Diego-based drug and gene delivery company
specializing in developing technology and hardware focused on electroporation.
Electroporation is the application of brief, controlled pulsed electric fields
to cells, which cause tiny pores to temporarily open in the cell membrane.
Immediately after electroporation, the cell membrane is more permeable to drugs
and other agents. In the lab, researchers use electroporation to introduce
genes, drugs, and other compounds into cells and experimental animals. This is a
common and well known procedure and more than 4,000 scientific papers have been
published describing results achieved using electroporation. We sell
electroporation equipment to the research market through our BTX Instrument
Division.
While widely used in the research arena, electroporation is a
relatively new technology in the therapeutic arena. One of the major
difficulties in many forms of drug or gene therapy is that the pharmaceutical
agent or gene is often not able to penetrate the relatively impermeable walls of
cells. The pores produced by electroporation permit entry of such agents into
cells to a much greater extent than if the drug or gene was administered without
electroporation. When electroporation is used in conjunction with drugs, genes,
or other therapeutic agents, we call it Electroporation Therapy, or EPT. Through
our Drug and Gene Delivery Division, we are developing human-use equipment that
is designed to allow physicians to use EPT to achieve more efficient and
cost-effective delivery of drugs or genes to patients with a variety of
illnesses, including cancer. Our proprietary electroporation drug and gene
delivery system, the Genetronics MedPulser(R) system, has been used with
bleomycin in clinical trials conducted in the United States, Australia, Europe
and Canada for treatment of head and neck cancer, as well as melanoma, liver,
pancreatic, basal cell and Kaposi sarcoma cancers.
Electroporation therapy is a broad-based technology, with many
potential paths to achieve commercial success. We are developing applications
for EPT primarily in the areas of oncology and gene therapy; additional points
of focus are drug and gene delivery in the vascular, transdermal, and
dermatology areas.
We operate through our two divisions: (i) the Drug and Gene
Delivery Division, through which we are developing drug and gene delivery
systems based on electroporation to be used in the treatment of disease and,
(ii) the BTX Instrument Division, which develops, manufactures, and sells
electroporation equipment to the research laboratory market.
Our common shares trade on the Toronto Stock Exchange and on the
American Stock Exchange under the symbol "GEB." On July 7, 2000, we filed a
preliminary short form prospectus with securities regulators in Ontario and
British Columbia relating to a public offering of our common shares. Upon
receipt of the approval of the final short form prospectus from the securities
regulators in Ontario and British Columbia, we will offer, through an
underwriter, an as yet undetermined number of shares of our common stock.
3.
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SUMMARY FINANCIAL DATA
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12 MONTHS 12 MONTHS 13 MONTHS
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
2000 1999 1998(1)
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STATEMENT OF OPERATIONS
DATA:
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Net sales $ 4,134,436 $ 3,434,105 $ 3,097,198
License fee and milestone payments 416,667 4,500,000 --
Grant funding 334,901 354,135 128,069
Revenues under collaborative research 191,335 33,048 6,025
and development arrangements
Interest income 556,193 300,911 427,498
Total Revenues 5,633,532 8,622,199 3,658,790
Total Expenses (15,233,474) (15,226,036) (11,255,456)
Net loss for the period (9,599,942) (6,603,837) (7,596,666)
Basic and diluted net loss per common share (0.43) (0.33) (0.43)
Shares used in per share calculations 22,107,190 20,272,801 17,782,723
AS OF AS OF AS OF
MARCH 31, MARCH 31, MARCH 31,
2000 1999 1998
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BALANCE SHEET DATA:
Cash and cash equivalent 9,742,344 $ 6,189,284 $ 6,521,990
Total current assets 11,613,859 7,627,933 7,425,761
Total assets 14,012,304 9,807,644 9,242,887
Total liabilities 2,181,105 1,551,283 1,094,856
Deficit (29,598,443) (19,998,501) (13,394,664)
Total shareholders' equity 11,831,199 8,256,361 8,148,031
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(1) During the period, we changed our fiscal year end from February 28, 1998
to March 31, 1998. Therefore, the financial data for the fiscal year
ended March 31, 1998 includes thirteen months.
4.
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RISK FACTORS
An investment in our common shares involves a high degree of
risk. You should carefully consider the following risk factors and the other
information in this prospectus before investing in our common shares. If any of
the following risks actually occur, our business or results of operations could
be seriously harmed. In that case, the trading price of our common shares could
decline, and you may lose part or all of your investment.
OUR BUSINESS MODEL MAY CHANGE AS OUR PRIORITIES AND OPPORTUNITIES CHANGE; AND
OUR BUSINESS MAY NEVER DEVELOP TO BE PROFITABLE OR SUSTAINABLE.
There are many programs that to us seem promising and that we
could pursue. Current plans for us are described in this filing. However, with
limited resources, management may, in our judgment, decide to change priorities
and shift programs away from what we disclose in this document, for the purpose
of exploiting our core technology of electroporation. The choices we may make
will be dependent upon numerous factors, which cannot always be predicted. We
cannot assure you that our business model, as it currently exists or as it may
evolve, will enable us to become profitable or to sustain operations.
IF WE DO NOT SUCCESSFULLY COMMERCIALIZE PRODUCTS FROM OUR DRUG AND GENE DELIVERY
DIVISION, THEN OUR BUSINESS WILL SUFFER.
Our Drug and Gene Delivery Division is in the early development
stage and the success of our company depends on the success of the technology
being developed by the Drug and Gene Delivery Division. Although we have
received various regulatory approvals, which apply to Europe for our equipment
for use in treating solid tumors, the products related to such regulatory
approval have not yet been commercialized. In addition, we have not yet received
any regulatory approvals to sell our clinical products in the United States and
further clinical trials are still necessary in North America before we can seek
regulatory approval to sell our product in North America for treating solid
tumors. We cannot assure you that we will successfully develop any products. If
we fail to develop or successfully commercialize any products, then it will have
a material adverse effect on us. This Division is at an early stage of
development and there are many uncertainties ahead.
UNPREDICTABILITY OF CONDUCTING PRE-CLINICAL AND CLINICAL TRIALS OF OUR HUMAN-USE
EQUIPMENT.
Before any of our human-use equipment can be sold, the Food and
Drug Administration (FDA), or foreign regulatory authorities, must determine
that the equipment meets certain criteria for use in the indications for which
approval is requested. The FDA will make this determination based on the results
from our pre-clinical testing and clinical trials. We are currently in the
process of assembling and reviewing existing clinical and regulatory information
relating to human clinical trials directed to the use of electroporation to
deliver bleomycin to certain types of tumors, and existing information relating
to pre-clinical in vitro and in vivo animal studies.
Clinical trials are unpredictable. Results achieved in early
stage clinical trials may not be repeated in later stage trials, or in trials
with more patients. When early, positive results are not repeated in later stage
trials, pharmaceutical and biotechnology companies have suffered significant
setbacks. Not only are commercialization timelines pushed back, but some
companies, particularly smaller biotechnology companies with limited cash
reserves, have gone out of business after releasing news of unsuccessful
clinical trial results.
If any of the following events arise during our clinical trials
or data review, then we would expect this to have a serious negative effect on
our company and your investment:
- The electroporation-mediated delivery of drugs or other
agents may be found to be ineffective or to cause harmful
side effects, including death;
- Our clinical trials may take longer than anticipated, for
any of a number of reasons including a scarcity of
subjects that meet the physiological or pathological
criteria for entry into the study, a scarcity of subjects
that are willing to participate through the end of the
trial, administrative changes within our corporate
partner's organization, or data and document review;
5.
<PAGE> 7
- The reported clinical data may change over time as a
result of the continuing evaluation of patients or the
current assembly and review of existing clinical and
pre-clinical information;
- Data from various sites participating in the clinical
trials may be incomplete or unreliable, which could result
in the need to repeat the trial or abandon the project;
and
- The FDA and other regulatory authorities may interpret our
data differently than we do, which may delay or deny
approval.
Clinical trials are generally quite expensive. A delay in our
trials, for whatever reason, will probably require us to spend even more money
to keep the product(s) moving through the regulatory process. If we do not have
or cannot raise the needed funds, then our human-use products could be shelved.
In the event the clinical trials are not successful, we will have to determine
whether to put more money into the program to address its deficiencies or
whether to abandon use of the products in the tested indications. Loss of the
human-use product line would be a significant setback for our company.
Because there are so many variables inherent in clinical trials,
we cannot predict whether any of our future regulatory applications to conduct
clinical trials will be approved by the FDA or other regulatory authorities,
whether our clinical trials will commence or proceed as planned, and whether the
trials will ultimately be deemed to be successful.
OUR BUSINESS IS HIGHLY DEPENDENT ON RECEIVING APPROVALS FROM VARIOUS UNITED
STATES AND INTERNATIONAL GOVERNMENT AGENCIES AND CAN BE DRAMATICALLY AFFECTED IF
APPROVAL TO MANUFACTURE AND SELL OUR HUMAN-USE EQUIPMENT IS NOT GRANTED.
The production and marketing of our human-use equipment and the
ongoing research, development, preclinical testing, and clinical trial
activities are subject to extensive regulation. Numerous governmental agencies
in the United States and internationally, including the FDA, must review our
applications and decide whether to grant approval. All of our human-use
equipment must go through an approval process, in some instances for each
indication in which we want to label it for use, e.g., use for dermatology, use
for transfer of a certain gene to a certain tissue, use for administering a
certain drug to a certain tumor type in a patient having certain
characteristics. These regulatory processes are extensive and involve
substantial costs and time (years).
We have limited experience in, and limited resources available
for regulatory activities. Failure to comply with applicable regulations can,
among other things, result in non-approval, suspensions of regulatory approvals,
fines, product seizures and recalls, operating restrictions, injunctions and
criminal prosecution.
We want to remind you that any of the following events can occur
and, if any did occur, any one could have a material adverse effect on us:
- There can be delays, sometimes long, in obtaining approval
for our human-use devices;
- The rules and regulations governing human-use equipment
such as ours can change during the review process, which
can result in the need to spend time and money for further
testing or review;
- If approval for commercialization is granted, it is
possible the authorized use will be more limited than we
believe is necessary for commercial success, or that
approval may be conditioned on completion of further
clinical trials or other activities; and
- Once granted, approval can be withdrawn, or limited, if
previously unknown problems arise with our human-use
product or data arising from its use.
6.
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WE RELY HEAVILY ON COLLABORATIVE AND LICENSING RELATIONSHIPS, AND WILL BE
NEGATIVELY AFFECTED IF WE CANNOT MAINTAIN OR EXPAND EXISTING RELATIONSHIPS, AND
INITIATE NEW ONES.
We rely and will continue to rely on partners and collaborators
to fund some of our research and development expenses and to assist us in the
research and development of our human-use equipment. Our largest partner is
Ethicon Endo-Surgery, Inc., a Johnson & Johnson company. On August 5, 1999, we
announced that Ethicon, Inc., another Johnson & Johnson company, had assigned
its obligations and responsibilities under certain development and license and
supply agreements with us to Ethicon Endo-Surgery, Inc. Ethicon, Inc. made
certain payments to us, and Ethicon Endo-Surgery, Inc. is required to continue
to make milestone-based payments when and if milestones are achieved. Ethicon is
obligated to compensate us for human-use products and to pay royalties on sales
or leases in the future, in exchange for the right to help develop and sell or
lease our human-use equipment to hospitals and others for cancer treatments,
among other rights. We depend on Ethicon for certain research funding, for its
clinical, sales and marketing efforts under the agreement, and for the positive
association we receive by having Ethicon as our partner. Loss of the
relationship between our company and the Johnson & Johnson companies, would
result in a material adverse effect on our company.
Our clinical trials to date have used our equipment with the
anti-cancer drug bleomycin. It is not the current intent to package bleomycin
together with the equipment for sale, but if it should be necessary or desirable
to do this, we would need a reliable source for the drug. In 1998, we signed a
supply agreement with Abbott Laboratories under which Abbott would sell us
bleomycin for inclusion in our package. If it becomes necessary or desirable to
include bleomycin in our package, and this relationship with Abbott should be
terminated, then we would have to form a relationship with another provider of
this generic drug, before any product could be launched.
We also rely on scientific collaborators at universities and
companies to further our research and test our equipment. In most cases, we lend
our equipment to a collaborator, teach him or her how to use it, and together
design experiments to test the equipment in one of the collaborator's fields of
expertise. We aim to secure agreements that restrict collaborators' rights to
use the equipment outside of the agreed upon research, and outline the rights
each of us will have in any results or inventions arising from the work.
Nevertheless, there is always risk that:
- Our equipment will be used in ways we did not authorize,
which can lead to liability and unwanted competition;
- We may determine that our technology has been improperly
assigned to us or a collaborator may claim rights to
certain of our technology, which may require us to pay
license fees or milestone payments and, if commercial
sales of the underlying product is achieved, royalties;
- We will lose rights to inventions made by our
collaborators in the field of our business, which can lead
to expensive legal fights and unwanted competition;
- Our collaborators will not keep our confidential
information to themselves, which can lead to loss of our
right to seek patent protection and loss of trade secrets,
and expensive legal fights; and
- Collaborative associations can damage a company's
reputation if they go awry and, thus, by association or
otherwise, the scientific or medical community holds a
negative view of us.
For instance, we have received correspondence from the University
of South Florida, USF, purporting to claim certain rights to intellectual
property assigned to us. We dispute USF's claim of rights to such intellectual
property and have been negotiating with USF for several months to finalize an
agreement that would give us exclusive rights to the technology. We cannot
assure you that the negotiations will be successful or that we will retain full
ownership of this intellectual property.
We cannot guarantee that any of the results from these collaborations will be
fruitful. We also cannot tell you that we will be able to continue to
collaborate with individuals and institutions that will further our work, or
that we will be able to do so under terms that are not too restrictive. If we
are not able to maintain or develop new
7.
<PAGE> 9
collaborative relationships, then it is likely the research pace will slow down
and it will take longer to identify and commercialize new products, or new
indications for our existing products.
OUR COMPANY COULD BE SUBSTANTIALLY DAMAGED IF PHYSICIANS AND HOSPITALS
PERFORMING OUR CLINICAL TRIALS DO NOT ADHERE TO PROTOCOLS OR PROMISES MADE IN
CLINICAL TRIAL AGREEMENTS.
Our company also works and has worked with a number of hospitals
to perform clinical trials, primarily in oncology. We depend on these hospitals
to recruit patients for the trials, to perform the trials according to our
protocols, and to report the results in a thorough, accurate and consistent
fashion. Although we have agreements with these hospitals, which govern what
each party is to do with respect to the protocol, patient safety, and avoidance
of conflict of interest, there are risks that the terms of the contracts will
not be followed. For instance:
- Risk of Deviations from Protocol. The hospitals or the
physicians working at the hospitals may not perform the
trial correctly. Deviations from protocol may make the
clinical data not useful and the trial could be
essentially worthless.
- Risk of Improper Conflict of Interest. Physicians working
on protocols may have an improper economic interest in our
company, or other conflict of interest. When a physician
has a personal stake in the success of the trial, such as
can be inferred if the physician owns stock of the trial
sponsor, it can create suspicion that the trial results
were improperly influenced by the physician's interest in
economic gain. Not only can this put the clinical trial
results at risk, but it can also do serious damage to a
company's reputation.
- Risks Involving Patient Safety and Consent. Physicians and
hospitals may fail to secure formal written consent as
instructed or report adverse effects that arise during the
trial in the proper manner, which could put patients at
unnecessary risk. This increases our liability, affects
the data, and can damage our reputation.
If any of these events were to occur, then it could have a
material adverse effect on our ability to receive regulatory authorization to
sell our human-use equipment, not to mention on our reputation. Negative events
that arise in the performance of clinical trials sponsored by biotechnology
companies of our size and with our limited cash reserves have resulted in
companies going out of business.
WE RELY HEAVILY ON OUR PATENTS AND PROPRIETARY RIGHTS TO ATTRACT PARTNERSHIPS
AND MAINTAIN MARKET POSITION.
Another factor that will influence our success is the strength of
our patent portfolio. Patents give the patent holder the right to keep others
out of its patented territory. If someone practices within the patented
territory of a patent holder, then the patent holder has the right to charge him
with infringement and begin legal proceedings, which can be lengthy and costly.
We are in the process of performing an audit of our patent portfolio to confirm
that our key technologies are adequately protected. If necessary, we will take
steps to strengthen our portfolio, which may include asking that one or more of
our patents be reexamined or reissued by the United States patent office.
The patenting process, enforcement of issued patents, and defense
against claims of infringement are inherently risky. Because our Drug and Gene
Delivery Division relies heavily on patent protection, for us, the risks are
significant and include the following:
- Risk of Inadequate Patent Protection for Product. We
cannot say with certainty that the United States or
foreign patent offices will grant patents of meaningful
scope based on the applications we have already filed and
those we intend to file. If we do not have patents that
adequately protect our human-use equipment and indications
for its use, then we will not be competitive.
- Risk Important Patents Will Be Judged Invalid. We cannot
guarantee you that every issued patent we now own or
license is valid. If we have to defend the validity of any
of our patents, then it will require a lot of time and
money to do so, and there is no guarantee of a successful
outcome. In the event an important patent related to our
drug delivery technology is found to be invalid, we may
lose
8.
<PAGE> 10
competitive position and may not be able to receive
royalties for products covered in part or whole by that
patent under license agreements.
- Risk of Being Charged With Infringement. Although we try
to avoid infringement by monitoring patents granted to
competitors, there is the risk that we will use a patented
technology owned by another and/or be charged with
infringement. Defending against a charge of infringement
can involve lengthy and costly legal actions, with no
guarantee of a successful outcome. Biotechnology companies
of about our size and limited cash have gone out of
business after fighting and losing an infringement battle.
If we were prevented from using or selling our human-use
equipment, then our business would be seriously affected.
- Freedom to Operate Risks. We are aware that patents
related to electrically assisted drug delivery have been
granted to, and patent applications filed by, our
potential competitors. We or our partners have taken
licenses to some of these patents, and will consider
taking additional licenses in the future. Nevertheless,
the competitive nature of our field of business and the
fact that others have sought patent protection for
technologies similar to ours, makes these risks more real
than not.
In addition to patents, we also rely on trade secrets and
proprietary know-how. We try to protect this information with appropriate
confidentiality and inventions agreements with our employees, scientific
advisors, consultants, and collaborators. We cannot assure you that these
agreements will not be breached, or that we will be able to do much to protect
ourselves if they are breached, or that our trade secrets will not otherwise
become known or be independently discovered by competitors. If any of these
events occurs, then we run the risk of losing control over valuable company
information, which could negatively affect our competitive position.
WE RUN THE RISK THAT OUR TECHNOLOGY WILL BECOME OBSOLETE OR LOSE ITS COMPETITIVE
ADVANTAGE.
The drug delivery business is very competitive, fast moving and
intense, and expected to be increasingly so in the future. Other companies and
research institutions are developing drug delivery systems that, if not similar
in type to our systems, are designed to address the same patient or subject
population. Therefore, we cannot promise you that our products will be the best,
the safest, the first to market, or the most economical to make. If competitors'
products are better than ours, for whatever reason, then we will make less money
from sales and our products risk becoming obsolete.
There are many reasons why competitors might be more successful
than us, including:
- More Money. Some competitors have a lot more money than we
do. They can afford more technical and timeline setbacks
than we can.
- Greater Experience. Some competitors have been in the drug
delivery business longer than we have. They have greater
experience than us in critical areas like clinical
testing, obtaining regulatory approval, and sales and
marketing. This experience or their name recognition may
give them a competitive advantage over us.
- Superior Patent Position. Some competitors may have a
better patent position protecting their technology than we
have or will have to protect our technology. If we cannot
use our patents to prevent others from copying our
technology or developing similar technology, or if we
cannot obtain a critical license to another's patent that
we need to make and use our equipment, then we would
expect our competitive position to lessen.
- Faster to Market. Some companies with competitive
technologies may move through stages of development,
approval, and marketing faster than we can. If a
competitor receives FDA approval before us, then it will
be authorized to sell product before us. Because the first
company "to market" often has a significant advantage over
late-comers, a second place position could result in less
than anticipated sales.
9.
<PAGE> 11
- Reimbursement Allowed. In the United States, third party
payers, such as Medicare, may reimburse physicians and
hospitals for competitors' products but not for our
human-use products. This would significantly affect our
ability to sell our human-use products in the United
States and would have a serious effect on revenues and our
business as a whole. Outside of the United States,
reimbursement and funding policies vary widely.
OUR ABILITY TO ACHIEVE SIGNIFICANT REVENUE FROM SALES OR LEASES OF HUMAN-USE
EQUIPMENT WILL DEPEND ON ESTABLISHING EFFECTIVE SALES, MARKETING AND
DISTRIBUTION CAPABILITIES OR RELATIONSHIPS AND WE LACK SUBSTANTIAL EXPERIENCE IN
THESE AREAS.
Our company has no experience in sales, marketing and
distribution of clinical and human-use products. If we want to be direct
distributors of the human-use products, then we must develop a marketing and
sales force. This would involve a lot of money, training, and time.
Alternatively, we may decide, as we did with the human-use oncology market, to
rely on a company with a large distribution system and a large direct sales
force to undertake the majority of these activities on our behalf. This route
could result in less profit for us, but may permit us to reach market faster. In
any event, we cannot assure you that we will be able to undertake the effort on
our own, or contract with another to do this for areas other than oncology, at a
reasonable cost. We also cannot assure you that, regardless of the route we
take, we will successfully commercialize any product.
WE HAVE OPERATED AT A LOSS AND WE EXPECT TO CONTINUE TO ACCUMULATE A DEFICIT.
As of March 31, 2000, we had a deficit of $29,598,443. We have
operated at a loss since 1994, and we expect this to continue for some time. The
amount of the accumulated deficit will continue to grow, as it will be expensive
to continue our clinical, research, and development efforts. If these activities
are successful, and if we receive approval from the FDA to market human-use
equipment, then even more money will be required to market and sell the
equipment.
Most of the cash we received during the fiscal year ended March
31, 2000 was from the sale and distribution of special warrants to investors and
funding received from contracting partners. Other funds came from sales of BTX
research-use equipment, interest income on our investments, Small Business
Innovative Research (SBIR) grants, milestone payments, sales of equipment to
Ethicon for use in clinical trials, and exercise of stock options. It is
possible that we will not qualify for future SBIR grants. It is also possible
that the government may require us to pay back the original funding grants or
even pay certain penalties if they determine that we have used the grants
misappropriately. We do not expect to receive enough money from these sources to
completely pay for future activities.
WE WILL HAVE A NEED FOR SIGNIFICANT AMOUNTS OF MONEY IN THE FUTURE AND THERE IS
NO GUARANTEE THAT WE WILL BE ABLE TO OBTAIN THE AMOUNTS WE NEED.
As discussed, we have operated at a loss, and expect that to
continue for some time in the future. Our plans for continuing clinical trials,
conducting research, furthering development and, eventually, marketing our
human-use equipment will cost a lot of money. The extent of these costs will
depend on many factors, including some of the following:
- The progress and breadth of preclinical testing and the
size of our drug delivery programs, all of which directly
influence cost;
- The costs involved in complying with the regulatory
process to get our human-use products approved, including
the number, size, and timing of necessary clinical trials
and costs associated with the current assembly and review
of existing clinical and pre-clinical information;
- The costs involved in patenting our technologies and
defending them;
- Changes in our existing research and development
relationships and our ability to enter into new
agreements;
10.
<PAGE> 12
- The cost of manufacturing our human-use and research-use
equipment; and
- Competition for our products and our ability, and that of
our partners, to commercialize our products.
We plan to fund operations by several means. Ethicon will
continue to fund a portion of the oncology program, and we will attempt to enter
into contracts with partners that will fund either general operating expenses or
specific programs or projects. Some funding also may be received through
government grants. We cannot promise that we will enter into any such contracts
or, if we do, that our partners will provide enough money to meet our needs.
In the past, we have raised funds by public and private sale of
our stock, and we recently filed a preliminary short form prospectus with
securities regulators in Ontario and British Columbia relating to a public
offering of our common stock. Moreover, we may do this in the future to raise
needed funds. Sale of our stock to new private or public investors usually
results in existing shareholders becoming "diluted". The greater the number of
shares sold, the greater the dilution. A high degree of dilution can make it
difficult for the price of our stock to rise rapidly, among other things.
Dilution will lessen a shareholder's voting power.
We cannot assure you that we will be able to raise money needed
to fund operations, or that we will be able to raise money under terms that are
favorable to us.
IF WE DO NOT HAVE ENOUGH MONEY TO FUND OPERATIONS, THEN WE WILL HAVE TO CUT
COSTS.
If we are not able to raise needed money under acceptable terms,
then we will have to take measures to cut costs, such as:
- Delay, scale back or discontinue one or more of our drug
or gene delivery programs or other aspects of operations,
including laying off some personnel or stopping or
delaying clinical trials;
- Sell or license some of our technologies that we would not
otherwise give up if we were in a better financial
position;
- Sell or license some of our technologies under terms that
are a lot less favorable than they otherwise might have
been if we were in a better financial position; and
- Consider merging with another company or positioning
ourselves to be acquired by another company.
If it became necessary to take one or more of the above-listed
actions, then we may have a lower valuation, which probably would be reflected
in our stock price.
THE MARKET FOR GENETRONICS STOCK IS VOLATILE, WHICH COULD ADVERSELY AFFECT AN
INVESTMENT IN OUR STOCK.
Our share price and volume are highly volatile. This is not
unusual for biomedical companies of our size, age, and with a discrete market
niche. It also is common for the trading volume and price of biotechnology
stocks to be unrelated to a company's operations, i.e., to go up or down on
positive news and to go up or down on no news. Our stock has exhibited this type
of disconnect in the past, and may well exhibit it in the future. The
historically low trading volume of our stock, in relation to many other
biomedical companies of about our size, makes it more likely that a severe
fluctuation in volume, either up or down, will affect the stock price.
Some factors that we would expect to depress the price of our
stock include:
- Adverse clinical trial results;
- Announcement that the FDA denied our request to approve
our human-use product for commercialization in the United
States, or similar denial by other regulatory bodies which
make independent decisions outside the United States. To
date, Europe is the only foreign jurisdiction in which we
have sought approval for commercialization;
11.
<PAGE> 13
- Announcement of legal actions brought by or filed against
us for patent or other matters, especially if we do not
win such actions;
- Cancellation of important corporate partnerships or
agreements, such as the Ethicon agreement;
- Public concern as to the safety or efficacy of our
human-use products including public perceptions regarding
gene therapy in general;
- Shareholders' decisions, for whatever reasons, to sell
large amounts of our stock;
- A decreasing cash-on-hand balance to fund operations, or
other signs of apparent financial uncertainty; and
- Significant advances made by competitors that are
perceived to limit our market position.
OUR DEPENDENCE UPON NON-MARKETED PRODUCTS, LACK OF EXPERIENCE IN MANUFACTURING
AND MARKETING HUMAN-USE PRODUCTS, AND OUR CONTINUING DEFICIT MAY RESULT IN EVEN
FURTHER FLUCTUATIONS IN OUR TRADING VOLUME AND SHARE PRICE.
Successful approval, marketing, and sales of our human-use
equipment are critical to the financial future of our company. Our products are
not yet approved for sale in the United States and some other jurisdictions and
there can be no assurance that they will be or that such sales will be as large
or timely as we expect. These uncertainties may cause our operating results to
fluctuate dramatically in the next several years. We believe that
quarter-to-quarter or annual comparisons of our operating results are not a good
indication of our future performance. Nevertheless, these fluctuations may cause
us to perform below the expectations of the public market analysts and
investors. If this happens, the price of our common shares would likely fall.
OUR BTX INSTRUMENT DIVISION MARKETS ONLY TO THE ELECTROPORATION PRODUCT NICHE
MARKETS AND RELIES ON DISTRIBUTION RELATIONSHIPS FOR SALES.
The BTX Instrument Division currently markets only
electroporation equipment to the research market. If our research-use equipment
loses its competitive position, because the BTX Instrument Division does not
have any other product line on which to rely, our sales would be expected to
decline. Therefore, if we do not develop and introduce new products directed to
research-use electroporation, at a reasonable price, then we will lose pace with
our competitors. We cannot guarantee you that we will have the necessary funds
for our BTX Instrument Division to stay competitive or that the Division will
succeed.
The research-use equipment is sold through United States and
international distributors. Approximately 30% of BTX instrument sales during the
fiscal year ended March 31, 2000 were in the United States through our
distribution relationship with VWR Scientific. This accounted for about 20% of
our total revenue. We rely heavily on our relationship with VWR to sell our
product in the United States. There is no guarantee that we will be able to
maintain or replace our current distribution relationship with VWR or other
distributors, or establish sales, marketing and distribution capabilities of our
own. If distribution relationships are not in place or maintained for the major
markets, e.g., the United States, Europe and Japan, then the BTX Instrument
Division may suffer declining sales, which would have an effect on our bottom
line.
THERE IS A RISK OF PRODUCT LIABILITY WITH HUMAN-USE EQUIPMENT AND RESEARCH-USE
EQUIPMENT.
The testing, marketing and sale of human-use products exposes us to significant
and unpredictable risks of equipment product liability claims. These claims may
arise from patients, clinical trial volunteers, consumers, physicians,
hospitals, companies, institutions, researchers or others using, selling, or
buying our equipment. Product liability risks are inherent in our business and
will exist even after the products are approved for sale. If and when our
human-use equipment is commercialized, and with respect to the research-use
equipment that is currently marketed by our BTX Instrument Division, we run the
risk that use (or misuse) of the equipment will result in
12.
<PAGE> 14
personal injury. We have not experienced any claims of this kind to date, but we
cannot be certain that they will not occur. The chance of occurrence will
increase after both product types are on the market.
We purchased liability insurance in connection with the ongoing
oncology clinical trials, and we would expect to purchase additional policies
for any additional clinical trial. We cannot assure you that the insurance we
purchase will provide adequate coverage in the event a claim is made, and that
no payments against claims will be funded by us directly. If we did have to make
payment against a claim, then it would impact our financial ability to perform
the research, development, and sales activities we have planned.
With respect to our research-use equipment, there is always the
risk of product defects. Product defects can lead to loss of future sales,
decrease in market acceptance, damage to our brand or reputation, and product
returns and warranty costs. These events can occur whether the defect resides in
a component we purchased from a third party or whether it was due to our design
and/or manufacture. Our sales agreements typically contain provisions designed
to limit our exposure to product liability claims. However, we do not know
whether these limitations are enforceable in the countries in which the sale is
made. Any product liability or other claim brought against us, if successful and
of sufficient magnitude, could negatively impact our financial performance, even
if we have insurance.
WE CANNOT BE CERTAIN THAT WE WILL BE ABLE TO MANUFACTURE OUR HUMAN-USE AND
RESEARCH-USE EQUIPMENT IN SUFFICIENT VOLUMES AT COMMERCIALLY REASONABLE RATES.
Our products must be manufactured in sufficient commercial
quantities, in compliance with regulatory requirements, and at an acceptable
cost to be attractive to purchasers. We rely on third parties to manufacture and
assemble most aspects of our equipment. We endeavor to have two approved sources
for every component of the manufacturing process and have three approved sources
for some components in the process.
Disruption of the manufacture of our products, for whatever
reason, could delay or interrupt our ability to manufacture or deliver our
products to customers on a timely basis. This would be expected to affect
revenues and may affect our long-term reputation, as well. In the event we
provide product of inferior quality, we run the risk of product liability claims
and warranty obligations, which will negatively affect our bottom line.
Our manufacturing facilities for human-use products will be
subject to Quality Systems regulations, international quality standards and
other regulatory requirements, including pre-approval inspection for the
human-use equipment and periodic post-approval inspections for all human-use
products. While we have undergone and passed a Quality Systems review from an
international body, we have never undergone a Quality Systems inspection by the
FDA. We cannot guarantee that we will pass an FDA inspection when it occurs. If
our facilities are not up to the FDA standards in sufficient time, prior to
United States launch of product, then it will result in a delay or termination
of our ability to produce the human-use equipment in our facility. Any delay in
production will have a negative effect on our business.
OUR BTX INSTRUMENT DIVISION MUST MANAGE THE RISKS OF INTERNATIONAL OPERATIONS.
Our BTX Instrument Division sells a lot of its research-use
equipment in foreign countries, particularly in the Pacific Rim. In the fiscal
year ended March 31, 2000, about 36% of BTX's revenues were from BTX sales into
foreign countries. Like any company having foreign sales, BTX's sales are
influenced by many factors outside of our control.
For instance, the following factors can negatively influence
BTX's sales or profitability in foreign markets:
- We are subject to foreign regulatory requirements, foreign
tariffs and other trade barriers that may change without
sufficient notice;
- Our expenses related to international sales and marketing
may increase to a significant extent due to political
and/or economic factors out of our control, including
money spent to control and manage distributors;
13.
<PAGE> 15
- We are subject to various export restrictions and may not
be able to obtain export licenses when needed;
- Some of the foreign countries in which we do business
suffer from political and economic instability, and Asian
markets, which are important to the BTX Instrument
Division, have recently suffered considerable turmoil;
- Some of the foreign currencies in which we do business
fluctuate significantly;
- We may have difficulty collecting accounts receivables or
enforcing other legal rights; and
- We are subject to the Foreign Corrupt Practices Act, which
may place us at a competitive disadvantage to foreign
companies that do not have to adhere to this Act.
WE DEPEND ON THE CONTINUED EMPLOYMENT OF QUALIFIED PERSONNEL.
Our success is highly dependent on the people who work for us. If
we cannot attract and retain top talent to work in our company, then our
business will suffer. We cannot assure you that the staff we now have will
decide to stay with our company, or that we will be able to replace departing
employees or build departments with qualified individuals.
We have an employment agreement in place for Martin Nash, our
President, Chief Executive Officer and Chief Financial Officer, and a
compensation agreement is in place for James Lierman, our Executive Vice
President. If Mr. Nash or Mr. Lierman leaves us, that might pose significant
risks to our continued development and progress. Our progress may also be
curtailed if Dietmar Rabussay, Ph.D., our Vice President of Research and
Development, or George M. Gill, M.D., our Vice President of Clinical and
Regulatory Affairs, were to leave us.
WE MAY NOT MEET ENVIRONMENTAL GUIDELINES, AND AS A RESULT COULD BE SUBJECT TO
CIVIL AND CRIMINAL PENALTIES.
Like all companies in our line of work, we are subject to a
variety of governmental regulations relating to the use, storage, discharge and
disposal of hazardous substances. Our safety procedures for handling, storage
and disposal of such materials are designed to comply with applicable laws and
regulations. Nevertheless, if we are found to not comply with environmental
regulations, or if we are involved with contamination or injury from these
materials, then we may be subject to civil and criminal penalties. This would
have a negative impact on our reputation, our finances, and could result in a
slowdown, or even complete cessation of our business.
OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN OUR
FORWARD-LOOKING STATEMENTS.
Some of the statements under "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this prospectus may
constitute forward-looking statements. These statements, if any, involve known
and unknown risks, uncertainties and other factors that may cause our actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by forward-looking statements. The most
significant of these factors are discussed under "Risk Factors" or described
elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by
words such as "may," "will," "should," "could," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," or "continue"
or the negative of such words or other comparable words.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. In addition, neither us nor any
other person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus.
14.
<PAGE> 16
SELLING SHAREHOLDERS
We are registering for resale 1,900,000 outstanding shares of our
common stock acquired by accredited investors in a private placement upon
exercise of special warrants. We are also registering for resale 2,242,611
outstanding shares of our common stock previously issued in a private placement
to Johnson & Johnson Development Corporation. The following table sets forth;
(i) the name of the selling shareholders; (ii) the number of our shares of
common stock that the selling shareholder beneficially owned prior to the
offering for resale of any of the shares of our common stock being registered
hereby; (iii) the maximum number of shares of our common stock that may be
offered for resale for the account of the selling shareholders pursuant to this
prospectus; and (iv) the number of shares of our common stock to be held by the
selling shareholders after the offering of the resale shares (assuming all of
the resale shares are sold by the selling shareholders). The 4,142,611 shares of
common stock to be sold pursuant to this prospectus are referred to as the
"Resale Shares" in the following chart and footnotes.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES OF
NUMBER OF NUMBER OF GENETRONICS COMMON STOCK
SHARES OF SHARES OF BENEFICIALLY OWNED(3)
GENETRONICS GENETRONICS ------------------------------
COMMON COMMON BEFORE AFTER
STOCK TO BE STOCK OFFERING OF OFFERING OF
RESOLD IN THE BENEFICIALLY THE RESALE THE RESALE
SELLING SECURITYHOLDERS(1) OFFERING OWNED(2) SHARES SHARES(4)
-------------------------- -------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Smallcap World Fund, Inc. 1,650,000 1,650,000 6.05% --
American Variable Insurance
Series -- Global Small
Capitalization Fund 250,000 250,000 * --
Johnson & Johnson Development
Corporation 2,242,611 2,242,611 8.22% --
---------
4,142,611
---------
</TABLE>
* Represents beneficial ownership of less than 1%.
(1) This table is based upon information supplied to us by CB Capital Corp.,
formerly Canaccord (L) International Corporation or the selling
shareholders.
(2) Number of shares beneficially owned is determined as of June 20, 2000 and
in accordance with the rules of the Commission.
(3) Based upon 27,264,218 shares of Genetronics common stock issued and
outstanding on June 20, 2000.
(4) Assumes the sale of all of the shares to be resold in the offering.
PLAN OF DISTRIBUTION
The 4,142,611 shares of common stock to which this prospectus
relates may be sold from time to time by the selling shareholders in one or more
transactions at fixed prices, at market prices at the time of sale, at varying
prices determined at the time of sale or at negotiated prices. The selling
shareholders may offer these shares of common stock in one or more of the
following transactions:
- on any national securities exchange or quotation service
at which the common shares may be listed or quoted at the
time of sale, including the American Stock Exchange and
Toronto Stock Exchange;
- in the over-the-counter market;
- in private transactions;
- through options; and
- by pledge to secure debts and other obligations, or a
combination of any of the above transactions.
15.
<PAGE> 17
If required, we will distribute a supplement to this prospectus
to describe material changes in the terms of the offering.
The shares of common stock described in this prospectus may be
sold from time to time directly by the selling shareholders. Alternatively, the
selling shareholders may from time to time offer shares of common stock to or
through underwriters, broker/dealers or agents. The selling shareholders and any
underwriters, broker/dealers or agents that participate in the distribution of
the shares of common stock may be deemed to be "underwriters" within the meaning
of the Securities Act of 1933. Any profits on the resale of shares of our common
stock and any compensation received by any underwriter, broker/dealer or agent
may be deemed to be underwriting discounts and commissions under the Securities
Act of 1933.
Any shares covered by this prospectus, which qualify for sale
pursuant to Rule 144 under the Securities Act of 1933, may be sold under Rule
144 rather than pursuant to this prospectus. The selling shareholders do not
have to sell all of the shares they own pursuant to this prospectus. The selling
shareholders may transfer, devise or gift such shares by other means not
described in this prospectus.
To comply with the securities laws of certain jurisdictions, the
common shares must be offered or sold only through registered or licensed
brokers or dealers. In addition, in certain jurisdictions, the common shares may
not be offered or sold unless the common shares have been registered or
qualified for sale or an exemption is available and complied with.
Under the Securities Exchange Act of 1934, any person engaged in
a distribution of the common shares may not simultaneously engage in
market-making activities with respect to the common shares for nine business
days prior to the start of the distribution. In addition, each selling
shareholder and any other person participating in a distribution will be subject
to the Securities Exchange Act of 1934, which may limit the timing of purchases
and sales of common shares by the selling shareholders or any such other person.
These factors may affect the marketability of the common shares and the ability
of brokers or dealers to engage in market-making activities.
We will pay all expenses of this registration. These expenses
include the SEC's filing fees and fees under state securities or "blue sky"
laws. We estimate that our expenses in connection with this registration will be
approximately $100,000. All expenses for the issuance of a supplement to this
prospectus, when requested by selling shareholder(s), will also be paid by us.
16.
<PAGE> 18
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of any of
the shares of common stock covered by this prospectus by the selling
shareholders. All proceeds from the resale of shares of our common stock
described in this prospectus will be for the accounts of the selling
shareholders.
DIVIDEND POLICY
We have not declared or paid any dividends on our common shares
since our inception. Our directors expect that while we are unprofitable,
earnings will not be distributed to shareholders by way of a dividend. The
declaration of dividends on our common shares will depend upon the directors'
assessment of, among other factors, earnings, capital requirements and our
operating and financial condition. See "Description of Capital Stock-Dividend
Policy".
COMMON SHARE PRICE RANGE
Market Information
Our outstanding common shares have been listed on the Toronto
Stock Exchange (TSE) since September 2, 1997 under the symbol "GEB." Prior to
September 2, 1997, our common shares were traded on the Vancouver Stock Exchange
under the symbol "GEB." In addition, since December 8, 1998, our common shares
have been traded on the American Stock Exchange (AMEX) also under the symbol
"GEB." The following tables sets forth, for the periods indicated, the high and
low sales prices for the common shares as reported by the American Stock
Exchange and the Toronto Stock Exchange.
AMERICAN STOCK EXCHANGE
<TABLE>
<CAPTION>
COMMON SHARE
PRICE(US$)
----------------------
HIGH LOW
---- ---
<S> <C> <C>
Fiscal year ended March 31, 2001:
First Quarter........................................................ 6.19 3.00
Fiscal year ended March 31, 2000:
Fourth Quarter....................................................... 11.94 3.00
Third Quarter........................................................ 3.50 2.69
Second Quarter....................................................... 3.87 2.31
First Quarter........................................................ 3.88 3.81
Fiscal year ended March 31,1999:
Fourth Quarter....................................................... 4.06 3.25
Third Quarter (beginning on December 8, 1998)........................ 3.69 3.25
</TABLE>
TORONTO STOCK EXCHANGE
<TABLE>
<CAPTION>
COMMON SHARE
PRICE(CDN$)
----------------------
HIGH LOW
---- ---
<S> <C> <C>
Fiscal year ended March 31, 2000:
First Quarter........................................................... 9.00 4.45
Fiscal year ended March 31,2000:
Fourth Quarter.......................................................... 17.40 4.50
Third Quarter........................................................... 5.15 4.00
Second Quarter.......................................................... 5.70 3.40
First Quarter........................................................... 5.70 4.10
Fiscal Year ended March 31,1999:
Fourth Quarter.......................................................... 6.10 4.80
Third Quarter........................................................... 6.20 4.00
Second Quarter.......................................................... 4.75 3.10
First Quarter........................................................... 4.91 3.35
Fiscal Year ended March 31,1998:
Fourth Quarter*......................................................... 4.10 2.40
Third Quarter........................................................... 4.45 2.55
Second Quarter (beginning on September 2, 1997)......................... 5.25 3.25
</TABLE>
----------
* We changed our fiscal year end from February 28, 1998 to March 31, 1998,
which means the above noted "quarter" covers four months instead of three
months.
17.
<PAGE> 19
On June 20, 2000, the closing price of our common shares was
$4.65 (CDN) on the TSE and $3.25 on the AMEX. As of June 20, 2000, there were
approximately 353 registered shareholders of record. In addition, approximately
9,463,853 of our common shares or 35% of the total 27,264,218 issued and
outstanding common shares on June 20, 2000, were held among 289 registered
United States record holders.
Dividends
The Company has never paid any cash dividends on its common
stock.
Federal Income Tax Consequences
The discussion under this heading summarizes the principal
Canadian and United States federal income tax consequences of acquiring, holding
and disposing of common shares of the Registrant for a shareholder of the
Registrant who is not resident in Canada and who is a United States person which
does not own a 10% or more interest in the Registrant and holds their investment
as a capital asset. It is based on the current provisions of the Income Tax Act
(Canada) (the "Tax Act") and the regulations thereunder. The provisions of the
Tax Act and the Internal Revenue Code are subject to income tax treaties to
which Canada and the United States are parties, including the Canada-United
States Income Tax Convention (1980) (the Convention). This discussion is general
only and is not a substitute for independent advice from a shareholder's own tax
advisor.
Dividends on Common Shares - Canada: Under the Tax Act, a
non-resident of Canada is generally subject to Canadian withholding tax at the
rate of 25% on dividends paid or deemed to have been paid to him by a
corporation resident in Canada. The Convention limits the rate to 15% if the
shareholder is resident in the United States and the dividends are beneficially
owned by and paid to him, and to 5% if the shareholder is also a corporation
that beneficially owns at least 10% of the voting stock of the payer
corporation. However, if the shareholder carries on business in Canada through a
"permanent establishment" situated in Canada or performs independent personal
services in Canada from a "fixed base" in Canada, and the share holding in
respect of which the dividends are paid is effectively connected with that
permanent establishment or fixed base, those limitations do not apply. The
Convention generally exempts from Canadian income tax dividends paid to a
religious, scientific, literary, educational or charitable organization or to an
organization exclusively administering a pension, retirement or employee benefit
fund or plan, if the organization is resident in the United States and is exempt
from income tax under the laws of the United States.
Dividends on Common Shares - United States Shareholders: United
States persons (i.e. citizens, residents, domestic corporations, etc.) are
subject to tax on their worldwide income, regardless of source. Dividends of the
Registrant received by a United States person shareholder would be subject to
income tax at the United States ordinary income tax rates. Any Canadian
withholding tax withheld on dividends of the Registrant should be creditable
against United States income tax, subject to limitations. It should be noted
that the Company has never paid dividends in the past and management does not
anticipate that any dividends will be paid in the foreseeable future.
Dispositions of Common Shares: The following comments apply only to a
shareholder whose common shares of the Registrant constitute capital property to
him for the purposes of the Tax Act. Shares will generally constitute capital
property unless the holder is a trader or dealer in securities. A taxpayer's
capital gain or capital loss from a disposition of a common share of the
Registrant is the amount, if any, by which his proceeds of disposition exceed
(or are exceeded by, respectively) the aggregate of his adjusted cost base of
the share and reasonable expenses of disposition. Under the Tax Act, a
non-resident of Canada is subject to Canadian tax on taxable capital gains, and
may deduct allowable capital losses realized on a disposition of "taxable
Canadian property." Shares of a Canadian corporation listed on a prescribed
stock exchange will only be classified as Taxable Canadian Property if the
shareholder, and persons with whom the shareholder does not deal at arm's
length, owned 25% or more of the issued shares of any class at any time in the
five year period ended at the time of the disposition. Toronto Stock Exchange is
a prescribed stock exchange. However, the Convention relieves United States
residents from liability for Canadian tax on capital gains derived on a
disposition of shares unless, a) their value is derived principally from real
property in Canada, b) the holder was resident in Canada for 120 months during
any period of 20 consecutive years preceding the disposition and the shares were
owned by him when he ceased to be resident in
18.
<PAGE> 20
Canada, or c) they formed part of the business property of a "permanent
establishment" that the holder has or had in Canada within the 12 months
preceding the disposition.
Dispositions of Common Shares: The following comments apply only
to a United States person shareholder whose common shares of the Registrant
constitute capital property and are not shares of a passive foreign investment
company. The shares will generally constitute capital property unless the
holder is a trader or dealer in securities. A United States person shareholder
would be subject to income tax on dispositions of the Registrants stock
resulting in capital gain. A taxpayer's capital gain or capital loss from a
disposition of a common share of the Registrant is the amount, if any, by which
his proceeds of disposition exceed (or are exceeded by, respectively) the
aggregate of his tax basis of the share and reasonable expenses of disposition.
Subject to limitations, any Canadian income tax withheld on the disposition of
the Registrants common shares should be creditable against the United States
income tax.
Determination of PFIC Status: Under United States federal income
tax law, a foreign corporation is considered a passive foreign holding company
("PFIC") if the corporation meets either an asset or income test in any given
year. Under the income test, a foreign corporation is a PFIC if 75% or more of
its gross income is passive income. Under the asset test, a foreign corporation
is a PFIC if 50% or more of the average value of its assets (generally on a
gross basis) consists of assets that would produce passive income; a foreign
corporation may elect to have the asset test applied using the adjusted bases of
its assets rather than their fair market values. The registrant believes that it
is not classified as a PFIC for the fiscal year ended March 31, 2000.
The Internal Revenue Code (IRC) provides for certain look-through
rules so that a corporation can avoid PFIC status. A look through rule applies
where a foreign corporation owns, directly or indirectly, 25% or more (by value)
of the stock of another corporation. Under this look-through rule, certain
income, such as interest and dividends, received from the subsidiary, and the
value of its stock, is ignored. Instead, a pro rata portion of the second-tier
corporation's income and assets are treated as if directly received or held by
the first-tier corporation. The look through rules apply for purposes of either
the asset or income test.
United States Foreign Tax Credit: United States persons are taxed
on their worldwide income. In order to prevent the double taxation that could
result on income derived from foreign sources, the United States allows a credit
for foreign taxes paid or accrued. The amount of foreign tax available to offset
United States federal income tax on foreign source income is subject to
limitation. United States federal foreign tax credit law is a complex topic. It
is suggested that a competent United States tax advisor be consulted with for a
more complete understanding of such provisions.
19.
<PAGE> 21
CAPITALIZATION
The following table sets forth our capitalization as of March 31,
2000 on an actual basis.
This information should be read in conjunction with the
consolidated financial statements and related notes thereto included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 2000
--------------
ACTUAL
==============
<S> <C>
Obligations under capital lease ............................................. $ 118,384
Shareholders' equity:
Common Shares, no par value, 100,000,000 authorized;
22,832,324 Common Shares issued and outstanding at March 31, 2000(1).... 30,491,793
Class A Preferred Shares, 100,000,000 authorized; none
Issued .................................................................... --
Additional paid in capital .................................................. 35,768
Special warrants(2)(3) ...................................................... 11,002,992
Cumulative Translation Adjustment ........................................... (100,911)
Deficit ..................................................................... 9,598,443)
Total shareholders' equity ........................................ 11,831,199
Total capitalization .............................................. $ 11,949,583
</TABLE>
----------
(1) On March 26, 1999, the Compensation Committee of our Board approved the
conversion of all option exercise prices from Canadian dollars to United
States dollars. Excludes, as of March 31, 2000, (i) 3,500,000 common
shares reserved for issuance under our 1995 Stock Option Plan, of which
1,343,650 shares were subject to outstanding options, at a weighted
average exercise price of $2.07 per share; (ii) 6,400,000 common shares
reserved for issuance under our 1997 Stock Option Plan, of which
3,171,894 shares were subject to outstanding options, at a weighted
average exercise price of $2.86 per share; and (iii) 267,250 common
shares reserved for issuance upon the exercise of outstanding agent's
warrants at a weighted average exercise price of $3.31 per share;
4,164,500 common shares reserved for issuance upon the exercise of
special warrants at no additional consideration. See "Description of
Capital Stock" and "Management -- 1995 Stock Option Plan and 1997 Stock
Option Plan."
(2) See Note 9 of notes to consolidated financial statements for the year
ended March 31, 2000.
(3) After the payment of the agent's commission of $1,005,000 and issuance of
30,000 common shares valued at $91,890 to the agent's nominee for
services provided and other costs of $401,852 related to the offering of
the special warrants and allocated price paid ($60,700) for the 23,000
special warrants converted into common shares.
20.
<PAGE> 22
SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial
data for our company for the periods indicated, derived from audited
consolidated financial statements prepared in accordance with accounting
principles generally accepted in Canada which conform to accounting principles
generally accepted in the United States, except as described in Note 17 to the
consolidated financial statements. The data set forth below should be read in
conjunction with our consolidated financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein. Effective January 23, 1998, our Board of
Directors approved the change of its fiscal year-end from February 28 to March
31.
On June 20, 2000 the Interbank rate of exchange for converting
Canadian dollars into United States dollars equaled 1.4667 Canadian dollars for
1 United States dollar. The following table presents a history of the exchange
rates of Canadian dollars into United States dollars for the five most recent
fiscal years of the Company.
<TABLE>
<CAPTION>
===============================================================================================
Fiscal Periods March 31, March 31, March 31, Feb 28, Feb 29,
Ended 2000 1999 1998 1997 1996
===============================================================================================
<S> <C> <C> <C> <C> <C>
Period End 1.4494 1.5104 1.4218 1.3556 1.3752
-----------------------------------------------------------------------------------------------
Average 1.4661 1.5031 1.3994 1.3556 1.3767
-----------------------------------------------------------------------------------------------
Period's High 1.4878 1.5845 1.4686 1.3752 1.4077
-----------------------------------------------------------------------------------------------
Period's Low 1.4524 1.4144 1.3594 1.3381 1.3458
-----------------------------------------------------------------------------------------------
</TABLE>
The following summarizes certain selected consolidated financial
information with respect to the Company and is qualified in its entirety by
reference to the Consolidated Financial Statements of the Company and the Notes
thereto. All amounts are shown in United States dollars.
<TABLE>
<CAPTION>
======================================================================================================================
Twelve Twelve Thirteen Twelve Twelve
Months Months Months Months Months
Fiscal Periods Ended Ended Ended Ended Ended Ended
March 31, March 31, March 31, February 28, February 29,
2000 1999 1998 1997 1996
======================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Sales 4,134,436 3,434,105 3,097,198 3,040,734 2,512,131
----------------------------------------------------------------------------------------------------------------------
License Fee and milestone payments 416,667 4,500,000 0 0 0
----------------------------------------------------------------------------------------------------------------------
Interest Income 556,193 300,911 427,498 71,206 64,160
----------------------------------------------------------------------------------------------------------------------
Research Revenue and Grant Funding 526,236 387,183 134,094 47,439 105,292
----------------------------------------------------------------------------------------------------------------------
Net Loss for Period
----------------------------------------------------------------------------------------------------------------------
Canadian GAAP(1) (9,599,942) (6,603,837) (7,596,666) (2,994,610) (1,876,426)
----------------------------------------------------------------------------------------------------------------------
United States GAAP (10,703,830) (7,150,537) (7,904,166) (3,330,110) (2,033,326)
----------------------------------------------------------------------------------------------------------------------
Net Loss per Common Share
----------------------------------------------------------------------------------------------------------------------
Canadian GAAP (0.43) (0.33) (0.43) (0.24) (0.17)
----------------------------------------------------------------------------------------------------------------------
United States GAAP (0.48) (0.35) (0.44) (0.26) (0.18)
----------------------------------------------------------------------------------------------------------------------
Total Assets
----------------------------------------------------------------------------------------------------------------------
Canadian GAAP 14,012,304 9,807,644 9,242,887 4,161,129 4,318,264
----------------------------------------------------------------------------------------------------------------------
United States GAAP 14,012,304 9,807,644 9,242,887 4,161,129 4,318,264
----------------------------------------------------------------------------------------------------------------------
Long Term Liabilities 128,356 173,840 122,319 120,598 22,757
----------------------------------------------------------------------------------------------------------------------
Dividends per Share 0 0 0 0 0
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) GAAP means Generally Accepted Accounting Principles.
21.
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND OPERATING RESULTS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the related Notes contained elsewhere in
this prospectus. The following discussion contains forward-looking statements
that involve risks and uncertainties. These statements relate to future events
or our future financial performance. In many cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue," or the negative of such terms and other comparable
terminology. These statements are only predictions. Our actual results may
differ significantly from those projected in the forward-looking statements as a
result of certain factors, including, but not limited to, those set forth under
"Risk Factors" and elsewhere in this prospectus.
OVERVIEW
Through our Drug and Gene Delivery Division, we are engaged in
developing drug and gene delivery systems based on electroporation to be used in
the site-specific treatment of disease. Through our BTX Instrument Division, we
develop, manufacture, and sell electroporation equipment to the research
laboratory market.
In the past our revenues primarily reflected product sales to the
research market through our BTX Instrument Division and research grants through
the Drug and Gene Delivery Division. In October 1998 we entered into a
comprehensive License and Development Agreement and a Supply Agreement with
Ethicon, Inc., a Johnson & Johnson company, involving our proprietary drug and
gene delivery system for the electroporation therapy treatment of solid tumor
cancer. As part of the License and Development Agreement, we received an
up-front licensing fee. We have received milestone payments and will be
receiving future milestone payments if and when milestones are met. In August
1999, we announced that Ethicon Inc. transferred its responsibilities and
obligations under the License and Development and Supply Agreements to Ethicon
Endo-Surgery, Inc., which is also a Johnson & Johnson company. Since mid-January
2000, we and Ethicon have been assembling and reviewing existing clinical and
regulatory information relating to human clinical trials for treating certain
cancers with bleomycin and our MedPulser(R) system. Existing information
relating to pre-clinical in vitro and in vivo animal studies also is being
reviewed. These projects have delayed pre-commercialization activities for the
system in Europe and initiation of a pivotal or other clinical trial in the
United States and are expected to further delay European commercial launch and
initiation of new clinical trials for at least several more months. Pivotal
clinical trials are used to assess a drug for efficacy at several independent
sites in a statistically large number of patients.
Until the commercialization of clinical products pursuant to the
License and Development and Supply Agreements, we expect revenues to continue to
be attributable to product sales to the research market, milestone payments,
grants, collaborative research arrangements, and interest income.
22.
<PAGE> 24
Due to the expenses incurred in the development of the drug and
gene delivery systems, we have been unprofitable in the last five years. As of
March 31, 2000 we have incurred a cumulative deficit of $29,598,443. We expect
to continue to incur substantial operating losses in the future due to continued
spending on research and development programs, the funding of preclinical
studies, clinical trials and regulatory activities and the costs of
manufacturing and administrative activities.
Inflation
We do not believe that inflation has had a material adverse
effect on net sales or results of operations. We have generally been able to
pass on increased costs related to inflation through increases in selling
prices.
RESULTS OF OPERATIONS
The following discussion and analysis explains trends in our
financial condition and results of operations for the years ended March 31, 2000
and March 31, 1999, and the 13 months ended March 31, 1998. This discussion and
analysis of the results of operations and financial condition of our company
should be read in conjunction with the consolidated financial statements and the
related notes included elsewhere in this Registration Statement. The
consolidated financial statements have been prepared by management in accordance
with accounting principles generally accepted in Canada, which conform to
accounting principles generally accepted in the United States, except as
described in Note 17 to the consolidated financial statements.
TWELVE MONTHS ENDED MARCH 31, 2000 COMPARED TO TWELVE MONTHS ENDED MARCH 31,
1999
Revenues
The BTX Instrument Division produced net sales of $3,827,537 for
the twelve months ended March 31, 2000, compared with net sales of $3,434,105,
for the twelve months ended March 31, 1999, which meant an increase of $393,432,
or 11%. The primary factor contributing to this increase was the result of
higher sales through domestic distributors, which increased by 31% over the
previous year.
Export sales increased by $76,507, or 6%, from $1,298,886 for the
twelve months ended March 31, 1999 to $1,375,393 for the twelve months ended
March 31, 2000. Export sales as a percentage of total sales remained relatively
constant at 36% in the twelve months ended March 31, 2000 compared to 38% in the
twelve months ended March 31, 1999.
In August of 1999 we introduced the ECM 630, an Exponential Decay
Wave Electroporation system, which utilizes a Precision Pulse Technology, the
new BTX Platform technology, and an all-new digital user interface. The
introduction of the new product also resulted in additional sales. The overall
increase in sales was also attributed to the increased focus on
application-based sales in the in vivo gene therapy area.
Our Drug and Gene Delivery Division had its first product sales
in the twelve months ended March 31, 2000 in the amount of $306,899. The product
sales were to Ethicon and consisted of medical instruments and applicators which
were designated for market development activities and future clinical trials.
Revenues from grant funding decreased from $354,135 for the
twelve months ended March 31, 1999 to $334,901 for the twelve months ended March
31, 2000. The grant revenues in the twelve months ended March 31, 2000 were
primarily a result of activities within the Oncology field for which a Phase II
Small Business Innovative Research (SBIR) grant was awarded to us by the NIH in
September 1997. In the year ended March 31, 2000 we also received revenues from
a Phase I SBIR grant which was awarded in February of 1999 for an In Vivo
Skin-Targeted Gene Therapy project. Revenues from grant funding may fluctuate
from period to period based on the level of grant funding awarded and the level
of research activity related to the grants awarded.
In the twelve months ended March 31, 2000, our Drug and Gene
Delivery Division recorded milestone revenues in the amount of $416,667. The
milestones achieved were part of the Licensing Agreement with Ethicon involving
the use of the Medpulser(R) system for Electroporation Therapy in the treatment
of solid tumor cancer. The decrease in license fees and milestone payments from
$4,500,000 for the twelve months ended March 31, 1999
23.
<PAGE> 25
to $416,667 for the twelve months ended March 31, 2000 was a result of the
$4,000,000 up-front licensing fee received from Ethicon in October of 1998.
Milestone revenues may fluctuate from period to period due to the timing of
milestone achievements, the amount of milestone payments, and whether milestones
were achieved.
In the twelve months ended March 31, 2000 we recorded contract
research revenues in the amount of $191,335, primarily as a result of
collaborative research agreements to develop our electroporation technology for
use in particular gene therapy applications.
Interest income for the twelve months ended March 31, 2000 in the
amount of $556,193 increased by $255,282, or 85%, compared to the interest
income for the twelve months ended March 31, 1999 in the amount of $300,911. The
increase in interest income was attributable to the proceeds from the private
placement in June 1999, which were invested in interest-bearing instruments.
Cost of Sales
Cost of sales for our BTX Instrument Division increased by
143,337, or 9%, from $1,638,635, for the twelve months ended March 31, 1999 to
$1,781,972 for the twelve months ended March 31, 2000. The increase was
primarily a result of higher net sales.
Our Drug and Gene Delivery Division recorded cost of sales in the
amount of $241,927 for the twelve months ended March 31, 2000. For the prior
year no cost of sales were incurred since no products were sold.
Gross Profit and Gross Margin
Primarily due to the higher sales, the gross profit for our BTX
Instrument Division for the twelve months ended March 31, 2000 in the amount of
$2,045,565, increased by $250,095, or 14%, compared with $1,795,470 for the
twelve months ended March 31, 1999.
The gross profit margin for BTX products increased from 52% for
the twelve months ended March 31, 1999 to 53% for the twelve months ended March
31, 2000.
Our Drug Delivery Division recorded a gross profit in the amount
of $64,972 for the twelve months ended March 31, 2000. The low gross profit
margin of 21% was expected since the products sold were designated for market
development and future clinical trials and therefore were sold at a highly
discounted price.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, which include
advertising, promotion and selling expenses, increased by $129,779, or 2%, from
$5,481,051 for the twelve months ended March 31, 1999 to $5,610,830 for the
twelve months ended March 31, 2000. The increase was primarily due to higher
sales and marketing expenses in our BTX Instrument Division, partially as a
result of efforts to increase product sales and promote the newly introduced ECM
630. General and administrative expenses for the year ended March 31, 2000
remained at about the same level as for the year ended March 31, 1999.
Research and Development/Clinical Trials
Research and development costs decreased by $1,109,739, or 14%,
from $8,086,959 for the twelve months ended March 31, 1999 to $6,977,220 for the
twelve months ended March 31, 2000.
The overall lower research and development expenses were
primarily a result of lower clinical/regulatory expenses due to the winding down
of the Head & Neck Phase II clinical trials in the United States and Canada and
decreased activities related to the development of the Drug and Gene Delivery
products. Reduced expenses in the transdermal and vascular therapy areas, as the
result of a shift in our primary focus to oncology and gene therapy, also
contributed to the lower research and development expenses. The above noted
lower R&D expenses in our Drug and
24.
<PAGE> 26
Gene Delivery Division more than offset increased engineering expenses in our
BTX Instrument Division, which were incurred in the process of upgrades to
certain BTX instrument products.
Restructuring charges
In the summer of 1999 we undertook a review of its operating
structure to identify opportunities to improve operating effectiveness. As a
result of this review, certain staffing changes occurred. We also announced that
our employment of two senior executives ended in September 1999. In December
1999, we entered into an Agreement for Termination of Employment with each of
the two senior executives. In accordance with the staffing changes and the terms
of the Termination of Employment Agreements, we have accrued and recorded
restructuring charges of $597,183 for the twelve months ended March 31, 2000.
Net results of reportable segments (Net results of reportable
segments do not include unallocated items such as interest income and expense
and general and administrative costs)
Our BTX Instrument Division reported a net surplus in the amount
of $332,657 for the twelve months ended March 31, 2000 compared to a net surplus
in the amount of $366,386 for the twelve months ended March 31, 1999. The lower
surplus for the year ended March 31, 2000 was attributable to the higher
engineering expenses to upgrade certain BTX instrument products and the increase
in sales and marketing expenses. The higher operating expenses more than offset
the higher gross profit for the year.
The Drug and Gene Delivery Division reported net expenditures in
the amount of $6,073,667 for the twelve months ended March 31, 2000 compared to
net expenditures in the amount of $2,858,343 for the twelve months ended March
31, 1999, an increase of $3,215,324. The increase in net expenditures was a
result of the one-time $4,000,000 up-front licensing fee received in the twelve
months ended March 31, 1999 from Ethicon as part of the Licensing Agreement. Not
including the one-time licensing fee, net expenditures for the year ended March
31, 2000 decreased by approximately $785,000, primarily as a result of the lower
research and development expenses.
Net Loss
For the twelve months ended March 31, 2000 we recorded a net loss
of $9,599,942 compared with a net loss of $6,603,837 for the twelve months ended
March 31, 1999, which meant an increased loss of $2,996,105, or 45%. The lower
loss for the twelve months ended March 31, 1999 was primarily a result of the
$4,000,000 up-front license fee received from Ethicon in October of 1998.
TWELVE MONTHS ENDED MARCH 31, 1999 COMPARED TO THIRTEEN MONTHS ENDED MARCH 31,
1998
In January 1998, we changed our fiscal year end from February
28/29 to March 31. All figures for the fiscal year ended March 31, 1998, reflect
thirteen months of operations compared to twelve months due to the change in
year-end. The impact of the reporting period extension to March 31, 1998 is that
direct comparisons with the years ended March 31, 1999 and February 28, 1997 may
be difficult without taking into consideration the difference in reporting
periods. Consequently, "adjusted" estimates for a twelve month period ended
March 31, 1998, calculated as twelve month pro-rata amounts unless not
representative and otherwise indicated, have been used for discussion purposes
below.
Revenues
We produced net sales of $3,434,105, for the twelve months ended
March 31, 1999, compared with net sales of $3,097,198, for the thirteen months
ended March 31, 1998. On an "adjusted" basis, net sales increased by 20% for the
fiscal year ended March 31, 1999. One of the factors contributing to this
increase was the result of our efforts to expand United States sales by building
up a sales force through distributors. For the twelve months ended March 31,
1999, United States sales through distributors increased by 31% compared with
the thirteen months ended March 31, 1998. 38% of the total net sales for the
twelve-month period ended March 31, 1999 were exported; the same percentage sold
internationally for the thirteen-month period ended March 31, 1998.
25.
<PAGE> 27
Even though the economic crisis in East Asia continued to impact
export sales, international sales increased 13% in the 12 month period ended
March 31, 1999 compared to the 13 month period ended March 31, 1998. This
increase was primarily a result of our efforts to expand sales into Europe and
South America.
In late 1998 we introduced the ECM 830, a Square Wave
Electroporation system which utilizes the new BTX Power Platform technology and
all-new digital user interface. The CE compliant ECM 830 is expected to assist
our future sales efforts in Europe.
In October 1998 we entered into comprehensive Licensing and
Development and Supply Agreements with Ethicon, Inc., a Johnson & Johnson
company, involving our proprietary drug delivery system for Electroporation
Therapy treatment of cancer. As part of the Licensing Agreement we received a
$4,000,000 up-front licensing fee. Future milestone payments, a percentage of
net sales as license fees and revenues for the manufacture and sale of our drug
delivery system for Electroporation Therapy treatment of cancers are also part
of the agreement. The first milestone payment of $500,000 was received in March
1999 when we were given approval to affix the CE Mark to its proprietary
MedPulser(R) drug delivery system.
Revenues under collaborative research and development
arrangements increased from $6,025, for the thirteen months ended March 31, 1998
to $33,048, for the twelve months ended March 31, 1999. $25,000 of these
revenues for the twelve months ended March 31, 1999 were a result of
collaboration with a major biotechnology company in gene therapy. Further
milestone payments of $50,000 are due upon achievement of predetermined research
results.
Revenues from grant funding increased from $128,069, for the
thirteen months ended March 31, 1998 to $354,135, for the twelve months ended
March 31, 1999. The increase was a result of two Phase I grants awarded in
vascular therapy and transdermal drug delivery in September 1997 and April 1998,
respectively, and one Phase II grant in oncology in September 1997, which were
substantially received during the year ended March 31, 1999. A Phase I grant for
which no revenues have been received as of March 31, 1999 was awarded in March
1999 for $99,995 for gene therapy research.
Interest income decreased from $427,498, for the thirteen months
ended March 31, 1998 to $300,911, for the twelve months ended March 31, 1999.
The decrease resulted from the diminishing availability of investment funds due
to operating losses.
Cost of Sales
Cost of sales increased by 211,350, or 15%, from $1,427,285, for
the thirteen months ended March 31, 1998 to $1,638,635, for the twelve months
ended March 31, 1999. The increase was primarily a result of higher sales in the
twelve-month period ended March 31, 1999.
Gross Profit and Gross Margin
Primarily due to the higher sales, the gross profit for the
twelve months ended March 31, 1999 in the amount of $1,795,470, increased by
$125,557, or 8%, compared with $1,669,913, for the thirteen months ended March
31, 1998.
The gross profit margin for BTX products decreased slightly from
54% for the thirteen months ended March 31, 1998 to 52% for the twelve months
ended March 31, 1999. In an effort to improve its manufacturing capability, we
have upgraded several positions, including hiring a new Manager of Production.
Contributing to the lower profit margin was the increase of sales to
distributors as a percentage of total sales, since distributors receive a
discount, and the impact of new employees.
Selling, General and Administrative Expenses
Selling, general and administrative expenses which include
advertising, promotion and selling expenses, increased by $1,308,805, or 31%,
from $4,172,246, for the thirteen months ended March 31, 1998 to $5,481,051, for
26.
<PAGE> 28
the twelve months ended March 31, 1999. We added administrative and management
personnel to support increased research and development activities in the Drug
Delivery Division and the ongoing clinical trials. Sales and marketing expenses
in our BTX Division increased as a result of efforts to build up a distributor
sales force to expand domestic sales.
Research and Development/Clinical Trials
Research and development costs increased by $2,449,004, or 43%,
from $5,637,955, for the thirteen months ended March 31, 1998 to $8,086,959, for
the twelve months ended March 31, 1999. Cost of monitoring clinical trials in
the United States, Canada and Europe increased. Other increased costs were for
personnel in the Drug Delivery Engineering Department to meet regulatory
requirements for products used in the clinical trials.
During the twelve months ended March 31, 1999 the Drug Delivery
Engineering Department was working on development of commercial versions of the
Electrode Applicators and the MedPulser(R). In March 1999 we received Quality
System Registration to three internationally recognized standards, ISO 9001,
EN46001 and ISO 13485. Also in March 1999 we received CE Mark approval of its
MedPulser(R) System.
Increased research efforts in the transdermal, gene therapy and
cardiology programs also resulted in higher personnel expenses and contract
research. A portion of these increased expenses was a result of federal grants
received for certain research projects. The revenues received from these grants
offset these expenses and are discussed in the revenue section.
Net results of reportable segments (Net results of reportable
segments do not include unallocated costs such as interest income and expense
and general and administrative costs)
The reported net results in the amount of $366,386 for the twelve
months ended March 31, 1999 compared to $478,499 for the thirteen months ended
March 31, 1998, which, on an "adjusted basis", meant a decrease of 17%. The
decrease was the result of a lower profit margin and increased sales and
marketing expenses. Also, increased engineering expenses to upgrade BTX
instruments for CE mark compliance contributed to the lower net results.
The Drug Delivery Division reported net expenditures in the
amount of $2,858,343 for the twelve months ended March 31, 1999 compared to
$5,282,338 for the thirteen months ended March 31, 1998, which meant a decrease
of $2,423,995, or 46%. The lower net expenditures were primarily a result of the
up-front licensing fee from Ethicon Inc., which more than offset the increased
research and development expenses.
Net Loss
For the twelve months ended March 31, 1999 we recorded a net loss
of $6,603,837, compared with a net loss of $7,596,666, for the thirteen months
ended March 31, 1998, a decrease of 6% on an adjusted basis. The lower loss is
primarily a result of the up-front license fee and milestone payment from
Ethicon Inc., which more than offset the increased research and development
expenses and selling, general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
During the last five fiscal years, our primary uses of cash have
been to finance research and development activities, including preclinical and
clinical trials in the Drug and Gene Delivery Division. We have satisfied our
cash requirements principally from proceeds from the sale of equity. In June
1999 we closed a private placement of 4,187,500 special warrants at a price of
$3.00 per special warrant for net proceeds to us of $11,063,758. Each special
warrant entitled the holder to acquire one common share in the capital of our
company at no additional cost upon exercise. In March 2000, 23,000 special
warrants were converted into 23,000 common shares. Also in March 2000, we issued
151,300 common shares pursuant to the exercise of agent's warrants to acquire
151,300 common shares at a price of $3.31 per share. Subsequent to March 31,
2000 we issued an additional 180,500 common shares pursuant to the exercise of
agent's warrants at a price of $3.31 per share. In addition, all remaining
special warrants were converted into 4,164,500 common shares.
27.
<PAGE> 29
As of March 31, 2000, we had working capital of $9,508,012,
compared to $6,204,598, as of March 31, 1999. The increase was a result of the
private placement in June 1999.
On March 31, 2000, our cash and cash equivalents amounted to
$9,742,344. Cash flows used in operating activities were $8,790,736 for the
twelve months ended March 31, 2000 compared to $6,318,900 for the twelve months
ended March 31, 1999. The lower cash used in operating activities for the twelve
months ended March 31, 1999 was primarily attributable to the $4,000,000
up-front license fee received from Ethicon in October 1998.
Investing activities for other assets for the twelve months ended
March 31, 2000 increased over the previous year due to increased expenses
related to the strengthening of our patent portfolio through preparation,
filing, and prosecution of patent applications, whereas expenses incurred for
the purchase of capital assets decreased.
In August 1999 we entered into a revolving credit agreement with
a bank, which provides us with the ability to borrow up to $2,000,000.
Borrowings under this facility bear interest at the Bank's floating reference
rate less a discount, or the London Inter Bank Offer Rate (LIBOR) plus a
premium. Under the agreement, outstanding balances are collateralized by
assignment of cash accounts and short-term investment accounts. The credit
facility will expire on September 29, 2000. At March 31, 2000 there was no
outstanding balance on the revolving line of credit.
Receivables in the amount of $1,120,450 at March 31, 2000 were
$343,802, or 44% higher than at March 31, 1999 primarily due to outstanding
invoices for shipments of products for clinical trials during the last month of
the year ended March 31, 2000.
Current liabilities increased from $1,423,335 at March 31, 1999
to $2,105,847 at March 31, 2000, primarily due to the accrual of restructuring
charges, the recording of $268,665 deferred revenues as a result of the receipt
of an up-front payment as part of a collaborative gene therapy research
agreement, and the prepayment of reimbursable tooling expenses by Ethicon.
We believe that our existing cash and cash equivalents will be
sufficient to fund our operations at least through the next twelve months.
Our long-term capital requirements will depend on numerous
factors including:
- The progress and magnitude of our research and development
programs, including preclinical and clinical trials;
- The time involved in obtaining regulatory approvals;
- The cost involved in filing and maintaining patent claims;
- Competitor and market conditions;
- Our ability to establish and maintain collaborative arrangements;
- Our ability to obtain grants to finance research and development
projects; and
- The cost of manufacturing scale-up and the cost of
commercialization activities and arrangements
Our ability to generate substantial funding to continue research
and development activities, preclinical and clinical studies and clinical trials
and manufacturing, scale-up, and administrative activities is subject to a
number of risks and uncertainties and will depend on numerous factors including:
- Our ability to raise funds in the future through public or private
financings, collaborative arrangements, grant awards or from other
sources;
28.
<PAGE> 30
- The potential for equity investments, collaborative arrangements,
license agreements or development or other funding programs with
us in exchange for manufacturing, marketing, distribution or other
rights to products developed by us; and
- Our ability to maintain our existing collaborative arrangements
We cannot guarantee that additional funding will be available
when needed. If it is not, we will be required to scale back our research and
development programs, preclinical studies and clinical trials, administrative
activities, and financial results and condition would be materially adversely
affected.
RECENT DEVELOPMENTS
In July 2000, we filed a preliminary short form prospectus with
securities regulators in Ontario and British Columbia relating to a public
offering of our common shares. Upon receipt of the approval of the final short
form prospectus from the securities regulators in Ontario and British Columbia,
we will offer, through an underwriter, an as yet undetermined number of shares
of our common stock.
IMPACT OF YEAR 2000
In prior years, we discussed the nature and progress of plans to
become Year 2000 ready. In late 1999, we completed remediation and testing of
systems. As a result of those planning and implementation efforts, no
significant disruptions in mission critical information technology and
non-information technology systems were experienced. We believe those systems
successfully responded to the Year 2000 date change. We expensed approximately
$50,000 during 1999 in connection with remediating our systems. We are not aware
of any material problems resulting from Year 2000 issues, either with our
products, internal systems, or the products and services of third parties. We
will continue to monitor mission critical computer applications and those of our
suppliers and vendors throughout the year 2000 to ensure that any latent Year
2000 matters that may arise are addressed promptly.
29.
<PAGE> 31
BUSINESS
The following business section contains certain statements of a
forward-looking nature relating to future events or our future financial
performance. Prospective investors are cautioned that such statements are only
predictions and that actual events or results may differ materially. In
evaluating such statements, prospective investors should specifically consider
the various factors identified in this prospectus, including the matters set
forth under the caption "Risk Factors," which could cause actual results to
differ materially from those indicated in such forward-looking statements.
OVERVIEW
We were incorporated in British Columbia, Canada on August 8,
1979 under the name of Concord Energy Corp. We changed our name to United Safety
Technology Inc. on February 17, 1988, to Consolidated United Safety Technology
Inc. on January 3, 1990, and then to Genetronics Biomedical Ltd., on September
29, 1994. We carry on our business through our operating subsidiary Genetronics,
Inc., a California corporation. Genetronics, Inc. was incorporated in California
on June 29, 1983. Genetronics, Inc. had a subsidiary called Genetronics S.A.,
which was incorporated in France on January 30, 1998. Genetronics S.A. was
formed primarily to manage clinical trials that were being conducted in France,
and was closed in May 2000. All our business activities are conducted through
Genetronics, Inc.
We are a San Diego-based drug and gene delivery company
specializing in developing technology and hardware focused on electroporation.
Electroporation is the application of brief, controlled pulsed electric fields
to cells, which cause tiny pores to temporarily open in the cell membrane.
Immediately after electroporation, the cell membrane is more permeable to drugs
and other agents. In the lab, researchers use electroporation to introduce
genes, drugs, and other compounds into cells and experimental animals. This is a
common and well known procedure and more than 4,000 scientific papers have been
published describing results achieved using electroporation. We sell
electroporation equipment to the research market through our BTX Instrument
Division.
While widely used in the research arena, electroporation is a
relatively new technology in the therapeutic arena. One of the major
difficulties in many forms of drug or gene therapy is that the pharmaceutical
agent or gene is often not able to penetrate the relatively impermeable walls of
cells. The pores produced by electroporation permit entry of such agents into
cells to a much greater extent than if the drug or gene was administered without
electroporation. When electroporation is used in conjunction with drugs, genes,
or other therapeutic agents, we call it Electroporation Therapy, or EPT. Through
our Drug and Gene Delivery Division, we are developing human-use equipment that
is designed to allow physicians to use EPT to achieve more efficient and
cost-effective delivery of drugs or genes to patients with a variety of
illnesses, including cancer. Our proprietary electroporation drug and gene
delivery system, the Genetronics MedPulser(R) system, has been used with
bleomycin in clinical trials conducted in the United States, Australia, Europe
and Canada for treatment of head and neck cancer, as well as melanoma, liver,
pancreatic, basal cell and Kaposi sarcoma cancers.
Electroporation therapy is a broad-based technology, with many
potential paths to achieve commercial success. We are developing applications
for EPT primarily in the areas of oncology and gene therapy; additional points
of focus are drug and gene delivery in the vascular, transdermal, and
dermatology areas.
We operate through our two divisions: (i) the Drug and Gene
Delivery Division, through which we are developing drug and gene delivery
systems based on electroporation to be used in the treatment of disease and,
(ii) the BTX Instrument Division, which develops, manufactures, and sells
electroporation equipment to the research laboratory market.
DRUG AND GENE DELIVERY DIVISION
Overview
Through our Drug and Gene Delivery Division (also known as the
Drug and DNA Delivery Division, and formerly as the Drug Delivery Division), we
are developing drug and gene delivery systems based on the technology of
electroporation to be used in combination with drugs or genes in the treatment
of disease. There are many
30.
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diseases where improved drug delivery is important. Our Drug and Gene Delivery
Division has identified five potential areas of application for our
electroporation technology - oncology, gene therapy, dermatology, cardiology and
transdermal drug delivery. At present, the primary areas of focus are oncology
and gene therapy.
Our Drug and Gene Delivery Division's most advanced product
candidates treat solid malignant tumors such as squamous cell carcinoma,
melanoma, and adenocarcinoma in the areas of application of oncology and
dermatology. Early stage clinical trials have evaluated the safety and efficacy
of our products primarily in head and neck cancers, and a pivotal trial is
planned. Pivotal clinical trials are used to assess a drug for efficacy at
several independent clinical research sites in a statistically significant
number of patients. Studies designed to evaluate the MedPulser(R) system in head
and neck cancer and in a variety of other tumor types have been conducted in
North America and Europe. Additional Phase I and II United States studies of the
effectiveness of the MedPulser(R) system in the delivery of bleomycin in the
treatment of other tumor types are planned. Phase I clinical trials are the
earliest stage of trials in human subjects, used to test a drug or drug delivery
system for safety. Phase II clinical trials assess the effectiveness (i.e., dose
response) of a drug.
We announced that on October 6, 1998, we entered into a
comprehensive License and Development Agreement and a Supply Agreement with
Ethicon, Inc., a Johnson & Johnson company, involving our proprietary drug
delivery system for Electroporation Therapy treatment of cancer. On August 5,
1999, we announced these agreements were assigned to Ethicon Endo-Surgery, Inc.,
another Johnson & Johnson company. Ethicon, Inc. and Ethicon Endo-Surgery, Inc.
are referred to as Ethicon in this filing.
Our drug delivery system, including the MedPulser(R) instrument
and the disposable applicators, are subject to various regulatory requirements
depending on the country of sale. The Drug and Gene Delivery Division has been
awarded ISO 9001, EN46001 and ISO 13485 registration, as well as CE mark
certification.
Market
Our Drug and Gene Delivery Division is expected to enter the
commercial market with equipment to be used in the treatment of cancer
(oncology). Cancer is a life threatening disease affecting millions of people
worldwide. The World Health Organization reports that cancer will remain one of
the leading causes of death worldwide for years to come. In the United States,
approximately 12 million new cases were diagnosed between 1990 and 1999. To
further illustrate the market potential for EPT, solid tumor cancers comprise
the first target for EPT and they constitute the absolute majority of all
cancers. The majority of cancer victims are over age 65 and are supported by
government funded programs. In the United States the costs of cancer, including
mortality, morbidity and direct medical costs, exceed $100 billion per year;
some $40 billion for direct medical costs (total of all health expenditures), at
least $10 billion for indirect morbidity costs (cost of lost productivity due to
illness), and over $50 billion for indirect mortality costs.
There is still very much that scientists do not know about
cancer, consequently, there are significant unmet needs in the treatment of
cancer. The oncology business unit within the Drug and Gene Delivery Division
has initially targeted those indications for which current treatment modalities
result in a poor quality of life and morbidity, or those which have very high
mortality rates. Specialized applicators are being designed which will allow EPT
to treat other solid tumor cancers with minimally invasive procedures.
In the United States, the cumulative dollar value of treatments
and technologies commonly used in the curative and palliative management of
cancer was expected to exceed $5 billion in 1999 and is expected to continue
growing at a rate of approximately 9.5% annually. Our analyses project that
electroporation therapy could be applicable to over 4,000,000 or more cancer
patients, creating an estimated worldwide market opportunity of some $13 billion
per year.
Treatment of Tumors
Equipment made by the BTX Instrument Division has been used by
our investigators and in other laboratories to screen drugs for their
effectiveness in killing tumor cells in vitro and to study the drugs' mode of
31.
<PAGE> 33
action. Our scientists, and outside researchers, also have studied the
combination of electroporation and various agents to destroy tumors in vivo.
In most of the clinical protocols, the site of the tumor is
anesthetized and the chemotherapeutic agent of choice (bleomycin) is injected
directly into the tumor. The therapeutic agent is allowed to diffuse throughout
the tumor, which can take up to several minutes depending on the size, type and
location of the tumor. Once the drug is distributed in the tumor, the electrical
field is applied by the MedPulser(R) system.
The entire procedure can be completed in 20 minutes or less and
typically needs to be done only once. The dosage of drug used in the published
results is based on tumor volume, and is typically a small fraction (1/3 to as
little as 1/50) of the dosage that would be used systemically. As a result of
the lower dosage administered locally, systemic side effects have been minimal.
Tumor necrosis with sloughing, ulceration and/or eschar were common reactions
following EPT and were usually routinely managed conservatively with no
additional treatment. No episodes of injury to normal (non-tumor) tissue
adjacent to the tumors have been observed but there can be no assurances that
other side effects will not occur when more testing is performed and/or the
information related to clinical and regulatory matters is assembled and reviewed
and the side effect profile of EPT is further defined.
MedPulser(R) system
The MedPulser(R) system is an electroporation system designed for
the clinical application of Electroporation Therapy (EPT). The technology is
intended to treat various malignant and non-malignant tumors by locally applying
a controlled electric field to targeted tumor tissues previously injected with a
chemotherapeutic agent. The controlled short duration electric field pulses
temporarily increase the cellular membrane permeability of the tumor cell
membrane allowing the therapeutic agent to more easily enter the tumor cells and
have the desired cytotoxic effect.
The system is composed of two components: (1) a medical
instrument, which creates the electric field (the MedPulser(R) instrument); and
(2) a single use, sterile, disposable electrode applicator. The electrodes may
be needles, plates, or other configurations, depending on the geometry of the
tumor and its location.
The instrument was designed for easy use, such that minimal user
input is needed to apply the therapy. Based on the size and anatomical location
of the tumor to be treated, a physician selects the most appropriate electrode
applicator. The chosen applicator is then connected to the MedPulser(R)
instrument, and it is the connection of applicator to instrument that
automatically configures the therapy parameters for that particular applicator
size and shape. Currently, several different electrode applicator configurations
are available. The applicators vary in needle length, needle gauge, electrode
needle spacing, tip angle and handle configuration.
New models of electrode applicators will be considered in the
future to address customer needs. The system is designed such that the installed
base of MedPulser(R) generator instruments allows for a wide variety of new
electrode applicator configurations. Also, the system incorporates other
features to minimize the possibility of applicator reuse as well as prevent the
use of competitive applicators with the MedPulser(R) instrument. The commercial
version MedPulser(R) system has been certified by an independent test laboratory
as meeting strict international product standards. Our drug delivery device,
including the MedPulser(R) system and the disposable electrode applicators, are
subject to various regulatory requirements, depending on the country of sale.
In the United States, EPT utilizing the MedPulser(R) system and
bleomycin drug is currently regulated as a combination drug-device system. We
will be required to obtain both drug labeling and device approvals from the
United States FDA. Clinical trials (Phase I, II and III) to support drug
indication labeling require filing an IND Application, or an Investigational New
Drug Application, followed by submission of a United States NDA, or New Drug
Application, and submission of a device PMA, or Pre-Market Approval or 510(k),
for marketing approval.
In most of the rest of the world, we anticipate that the
MedPulser(R) system will be regulated as a device. In Europe, the device comes
under the Medical Device Directive 93/42/EEC and marketing requires CE mark
certification of conformity to the quality system, production and clinical
investigation essential requirements of the directive. We have obtained CE mark
certification for electroporation devices, which allows us to sell and use the
32.
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MedPulser(R) electroporation system for the treatment of solid tumors with
bleomycin in Europe. Our licensee in oncology, Ethicon, is responsible for
selling and distributing the MedPulser system in Europe.
Medical Device Manufacturing
Our Drug and Gene Delivery Division must comply with a variety of
regulations to manufacture our products for sale around the world. In Europe, we
must comply with the Medical Device Directive (MDD), which mandates the presence
of a quality system and mandates product testing. The Drug and Gene Delivery
Division has demonstrated the quality system is in place by securing ISO 9001
approval. It demonstrated compliance with international medical device standards
with EN 46001 and ISO 13485 recognition. These all occurred in January 1999. In
March 1999, the CE Mark was obtained. To sell in the United States, we will need
to be in compliance with FDA current Good Manufacturing Practices (cGMP).
We employ modern manufacturing practices, which include
outsourcing of significant custom assemblies used in the manufacture of the
instrument. The instrument final assembly, testing and quality control functions
are performed in a separate location where the appropriate controls are
employed. We outsource the manufacture of the disposable electrode applicators
to a GMP/ISO9002 compliant contract manufacturer.
Through these methods the company attempts to optimize
efficiencies of scale and minimize manufacturing costs.
Clinical Studies
North America Trials
In late 1997 the FDA gave us clearance to initiate multi-center
Phase II clinical trials in the United States utilizing the MedPulser(R)
electroporation system in combination with intralesional bleomycin to treat
squamous cell carcinoma of the head and neck in patients who failed conventional
therapies. We obtained IND clearance from the Canadian Health Protection Branch
to initiate similar clinical trials in Canada. Two protocols were initiated. One
cross-over-controlled study evaluated the effectiveness of the bleomycin-EPT
treatment in patients who failed an initial bleomycin-alone treatment; one
single arm, open label study evaluated the effect of bleomycin-EPT directly
administered to the study tumors.
Twenty-three patients were enrolled in the crossover study and 18
patients were enrolled into the single arm, open label bleomycin-EPT trial. The
primary study endpoint of tumor response (50% or greater reduction in tumor size
in at least 6/25 patients treated) has been achieved in both studies and the
interim results were presented to the FDA at an "end-of-Phase II" meeting to
discuss the pivotal clinical trial for NDA submission. A summary of the data is
provided in the table below:
<TABLE>
<CAPTION>
==============================================================================================
RESPONSE(1)
----------------------------------------------------------------------------------------------
RESPONDING NON-RESPONDING
CLINICAL TRIAL PATIENTS TUMORS TUMORS TUMORS
==============================================================================================
<S> <C> <C> <C> <C>
North America Phase I/II 8 8 6(75%) 2(25%)
----------------------------------------------------------------------------------------------
North America Phase II 23 33 0(0%) 32(97%)
01 Study
Control Group (2)
----------------------------------------------------------------------------------------------
North America Phase II 15 18 11(61%) 6(33%)
01 Study
----------------------------------------------------------------------------------------------
North America Phase II 18 24 16(67%) 6(25%)
02 Study
----------------------------------------------------------------------------------------------
European Study 12 19 12(63%) 7(36%)
----------------------------------------------------------------------------------------------
</TABLE>
(1) Four tumors could not be evaluated
(2) Control Group patients received only drug, no electric field
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The two Phase II protocols involved a total of 42 tumors treated
with bleomycin and EPT. Tumors treated in the trial include squamous cell
carcinoma of the face, oral cavity, pharynx, larynx and sinus. The volume of
tumors treated ranged from less than one cubic centimeter to more than 132 cubic
centimeters. In the crossover controlled Phase II study, patients initially
received only the drug (the control group). Patients who did not respond to drug
alone were then treated with the complete system of drug and electric field, EPT
(treatment group). Of the 33 lesions on 23 patients treated only with drug, none
demonstrated a clinical response. Fifteen of these patients, having 18 lesions,
were subsequently treated with bleomycin and EPT and 61% achieved a clinical
response. In the open-label Phase II study, all patients received full EPT as
their initial treatment. Among the 18 patients (24 lesions) so treated, 67%
achieved a clinical response.
A limited well-controlled Phase III trial for palliative
treatment of head and neck cancer in patients who failed conventional therapy
may be sufficient to support NDA submission for this indication. Treatment of
primary (new) disease will involve expanded Phase II and Phase III trials
pending successful outcome of the initial Phase I/II studies. As noted below in
"Current Developments", we and Ethicon are currently assembling and reviewing
existing clinical and regulatory information relating to human clinical trials
for treating certain cancers with bleomycin and our MedPulser(R) system,
including the clinical information outlined in the preceding paragraphs. This
project will take several months and will, therefore, delay initiation of
further clinical trials in the United States and abroad.
International Trials
In late 1997 and early 1998, we received ethics committee
approval from multiple Consulting Committees for the Protection of Humans in
Biomedical Research (CCPPRB) to initiate clinical trials in France in patients
with pancreatic cancer, metastatic cancer in the liver, head and neck cancer,
melanoma and Kaposi's sarcoma. These trials were initiated to demonstrate the
MedPulser(R) system device safety and performance in treating a variety of solid
tumors in support of CE mark certification in accordance with the essential
requirements of EC Medical Device Directive 93/42/EEC. Results from these trials
are being assembled and reviewed and will be released in due course. We achieved
CE mark certification in March 1999 from notified body TUV Product Service GMBH.
Ethicon is responsible for initiating expanded clinical trials in
France and selected EC countries to support European marketing efforts and
expanded use claims. These trials will not begin until we and Ethicon complete
the clinical and regulatory information review project referred to above.
Genetronics will collaborate with Ethicon on these trials.
Current Developments
Since mid-January 2000, we and Ethicon have been assembling and
reviewing existing clinical and regulatory information relating to human
clinical trials for treating certain cancers with bleomycin and our MedPulser(R)
system. Existing information relating to pre-clinical in vitro (in the test
tube) and in vivo (in the body) animal studies also is being reviewed. These
projects have delayed pre-commercialization activities for the MedPulser(R)
system in Europe and initiation of a pivotal or other clinical trial in the
United States and are expected to further delay European commercial launch and
initiation of new clinical trials for at least several more months. Pivotal
clinical trials are used to assess a drug for efficacy at several independent
sites in a statistically significant large number of patients.
Research and Development Summary
Our Drug and Gene Delivery Division has, in the past, focused its
research primarily in the areas of oncology, gene therapy, vascular therapy,
transdermal delivery and dermatology. At present, the primary areas of focus are
oncology and gene therapy.
The following table summarizes the programs of the Drug and Gene
Delivery Division, the primary indications for each product and the current
status of development. "Developmental" means the program is at the planning
stage, protocols are being developed, and little if any animal work has
commenced. "Preclinical data" means the
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program is at the stage where results from animal studies have been obtained.
"Clinical Trials" means that human data are available.
Summary Table
<TABLE>
<CAPTION>
==============================================================================================================================
Stage of Approval
--------------------------------------------------
United States &
Programs Development Status Canada Europe
==============================================================================================================================
<S> <C> <C> <C>
DERMATOLOGY
------------------------------------------------------------------------------------------------------------------------------
Two pilot studies
Basal Cell Cancer Clinical Trials completed. N/A
------------------------------------------------------------------------------------------------------------------------------
Genital Warts Developmental N/A N/A
-----------------------------------------------------------------------------------------------------------------------------
ONCOLOGY
------------------------------------------------------------------------------------------------------------------------------
Phase II Clinical CE Mark and ISO
Head and Neck Cancer Clinical Trials Trials 9001 Received
------------------------------------------------------------------------------------------------------------------------------
CE Mark and ISO
Melanoma Clinical Trials N/A 9001 Received
------------------------------------------------------------------------------------------------------------------------------
CE Mark and ISO
Metastatic Liver Cancer Clinical Trials N/A 9001 Received
------------------------------------------------------------------------------------------------------------------------------
CE Mark and ISO
Peripheral Sarcoma Preclinical data N/A 9001 Received
------------------------------------------------------------------------------------------------------------------------------
CE Mark and ISO
Breast Cancer Preclinical data N/A 9001 Received
------------------------------------------------------------------------------------------------------------------------------
CE Mark and ISO
Prostate Cancer Preclinical data N/A 9001 Received
------------------------------------------------------------------------------------------------------------------------------
CE Mark and ISO
Glioma Preclinical data N/A 9001 Received
------------------------------------------------------------------------------------------------------------------------------
GENE THERAPY
------------------------------------------------------------------------------------------------------------------------------
In vivo Gene Transfer -
blood protein encoding
genes Preclinical data N/A N/A
------------------------------------------------------------------------------------------------------------------------------
In vivo Gene Transfer -
DNA vaccines Preclinical data N/A N/A
------------------------------------------------------------------------------------------------------------------------------
In vivo Gene Transfer -
anti-inflammatory
protein encoding genes Preclinical data N/A N/A
------------------------------------------------------------------------------------------------------------------------------
In vivo Gene Transfer -
vascular protein Preclinical data N/A N/A
encoding genes
------------------------------------------------------------------------------------------------------------------------------
VASCULAR THERAPY
------------------------------------------------------------------------------------------------------------------------------
Coronary Artery Disease,
Marker genes & drugs Preclinical data N/A N/A
------------------------------------------------------------------------------------------------------------------------------
Vascular Disease,
Heparin delivery
(anti-restenosis) Preclinical data N/A N/A
------------------------------------------------------------------------------------------------------------------------------
TRANSDERMAL DELIVERY
------------------------------------------------------------------------------------------------------------------------------
One Device
PGE-1 delivery for Tolerance Study
Erectile dysfunction Tolerance Study completed N/A
------------------------------------------------------------------------------------------------------------------------------
Calcitonin (osteoporosis) Preclinical data N/A N/A
------------------------------------------------------------------------------------------------------------------------------
Vitamin C Preclinical data N/A N/A
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
"N/A" means not applicable.
35.
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Gene Therapy
Gene therapy, in classical terms, involves the introduction of
new genetic information into cells (transfection) for therapeutic purposes.
Somatic cells of the body are transfected with a specific functioning gene to
compensate for a genetic defect that results in a deficiency of a specific
protein factor. In this context, one goal of gene therapy is to convert target
cells or tissues into "protein factories" for the production and secretion of a
normal protein locally or into the circulation. Many vexing genetic illnesses,
including those currently treated by regular injection of a missing protein, can
potentially be "cured" by supplying the functional gene to a sufficient number
of cells under conditions which allow these cells to produce a therapeutically
effective dose of the gene product.
Currently, single-gene recessive genetic disorders are the most
accessible targets for correction by gene therapy, but ultimately polygenic and
acquired diseases can and will be treated by using genes as pharmaceutical
agents. In principle, any aspect of metabolism can be manipulated by modifying
gene function, and it is this application of gene therapy that has enormous
potential, extending far beyond the treatment of rare genetic diseases. For
example, the ability to influence cellular metabolism by introducing specific
genes has led to extensive investigation into the use of gene therapy for
cancer treatment. By adding a tumor suppressor gene to certain types of cancers,
the uncontrolled growth of those cells potentially could be brought under normal
regulation. Likewise, transfecting tumor cells with genes capable of inducing
apoptosis can result in tumor ablation.
The methods of introducing genes have two specific approaches.
Gene therapy can be performed either ex vivo or in vivo. Ex vivo gene therapy is
the transfection of cells outside the body. Typically, a small amount of tissue
is removed from the patient and the cells within that tissue are put into
culture. The genetically modified cells, typically blood, bone marrow or others,
are then returned to the patient, usually by blood transfusion or direct
engraftment. In vivo gene therapy is the introduction of genetic information
directly into cells in the patient's body. Theoretically, any tissue or cell
type in the body can be used, and the choice is dependent on the specific goals
of treatment and indications being treated. For internal tissue targets, a gene
may be transfused through the blood stream to the organ or site of action, or it
may be injected at the desired site, which is then electroporated to allow the
gene to pass through the cell membrane.
Genes can also be applied topically or by injection to skin and
then transferred into the cells of the epidermis by electroporation. Epidermal
gene delivery by electroporation for gene therapy is currently being
investigated at Genetronics as a safe, effective and cost-competitive approach.
The skin is also a target for DNA vaccination. "Vaccinating" skin with DNA that
encodes a specific antigen present in infectious agents or in tumor cells can
produce beneficial immunological responses. Genes can also be used to directly
fight cancer. The thymidine kinase gene in conjunction with the prodrug
ganciclovir produces a potent antitumor effect based on drug toxicity and
apoptotic cell killing via a bystander effect. Animal trials treating
glioblastomas using this strategy have shown substantial success.
To make gene therapy a reality, many obstacles have to be
overcome, including the safe, efficient delivery of the intact DNA construct
into the host cells. The instrumentation we use for high efficiency in vivo gene
transfer is derived from the instrumentation developed for intratumoral and
transdermal drug delivery. We believe electroporation will become the method of
choice for DNA delivery to cells in many applications of gene therapy.
Because of the broad applicability of this technology, we have
adopted the strategy of co-developing or licensing our technology exclusively or
non-exclusively for specific genes or specific medical indications. In most
cases, we contribute proprietary technology, expertise and instrumentation to
optimize the delivery technology for particular applications. A partner company
provides its proprietary DNA constructs, may conduct the pre-clinical research
and clinical trials, and may introduce the new treatment and products to the
marketplace. Both partners would share in the commercial success of the project.
We have actively sought partners to develop this exciting technology to its full
potential. On November 9, 1999, we announced an 18 month research and option
agreement with Boehringer Ingelheim International GmbH (Boehringer Ingelheim)
related to the development of our electroporation technology for use in
particular gene therapy applications. On April 4, 2000, we announced the signing
of our fifth corporate agreement in the area of gene therapy. The five
agreements involve genes thought to be useful in treating hemophilia, HIV and
other infections, and various forms of cancer among other targets. On June 9,
2000, we announced that research studies using our electroporation systems were
presented at a major international gene therapy conference. Additionally, in
collaborations with Chiron Corporation and Valentis, Inc.,
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<PAGE> 38
our technology was shown to effectively deliver a variety of genes and DNA
vaccines to skin and muscle of animals, including animals of large size.
BTX INSTRUMENT DIVISION
Overview
Our Company, through our BTX Instrument Division, began
developing and manufacturing electroporation equipment for the research
laboratory market in 1983 and sold our first product in 1985. BTX was founded to
develop and manufacture high quality scientific instrumentation that can be used
to perform various types of electroporation and electrofusion experiments for
research scientists. Electroporation in research is commonly used for
transformation and transfection of all cell types, as well as for general
molecular delivery at the cellular level. Electrofusion is the fusing together
of two or more cells to form hybrid cells. Transformation is a process by which
the genetic material carried by an individual cell is altered by incorporation
of exogenous DNA into its genome. Transfection is the uptake, incorporation, and
expression of exogenous DNA by eukaryotic cells.
The BTX Instrument Division is presently a leader in the
development and marketing of electroporation instruments and supplies, with more
than 5,000 customers in universities, companies, and research institutions
worldwide. Our BTX Instrument Division sells its electroporation/electro cell
fusion instrumentation and accessories in all states and territories of the
United States and in over 45 foreign countries. BTX currently produces an
extensive line of electroporation instruments and accessories, including
electroporation and electrofusion instruments, one monitoring device, and an
assortment of electrodes and accessories.
Products
BTX developed the square wave generator and graphic pulse
analyzer for in vivo gene delivery and nuclear transfer research, fields of
rapidly increasing scientific and medical interest. BTX also has developed a
versatile cell fusion system on the market, the only commercial large volume
flow-through electroporation system, and offers an extensive collection of in
situ and high throughput screening electroporation applicators.
BTX focused its efforts in recent years on product development
and promotion of a new line of products for developing sophisticated
applications. BTX released the ECM(TM) 830 in December of 1998. It is, a
sophisticated square wave electroporation system with a menu driven digital user
interface. In August of 1999 we introduced the ECM 630, an Exponential Decay
Wave Electroporation system which utilizes a Precision Pulse Technology, the new
BTX Platform technology, and an all-new digital user interface. During the
previous and present year, publications outlined the utilization of BTX
equipment in newly developing animal in vivo gene delivery research. In the
support of this research, we expanded our in vivo electrode offering and
continue to emphasize the development of novel applicators.
The BTX Instrument Division's product line includes three
different exponential decay wave generators, two square wave generators, one
electro cell fusion instrument and a graphic wave display monitor. In addition,
this Division markets over 50 different types of electrodes and related
accessories, as well as the standard disposable electroporation cuvettes.
Exponential decay generators have been traditionally used for the
electroporation of all cell types. Square wave generators have shown the
greatest utility in the electroporation of mammalian and plant cells, as well as
for animal in vivo applications. The Electro Cell Fusion System is used by
researchers for embryo manipulation, hybridoma and quadroma formation, as well
as for all cell fusion techniques, including applications involving adoptive
immunotherapy.
While we, through our BTX Instrument Division, sell devices
purportedly used by others for non-human embryo cloning, we do not ourself
conduct embryo cloning. All of our BTX Instrument Division instruments sold to
the research market carry the label "not for human use." We are not aware of any
regulations or industry guidelines limiting the use of our instrumentation in
the animal research market. We comply with all National
37.
<PAGE> 39
Institutes of Health guidelines on cloning and gene therapy. We also comply with
all Federal and State regulations regarding the restrictions on research imposed
on federally funded grants.
The BTX Instrument Division supplies three cuvette models, as do
our competitors, plus some 50 additional specialized chambers electrodes, and
accessories for electroporation. BTX in situ electrodes (e.g., Petri Pulser(TM)
electrodes) position us to expand the electroporation market for adherent cell
transfection applications, while high throughput screening electrodes and large
volume production systems (e.g., 96-Well Coaxial Electrode,
ElectroFlowPorator(TM) system), respectively, provide the BTX Instrument
Division with an entry into the large volume and multi-sample processing arenas
used by the major pharmaceutical and biotech companies conducting drug research.
The BTX Instrument Division meets regulatory requirements
necessary to provide instrumentation to the research market for in vivo and in
vitro animal experimentation. We do not market equipment for use in humans, and,
therefore, are not required to receive marketing approval from the FDA.
Distribution
The main distributor of our BTX Instrument Division products in
North America is VWR Scientific Products Corporation, one of the largest
laboratory products suppliers in the United States. This distributor has over
250 representatives dedicated to the biological sciences in the United States
and Canada. In addition, the BTX Instrument Division distributes through
Intermountain Scientific Corporation, which has 25 field sales specialists in
the same territory. The BTX Instrument Division has over 40 international
distributors in the major countries of the world, and its products are presently
sold in over 45 countries. The BTX Instrument Division supports its distributors
with advertising, exhibit exposure and lead generation.
Advertising
The BTX Instrument Division advertises in major national and
international scientific journals such as Science, Nature, Genetic Engineering
News, and BioTechniques. The Division also attends and displays our products at
about one scientific conference per month such as American Association for
Cancer Research, American Society for Gene Therapy, and Neuroscience meeting. On
a quarterly basis the BTX Instrument Division utilizes direct mail to an
identified mailing list for specific product promotion. The BTX Instrument
Division works closely with distribution partners in joint marketing campaigns
and other value-added suppliers in co-marketing efforts.
Competition
The main competitor of our BTX Instrument Division in the
research marketplace is BioRad Laboratories, Eppendorf Scientific, Inc. and
Invitrogen Corporation. There are other companies entering and departing this
market on a regular basis. The majority of these companies have other molecular
biology product lines besides electroporation, while electroporation and
electrofusion is the only business of the BTX Instrument Division. Most
competing manufacturers concentrate on the exponential decay wave system and do
not compete in the square wave market at this time.
STRATEGIC PARTNERS
License and Development Agreement
On October 6, 1998, we entered into a comprehensive License and
Development Agreement and a Supply Agreement with Ethicon, Inc., a Johnson &
Johnson company, involving the use of our MedPulser(R) system for
Electroporation Therapy in the treatment of solid tumor cancer. In addition,
Johnson & Johnson Development Corporation purchased $6 million of common shares
of our company at a price of $2.68 per share, pursuant to the October 6, 1998
Stock Purchase Agreement. On August 5, 1999, we announced that Ethicon, Inc. had
assigned the License and Development Agreement and Supply Agreement to Ethicon
Endo-Surgery, Inc., another Johnson & Johnson company.
38.
<PAGE> 40
The License and Development agreement requires that Ethicon apply
for all future development and clinical and regulatory activities worldwide
(excluding Canada) for oncology products utilizing the MedPulser(R) system
within the scope of the agreement. Upon regulatory approval, Ethicon will have
the right to distribute and market worldwide (excluding Canada) the oncology
products supplied by us. We retain the right to distribute and market oncology
products in Canada. We received a $4 million up-front license fee and have
received, and expect to receive, milestone payments if and when the milestones
are achieved. Under the agreements, we receive a percentage of net sales as
royalty fees and a purchase fee for the manufacture of products.
Collaborative Research Agreement
On November 7, 1999, we and Boehringer Ingelheim announced the
signing of an 18-month research and option agreement to develop our
electroporation technology for use in a particular gene therapy application.
Under the terms of the agreement, we will develop hardware and perform
preclinical research relating to DNA delivery for cancer DNA vaccination. On
April 4, 2000, we announced the signing of our fifth corporate agreement in the
area of gene therapy. The five agreements involve genes thought to be useful in
treating hemophilia, HIV and other infections, and various forms of cancer.
Bleomycin Agreements
We entered into a supply agreement with Abbott Laboratories to
purchase the approved anti-cancer drug sterile bleomycin sulfate for use in the
United States with our MedPulser(R) drug delivery system after regulatory
approval has been granted for use in the treatment of patients with solid tumor
cancers. Under a separate agreement, we entered into a supply agreement with
Faulding, Inc. to purchase bleomycin sulfate for use in Canada after regulatory
approval has been granted for use. Bleomycin is a glycopeptidic antibiotic that
induces single and double strand DNA breaks when it is taken up into cells.
Bleomycin has been approved by the Food and Drug Administration in the United
States and the Health Protection Branch in Canada, and used as a
chemotherapeutic agent in North America for the treatment of cancer for more
than 25 years. It is presently marketed in more than 40 countries.
SALES AND REVENUE
The following table provides the amount of net product sales,
interest income, and revenue from grant funding and research and development
agreements generated by us for the past three fiscal periods.
<TABLE>
<CAPTION>
==============================================================================================
Period Ended:
March 31,2000 March 31, 1999 March 31, 1998
12 Months 12 Months 13 months
==============================================================================================
<S> <C> <C> <C>
PRODUCT SALES
----------------------------------------------------------------------------------------------
United States $2,759,043 $2,136,180 $1,945,389
----------------------------------------------------------------------------------------------
Rest of World 1,375,393 1,297,925 1,151,809
----------------------------------------------------------------------------------------------
INTEREST INCOME
----------------------------------------------------------------------------------------------
United States 497,586 248,417 250,197
----------------------------------------------------------------------------------------------
Canada 58,607 52,494 177,301
----------------------------------------------------------------------------------------------
GRANT FUNDING
----------------------------------------------------------------------------------------------
United States 334,901 354,135 128,069
----------------------------------------------------------------------------------------------
REVENUES UNDER COLLABORATIVE RESEARCH
AND DEVELOPMENT ARRANGEMENTS
----------------------------------------------------------------------------------------------
Germany 91,335 0 0
----------------------------------------------------------------------------------------------
United States 100,000 33,048 6,025
----------------------------------------------------------------------------------------------
LICENSE AND DEVELOPMENT AGREEMENTS
----------------------------------------------------------------------------------------------
Ethicon 416,667 4,500,000 0
----------------------------------------------------------------------------------------------
</TABLE>
39.
<PAGE> 41
We, like many biomedical companies, devote a substantial portion
of our annual budget to research and development. For the thirteen months ended
March 31, 1998, research and development expenses totaled $5,637,955; for the
year ended March 31, 1999, they totaled $8,086,959; and for the year ended March
31, 2000, they totaled $6,977,220. These amounts far exceed revenues from
research arrangements and contribute substantially to our losses. We anticipate
a reduction in losses when we market products developed by our Drug and Gene
Delivery Division. The launch of the first such products in Europe is
anticipated to be 2001, and will most likely be followed by launch in the United
States. Ethicon is responsible for launch of the oncology product worldwide,
except in Canada.
INTELLECTUAL PROPERTY
As of June 5, 2000, we had 28 issued United States patents, 41
issued foreign patents, 5 allowed United States patent applications, and an
additional 29 pending United States applications, and pending foreign patent
applications.
We have contracted an independent audit of our patent portfolio
to provide assurance that our key technologies are adequately protected. If
necessary, we will take appropriate steps to strengthen our portfolio.
We have registered on the Principal Register of the United States
Patent and Trademark Office the following trademarks: BTX, ELECTRONIC GENETICS,
MANIPULATOR, OPTIMIZOR, HUMAN IN SQUARE (Design), ENHANCER, and MEDPULSER. The
following United States trademark applications are pending: COSMETRONICS,
GENETRODES and GENETRONICS. We have registered the BTX and MEDPULSER trademarks
in Canada, and have applied to trademark GENETRONICS in Canada. We have a
European Community Trade Mark registration for GENETRONICS, BTX and for
MEDPULSER. We have registered the MEDPULSER and BTX marks in Japan. We have
registered the BTX mark in South Korea and have registered the GENETRONICS mark
in the United Kingdom. We are not aware of any claims of infringement or other
challenges to our right to use our marks.
PROPERTIES
We own no real property and have no plans to acquire any real
property in the future. We currently lease a facility of 24,931 square feet at
our headquarters in San Diego. This facility provides adequate space for our
current research, manufacturing, sales and administrative operations. The
current lease runs through December 31, 2004.
EMPLOYEES
As of June 20, 2000, we employed 70 people on a full-time basis.
Of the total, 39 were in product research and development, 8 in sales, marketing
and support, 6 in manufacturing, and 17 in finance and administration. Our
success is dependent on our ability to attract and retain qualified employees.
Competition for employees is intense in the biomedical industry. None of our
employees is subject to collective bargaining agreements.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings, other than
as described below, with respect to us, our subsidiaries, or any of our material
properties.
On May 23, 2000, we received notice that Roger Fuller, a former
employee of ours, filed a complaint in the Superior Court of San Diego County
against us and one of our former managers alleging damages suffered in
connection with his termination. The amount of damages is unspecified. We
believe that Mr. Fuller does not have a valid claim and we intend to vigorously
defend against such claims.
40.
<PAGE> 42
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors, the positions held by them
and their ages as of July 1, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
------ --- -----
<S> <C> <C>
Martin Nash ............................ 53 Director, Chief Executive Officer, President
and Chief Financial Officer
James Lierman .......................... 53 Executive Vice President
James L. Heppell (1)(3) ................ 44 Director, Interim Chairman of the Board
Gunter A. Hofmann ...................... 64 Director
Stan Yakatan ........................... 57 Director
Suzanne L. Wood (2)(3) ................. 43 Director
Gordon Politeski (1)(2)(3) ............. 56 Director
Felix Theeuwes (2)(3)................... 63 Director
Gordon Blankstein(1)(3)................. 50 Director
Grant Denison, Jr.(3)(4) ............... 51 Director
</TABLE>
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of Nomination and Corporate Governance Committee
(4) Mr. Denison was appointed to the Board on May 22, 2000.
MARTIN NASH has been the President and Chief Executive Officer of
Genetronics since September 1999 and its Chief Financial Officer since June
1999. He has been a director since July 1997. From April 1996 to September 1999
he was Senior Vice President of Genetronics. He has also served as Senior Vice
President of Genetronics, Inc. since June 1994 and a director of Genetronics,
Inc. since April 1996. Prior to joining Genetronics, Inc. in 1994, Mr. Nash was
co-founder, Chief Executive Officer and Chief Financial Officer of Cypros
Pharmaceutical Corporation (NASDAQ), co-founder of Corvas International, Inc.
(NASDAQ), and Vice President of Corporate Development at Synbiotics (NASDAQ). He
was also President of Molecular Biosystems, Inc. (NYSE) and held a variety of
marketing and business development management positions at Ortho Diagnostics
Systems, Inc., a division of Johnson & Johnson, Inc., and at Becton Dickinson &
Company. In 1990 Mr. Nash was President of the Association of Biotechnology
Companies. Mr. Nash received a Bachelor of Arts and Sciences from Boston
College.
JAMES LIERMAN has been Executive Vice President of Genetronics
since June 28, 2000. Prior to that, he was Chief Operating Officer and Vice
President for Corporate Development. Mr. Lierman was responsible for the
negotiation and execution of the strategic license and development agreement
between the Company and Ethicon, Inc., a Johnson & Johnson company, for the use
of Genetronics proprietary drug delivery system for the electroporation therapy
of solid tumors. Mr. Lierman is past President and Chief Executive Officer of
the San Diego-based River Medical Inc., a biomedical company specializing in
intravenous drug therapy systems. Prior to managing River Medical, Mr. Lierman
was Director, Commercial Development for Abbott Laboratories, Hospital Products
Division, where he was responsible for licensing, acquisitions and contract
manufacturing sales. He is a graduate of Monmouth University and holds 15
patents.
GUNTER A. HOFMANN, Ph.D., was the Chairman of the Board and Chief
Scientific Officer of Genetronics Biomedical Ltd. from September 1994 until his
employment ended in September 1999, and was Chairman of the Board and Chief
Scientific Officer of Genetronics, Inc. from January 1992 until September 1999.
Dr. Hofmann continues to be a director of Genetronics Biomedical Ltd. Prior to
founding Genetronics, Inc., in 1983, Dr.
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<PAGE> 43
Hofmann managed the product development and technology transfer activities of
Maxwell Laboratories. Dr. Hofmann holds approximately 50 patents and has several
others pending. Dr. Hofmann received his doctorate in Physics from the
Max-Planck-Institute for Plasma Physics in Germany.
JAMES L. HEPPELL has been a Director of Genetronics Biomedical
Ltd. and Genetronics, Inc. since September 1994 and interim chairman since
September 1999. Mr. Heppell is a partner at Catalyst Corporate Finance Lawyers
in British Columbia. Mr. Heppell provides corporate finance legal services to
technology issuers. His expertise lies in representing biotechnology companies,
instructing and carrying out cross-border financings and in dealing with the
requirements of all major Canadian exchanges, as well as NASDAQ. Mr. Heppell is
also a director and the secretary of Pheromone Sciences Corp. and is the
secretary of Forbes Medi-Tech Inc. and Response Biomedical Corp. In addition to
his L.L.B., Mr. Heppell has a Bachelor of Science degree in Microbiology from
the University of British Columbia.
SUZANNE L. WOOD has been a Director of Genetronics Biomedical
Ltd. and Genetronics, Inc. since June 1989. Ms. Wood is a principal of Wood &
Associates, a financial and management consulting firm servicing public and
private companies since 1982. She is currently President and Director of
MicroAccel, Inc., Silva Bay International Inc. and California Cyber Design Inc.
Her experience in financial and corporate management include positions as past
President and Director of The Neptune Society, Inc., Director of Envoy
Communications Group Ltd., Controller and Director of the Mitek Group of
Companies and Vice President and Director of Barrington Petroleum Inc. Ms. Wood
received her Bachelor of Arts from the University of British Columbia, where she
also attained three years of post-graduate training. During her employment with
Revenue Canada Taxation in the Business Audit Division, she completed four
levels of the Certified General Accountants Program.
STAN YAKATAN has been a Director of Genetronics Biomedical Ltd.
and Genetronics, Inc. since July 1997. Mr. Yakatan is currently Chairman of
Quantum Biotechnologies, Inc., a development stage company. Mr. Yakatan is
Chairman and managing partner of Katan Associates, a financial consulting
company and he is a board member of Quantum Biotechnologies, Inc., Phycogen,
Inc. and Conjuchem, Inc. Mr. Yakatan is an advisory board member of BioCapital,
ComMIT Systems, Arete, S3M, SynData, and he serves in an advisory capacity to
Avanir Pharmaceuticals. From 1994 to 1995, Mr. Yakatan was Chief Executive
Officer of Cystar. From 1991 to 1993 Mr. Yakatan was Chairman and Chief
Executive Officer of Unisyn Technologies Inc., a development stage biotechnology
company. Previously, he was Executive Vice President of New Brunswick
Scientific, Inc. and President and Chief Executive Officer of Biosearch, a
biotech company previously based out of San Rafael, California, and specializing
in the manufacture of DNA and peptide synthesizers, prior to its sale to
Millipore. Mr. Yakatan has a Masters degree in Business Administration from the
University of Pennsylvania.
GORDON POLITESKI has been a Director of Genetronics Biomedical
Ltd. and Genetronics, Inc. since May 1997. Mr. Politeski is currently Director
of SBL Technologies Medical Laser Group. He is former President and Chief
Executive Officer of Harley Street Software, involved in ambulatory ECG
monitoring, and is former President and Chief Executive Officer of Nortran
Pharmaceuticals, Inc. where he took the company's first drug candidate
successfully through a Phase I clinical trial. As founding President and Chief
Executive Officer of Biomira, Inc., a cancer diagnostics and therapy company,
Mr. Politeski took Biomira from the Alberta Stock Exchange to the Toronto Stock
Exchange and subsequently to the NASDAQ. He has also served a President and
General Manager for Allergan Pharmaceuticals in ophthalmology, and currently is
a Director of Sabretooth Holding, Inc. and a Director, the Chief Financial
Officer and Vice President Business Development of BCY Ventures, Inc., a
publicly traded venture capital pool company. Mr. Politeski is a graduate of the
University of Saskatchewan and the Amos Tuck Executive Program at Dartmouth
University.
FELIX THEEUWES has been a Director of Genetronics Biomedical Ltd.
and Genetronics, Inc. since August, 1999. From 1970 to June 1999 Dr. Theeuwes
held various positions within Alza Corporation, directing research, technology
development and product development for a variety of controlled drug delivery
systems. Presently, Dr. Theeuwes is the chairman and Chief Scientific Officer of
Durect Corporation which is a spin out from Alza Corporation to focus on the
development of products based on the DUROS(TM) system technology. Dr. Theeuwes
work led to the product introduction of the Alzet(R) mini osmotic pump series
for animal research, and the OSRO(R) systems series of products. He directed
research in transdermal research and development, initiated the
electrotransport/ionphoresis program, and initiated the DUROS(TM) osmotic
implant program. Dr. Theeuwes holds more than 210 United States patents covering
these systems and has published more than 80 articles and chapters of
42.
<PAGE> 44
books. Dr. Theeuwes is a member of the board of directors of Vinifera Inc., and
Durect Corporation and a member of the scientific advisory board at Antigenics.
In 1993, Dr. Theeuwes completed the Stanford Executive Program at Palo Alto,
California.
GORDON BLANKSTEIN joined the Boards of Genetronics Biomedical
Ltd. and Genetronics, Inc. on September 7, 1999. Mr. Blankstein founded GST
Global Light Telecommunications Inc. ("GSTTT") in 1992. He has been the Chairman
of the board of directors of that corporation since October 1996. Mr. Blankstein
was a director of NACT Telecommunications, Inc. a publicly traded subsidiary of
GSTTI. He is a founder, past President, Chairman of the board and former
director of ICG Communications, Inc. a publicly traded telecommunications
services provider. Mr. Blankstein is also currently the Chairman of the board of
directors of Bluestar Battery Systems International Corp. and Comptec Industries
Ltd. and is Vice-Chairman and a director of Highpoint Telecommunications Inc. He
is a former member of the Policy Advisory Committee of the former Vancouver
Stock Exchange. Mr. Blankstein holds a bachelor's degree and an M.B.A. from the
University of British Columbia.
GRANT DENISON, JR. is co-founder, Chairman and Chief Executive
Officer of BioMarin Pharmaceutical Inc., Novato, Calif., with 25 years
experience in pharmaceutical management. Prior to his present position, he
served as President, Consumer Products, and as Corporate Senior Vice President,
Business Development, for Searle, responsible for the general management of
Searle's consumer products business and all pharmaceutical, diagnostics and
consumer licensing and development. He also served as Vice President, Corporate
Planning for Searle's parent company, Monsanto Company, during a period of major
restructuring and portfolio realignment, and as President of Searle's United
States operations during a period of significant sales and earnings growth in
the late 1980s. Prior to joining Searle, Mr. Denison was Vice President,
International Operations for Squibb Medical Systems. He also held various
management positions at Pfizer, Inc. including Vice President, Pharmaceutical
Planning and Business Development, and was responsible for the formation of
numerous licensing, acquisition and strategic alliances. Mr. Denison previously
served on the Board of Genetronics, Inc. from May 1996 to August 1998. He also
serves as director of several companies including York Medical, Inc., Nastech
Pharmaceutical, Dentalview and Clubb BioCapital. Mr. Denison holds an M.B.A.
from Harvard Graduate School of Business Administration and an A.B. in
Mathematical Economics from Colgate University.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee meets with our independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained; and
receives and considers the auditors' comments (out of the presence of
management) as to controls, adequacy of staff and management performance and
procedures in connection with audit and financial controls. The Audit Committee
is composed of three directors: Suzanne L. Wood (Chair), Gordon Politeski and
Felix Theeuwes.
The Compensation Committee makes recommendations based upon
management's suggestions regarding the salaries and incentive compensation for
officers and key employees and performs such other functions regarding
compensation as the Board may delegate. The Compensation Committee is composed
of James L. Heppell (Chair), Gordon Politeski and Gordon Blankstein.
The Nomination and Corporate Governance Committee identifies and
recommends candidates for election to the Board of Directors. It advises the
Board of Directors on all matters relating to directorship practices, including
the criteria for selecting directors, policies relating to tenure and retirement
of directors and compensation and benefit programs for non-employee directors.
The Nomination and Corporate Governance Committee also makes recommendations
relating to the duties and membership of committees of the Board of Directors,
recommends processes to evaluate the performance and contributions of individual
directors and the Board of Directors as a whole and approves procedures designed
to provide that adequate orientation and training are provided to new members of
the Board of Directors and consults with the Chief Executive Officer in the
process of recruiting new directors and assists in locating senior management
personnel and selecting members for the scientific advisory board. The
Nomination and Corporate Governance Committee has developed a policy to govern
the Company's approach to corporate governance issues and provides a forum for
concerns of individual directors about matters not easily or readily discussed
in a full board meeting, e.g., the performance of management. The Nomination and
Corporate Governance Committee is composed of Gordon Politeski (Chair), James L.
Heppell, Suzanne L. Wood, Felix Theeuwes, Gordon Blankstein, and Grant Denison.
43.
<PAGE> 45
DIRECTOR COMPENSATION
Our outside directors are paid a fee of $1,000 per day for each
board or committee meeting a director attends in person; a director
participating telephonically is paid $500 per day for each such meeting. In
addition, each of the outside directors may receive an annual grant of an option
to purchase our common shares. In the last completed fiscal year, the outside
directors were not granted options to purchase shares of our common stock, other
than grants made to new directors joining the board. Inside directors do not
receive separate compensation for their participation in board or committee
meetings. We pay all reasonable expenses associated with directors' attendance
at, and participation in, board and committee meetings, and other company
business to which a director attends.
As described in Note 15 to the Consolidated Financial Statements,
we incurred legal fees charged by the law firm of Catalyst Corporate Finance
Lawyers in Vancouver, British Columbia, Canada, in the amount of $161,042 in the
year ended March 31, 2000. James L. Heppell, a partner of that law firm, is a
Director of our company. We also incurred accounting and administrative fees
charged by Wood & Associates of Vancouver, British Columbia, Canada, in the
amount of $29,055 in the year ended March 31, 2000. Suzanne Wood, the Principal
of Wood & Associates, is a Director of our company. For the year ended March 31,
2000, we incurred $32,600 for certain administration fees charged by a company
where one of the principals was an officer of our former French subsidiary.
BOARD-COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for determining the
compensation of the executive officers of our company. The members of the
Compensation Committee are James L. Heppell (Chair), Gordon J. Politeski, and
Gordon Blankstein.
EXECUTIVE COMPENSATION
The following table sets forth the compensation of Gunter A.
Hofmann, Lois J. Crandell, Martin Nash and James Lierman for the last three
completed fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
---------------------- ---------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS ALL OTHER
(1) ($) ($)(2) (3) COMPENSATION (4)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Martin Nash 2000 201,808 -0- 300,000 17,347
1999 140,573 27,200 127,200 7,520
Director, President and Chief Executive Officer 1998 143,096 -0- 25,000(6) 12,241
and Chief Financial Officer (5)
James C. Lierman 2000 155,769 20,834 50,000 3,798(8)
Executive Vice President (7) 1999 136,500 200,000 127,000 3,072
1998 146,463 45,000 20,000 3,777
Gunter A. Hofmann 2000 107,146 -0- 97,000(10) 121,969(11)
Former Chairman and Chief Scientific Officer (9) 1999 179,785 35,200 135,200 14,083
1998 188,923 -0- 25,000 13,383
Lois J. Crandell 2000 114,324 -0- 26,700(13) 133,727(14)
Former Director, President and 1999 179,990 43,125 143,125 14,065
Chief Executive Officer (12) 1998 184,465 -0- 65,000 13,244
</TABLE>
44.
<PAGE> 46
(1) The fiscal year ended March 31, 1998, included 13 months, due to a fiscal
year end change from February 28 to March 31 at that time.
(2) As of the date of this filing, our Board of Directors has not considered
bonuses for achievements of the Named Executives or other employees during the
fiscal year ended March 31, 2000 (other than bonuses based on contractual
right). The Board plans to consider the issue. If bonuses are granted, then they
will be paid from an account carried on our books to address accrued
compensation for the fiscal year ended March 31, 2000.
(3) We do not have Stock Appreciation Rights. All noted securities are options
(4) The noted Other Compensation includes cash contributions made by us to
purchase, on the open market, our common shares for the named executives' 401(k)
accounts. Also included for Dr. Hofmann and Ms. Crandell are amounts paid for
life insurance premiums; for Dr. Hofmann, Ms. Crandell, and Mr. Nash, that
portion of automobile leases attributed to personal use; and, for Ms. Crandell,
amounts paid for disability insurance premiums. Additional Compensation for Mr.
Nash also includes reimbursement for certain personal travel expenses authorized
by the Board of Directors.
(5) On June 10, 1999 Martin Nash was appointed Chief Financial Officer and
retained his position as Senior Vice President. On September 7, 1999 he was
appointed President and Chief Executive Officer and resigned as Senior Vice
President.
(6) An additional grant of 25,000 options, the exercise of which was contingent
upon the occurrence of a future event, was cancelled in the previous fiscal
year. This grant is not included in the Summary Compensation Table.
(7) On September 7, 1999, Mr. Lierman was promoted to Chief Operating Officer.
On June 28, 2000, Mr. Lierman's position with the Company was changed to
Executive Vice President.
(8) Beginning in December, 1999, we leased an automobile for the business use of
Mr. Lierman. For income tax purposes, we determine the percentage of time each
Named Executive uses his or her company-leased car for personal use during the
12 month period of December 1 through November 30. Because the lease began after
November 30, 1999, that portion of automobile expenses paid by us for Mr.
Lierman's personal use of the automobile during the period of December, 1999
through March 31, 2000, will be recorded as additional compensation to him in
fiscal year ended March 31, 2001.
(9) Dr. Hofmann's employment with us ended on September 7, 1999. He remains a
director.
(10) Includes 97,000 options granted to Dr. Hofmann on November 12, 1999, after
his employment by us ended. The grant was made pursuant to a Separation
Agreement.
(11) Includes $114,997 of severance and other termination payments paid to, or
for the benefit of, Dr. Hofmann in the fiscal year ended March 31, 2000 after
his employment by us ended. The payments were made pursuant to a Separation
Agreement.
(12) Ms. Crandell's employment with us ended on September 7, 1999. She resigned
as a director on December 6, 1999.
(13) Includes 26,700 options granted to Ms. Crandell on November 12, 1999, after
her employment by us ended. The grant was made pursuant to a Separation
Agreement.
(14) Includes $125,627 of severance and other termination payments paid to, or
for the benefit of, Ms. Crandell in the fiscal year ended March 31, 2000 after
her employment by us ended. The payments were made pursuant to a Separation
Agreement.
STOCK OPTION GRANTS AND EXERCISES IN LAST FISCAL YEAR
The following table sets out stock options and stock appreciation
rights granted to each Named Executive Officer during the fiscal year ended
March 31, 2000:
45.
<PAGE> 47
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES % OF TOTAL EXERCISE ANNUAL RATES OF STOCK
UNDERLYING OPTIONS/SARS OR BASE PRICE APPRECIATION FOR
OPTIONS/SARS GRANTED TO PRICE OPTION TERM
GRANTED Employees in (US$/ EXPIRATION -------------------------
NAME (#)(1) FISCAL YEAR(2) SECURITY) DATE 5%($) 10%($)
--------------------------- -------------- -------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Martin Nash 300,000(3) 31% 4.13 02/06/10 779,200 1,974,647
James C. Lierman 50,000(4) 5% 2.94 11/11/09 92,447 293,936
Gunter A. Hofmann, Ph.D. 97,000(5) 10% 2.94 11/11/09 179,348 570,236
Lois J. Crandell 26,700(6) 3% 2.94 11/11/09 49,367 156,962
</TABLE>
(1) We do not have Stock Appreciation Rights. All noted securities are options.
(2) We granted a total of 958,200 options to our employees in the fiscal year
ended March 31, 2000, including 123,700 options granted to Dr. Hofmann and Ms.
Crandell after their employment by the Company ended (which are used in
calculating the percentages).
(3) 100,000 of such options vested upon the date of grant with the remainder
vesting equally on each of the first and second anniversary of the date of
grant.
(4) 12,500 of such options vested upon the date of grant with the remainder
vesting equally on each of the first, second and third anniversary of the date
of grant.
(5) These options were granted to Dr. Hofmann on November 12, 1999, after his 3
employment by us ended. 100% of such options will vest on January 6, 2001.
(6) These options were granted to Ms. Crandell on November 12, 1999, after her
employment by us ended. 100% of such options will vest on September 6, 2000.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning each
exercise of stock options or tandem SARs and freestanding SARs during the last
completed fiscal year by each of the named executive officers and the fiscal
year-end value of unexercised options and SARs, provided on an aggregated basis:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
SECURITIES VALUE UNEXERCISED OPTIONS/SARS AT MONEY OPTIONS/SARS AT
ACQUIRED ON REALIZED FISCAL YEAR END (1) FISCAL YEAR-END ($)(2)
NAME OF EXECUTIVE OFFICER EXERCISE ($) (#)EXERCISABLE (#)UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------- ----------- ---------- --------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Martin Nash -0- N/A 299,200(3) 250,000(3) 949,120 570,750
James Lierman -0- N/A 399,481(4) 67,519(4) 1,785,372 222,553
Gunter A. Hofmann, Ph.D 150,000(5) 307,500(6) 240,200(7) 97,000(7) 801,529 308,945
20,000 27,000
25,000 23,500
Lois J. Crandell 100,000(8) 205,000(9) 283,125(10) 26,700(10) 907,791 85,040
20,000 23,500
25,000 27,000
</TABLE>
(1) We do not have Stock Appreciation Rights. All noted securities are options
(2) The closing price of our common shares on the AMEX was $6.125 on March 31,
2000. This price was used in the calculations reported in the column "Value of
Unexercised In-the-Money Options/SARs at Fiscal Year-end
46.
<PAGE> 48
Exercisable/Unexercisable." All Named Executives were "in the money" on March
31, 2000, with respect to all stock options granted to each.
(3) 20,000 options with an exercise price of $1.33; 7,000 options with an
exercise price of $2.19; 25,000 options with an exercise price of $2.55; 45,000
options with an exercise price of $2.78; 25,000 options with an exercise price
of $1.76; 27,200 options with an exercise price of $2.25; 100,000 options with
an exercise price of $2.69; and 300,000 options with an exercise price of $4.13.
(4) 250,000 options with an exercise price of $1.12; 10,000 options with an
exercise price of $2.55; 10,000 options with an exercise price of $2.78; 20,000
options with an exercise price of $2.12; 27,000 options with an exercise price
of $2.25; 100,000 options with an exercise price of $2.69; 50,000 options with
an exercise price of $2.94.
(5) 150,000 options were exercised on July 2, 1999 at an exercise price of
$0.83; 20,000 options were exercised on October 27, 1999 at an exercise price of
$1.53; 25,000 options were exercised on October 27, 1999 at an exercise price of
$1.94.
(6) The closing price of our stock on the AMEX was $2.88 on both July 2, 1999
and October 27, 1999.
(7) 35,000 options with an exercise price of $2.27; 25,000 options with an
exercise price of $2.81; 45,000 options with an exercise price of $3.06; 35,200
options with an exercise price of $2.48; 100,000 options with an exercise price
of $2.95; and 97,000 options with an exercise price of $2.95. The 97,000 options
were granted to Dr. Hofmann on November 12, 1999, after his employment by us
ended; the grant was made pursuant to a Separation Agreement.
(8) 100,000 options were exercised on July 2, 1999 at an exercise price of
$0.83; 20,000 options were exercised on October 27, 1999 at an exercise price of
$1.53; 25,000 options were exercised on October 27, 1999 at an exercise price of
$1.94.
(9) The closing price of our stock on the AMEX was $2.88 on both July 2, 1999
and October 27, 1999.
(10) 40,000 options with an exercise price of $2.81; 60,000 options with an
exercise price of $3.06; 40,000 options with an exercise price of $3.21; 43,125
options with an exercise price of $2.48; 100,000 options with an exercise price
of $2.95; and 26,700 options with an exercise price of $2.94. The 26,700 options
were granted Ms. Crandell on November 12, 1999, after her employment by us
ended; the grant was made pursuant to a Separation Agreement.
1997 STOCK OPTION PLAN
On June 20, 1997, our 1997 Stock Option Plan was adopted by the
board of directors and our stockholders approved the plan on July 28, 1998. The
1997 Stock Option Plan was amended on September 14, 1998, October 20, 1998 and
February 5, 1999, primarily to increase the number of shares authorized for
issuance under the Plan. A total of 6,400,000 shares of common stock has been
authorized for issuance under the 1997 Stock Option Plan and other plans
combined. Pursuant to the 1997 Stock Option Plan, shares subject to stock awards
that have expired or otherwise terminated without having been exercised in full
again become available for grant, but exercised shares repurchased by us
pursuant to a right of repurchase will not again become available for grant.
The 1997 Stock Option Plan permits the grant of options to our
directors, officers, key employees and consultants. Options may be either
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code to employees, including directors or officers who are employees, or
nonstatutory stock options.
The 1997 Stock Option Plan is administered by the board or a
committee appointed by the board. Subject to the limitations set forth in the
1997 Stock Option Plan, the committee has the authority to select the eligible
persons to whom award grants are to be made, to designate the number of shares
to be covered by each award, to determine whether an option is to be an
incentive stock option or a nonstatutory stock option, to establish vesting
schedules, to specify the exercise price of options and the type of
consideration to be paid upon exercise and, subject to restrictions, to specify
other terms of awards.
The maximum term of options granted under the 1997 Stock Option
Plan is ten years unless an incentive stock option is granted to an employee
that on the date of grant has ownership of more than 10% of the total voting
power of our stock, then the maximum term of the option is five years. Options
granted under the 1997 Stock Option Plan generally are non-assignable and
non-transferable. The expiration terms of options granted under the 1997 Stock
Option Plan are determined by the administrator in accordance with the
guidelines set forth in the 1997 Stock Option Plan. Options generally expire two
months after the termination of an optionholder's service. However, if an
optionholder is permanently disabled or dies during his or her service, such
person's options generally may be exercised up to twelve months following
disability or death provided that the options were exercisable on the employee's
last day of work.
The exercise price of options granted under the 1997 Stock Option
Plan is determined by the committee in accordance with the guidelines set forth
in the 1997 Stock Option Plan. The exercise price of an incentive stock option
cannot be less than 100% of the fair market value of the common stock on the
date of the grant. The exercise
47.
<PAGE> 49
price of an incentive stock option granted to a person who holds more than 10%
of the voting power of our stock cannot be less than 110% of the fair market
value of our common stock on the date of the grant.
Options granted under the 1997 Stock Option Plan vest at the rate
determined by the committee and specified in the option agreement.
Upon changes in control in our ownership, all outstanding stock
awards under the 1997 Stock Option Plan may either be substituted by the
surviving entity or terminated to the extent not exercised upon sixty days
written notice.
The committee may amend or terminate the 1997 Stock Option Plan
at any time. Amendments to the 1997 Stock Option Plan will generally be
submitted for stockholder approval within 12 months before or after adoption of
the amendment.
The Compensation Committee approved an amendment to the 1997
Stock Option Plan on February 28, 2000 and May 22, 2000 to clarify certain
provisions of the Plan. The amendments clarify that a stock option agreement
remains in effect and continues to vest so long as the optionee continues his or
her business association with us as an employee, director, or consultant. The
amendments also clarify the requirements for stock options granted to optionees
holding more than 10% of the voting power of our stock. The Compensation
Committee also passed a resolution on February 28, 2000, authorizing us to seek
regulatory authorization to increase the number of shares available for grant
under the 1997 Stock Option Plan by 1,000,000 shares, for a total of 7,400,000
authorized shares.
As of June 20, 2000, we had issued and outstanding under the 1997
Stock Option Plan options to purchase 1,142,975 shares of common stock. The per
share exercise prices of these options ranged from $1.66 to $3.21. As of June
20, 2000, 105,739 shares remained available for future grant under the 1997
Plan.
1995 STOCK OPTION PLAN
On June 7, 1995, our board adopted our 1995 Stock Option Plan and
our stockholders approved the plan on July 17, 1995. The 1995 Plan was amended
in January, 1997 and April, 1997. The 1995 plan was subsequently amended by the
Board and the stockholders in April 1997. Although a total of 3,500,000 shares
of common stock have been authorized for issuance under the 1995 Plan, the plan
was suspended by our Board on June 20, 1997. We will not grant any additional
stock options under the 1995 Plan; however, we must keep the 1995 Plan alive so
long as incentive stock options issued under the 1995 Plan remain in existence.
Shares subject to stock awards that have expired or otherwise terminated without
having been exercised in full will not be available for grant under the 1995
Plan but will be available for grant under the 1997 PlaneExercised shares
repurchased by us pursuant to a right of repurchase will not become available
for grant. Beginning on June 20, 1997, all grants of options were pursuant to
the 1997 Plan.
The suspended 1995 Stock Option Plan permitted the grant of
options to our directors, officers, key employees and consultants. Options may
be either incentive stock options within the meaning of Section 422 of the
Internal Revenue Code to employees, including directors or officers who are
employees, or nonstatutory stock options.
The 1995 Stock Option Plan is administered by the board or a
committee appointed by the board. Subject to the limitations set forth in the
1995 Stock Option Plan, the committee has the authority to select the eligible
persons to whom award grants are to be made, to designate the number of shares
to be covered by each award, to determine whether an option is to be an
incentive stock option or a nonstatutory stock option, to establish vesting
schedules, to specify the exercise price of options and the type of
consideration to be paid upon exercise and, subject to restrictions, to specify
other terms of awards.
The maximum term of options granted under the 1995 Stock Option
Plan is ten years unless an incentive stock option is granted to an employee
that on the date of grant has ownership of more than 10% of the total voting
power of our stock, then the maximum term of the option is five years. Options
granted under the 1995 Stock Option Plan generally are non-assignable and
non-transferable. The expiration terms of options granted under the 1995 Stock
Option Plan are determined by the committee in accordance with the guidelines
set forth in the 1995
48.
<PAGE> 50
Stock Option Plan. Options generally expire two months after the termination of
an optionholder's service. However, if an optionholder is permanently disabled
or dies during his or her service, such person's options generally may be
exercised up to twelve months following disability or death provided that the
options were exercisable on the employee's last day of work.
The exercise price of options granted under the 1995 Stock Option
Plan is determined by the committee in accordance with the guidelines set forth
in the 1995 Stock Option Plan. The exercise price of an incentive stock option
cannot be less than 100% of the fair market value of the common stock on the
date of the grant. The exercise price of an option granted to a person who holds
more than 10% of the voting power of our stock cannot be less than 110% of the
fair market value of our common stock on the date of the grant.
Options granted under the 1995 Stock Option Plan vest at the rate
determined by the committee and specified in the option agreement.
Upon changes in control in our ownership, all outstanding stock
awards under the 1995 Stock Option Plan may either be substituted by the
surviving entity or terminated to the extent not exercised upon sixty days
written notice.
As of June 20, 2000, we had issued and outstanding under the 1995
Stock Option Plan options to purchase 1,293,400 shares of common stock. The per
share exercise prices of these options ranged from $0.93 to $3.06.
SHARES ISSUED OUTSIDE STOCK OPTION PLANS
All shares of common stock authorized for issuance pursuant to
options granted to directors, employees, and consultants prior to establishment
of the 1995 Stock Option Plan have been issued.
401(k) PLAN
We have established a tax-qualified employee savings and
retirement plan. The 401(k) plan provides that each participant may contribute
up to 15% of his or her pre-tax gross compensation (up to a statutorily
prescribed annual limit of $10,500 in the calendar year 2000). Employees are
eligible to participate on the first day following six months as an employee of
ours. Entry dates are April 1 and October 1. All amounts contributed by employee
participants and earnings on these contributions are fully vested at all times.
Employee participants may elect to invest their contributions in various
established funds. We match 50% of an employee's contribution to the 401(k)
plan, up to a maximum of 6% of an employee's compensation, with our common
shares purchased in the open market for the individual employee's 401(k)
account. Our contributions to the 401(k) plan, and earnings thereon, vest over a
six year period beginning on an employee's date of hire.
EMPLOYMENT AGREEMENTS
In January 1995, we entered into an employment agreement with
Lois J. Crandell, our former President and Chief Executive Officer. The
employment agreement had a one year term with automatic renewal unless 60 days
prior notice is provided. Such agreement was amended January 9, 1996, March 1,
1997 and January 15, 1999, and provided for an annual salary of $220,000, an
annual bonus of up to 25% of her annual salary, payable within 90 days of the
end of our fiscal year, life insurance in the amount of $500,000. Ms. Crandell's
employment with us ended as of September 7, 1999. We entered into a Separation
Agreement and Consulting Agreement with Ms. Crandell, effective December 6, 1999
and September 7, 1999, respectively. Pursuant to the Separation and Consulting
Agreements we made severance payments and issued additional option grants to Ms.
Crandell.
In January 1995, we entered into an employment agreement with
Gunter A. Hofmann, Ph.D., our former Chief Scientific Officer and such
employment agreement has a one year term with automatic renewal unless 60 days
prior notice is provided. Such agreement was amended on January 9, 1996, March
1, 1997 and January 15, 1999 and, provided for an annual salary of $200,000, an
annual bonus of up to 20% of his annual salary, payable within 90 days of the
end of our fiscal year and life insurance in the amount of $500,000. Dr.
Hofmann's employment with us ended as of September 7, 1999. We entered into a
Separation Agreement and Consulting Agreement with Dr.
49.
<PAGE> 51
Hofmann, effective December 6, 1999 and September 7, 1999, respectively.
Pursuant to the Separation and Consulting Agreements, we made severance payments
and issued additional option grants to Dr. Hofmann.
In January 1995, we entered into an employment agreement with
Martin Nash, our then Senior Vice President. Mr. Nash was appointed as our Chief
Financial Officer on June 10, 1999 and our President and Chief Executive Officer
on September 7, 1999. Mr. Nash's employment agreement has a one year term with
automatic renewal unless 60 days prior notice is provided. Such agreement was
amended on January 9, 1996, March 1, 1997 and January 15, 1999 and pursuant to a
Board resolution as of September 7, 1999, Mr. Nash receives an annual salary of
$220,000. Mr. Nash is also eligible to receive an annual bonus of up to 20% of
his annual salary, payable within 90 days of the end of our fiscal year.
Pursuant to the employment agreements, upon termination of Mr.
Nash's employment for the following reasons: (i) we decide not to renew the
employment agreement; (ii) we terminate the employee; or (iii) if without
written consent of the employee, we change the employee's duties or
responsibilities and the employee terminates his employment with 6 months
written notice, then we must pay to the employee two months of his annual salary
for each full year of service under the agreement, such payment to be for no
shorter time period than for six months and the employee shall be entitled to
all other benefits that he would have been entitled to as an employee. In
addition, pursuant to the terms of the employment agreement between us and Mr.
Nash, in recognition of the fact that the employee requires the use of a car in
the performance of his duties, we pay the lease payment, the insurance,
maintenance, and repair costs for his car. That portion of costs associated with
personal usage of his car is considered compensation to Mr. Nash.
In January 1996, we entered into an employment agreement with
James Lierman for the position of Vice President of Corporate Development. Mr.
Lierman was also appointed our Chief Operating Officer in September 1999. On
June 28, 2000, Mr. Lierman's position with us was changed to Executive Vice
President. The employment agreement is for a one year term with automatic
renewal. Mr. Lierman is also eligible to receive an annual bonus determined by a
percentage of the licensing activity attributed to Mr. Lierman's employment
efforts with us. In recognition of the fact that Mr. Lierman requires the use of
a car in the performance of his duties, we pay the lease payment, the insurance,
maintenance, and repair costs for his car. That portion of costs associated with
personal usage of his car is considered compensation to Mr. Lierman.
LIMITATIONS ON DIRECTORS' AND EXECUTIVE OFFICERS' LIABILITY AND INDEMNIFICATION
As specified in our Articles of Incorporation, subject to the
provisions of the Company Act (British Columbia), the Directors shall cause us
to indemnify a Director or a former Director of ours and the Directors may cause
us to indemnify a Director or former Director of a corporation of which we are
or were a member and the heirs and personal representatives of any such person
against all costs, charges and expenses, including an amount paid to settle an
action or satisfy a judgment, actually and reasonably incurred by him or them
including an amount paid to settle an action or satisfy a judgment in a civil,
criminal or administrative action or proceeding to which he is or they are made
a party by reason of his being or having been a Director of ours or a Director
of such corporation, including any action brought by us or any such corporation.
Each of our Directors on being elected or appointed shall be deemed to have
contracted with us on the terms of the foregoing indemnity.
Additionally, the Directors may cause us to indemnify any of our
officers, employees or agents, or of a corporation of which we are or were a
member, and his heirs and personal representatives, against all costs, charges
and expenses whatsoever incurred by him or them and resulting from his acting as
our officer, employee or agent or such corporation. The Company shall also
indemnify our Secretary and any Assistant Secretary, if he is not a full-time
employee and notwithstanding that he may also be a Director and his respective
heirs and legal representatives against all costs, charges and expenses
whatsoever incurred by him or them and arising out of the functions assigned to
the Secretary by the Company Act (British Columbia) or the Articles and each
such Secretary and Assistant Secretary shall, on being appointed be deemed to
have contracted with us on the terms of the foregoing indemnity.
The Directors may cause us to purchase and maintain insurance for
the benefit of any person who is or was serving a Director, officer, employee or
agent of ours or as a director, officer, employee or agent of any corporation of
which we are or were a shareholder and his heirs or personal representatives
against any liability incurred by him as such director, officer, employee or
agent.
50.
<PAGE> 52
CERTAIN TRANSACTIONS AND RELATIONSHIPS
The following is a description of transactions since February 28,
1997, to which we have been a party, in which the amount involved in the
transaction exceeds $60,000 and in which any director, executive officer or
holder of more than 5% of our capital stock had or will have a direct or
indirect material interest other than compensation arrangements which are
otherwise required to be described under "Management."
As described in Note 15 to the Financial Statements, we incurred
legal fees charged by the law firm of Catalyst Corporate Finance Lawyers in
Vancouver, British Columbia, Canada, in the amount of $161,042 in the year ended
March 31, 2000, $93,778 in the year ended March 31, 1999 and $82,810 in the
thirteen months ended March 31, 1998. James L. Heppell, a partner of that law
firm, is a Director of our company.
We also incurred accounting and administrative fees charged by
Wood & Associates of Vancouver, British Columbia, Canada, in the amount of
$29,055 in the year ended March 31, 2000, $26,735 in the year ended March 31,
1999 and $24,020 in the thirteen months ended March 31, 1998. Suzanne Wood,
the Principal of Wood & Associates, is a Director of our company.
For the years ended March 31, 2000 and March 31, 1999, we
incurred $32,600 and $114,900, respectively, for certain administration fees
charged by a company where one of the principals was an officer of our former
French subsidiary.
We entered into Separation Agreements with each of Gunter
Hofmann, Ph.D., our former Chief Scientific Officer and Chairman of the Board,
and Lois Crandell, our former President and Chief Executive Officer. Pursuant to
the terms of the Separation Agreement with Dr. Hofmann, during the fiscal year
ended March 31, 2000, we paid $114,997 of severance and other termination
payments to, or on behalf of, Dr. Hofmann, and granted him an option to purchase
97,000 shares of our common stock. Pursuant to the terms of the Separation
Agreement with Ms. Crandell, during the fiscal year ended March 31, 2000, we
paid $125,627 of severance and other termination payments to, or on behalf of,
Ms. Crandell, and granted her an option to purchase 26,700 shares of our common
stock.
Two individuals among our present and former directors are
related. Lois Crandell, our former President, Chief Executive Officer, and
director, and Gunter Hofmann, our former Chief Scientific Officer and Chairman,
and a current director, are married. Markus Hofmann (currently our Controller)
is the son of Gunter Hofmann.
We have entered into employment agreements with certain of our
executive officers. See "Management -- Employment Agreements
In the past, we have granted options to our executive officers
and directors. We intend to grant options to our officers and directors in the
future. See "Management -- Executive Compensation."
We have also entered into an indemnification agreement with each
of our directors and executive officers, and with George Gill, M.D., our Vice
President of Clinical and Regulatory Affairs. See "Management -- Limitations on
Directors' and Executive Officers' Liability and Indemnification."
All of our securities referenced above were sold and purchased at
prices equal to the fair market value of the securities, as determined by our
Board of Directors, on the date of issuance.
51.
<PAGE> 53
PRINCIPAL SHAREHOLDERS
The following table sets forth information as of June 20, 2000
with respect to (i) each stockholder known to us to be the beneficial owner of
more than five percent (5%) of the outstanding common stock of our company, (ii)
each director, (iii) each currently Named Executive Officer and (iv) all
directors and currently Named Executive Officers of our company as a group.
Except as set forth below, each of the named persons and members of the group
has sole voting and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Amount and Nature of Percent of Class
Beneficial Ownership of of Common Stock
Beneficial Owner of Common Stock (1) Common Stock (2) (2)
---------------------------------------------------------------------------------------------
<S> <C> <C>
Park Place Capital Limited 2,415,100 8.9%
25 St. James Street
London, England
SW1A 1HA
Johnson & Johnson Development Corporation 2,242,611 8.23%
One Johnson & Johnson
Plaza, New Brunswick, New Jersey
Lois Crandell 3,158,088(3) 11.37%
3750 Riviera Drive, #6
San Diego, CA 92109
Gunter A. Hofmann 3,158,088(4) 11.37%
3750 Riviera Drive, #6
San Diego, CA 92109
Martin Nash 679,661(5) 2.47%
James Lierman 410,339(6) 1.49%
James L. Heppell 80,500(7) *
Suzanne L. Wood 97,500(8) *
Stan Yakatan 252,400(9) *
Gordon Politeski 85,000(10) *
Gordon Blankstein 35,000(11) *
Felix Theeuwes 69,000(12) *
Grant Denison, Jr 80,000(13) *
All Executive Officers and Directors as a group 4,949,630(14) 17.3%
</TABLE>
* less than 1%
(1) This table is based upon information supplied by officers, directors and
principal stockholders. Except as shown otherwise in the table, the
address of each stockholder listed is in care of the Company at 1119
Sorrento Valley Rd., San Diego, California 92121.
(2) Except as otherwise indicated in the footnotes of this table and pursuant
to applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock. Beneficial ownership is determined in accordance with the rules of
the Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock subject to options or
warrants exercisable within 60 days of June 20, 2000 are deemed
outstanding for computing the percentage of the person or entity holding
such options or warrants but are not deemed outstanding for computing the
percentage of any other person. Percentage of beneficial ownership is
based upon 27,264,218 shares of the Company's Common Stock outstanding as
of June 20, 2000.
(3) Includes 283,125 shares of Common Stock issuable pursuant to options
exercisable within 60 days of June 20, 2000. Also includes 2,380,899
shares owned by Gunter A Hofmann, Ms. Crandell's husband. Ms. Crandell
disclaims beneficial ownership of Dr. Hofmann's shares.
(4) Includes 240,200 shares of Common Stock issuable pursuant to options
exercisable within 60 days of June 20, 2000. Also includes 777,189 shares
owned by Lois J. Crandell, Dr. Hofmann's wife. Dr. Hofmann disclaims
beneficial ownership of Ms. Crandell's shares.
(5) Includes 299,200 shares of common stock issuable pursuant to options
exercisable within 60 days of June 20, 2000.
(6) Includes 399,481 shares of common stock issuable pursuant to options
exercisable within 60 days of June 20, 2000 and 13,000 shares of common
stock owned by Mr. Lierman's wife. Mr. Lierman disclaims beneficial
ownership of his wife's shares.
52.
<PAGE> 54
(7) Includes 60,000 shares of common stock issuable pursuant to options
exercisable within 60 days of June 20, 2000, 1,000 shares owned by Free
Spirit Investment Ltd., which is owned 50% by Mr. Heppell and 50% by his
wife and 200 shares owned by Full Moon Law Corporation, which is also
owned 50% by Mr. Heppell and 50% by his wife.
(8) Includes 70,000 shares of common stock issuable pursuant to options
exercisable within 60 days June 20, 2000.
(9) Includes 106,400 shares of common stock issuable pursuant to options
exercisable within 60 days of June 20, 2000.
(10) Includes 85,000 shares of common stock issuable pursuant to options
exercisable within 60 days of June 20, 2000.
(11) Includes 35,000 shares of Common Stock issuable pursuant to options
exercisable within 60 days of June 20, 2000.
(12) Includes 35,000 shares of Common Stock issuable pursuant to options
exercisable within 60 days of June 20, 2000.
(13) Includes 80,000 shares of Common Stock issuable pursuant to options
exercisable within 60 days of June 20, 2000.
(14) Includes 1,410,281 shares of Common Stock issuable pursuant to options
exercisable within 60 days of June 20, 2000.
53.
<PAGE> 55
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 common
shares, no par value, and 100,000,000 shares of Class A preferred.
COMMON SHARES
We are authorized to issue 100,000,000 common shares, of which
27,264,218 common shares are issued and outstanding as of the date of June 20,
2000 and 100,000,000 Class A preferred stock, of which no Class A preferred
stock are issued and outstanding as of the date of this Prospectus.
All of the common shares rank equally as to voting rights,
participation in a distribution of our assets on a liquidation, dissolution or
winding-up, and the entitlement to dividends. The holders of the common shares
are entitled to receive notice of all meetings of shareholders and to attend and
vote the common shares at the meetings. Each Common Share carries with it the
right to one vote.
In the event of liquidation, dissolution or winding-up of us or
other distribution of our assets, the holders of the common shares will be
entitled to receive, on a pro-rata basis, all of the assets remaining after we
have paid out our liabilities. Distribution in the form of dividends, if any,
will be set by the Board of Directors.
Provision as to modification, amendment or variation of the
rights attached to the common shares are contained in our memorandum and
articles and the Company Act (British Columbia). Generally speaking, substantive
changes to the rights attached to the Common Share will require the approval of
the shareholders by special resolution (at least 75% of the votes cast).
There are no restrictions on the repurchase or redemption by us
of common shares. There are no indentures or agreements limiting the payment of
dividends. There are no conversion rights, special liquidation rights,
pre-emptive rights or subscription rights attached to any common shares.
At the annual general meeting of our shareholders held on July
26, 1999, we replaced the special rights and restrictions attached to the Class
A preferred stock. The new special rights and restrictions allow the directors,
where class rights permit them to do so, to alter the memorandum and our
articles to create a new series of Class A preferred stock and provide for
special rights and restrictions attached to such stock. The directors may
determine all rights, preferences, restrictions and conditions of such Class A
preferred stock including voting rights, dividend rights, liquidation
preference, conversion rights and redemption rights. The new special rights and
restrictions were put in place in an effort to allow the directors to react
quickly to market conditions during a financing to create a series of Class A
preferred stock with the special rights and restrictions attractive to the
market, without incurring the delay of calling an extraordinary meeting of the
shareholders.
WARRANTS
By an agency agreement dated June 8, 1999, we appointed CB
Capital Corp., formerly Canaccord International (L) Corporation of P.O. Box HM
2567, Hamilton, HM KX, Bermuda, as our exclusive Agent to offer special
warrants for sale on a best effort basis. On June 16, 1999, 4,187,500 special
warrants were issued by us, at the price of $3.00 per special warrant and 100%
of the net proceeds were immediately released to us. In March 2000, 23,000
special warrants were exercised into 23,000 shares of common stock. Upon their
expiry in June 2000, all remaining special warrants automatically converted into
4,164,500 shares of common stock. Pursuant to Canadian law, the shares of
common stock issued upon this automatic conversion are eligible for transfer
and sale in Canada, subject to statutory limitations and restrictions.
In consideration of the services performed by the Agent in
connection with the offering of the special warrants, we paid to the Agent's
nominee, Canaccord Capital Corporation, a cash commission equal to 8% of the
aggregate gross proceeds raised from the sale of the special warrants. No other
cash fees were paid by us with respect to the issuance of the shares of common
stock upon the exercise of the special warrants.
Further, we issued to Canaccord Capital Corporation 30,000
shares of common stock and special warrants exercisable, for no additional
consideration, to acquire common share purchase warrants to purchase up to
418,750 shares of our common stock, exercisable at a price of $3.31 per share
on or before June 16, 2000. In March 2000, Canaccord exercised the 418,750
special warrants and acquired warrants for the same amount. Also in March 2000,
Canaccord exercised 151,300 warrants and received 151,300 shares of common
stock. We received $500,803 as payment for the shares pursuant to the $3.31 per
share exercise price. Subsequent to March 31, 2000, we issued an additional
180,500 shares of common stock pursuant to the exercise of warrants at a price
of $3.31 per share. We received $597,455 as payment for the shares of common
stock issued after March 31, 2000. The remaining warrants expired in June 2000
and are no longer exercisable.
54.
<PAGE> 56
We entered into a "finders" agreement with Thompson & Flowers,
whereby we agreed that, in the event that firm satisfies several business
development conditions with respect to use of our technology in the field of
dermatology, we will issue the firm a warrant to purchase a total of 120,000
shares of Genetronics Biomedical Ltd. common stock. If the conditions are
satisfied, and the warrant is issued, the exercise price will be set as the 10
days trailing closing average price per share on the AMEX from the signing date
of this Agreement.
DIVIDEND POLICY
We have not declared or paid any dividends on our common shares
since our inception. Our directors expect that while we are in the development
stage, earnings will not be distributed to shareholders by way of dividend. The
declaration of dividends on our common shares will depend upon the directors'
assessment of, among other factors, earnings, capital requirements and our
operating and financial condition. See "Dividend Policy".
REGISTRATION RIGHTS
Pursuant to the Stock Purchase Agreement dated October 8, 1998
between us and Johnson & Johnson Development Corporation, Johnson & Johnson
Development Corporation has registration rights for the 2,242,611 shares of
common stock held by them, all of such shares are being registered in this
Registration Statement. Under the Stock Purchase Agreement, holders of more
than 30% of the then outstanding registrable securities may demand, by written
request, that we file a registration statement under the Securities Act covering
all or a portion of their registrable securities, provided that, in the case of
a registration on a form other than a Form F-3 or Form S-3, that we file a
registration statement under the Securities Act covering all or a portion of the
registrable securities, provided that, we are obligated to file only two
registration statements subject to the foregoing. In the case of a registration
of Form F-3 or Form S-3, there is a reasonably anticipated aggregate offering
price to the public of at least $500,000. These registration rights are subject
to our right to furnish such holders of registrable securities with a
certificate, signed by our President or Chief Executive Officer, stating that in
the good faith judgment of our Board, it would be seriously detrimental to us
and our shareholders for the Form F-3 or S-3 Registration to be effected, in
which event we have the right to delay the filing of a the registration
statement for a period not to exceed 120 days in the case of a registration on a
form other than a Form F-3 or Form S-3 and 90 days in the case of a registration
on a Form F-3 or S-3. In such a case, we cannot delay more than twice in a
12-month period after receiving the registration request.
In addition, the holders of the registrable securities have
"piggyback" registration rights. If we propose to register any of our securities
under the Securities Act of 1933 (other than on Form S-4, S-8 or a registration
statement on Form S-1 covering solely any employee benefit plan), such holders
may require us to include all or a portion of their registrable securities in
such registration. The managing underwriter, if any, of any such offering will
have the right to limit the number of the registrable securities proposed to be
included in such registration to that number of shares which in the good faith
judgment of the managing underwriter can be sold in such offering.
All registration expenses incurred in connection with the above
registrations would be borne by us. The holders of the registrable securities
would pay all underwriting discounts and selling commissions applicable to the
sale of his or its registrable securities.
55.
<PAGE> 57
TRANSFER AGENT AND REGISTRAR
The co-transfer agents and registrars for our common shares are
Montreal Trust Company of Canada and American Securities Transfer and Trust,
Inc.
LEGAL MATTERS
The legality of the common shares offered hereby will be passed
upon for us by Cooley Godward LLP, San Diego, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our
consolidated financial statements as of March 31, 2000 and 1999 and for the
twelve month, twelve month, and thirteen month periods ended March 31, 2000,
March 31, 1999 and March 31, 1998 respectively, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements are incorporated by reference in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the reporting requirements of the Securities
Exchange Commission as a foreign private issuer, and in accordance therewith,
file reports and other information with the SEC. Such reports and other
information may be inspected and copied at the office of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at the Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor,
New York, New York 10048. Copies of all or any part of the Registration
Statement may be obtained from such offices upon the payment of the fees
prescribed by the Commission. In addition, registration statements and certain
other filings made with the Commission through its Electronic Data Gathering,
Analysis and Retrieval ("EDGAR") system are publicly available through the
Commission's web site on the Internet's World Wide Web, located at
http://www.sec.gov. The Registration Statement, including all exhibits thereto
and amendments thereof, was filed with the Commission through EDGAR.
We incorporate by reference (i) our Annual Report on Form 10-K
for the year ended March 31, 2000 filed on June 28, 2000, (ii) our Form 20-F
for the year ended February 28, 1998, as amended, which includes a description
of our common stock and (iii) any future filings we will make with the SEC
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934.
You may request a copy of these filings at no cost, by writing
or telephoning us at the following address or telephone number:
Genetronics Biomedical Ltd.
11199 Sorrento Valley Road
San Diego, CA 92121-1334
Attn: Chief Executive Officer
(858) 597-6006
56.
<PAGE> 58
GENETRONICS BIOMEDICAL LTD.
(IN UNITED STATES DOLLARS)
INDEX TO FINANCIAL STATEMENTS
The consolidated financial statements required by this item are submitted in a
separate section beginning on page F-1 of this Registration Statement.
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors....................................... F-2
Consolidated Balance Sheets as of March 31, 2000 and March 31, 1999..................... F-3
Consolidated Statements of Loss and Deficit for the periods ended March 31, 2000,
March 31, 1999 and March 31, 1998..................................................... F-4
Consolidated Statements of cash flows for the periods ended March 31,
2000, March 31, 1999 and March 31, 1998............................................... F-5
Notes to Consolidated Financial Statements.............................................. F-6
</TABLE>
F-1
<PAGE> 59
AUDITORS' REPORT
To the Shareholders of
GENETRONICS BIOMEDICAL LTD.
We have audited the consolidated balance sheets of GENETRONICS BIOMEDICAL LTD.
as at March 31, 2000 and 1999 and the consolidated statements of loss and
deficit and cash flows for the years ended March 31, 2000 and 1999 and the
thirteen month period ended March 31, 1998. 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 March 31, 2000
and 1999, and the results of its operations and its cash flows for the years
ended March 31, 2000 and 1999 and the thirteen month period ended March 31,
1998, 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,
May 3, 2000. Chartered Accountants
F-2
<PAGE> 60
GENETRONICS BIOMEDICAL LTD.
Incorporated under the laws of British Columbia
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As at March 31
2000 1999
$ $
-----------------------------------------------------------------------------------------
(In U.S. dollars)
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents 9,742,344 6,189,284
Accounts receivable, net of allowance for uncollectible
accounts of $54,925 [1999 - $19,685] [note 3] 1,120,450 776,648
Inventories [note 4] 611,642 655,906
Prepaid expenses and other 139,423 6,095
-----------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 11,613,859 7,627,933
-----------------------------------------------------------------------------------------
Fixed assets [note 5] 1,014,811 1,177,393
Other assets [note 6] 1,383,634 1,002,318
-----------------------------------------------------------------------------------------
14,012,304 9,807,644
=========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued expenses [note 7] 1,784,084 1,377,443
Current portion of obligations under
capital leases [note 11] 53,098 45,892
Deferred revenue 268,665 --
----------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,105,847 1,423,335
----------------------------------------------------------------------------------------
Obligations under capital leases [note 11] 65,286 118,384
Deferred rent 9,972 9,564
----------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,181,105 1,551,283
----------------------------------------------------------------------------------------
Commitments and contingencies [note 11]
SHAREHOLDERS' EQUITY
Share capital [note 9] 30,491,793 28,357,863
Additional paid in capital [note 9] 35,768 --
Special warrants [note 9] 11,002,992 --
Cumulative translation adjustment (100,911) (103,001)
Deficit (29,598,443) (19,998,501)
-----------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 11,831,199 8,256,361
-----------------------------------------------------------------------------------------
14,012,304 9,807,644
=========================================================================================
</TABLE>
See accompanying notes
On behalf of the Board:
Director Director
F-3
<PAGE> 61
GENETRONICS BIOMEDICAL LTD.
CONSOLIDATED STATEMENTS OF
LOSS AND DEFICIT
<TABLE>
<CAPTION>
THIRTEEN
YEAR ENDED YEAR ENDED MONTHS ENDED
MARCH 31 MARCH 31 MARCH 31
2000 1999 1998
$ $ $
---------------------------------------------------------------------------------------------
(In U.S. dollars)
<S> <C> <C> <C>
REVENUE
Net sales [note 3] 4,134,436 3,434,105 3,097,198
License fee and milestone payments [note 3] 416,667 4,500,000 --
Grant funding 334,901 354,135 128,069
Revenues under collaborative research
and development arrangements 191,335 33,048 6,025
Interest income 556,193 300,911 427,498
---------------------------------------------------------------------------------------------
5,633,532 8,622,199 3,658,790
---------------------------------------------------------------------------------------------
EXPENSES
Cost of sales 2,023,899 1,638,635 1,427,285
Research and development 6,977,220 8,086,959 5,637,955
Selling, general and administrative 5,610,830 5,481,051 4,172,246
Restructuring charges [note 10] 597,183 -- --
Interest expense 24,342 19,391 17,970
---------------------------------------------------------------------------------------------
15,233,474 15,226,036 11,255,456
---------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD (9,599,942) (6,603,837) (7,596,666)
Deficit, beginning of period (19,998,501) (13,394,664) (5,797,998)
---------------------------------------------------------------------------------------------
DEFICIT, END OF PERIOD (29,598,443) (19,998,501) (13,394,664)
---------------------------------------------------------------------------------------------
LOSS PER COMMON SHARE (0.43) (0.33) (0.43)
=============================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 22,107,190 20,272,801 17,782,723
=============================================================================================
</TABLE>
See accompanying notes
F-4
<PAGE> 62
GENETRONICS BIOMEDICAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THIRTEEN
YEAR ENDED YEAR ENDED MONTHS ENDED
MARCH 31 MARCH 31 MARCH 31
2000 1999 1998
$ $ $
---------------------------------------------------------------------------------------------------
(In U.S. dollars)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss for the period (9,599,942) (6,603,837) (7,596,666)
Items not involving cash:
Depreciation and amortization 566,358 410,268 246,258
Provision for uncollectible accounts 43,149 7,472 26,915
Provision for inventory allowances 65,620 10,976 35,608
Loss on disposal of fixed assets -- 18,986 --
Deferred rent 408 (14,345) (1,196)
Changes in non-cash working capital items:
Accounts receivable (386,951) (280,393) 210,475
Inventories (21,356) (271,792) (37,980)
Prepaid expenses and other (133,328) (1,141) (815)
Accounts payable and accrued expenses 406,641 404,906 329,206
Deferred revenue 268,665 -- --
--------------------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (8,790,736) (6,318,900) (6,788,195)
--------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of fixed assets (289,511) (414,186) (553,687)
Increase in other assets (495,581) (287,771) (304,683)
--------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (785,092) (701,957) (858,370)
--------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payments on obligations under capital leases (45,892) (24,016) (18,549)
Issuance of Special Warrants, net of issue costs 11,155,648 -- --
Proceeds from issuance of common shares, net of
issue costs 2,017,042 6,795,461 12,333,136
--------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 13,126,798 6,771,445 12,314,587
--------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 2,090 (83,294) 14,361
--------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,553,060 (332,706) 4,682,383
Cash and cash equivalents, beginning of period 6,189,284 6,521,990 1,839,607
--------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 9,742,344 6,189,284 6,521,990
==================================================================================================
</TABLE>
See accompanying notes
F-5
<PAGE> 63
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
1. NATURE OF BUSINESS
Genetronics Biomedical Ltd. carries out its business through its wholly-owned
subsidiaries, Genetronics, Inc. and Genetronics S.A. Through its BTX Instrument
Division, the Company develops, manufactures, and markets electroporation
instrumentation and accessories used by scientists and researchers to perform
genetic engineering techniques, such as cell fusion, gene transfer, cell
membrane research and genetic mapping in research laboratories worldwide.
Through its Drug and Gene Delivery Division, the Company is developing drug
delivery systems which are designed to use electroporation to enhance drug or
gene delivery in the areas of oncology, dermatology, gene therapy, cardiology
and transdermal drug delivery. The Company sells the majority of its products to
customers in the United States, Canada, Germany and East Asia.
The Company has financed its cash requirements primarily from share issuances,
payments from collaborators and government grants. The Company's ability to
realize the carrying value of its assets is dependent on successfully bringing
its technologies to the market and achieving future profitable operations, the
outcome of which cannot be predicted at this time. It will be necessary for the
Company to raise additional funds for the continuing development of its
technologies.
2. ACCOUNTING POLICIES
The Company prepares its accounts in accordance with accounting principles
generally accepted in Canada. A reconciliation of amounts presented in
accordance with United States accounting principles is detailed in note 17.
Because a precise determination of many assets and liabilities depends on future
events, the preparation of financial statements necessarily involves the use of
management's estimates and approximations. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies used in the
preparation of these consolidated financial statements.
CONSOLIDATION
These consolidated financial statements include the accounts of Genetronics
Biomedical Ltd. and its wholly-owned subsidiary, Genetronics, Inc., a private
company incorporated in the state of California, USA and Genetronics S.A., a
wholly owned subsidiary of Genetronics, Inc., a company incorporated in France.
Significant intercompany accounts and transactions have been eliminated on
consolidation.
F-6
<PAGE> 64
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
2. ACCOUNTING POLICIES (CONT'D.)
STATEMENT OF CASH FLOWS
The Company has adopted the new recommendations of the Canadian Institute of
Chartered Accountants 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 excluded non-cash transactions such
as the acquisition of assets under capital leases and shares issued for non-cash
consideration within the statement of cash flows.
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of 90 days
or less, when purchased, to be cash equivalents. Cash equivalents are stated at
cost which approximates market value. Cash equivalents consist primarily of
commercial paper with an average interest rate of 6.1% and maturities to June 5,
2000.
FIXED ASSETS
Fixed assets are stated at cost and depreciated over the estimated useful lives
of the assets (five to seven years) using the straight-line method. Leasehold
improvements and equipment under capital leases are being depreciated over the
shorter of the estimated useful lives of the assets or the term of the lease.
Depreciation of leased assets is included in amortization and depreciation.
PATENT COSTS
Patents are recorded at cost and amortized using the straight-line method over
the expected useful lives of the patents or 17 years, whichever is less. Cost is
comprised of the consideration paid for patents and related legal costs. If
management determines that development of products to which patent costs relate
is not reasonably certain or that costs exceed recoverable value, such costs are
charged to operations.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) and
replacement cost for raw materials and net realizable value for finished goods
and work in process.
F-7
<PAGE> 65
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
2. ACCOUNTING POLICIES (CONT'D.)
FINANCIAL INSTRUMENTS
The fair values of the financial instruments including cash equivalents,
accounts receivable and accounts payable and accrued expenses approximate their
carrying value due to their short term nature except as otherwise disclosed in
the consolidated financial statements.
The obligations under capital lease bear rates which in management's opinion
approximate the current interest rate and therefore approximate fair value.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense for the years
ended March 31, 2000 and 1999 and the thirteen months ended March 31, 1998 was
$225,035, $173,600, and $205,486, respectively.
REVENUE RECOGNITION
Sales are recognized upon shipment of products and are recorded net of discounts
and sales returns. Revenue from licensing arrangements are recognized when all
the criteria in the agreement has been fulfilled.
Revenues under collaborative research and development arrangements are not
refundable if research efforts are unsuccessful, and, accordingly, are recorded
as revenue as development activities are performed and expensed.
Revenues under contractual arrangements are deferred upon receipt and recognized
as revenue over the remaining term of the contract.
LOSS PER COMMON SHARE
Loss per common share has been calculated using the weighted average number of
common shares outstanding during the period. Fully diluted loss per share has
not been presented as the outstanding options, Special Warrants and warrants are
anti-dilutive.
F-8
<PAGE> 66
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
2. ACCOUNTING POLICIES (CONT'D.)
INCOME TAXES
The Company uses the deferral method of income tax allocation in accounting for
income taxes.
RESEARCH AND DEVELOPMENT
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.
FOREIGN CURRENCY TRANSLATION
The U.S. dollar is used as the reporting currency in these consolidated
financial statements. However, the non-consolidated accounts of the Company are
measured using the Canadian dollar as its functional currency. Assets and
liabilities of the Company are translated into U.S. dollars using current
exchange rates in effect at the balance sheet date and revenue and expense
accounts are translated using the weighted average exchange rate during the
period. Gains and losses resulting from this process are recorded in
shareholders' equity as an adjustment to the cumulative translation account.
The accounts of the Company's U.S. subsidiary, a self-sustaining entity, are
measured using the U.S. dollar as its functional currency. Any of its
transactions denominated in foreign currencies are translated into U.S. dollars
at the exchange rate in effect on the transaction date. At the balance sheet
date, monetary items denominated in foreign currencies are adjusted to reflect
the exchange rate in effect at that time. Gains and losses resulting from this
translation process are deferred and included in the cumulative foreign currency
translation adjustment in shareholders' equity. The accounts of the Company's
French subsidiary, an integrated entity to the Company's U.S. subsidiary, are
recorded in French francs and translated into U.S. dollars using the temporal
method. Under this method, monetary assets and liabilities are translated at the
year-end exchange rates. Non-monetary assets and liabilities are translated
using historical rates of exchange. Revenues and expenses are translated at the
rates of exchange prevailing on the dates such items are recognized in earnings.
Exchange gains and losses are included in income for the year. The effect on the
statement of operations of transaction gains and losses is insignificant.
F-9
<PAGE> 67
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
2. ACCOUNTING POLICIES (CONT'D.)
GOVERNMENT ASSISTANCE
The Company receives non-refundable assistance under available government
programs. Government assistance towards current expenditures is recorded as
grant funding revenue in the period the related expenditure is incurred.
LEASES
Leases have been classified as either capital or operating leases. Leases which
transfer substantially all of the benefits and risks incidental to the ownership
of assets are accounted for as if there was an acquisition of an asset and
incurrence of an obligation at the inception of the lease. All other leases are
accounted for as operating leases wherein rental payments are expensed as
incurred.
STOCK BASED COMPENSATION
The Company grants stock options to executive officers and directors, employees
and consultants pursuant to stock option plans as described in note 9. No
compensation is recognized for these plans when common shares or stock options
are issued. 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 canceled is charged or credited to
additional paid in capital or retained earnings.
F-10
<PAGE> 68
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
3. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
At March 31, 2000, two customers accounted for approximately $597,330 [1999 -
$235,000] of total accounts receivable. Approximately 28%, 24% and 19% of net
sales were made to one customer for the years ended March 31, 2000 and 1999, and
the thirteen months ended March 31, 1998, respectively.
By an exclusive license and development agreement dated October 6, 1998, the
Company has granted the rights to its drug delivery technology to make, use and
sell oncology products as defined in the agreement. The agreement expires at the
expiration of certain patent rights covering the technology which at March 31,
2000 is in 2016. Pursuant to the agreement, during the year ended March 31,
2000, the Company received milestone payments from the licensee in the amount of
$416,667 [1999 - license fee and milestone payments of $4,500,000; 1998 - $nil].
Credit is extended based on an evaluation of a customer's financial condition
and generally collateral is not required. To date, credit losses have not been
significant.
4. INVENTORIES
<TABLE>
<CAPTION>
2000 1999
$ $
--------------------------------------------------------------------------------
<S> <C> <C>
Raw materials 490,926 401,634
Work in process 79,683 81,863
Finished goods 129,470 195,226
--------------------------------------------------------------------------------
700,079 678,723
Less: allowance for obsolescence (88,437) (22,817)
--------------------------------------------------------------------------------
611,642 655,906
================================================================================
</TABLE>
F-11
<PAGE> 69
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
5. FIXED ASSETS
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
2000
Machinery, equipment and office furniture 1,567,415 765,065 802,350
Leasehold improvements 427,647 301,918 125,729
Equipment under capital leases 199,375 112,643 86,732
-----------------------------------------------------------------------------------
2,194,437 1,179,626 1,014,811
-----------------------------------------------------------------------------------
1999
Machinery, equipment and office furniture 1,284,112 487,230 796,882
Leasehold improvements 424,436 189,041 235,395
Equipment under capital leases 209,740 64,624 145,116
-----------------------------------------------------------------------------------
1,918,288 740,895 1,177,393
===================================================================================
</TABLE>
6. OTHER ASSETS
<TABLE>
<CAPTION>
2000 1999
$ $
-----------------------------------------------------------------------------------
<S> <C> <C>
Patent costs, net 1,350,174 970,380
Other 33,460 31,938
-----------------------------------------------------------------------------------
1,383,634 1,002,318
===================================================================================
</TABLE>
Patent costs are net of accumulated amortization of $298,267 at March 31, 2000
[1999 - $184,002].
F-12
<PAGE> 70
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
2000 1999
$ $
--------------------------------------------------------------------------------
<S> <C> <C>
Trade accounts payable 875,646 641,915
Accrued compensation 717,416 601,433
Customer deposits 115,264 4,921
Accrued expenses 75,758 129,174
--------------------------------------------------------------------------------
1,784,084 1,377,443
================================================================================
</TABLE>
8. CREDIT FACILITY
The Company has a trade finance credit facility with a bank to borrow up to
$2,000,000. This facility expires in June 2000. Borrowings under this line of
credit are collateralized by assignment of cash and cash equivalents. This
credit facility bears interest at the bank's floating rate [March 31, 2000 - 9%]
less 1%, or the LIBOR rate [March 31, 2000 - 6.3%] plus 1.75%, and expires on
June 30, 2000. At March 31, 2000, there was no outstanding balance drawn on this
credit facility.
F-13
<PAGE> 71
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
9. SHARE CAPITAL
AUTHORIZED
100,000,000 common shares without par value
100,000,000 Class A preferred shares without par value
ISSUED AND OUTSTANDING
<TABLE>
<CAPTION>
NUMBER OF AMOUNT OF
COMMON SHARES ISSUED CAPITAL
# $
---------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, FEBRUARY 28, 1997 12,848,374 6,882,781
For cash
Pursuant to exercise of stock options 290,756 390,868
Pursuant to exercise of warrants 1,408,000 3,248,172
Issued pursuant to exercise of Special Warrants 1,268,000 2,781,515
For cash
Pursuant to issue and exercise of warrants 1,300,000 3,976,342
Pursuant to private placement 1,955,000 6,050,128
Share issue costs -- (1,767,404)
-------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1998 19,070,130 21,562,402
For cash
Pursuant to private placement 2,242,611 6,000,000
Pursuant to exercise of stock options 61,525 90,423
Pursuant to exercise of warrants 292,000 830,985
Share issue costs -- (125,947)
-------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1999 21,666,266 28,357,863
For cash
Pursuant to exercise of stock options 988,542 1,516,239
Pursuant to exercise of Agent's Special Warrants 151,300 500,803
Issued for corporate finance services 30,000 91,890
Issued pursuant to exercise of Special Warrants 23,000 60,766
Cancelled escrow shares (26,784) (35,768)
-------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2000 22,832,324 30,491,793
=====================================================================================
</TABLE>
F-14
<PAGE> 72
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
9. SHARE CAPITAL (CONT'D.)
During the year ended March 31, 2000, the Company cancelled 26,784 common shares
held in escrow. Accordingly, the weighted average per share amount attributed to
the cancelled shares of $35,768 has been allocated to additional paid in
capital.
At March 31, 2000, the stated capital amount of the Company, as determined in
accordance with the provisions of the Company Act (British Columbia), is
$32,534,618 [1999 - $30,400,688].
SPECIAL WARRANTS
<TABLE>
<CAPTION>
NUMBER OF
SPECIAL WARRANTS AMOUNT
# $
--------------------------------------------------------------------------------
<S> <C> <C>
Balance, February 28, 1997 1,268,000 2,346,485
Converted into common shares upon exercise (1,268,000) (2,346,485)
-------------------------------------------------------------------------------
Balance, March 31, 1998 and 1999 -- --
Issuance of Special Warrants 4,187,500 12,562,500
Share issue costs -- (1,498,742)
Converted into common shares (23,000) (60,766)
-------------------------------------------------------------------------------
Balance, March 31, 2000 4,164,500 11,002,992
===============================================================================
</TABLE>
Pursuant to an Agency Agreement dated October 25, 1996, the Company issued
1,268,000 Special Warrants at Cdn. $3.00 each for total consideration of
$2,781,515 (Cdn. $3,804,000) before deducting the agent's commission of $278,151
(Cdn. $380,400) and other estimated share issue costs. Each Special Warrant was
exchanged into one common share, which were qualified for distribution by final
receipt of a prospectus dated April 16, 1997.
Pursuant to an Agency Agreement dated June 16, 1999, the Company issued
4,187,500 Special Warrants at $3.00 each for total consideration of $12,562,500
(Cdn. $18,259,594) before deducting the agent's commission of $1,005,000 (Cdn.
$1,460,768) and other estimated issue costs. Each Special Warrant entitles the
holder to receive, at no additional cost, one common share of the Company any
time up until the earliest of: (i) the day which is the fifth business day after
the date of issuance of a receipt for a final prospectus relating to the
distribution of the common shares on the exercise of the Special Warrants by the
last of the British Columbia and Ontario Securities Commissions; and (ii) June
16, 2000, (the "Expiry date"). Any Special Warrants not exercised prior to the
Expiry date will be deemed to have been exercised. In March 2000, the Company
issued 23,000 common shares pursuant to the exercise and conversion of 23,000
Special Warrants.
F-15
<PAGE> 73
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
9. SHARE CAPITAL (CONT'D.)
WARRANTS
In connection with the issuance of 1,955,000 common shares pursuant to an agency
agreement dated April 15, 1997, the Company granted the agent warrants to
acquire 200,000 common shares for Cdn. $4.30 per share until May 26, 1998.
During the year ended March 31, 1999, the Company amended the terms of the
warrants by increasing the exercise price to Cdn. $4.73 and extending the expiry
date to November 30, 1998. These warrants were exercised during the year ended
March 31, 1999.
In connection with the issuance of 4,187,500 Special Warrants pursuant to an
agency agreement dated June 16, 1999, the Company issued to the Agent's nominee
30,000 common shares and 418,750 Special Warrants exercisable, for no additional
consideration, into 418,750 share purchase warrants, which are exercisable into
418,750 common shares at a price of $3.31 per share on or before June 16, 2000.
During the year ended March 31, 2000, the Company issued 151,300 common shares
pursuant to the exercise of 151,300 of these share purchase warrants.
STOCK OPTIONS
The Company has two stock option plans pursuant to which stock options are
granted to executive officers and directors, employees and consultants.
The 1995 stock option plan (the "1995 Plan") was approved by the shareholders in
1995 and subsequently amended in 1997. The 1995 Plan was suspended by the board
of directors in June 1997 and no further options will be granted pursuant to
this plan. As at March 31, 2000, there are 1,361,150 options outstanding
pursuant to the 1995 Plan and no further options may be granted.
The 1997 stock option plan (the "1997 Plan"), as amended in 1999, was approved
by the shareholders in July 1999, whereby 6,400,000 common shares were reserved
for issuance [1999 - 6,400,000]. The directors have the discretion to specify
the vesting period and the option term, up to ten years, at the time of grant.
As at March 31, 2000, 381,133 common shares are available for grant under the
1997 Plan.
F-16
<PAGE> 74
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
9. SHARE CAPITAL (CONT'D.)
On March 26, 1999, the Company amended the currency denomination of its stock
options from the Canadian dollar to the U.S. dollar. The exercise price of all
options outstanding on March 26, 1999 were converted into U.S. dollars based on
the exchange rate in effect on that date.
During the year ended March 31, 2000, the Company amended the terms of certain
stock options to officers of the Company pursuant to the agreements in note 10,
by accelerating the remaining vesting period of 200,000 stock options at an
exercise price of $2.95 from 25% each year to 100% immediately.
The following table summarizes the stock options outstanding at March 31, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
NUMBER OF NUMBER OF
OPTIONS WEIGHTED WEIGHTED OPTIONS WEIGHTED
RANGE OF OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
EXERCISE AT MARCH 31, REMAINING EXERCISE AT MARCH 31, EXERCISE
PRICES $ 2000 CONTRACTUAL LIFE PRICE $ 2000 PRICE $
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1.12 - 1.66 656,500 4.23 years 1.32 611,500 1.29
1.76 - 2.55 1,020,019 6.28 years 2.16 911,269 2.25
2.65 - 3.75 2,345,400 6.30 years 2.94 1,551,021 2.95
4.13 - 5.50 493,625 9.90 years 4.24 130,750 4.14
--------------------------------------------------------------------------------------------------
4,515,544 3,204,540
==================================================================================================
</TABLE>
F-17
<PAGE> 75
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
9. SHARE CAPITAL (CONT'D.)
Stock option transactions for the respective periods and the number of stock
options outstanding are summarized as follows:
<TABLE>
<CAPTION>
NO. OF WEIGHTED
COMMON SHARES AVERAGE EXERCISE
ISSUABLE PRICE
-----------------------------------------------------------------------
<S> <C> <C>
Balance, February 28, 1997 2,595,000 1.67
Options granted 1,331,150 2.30
Options exercised (290,756) 1.24
Options cancelled (568,344) 2.17
-----------------------------------------------------------------------
Balance, March 31, 1998 3,067,050 1.90
Options granted 1,783,736 2.84
Options exercised (61,525) 1.47
Options cancelled (135,125) 2.39
-----------------------------------------------------------------------
Balance, March 31, 1999 4,654,136 2.24
Options granted 1,048,200 3.57
Options exercised (988,542) 1.53
Options cancelled (198,250) 2.71
-----------------------------------------------------------------------
BALANCE, MARCH 31, 2000 4,515,544 2.63
=======================================================================
</TABLE>
SHAREHOLDER RIGHTS PLAN
In 1997, the shareholders approved the adoption of a Shareholder Rights Plan
(the "Rights Plan") to protect the Company's shareholders from unfair, abusive
or coercive take-over strategies. Under the Rights Plan, holders of common
shares are entitled to one share purchase right ("Right") for each common share
held. If any person or group makes a take-over bid, other than a bid permitted
under the plan or acquires 20% or more of the Company's outstanding common
shares without complying with the Rights Plan, each Right entitles the
registered holder thereof to purchase, in effect, $20 equivalent of common
shares of the Company at 50% of the prevailing market price.
F-18
<PAGE> 76
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
10. RESTRUCTURING CHARGES
During the year ended March 31, 2000, the Company undertook a review of its
operating structure to identify opportunities to improve operating
effectiveness. As a result of this review, certain staffing changes occurred and
in December 1999, the Company entered into termination agreements with two of
its senior executives. In accordance with the staffing changes and the terms of
the termination agreements, the Company has accrued and recorded severance costs
and certain benefits amounting to $597,183 for the year ended March 31, 2000. As
at March 31, 2000, $288,042 is included in accounts payable and accrued expenses
relating to these restructuring charges.
11. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
[a] The Company leases its facilities and certain motor vehicles under
operating lease agreements which expire up to 2005. The facilities lease
agreements require the Company to pay maintenance costs. Rent expense
under operating leases was as follows:
<TABLE>
<CAPTION>
THIRTEEN
YEAR ENDED YEAR ENDED MONTHS ENDED
MARCH 31 MARCH 31 MARCH 31
2000 1999 1998
$ $ $
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Rentals 388,524 277,906 209,066
==================================================================================
</TABLE>
At March 31, 2000, future minimum lease payments under non-cancellable
operating leases are as follows:
<TABLE>
<CAPTION>
$
<S> <C>
--------------------------------------------------------------------------------
2001 514,669
2002 522,909
2003 526,832
2004 531,228
2005 402,155
--------------------------------------------------------------------------------
2,497,793
================================================================================
</TABLE>
F-19
<PAGE> 77
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
11. COMMITMENTS AND CONTINGENCIES (CONT'D.)
[b] At March 31, 2000 future minimum lease payments under non-cancellable
capital leases are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
CAPITAL
LEASES
$
--------------------------------------------------------------------------------
<S> <C>
2001 67,172
2002 59,573
2003 10,839
2004 4,070
--------------------------------------------------------------------------------
Total minimum lease payments 141,654
Amounts representing interest (approximately 17%) (23,270)
--------------------------------------------------------------------------------
Present value of future minimum lease payments 118,384
Less: amounts due in one year (53,098)
--------------------------------------------------------------------------------
65,286
================================================================================
</TABLE>
[c] In accordance with the license and development agreement described in
note 3, the Company is committed to spend on internal research and
development projects, the greater of $1,500,000 and a percentage of
sales per annum.
[d] In accordance with a consulting agreement dated February 10, 2000, the
Company may be required to issue 120,000 warrants to acquire common
shares and pay a fee based on a percentage of future funding upon the
occurrence of certain events as described in the agreement.
F-20
<PAGE> 78
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
11. COMMITMENTS AND CONTINGENCIES (CONT'D.)
CONTINGENCIES
[a] The Company may, from time to time, be subject to claims and legal
proceedings brought against them in the normal course of business. Such
matters are subject to many uncertainties. Management believes that
adequate provisions have been made in the accounts where required and
the ultimate resolution of such contingencies will not have a material
adverse effect on the financial position of the Company.
[b] In April 1999, the Company received correspondence purporting to a claim
to certain rights to technology of the Company. Whilst the Company
disputes certain aspects of these claims, management has been
negotiating with the third party to finalize an agreement that would
give the Company the exclusive rights to the technology. The outcome of
these negotiations is uncertain at this time.
F-21
<PAGE> 79
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
12. INCOME TAXES
At March 31, 2000, the U.S. subsidiary has U.S. federal and California income
tax net operating loss carryforwards of approximately $23,663,000 and
$5,247,000, respectively. The difference between the U.S. federal and California
tax loss carryforwards is primarily attributable to the capitalization of
research and development expenses for California income tax purposes and the 50%
limitation of California loss carryforwards. In addition, the U.S. subsidiary
has U.S. federal and California research tax credit carryforwards of $790,000
and $388,000, respectively. The California research tax credits may be carried
forward indefinitely. The U.S. federal and California tax loss carryforwards and
the U.S. federal research tax credits expire as follows:
<TABLE>
<CAPTION>
U.S. FEDERAL
RESEARCH U.S. FEDERAL CALIFORNIA
TAX CREDITS LOSSES LOSSES
$ $ $
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Year ended March 31,
2001 -- -- 346,000
2002 -- -- 769,000
2003 -- -- 1,576,000
2004 -- -- 212,000
2005 2,000 -- 2,344,000
2006 6,000 -- --
2007 7,000 -- --
2008 14,000 46,000 --
2009 14,000 -- --
2010 18,000 542,000 --
2011 15,000 1,816,000 --
2012 58,000 2,947,000 --
2013 152,000 6,901,000 --
2014 266,000 4,691,000 --
2015 -- 6,720,000 --
2020 238,000 -- --
--------------------------------------------------------------------------------
790,000 23,663,000 5,247,000
================================================================================
</TABLE>
F-22
<PAGE> 80
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
12. INCOME TAXES (CONT'D.)
Pursuant to Internal Revenue Code Section 382 and 383, annual use of the
subsidiary's net operating loss and credit carryforwards may be limited because
of a cumulative change in ownership of more than 50% which occurred during 1993
and as a result of the reverse takeover which occurred in 1995. However, the
Company does not believe such limitations will have a material impact upon the
utilization of these carryforwards.
The French subsidiary has losses for French income tax purposes of approximately
$2,233,000 of which $1,254,000 expires in 2004 and $979,000 expires in 2005.
The Company has non-capital losses for Canadian income tax purposes which may be
used to reduce future taxable income, expiring as follows:
<TABLE>
<CAPTION>
$
--------------------------------------------------------------------------------
<S> <C>
Year ended March 31,
2001 40,000
2002 322,000
2003 393,000
2004 602,000
2005 50,000
2006 1,223,000
2007 707,000
--------------------------------------------------------------------------------
3,337,000
================================================================================
</TABLE>
In addition, the Company has unclaimed tax deductions of approximately
$1,857,000 related primarily to share issue costs available to reduce taxable
income of future years.
The income tax benefits of the operating loss and tax credit carryforwards have
not been recorded in the consolidated financial statements as their realization
is not virtually certain.
F-23
<PAGE> 81
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
13. PENSION PLAN
In 1995, the United States subsidiary adopted a 401(k) Profit Sharing Plan
covering substantially all of its employees in the United States. The defined
contribution plan allows the employees to contribute a percentage of their
compensation each year. The Company currently matches 50% of the employees
contribution, up to 6% of annual compensation. The proceeds from contributions
are invested in common shares of the Company. The pension expense for the year
ended March 31, 2000 was $87,104 [1999 - $66,297; thirteen months ended March
31, 1998 - $44,911].
14. SEGMENTED INFORMATION
The Company's reportable business segments include the BTX Instrument Division
and the Drug and Gene Delivery Division [note 1]. The Company evaluates
performance based on many factors including net results from operations before
certain unallocated costs. The Company does not allocate interest income and
expenses and general and administrative costs to its reportable segments. In
addition, total assets are not allocated to each segment.
The accounting policies of the segments are the same as those described in note
2.
Substantially all of the Company's assets and operations are located in the
United States and predominantly all revenues are generated in the United States.
F-24
<PAGE> 82
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
14. SEGMENTED INFORMATION (CONT'D.)
<TABLE>
<CAPTION>
BTX DRUG AND GENE
INSTRUMENT DELIVERY
DIVISION DIVISION TOTAL
$ $ $
--------------------------------------------------------------------------------
<S> <C> <C> <C>
YEAR ENDED MARCH 31, 2000
Reportable segment net sales 3,827,537 306,899 4,134,436
Other reportable segment revenue -- 942,903 942,903
--------------------------------------------------------------------------------
Total segment revenue 3,827,537 1,249,802 5,077,339
Add unallocated item
Interest income 556,193
--------------------------------------------------------------------------------
Total revenue 5,633,532
================================================================================
Reportable segment cost of sales (1,781,972) (241,927) (2,023,899)
Restructuring charges (19,729) (577,454) (597,183)
Other reportable segment expenses (1,693,179) (6,504,088) (8,197,267)
--------------------------------------------------------------------------------
Net results of reportable segment 332,657 (6,073,667) (5,741,010)
--------------------------------------------------------------------------------
Add (deduct) unallocated items
Interest income 556,193
General and administrative (4,390,783)
Interest expense (24,342)
--------------------------------------------------------------------------------
Net loss (9,599,942)
================================================================================
</TABLE>
F-25
<PAGE> 83
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
14. SEGMENTED INFORMATION (CONT'D.)
<TABLE>
<CAPTION>
BTX DRUG AND GENE
INSTRUMENT DELIVERY
DIVISION DIVISION TOTAL
$ $ $
--------------------------------------------------------------------------------
<S> <C> <C> <C>
YEAR ENDED MARCH 31, 1999
Reportable segment net sales 3,434,105 -- 3,434,105
Other reportable segment revenue -- 4,887,183 4,887,183
--------------------------------------------------------------------------------
Total segment revenue 3,434,105 4,887,183 8,321,288
Add unallocated item
Interest income 300,911
--------------------------------------------------------------------------------
Total revenue 8,622,199
================================================================================
Reportable segment cost of sales (1,638,635) -- (1,638,635)
Other reportable segment expenses (1,429,084) (7,745,526) (9,174,610)
--------------------------------------------------------------------------------
Net results of reportable segment 366,386 (2,858,343) (2,491,957)
--------------------------------------------------------------------------------
Add (deduct) unallocated items
Interest income 300,911
General and administrative (4,393,400)
Interest expense (19,391)
--------------------------------------------------------------------------------
Net loss (6,603,837)
================================================================================
</TABLE>
F-26
<PAGE> 84
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
14. SEGMENTED INFORMATION (CONT'D.)
<TABLE>
<CAPTION>
BTX DRUG AND GENE
INSTRUMENT DELIVERY
DIVISION DIVISION TOTAL
$ $ $
--------------------------------------------------------------------------------
<S> <C> <C> <C>
13 MONTHS ENDED MARCH 31, 1998
Reportable segment net sales 3,097,198 -- 3,097,198
Other reportable segment revenue -- 134,094 134,094
--------------------------------------------------------------------------------
Total segment revenue 3,097,198 134,094 3,231,292
Add unallocated item
Interest income 427,498
--------------------------------------------------------------------------------
Total revenue 3,658,790
================================================================================
Reportable segment cost of sales (1,427,285) -- (1,427,285)
Other reportable segment expenses (1,191,414) (5,416,432) (6,607,846)
--------------------------------------------------------------------------------
Net results of reportable segment 478,499 (5,282,338) (4,803,839)
--------------------------------------------------------------------------------
Add (deduct) unallocated items
Interest income 427,498
General and administrative (3,202,355)
Interest expense (17,970)
--------------------------------------------------------------------------------
Net loss (7,596,666)
================================================================================
</TABLE>
F-27
<PAGE> 85
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
15. RELATED PARTY TRANSACTIONS
[a] The payments to parties not at arm's length include the following:
- legal fees paid to a law firm where one of the partners is a
director of the Company
- accounting and administration fees paid to a company where the
principal is a director of the Company
- rent and administration fees paid to a company where one of the
principals is an officer of the Company's French subsidiary, as
follows:
<TABLE>
<CAPTION>
THIRTEEN
YEAR ENDED YEAR ENDED MONTHS ENDED
MARCH 31 MARCH 31 MARCH 31
2000 1999 1998
$ $ $
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Legal services 161,042 93,778 82,810
Accounting and administration 29,055 26,735 24,020
Rent and administration 32,600 114,900 --
================================================================================
</TABLE>
[b] Included in accounts payable and accrued expenses are the following
amounts owed to the parties identified in note 15[a] which are payable
under normal trade terms:
<TABLE>
<CAPTION>
2000 1999
$ $
--------------------------------------------------------------------------------
<S> <C> <C>
Legal services and accounting and
administration 6,130 6,510
================================================================================
</TABLE>
F-28
<PAGE> 86
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
16. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
THIRTEEN
YEAR ENDED YEAR ENDED MONTHS ENDED
MARCH 31 MARCH 31 MARCH 31
2000 1999 1998
$ $ $
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid during
the period 24,342 19,391 17,970
===================================================================================
</TABLE>
17. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES
The Company prepares its consolidated financial statements in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP"). In
addition, the Company provides supplementary descriptions of significant
differences between Canadian GAAP and those in the United States ("U.S. GAAP")
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.
Significant components of the Company's deferred tax assets as of March
31, 2000 and 1999 pursuant to U.S. GAAP are shown below. A valuation
allowance would be recognized to fully offset the deferred tax assets as
of March 31, 2000 and 1999 as realization of such assets is uncertain.
F-29
<PAGE> 87
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
17. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES (CONT'D.)
<TABLE>
<CAPTION>
2000 1999
$ $
--------------------------------------------------------------------------------
<S> <C> <C>
Capitalized research expense 246,000 393,000
Net operating loss carryforwards 10,834,000 7,774,000
Research and development credits 1,042,000 557,000
Share issue costs 854,000 488,000
Other - net 262,000 209,000
--------------------------------------------------------------------------------
Total deferred tax assets 13,238,000 9,421,000
Valuation allowance for deferred tax assets (13,238,000) (9,421,000)
--------------------------------------------------------------------------------
Net deferred tax assets -- --
================================================================================
</TABLE>
[b] Under U.S. GAAP, 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] The Company has elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25), 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 U.S. 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 U.S. GAAP, the Company will record an additional
compensation expense of $250,000 [1999 - $431,000] over future vesting
periods.
[e] In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). SFAS 133 will be
effective for the Company's year ending March 31, 2002. The Company has
not determined the impact, if any, of this pronouncement on its
consolidated financial statements.
F-30
<PAGE> 88
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
17. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES (CONT'D.)
[f] The United States Securities and Exchange Commission has issued Staff
Accounting Bulletin 101, Revenue Recognition in Financial Statements
(SAB 101). This pronouncement is effective for the Company's first
quarter commencing April 1, 2000. The Company has not yet determined
the impact of SAB 101 on its consolidated financial statements and its
current revenue recognition policies.
[g] In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, Accounting for Certain Transactions Involving
Stock Compensation (FIN 44), an interpretation of APB 25. This
pronouncement is effective for the Company's second quarter commencing
July 1, 2000. The Company has not yet determined the impact of FIN 44
on its consolidated financial statements.
[h] U.S. GAAP requires disclosure of comprehensive income which measures
all non-capital changes in shareholders' equity. Other accumulated
comprehensive income for the Company solely relates to foreign exchange
translation gains and losses.
The impact of significant variations to U.S. GAAP on the Consolidated Statements
of Loss are as follows:
<TABLE>
<CAPTION>
THIRTEEN
YEAR ENDED YEAR ENDED MONTHS ENDED
MARCH 31 MARCH 31 MARCH 31
2000 1999 1998
$ $ $
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loss for the period, Canadian GAAP (9,599,942) (6,603,837) (7,596,666)
Adjustment for stock based compensation
- non-employees (1,103,888) (546,700) (307,500)
----------------------------------------------------------------------------------------------------
Loss for the period, U.S. GAAP (10,703,830) (7,150,537) (7,904,166)
---------------------------------------------------------------------------------------------------
Unrealized losses on foreign currency translation 2,090 (83,294) 14,361
---------------------------------------------------------------------------------------------------
Comprehensive loss for the period, U.S. GAAP (10,701,740) (7,233,831) (7,889,805)
---------------------------------------------------------------------------------------------------
Basic and diluted loss per share, U.S. GAAP (0.48) (0.35) (0.44)
===================================================================================================
</TABLE>
F-31
<PAGE> 89
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
17. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES (CONT'D.)
Pro forma information regarding net income and earnings per share is required by
Statement of Financial Accounting Standard No. 123, Accounting for Stock Based
Compensation (SFAS 123), which also requires that the information be determined
as if the Company has accounted for its employee stock options granted in fiscal
periods beginning subsequent to December 1994 under the fair value method of
that statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes pricing model with the following weighted average
assumptions for the years ended March 31, 2000 and March 31, 1999 and the
thirteen months ended March 31, 1998, respectively: risk free interest rates of
6.1%, 5.2% and 5.8%; dividend yields of 0%; volatility factors of the expected
market price of the Company's common stock of 0.62, 0.68 and 0.70; and a
weighted average expected life of the options of nine, five, and seven and
one-half.
The Black Scholes options valuation model was developed for use in estimating
the fair value of trade options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The weighted-average fair value of options granted during the year ended March
31, 2000 was $2.56 [1999 - $3.19; thirteen months ended March 31, 1998 - $1.84].
Supplemental disclosure of pro forma loss and loss per share is as follows:
<TABLE>
<CAPTION>
THIRTEEN
YEAR ENDED YEAR ENDED MONTHS ENDED
MARCH 31 MARCH 31 MARCH 31
2000 1999 1998
$ $ $
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma loss, U.S. GAAP (11,985,791) (9,169,837) (9,257,666)
Pro forma loss per share, U.S. GAAP (0.54) (0.45) (0.52)
============================================================================================
</TABLE>
F-32
<PAGE> 90
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN U.S. DOLLARS)
17. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES (CONT'D.)
The impact of significant variations to U.S. GAAP on the Consolidated Balance
Sheet items are as follows:
<TABLE>
<CAPTION>
2000 1999
$ $
--------------------------------------------------------------------------------
<S> <C> <C>
Share capital 33,028,925 29,791,107
Deficit (32,135,575) (21,431,745)
================================================================================
</TABLE>
18. SUBSEQUENT EVENTS
The following events occurred subsequent to March 31, 2000.
[a] The Company issued 15,000 common shares pursuant to the exercise of
Agent's Special Warrants at a price of $3.31 per share.
[b] The Company issued 66,894 common shares pursuant to the exercise of
stock options at a weighted average exercise price of $2.43 for proceeds
of $162,827.
F-33
<PAGE> 91
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by us in
connection with the resale of the shares of common stock being registered. All
of the amounts shown are estimates, except for the SEC registration fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
Registration fee ........................................... $ 4,103
Blue sky qualification fees and expenses ................... $ 5,000
Printing and engraving expenses ............................ $ 3,500
Legal fees and expenses .................................... $ 50,000
Accounting fees and expenses ............................... $ 30,000
Miscellaneous .............................................. $ 7,397
--------
Total ............................................ $100,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
As specified in our Articles of Incorporation, subject to the
provisions of the Company Act of the Province of British Columbia, the Directors
shall cause us to indemnify a Director or a former Director of ours and the
Directors may cause us to indemnify a Director or former Director of a
corporation of which we are or were a member and the heirs and personal
representatives of any such person against all costs, charges and expenses,
including an amount paid to settle an action or satisfy a judgment, actually and
reasonably incurred by him or them including an amount paid to settle an action
or satisfy a judgment in a civil, criminal or administrative action or
proceeding to which he is or they are made a party by reason of his being or
having been a Director of ours or a Director of such corporation, including any
action brought by us or any such corporation. Each of our Directors on being
elected or appointed shall be deemed to have contracted with us on the terms of
the foregoing indemnity.
Additionally, the Directors may cause us to indemnify any of our
officers, employees or agents, or of a corporation of which we are or were a
member, and his heirs and personal representatives, against all costs, charges
and expenses whatsoever incurred by him or them and resulting from his acting as
our officer, employee or agent or such corporation. The Company shall also
indemnify our Secretary and any Assistant Secretary, if he is not a full-time
employee and notwithstanding that he may also be a Director and his respective
heirs and legal representatives against all costs, charges and expenses
whatsoever incurred by him or them and arising out of the functions assigned to
the Secretary by the Company Act or the Articles and each such Secretary and
Assistant Secretary shall, on being appointed be deemed to have contracted with
us on the terms of the foregoing indemnity.
The Directors may cause us to purchase and maintain insurance for
the benefit of any person who is or was serving a Director, officer, employee or
agent of ours or as a director, officer, employee or agent of any corporation of
which we are or were a shareholder and his heirs or personal representatives
against any liability incurred by him as such director, officer, employee or
agent.
II-1
<PAGE> 92
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
3.1 Articles of Incorporation(1)
3.2* Memorandum of the Registrant, as altered by Special Resolution filed
August 4, 1999
3.3 Bylaws of Genetronics, Inc.(1)
4.1 Reference is made to Exhibits 3.1 through 3.3
4.2 Specimen Stock Certificate(2)
4.3* Shareholder Rights Agreement dated June 20, 1997 by and between the
Registrant and Montreal Trust Company of Canada, as amended on
August 21, 1997
5.1* Opinion of Catalyst Corporate Finance Lawyers
10.1 1995 Stock Option Plan, as amended(3)
10.2 Forms of Incentive and Nonstatutory Stock Option Agreements used in
connection with the 1995 Stock Option Plan(3)
10.3 Amended 1997 Stock Option Plan(3)
10.4 Forms of Incentive and Nonstatutory Stock Option Agreements used in
connection with the 1997 Stock Option Plan(3)
10.5 Form of Stock Option Agreement used in connection with an option
grant outside of either of the stock option plans(3)
10.6 Employment Agreement dated January 9, 1995, Amendment No. 1 dated
January 9, 1996 and Amendment No. 2 dated March 1, 1997 between the
Registrant and Lois Crandell(1)
10.7 Employment Agreement dated January 9, 1995, Amendment No. 1 dated
January 9, 1996 and Amendment No. 2 dated March 1, 1997 between the
Registrant and Gunter A. Hofmann, Ph.D.(1)
10.8 Employment Agreement dated January 9, 1995, Amendment No. 1 dated
January 9, 1996 and Amendment No. 2 dated March 1, 1997 between the
Registrant and Martin Nash(1)
10.9 Employment Agreement dated February 5, 1996 between the Registrant
and James C. Lierman+
10.10 Amendment Number 3 dated January 15, 1999 to Employment Agreement
dated January 9, 1995, as amended, between the Registrant and Lois
Crandell(4)
10.11 Amendment Number 3 dated January 15, 1999 to Employment Agreement
dated January 9, 1995, as amended between the Registrant and Gunter
A. Hofmann, Ph.D.(4)
10.12 Amendment Number 3 dated January 15, 1999 to Employment Agreement
dated January 9, 1995, as amended, between the Registrant and Martin
Nash(4) 10.13 401(k) Defined Contribution Plan of Registrant(1)
10.14* Lease by and between the Registrant and Olen Property Corporation
dated December 3, 1996 as modified on March 7, 1997 and August 26,
1999
10.15* Lease Agreement by and between the Registrant and Nexus Sorrento
Glen LLC dated August 26, 1999
10.16 Stock Purchase Agreement dated October 6, 1998 by and between the
Registrant and Johnson & Johnson Development Corporation(4)
10.17 License and Development Agreement dated October 6, 1998 by and
between the Registrant and Ethicon, Inc.+
10.18 Supply Agreement dated October 6, 1998 by and between the Registrant
and Ethicon, Inc.+
10.19 Agency Agreement -- Special Warrant Private Placement dated June 8,
1999 by and between the Registrant and Canaccord International
Corporation(5)
</TABLE>
II-2
<PAGE> 93
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
10.20 Special Warrant Indenture dated June 16, 1999 by and between the
Registrant and Montreal Trust Company of Canada(5)
10.21 Lease Agreement by and between Registrant and Nexus Sorrento Glen
LLC dated August 26, 1999(6)
10.22 Trade Credit Agreement by and between the Registrant and Union Bank
of California dated August 6, 1999(6)
10.23 Promissory Note - Trade Finance - Base Rate by the Registrant to
Union Bank of California dated August 6, 1999(6)
10.24 Promissory Note - Base Rate by the Registrant to Union Bank of
California dated August 6, 1999(6)
10.25 Research and Option Agreement dated November 2, 1999 by and between
the Registrant and Boehringer Ingelheim International GMBH(7)
10.26 Termination of Employment Agreement dated December 6, 1999 by and
between the Registrant and Lois J. Crandell(7)
10.27 Consulting Services Agreement dated December 6, 1999 by and between
the Registrant and Lois J. Crandell(7)
10.28 Termination of Employment Agreement dated December 6, 1999 by and
between the Registrant and Gunter A. Hofmann(7)
10.29 Consulting Services Agreement dated December 6, 1999 by and between
the Registrant and Gunter Hofmann(7)
10.30 First Amendment to Agreement Concerning Termination of Employment of
Lois Crandell dated May 24, 2000 by and between the Registrant and
Lois J. Crandell(8)
10.31 First Amendment to Consulting Services Agreement dated May 24, 2000
by and between the Registrant and Lois J. Crandell(8)
10.32 First Amendment to Agreement Concerning Termination of Employment of
Gunter A. Hofmann dated May 24, 2000 by and between the Registrant
and Gunter A. Hofmann(8)
10.33 First Amendment to Consulting Services Agreement dated May 24, 2000
by and between the Registrant and Gunter A. Hofmann(8)
21.1 Subsidiaries of the Registrant(8)
23.1 Consent of Catalyst Corporate Finance Lawyers. Reference is made to
Exhibit 5.1
23.2 Consent of Ernst & Young LLP, Independent Auditors
24.1* Power of Attorney of Felix Theeuwes
27.1 Financial Data Schedule
</TABLE>
----------
* Previously filed
+ Confidential treatment has been requested with respect to certain
portions of this exhibit. Omitted portions have been filed separately
with the Securities and Exchange Commission.
(1) Filed as an exhibit to Registrant's Form 20-F for the year ended
February 28, 1998 and incorporated herein by reference.
(2) Filed as an exhibit to Registrant's Form 8-A on December 3, 1998 and
incorporated herein by reference.
(3) Filed as an exhibit to Registrant's Form S-8 on September 1, 1999 and
incorporated herein by reference.
II-3
<PAGE> 94
(4) Filed as an exhibit to Registrant's Form 10-K for the period ended March
31, 1999 and incorporated herein by reference.
(5) Filed as an exhibit to Registrant's Form 10-Q for the quarter ended June
30, 1999 and incorporated herein by reference.
(6) Filed as an exhibit to Registrant's Form 10-Q for the quarter ended
September 30, 1999 and incorporated herein by reference.
(7) Filed as an exhibit to Registrant's Form 10-Q for the quarter ended
December 31, 1999 and incorporated herein by reference.
(8) Filed as an exhibit to Registrant's Form 10-K for the year ended March
31, 2000 and incorporated herein by reference.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period during which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or any
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low end or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.
(2) That, for purposes of determining liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities to be offered therein, and the
offering of such securities at that time shall be deemed to be an initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which shall remain unsold at the termination
of the offering.
(4) To file a post-effective amendment to the registration statement to
include any financial statements required by Rule 3-19 of Regulation S-X
throughout this offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 15, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE> 95
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of San
Diego, County of San Diego, State of California, on July 14, 2000.
By: /s/ MARTIN NASH
-----------------------------------------
Martin Nash
President, Chief Executive Officer and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MARTIN NASH President, Chief Executive Officer, July 14, 2000
------------------------------------- Chief Financial Officer and Director
Martin Nash (Principal Executive Officer and
Principal Financial Officer)
* Executive Vice President July 14, 2000
-------------------------------------
James Lierman
* Director July 14, 2000
-------------------------------------
James L. Heppell
* Director July 14, 2000
-------------------------------------
Gordon Politeski
* Director July 14, 2000
-------------------------------------
Felix Theeuwes
* Director July 14, 2000
-------------------------------------
Suzanne L. Wood
*By: /s/ MARTIN NASH July 14, 2000
--------------------------------
Martin Nash
(Attorney-in-fact)
</TABLE>
II-5
<PAGE> 96
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
3.1 Articles of Incorporation(1)
3.2* Memorandum of the Registrant, as altered by Special Resolution filed
August 4, 1999
3.3 Bylaws of Genetronics, Inc.(1)
4.1 Reference is made to Exhibits 3.1 through 3.3
4.2 Specimen Stock Certificate(2)
4.3* Shareholder Rights Agreement dated June 20, 1997 by and between the
Registrant and Montreal Trust Company of Canada, as amended on
August 21, 1997
5.1* Opinion of Catalyst Corporate Finance Lawyers
10.1 1995 Stock Option Plan, as amended(3)
10.2 Forms of Incentive and Nonstatutory Stock Option Agreements used in
connection with the 1995 Stock Option Plan(3)
10.3 Amended 1997 Stock Option Plan(3)
10.4 Forms of Incentive and Nonstatutory Stock Option Agreements used in
connection with the 1997 Stock Option Plan(3)
10.5 Form of Stock Option Agreement used in connection with an option
grant outside of either of the stock option plans(3)
10.6 Employment Agreement dated January 9, 1995, Amendment No. 1 dated
January 9, 1996 and Amendment No. 2 dated March 1, 1997 between the
Registrant and Lois Crandell(1)
10.7 Employment Agreement dated January 9, 1995, Amendment No. 1 dated
January 9, 1996 and Amendment No. 2 dated March 1, 1997 between the
Registrant and Gunter A. Hofmann, Ph.D.(1)
10.8 Employment Agreement dated January 9, 1995, Amendment No. 1 dated
January 9, 1996 and Amendment No. 2 dated March 1, 1997 between the
Registrant and Martin Nash(1)
10.9 Employment Agreement dated February 5, 1996 between the Registrant
and James C. Lierman+
10.10 Amendment Number 3 dated January 15, 1999 to Employment Agreement
dated January 9, 1995, as amended, between the Registrant and Lois
Crandell(4)
10.11 Amendment Number 3 dated January 15, 1999 to Employment Agreement
dated January 9, 1995, as amended between the Registrant and Gunter
A. Hofmann, Ph.D.(4)
10.12 Amendment Number 3 dated January 15, 1999 to Employment Agreement
dated January 9, 1995, as amended, between the Registrant and Martin
Nash(4)
10.13 401(k) Defined Contribution Plan of Registrant(1)
10.14* Lease by and between the Registrant and Olen Property Corporation
dated December 3, 1996 as modified on March 7, 1997 and August 26,
1999
10.15* Lease Agreement by and between the Registrant and Nexus Sorrento
Glen LLC dated August 26, 1999
10.16 Stock Purchase Agreement dated October 6, 1998 by and between the
Registrant and Johnson & Johnson Development Corporation(4)
10.17 License and Development Agreement dated October 6, 1998 by and
between the Registrant and Ethicon, Inc.+
10.18 Supply Agreement dated October 6, 1998 by and between the Registrant
and Ethicon, Inc.+
10.19 Agency Agreement -- Special Warrant Private Placement dated June 8,
1999 by and between the Registrant and Canaccord International
Corporation(5)
</TABLE>
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
10.20 Special Warrant Indenture dated June 16, 1999 by and between the
Registrant and Montreal Trust Company of Canada(5)
10.21 Lease Agreement by and between Registrant and Nexus Sorrento Glen
LLC dated August 26, 1999(6)
10.22 Trade Credit Agreement by and between the Registrant and Union Bank
of California dated August 6, 1999(6)
10.23 Promissory Note - Trade Finance - Base Rate by the Registrant to
Union Bank of California dated August 6, 1999(6)
10.24 Promissory Note - Base Rate by the Registrant to Union Bank of
California dated August 6, 1999(6)
10.25 Research and Option Agreement dated November 2, 1999 by and between
the Registrant and Boehringer Ingelheim International GMBH(7)
10.26 Termination of Employment Agreement dated December 6, 1999 by and
between the Registrant and Lois J. Crandell(7)
10.27 Consulting Services Agreement dated December 6, 1999 by and between
the Registrant and Lois J. Crandell(7)
10.28 Termination of Employment Agreement dated December 6, 1999 by and
between the Registrant and Gunter A. Hofmann(7)
10.29 Consulting Services Agreement dated December 6, 1999 by and between
the Registrant and Gunter Hofmann(7)
10.30 First Amendment to Agreement Concerning Termination of Employment of
Lois Crandell dated May 24, 2000 by and between the Registrant and
Lois J. Crandell(8)
10.31 First Amendment to Consulting Services Agreement dated May 24, 2000
by and between the Registrant and Lois J. Crandell(8)
10.32 First Amendment to Agreement Concerning Termination of Employment of
Gunter A. Hofmann dated May 24, 2000 by and between the Registrant
and Gunter A. Hofmann(8)
10.33 First Amendment to Consulting Services Agreement dated May 24, 2000
by and between the Registrant and Gunter A. Hofmann(8)
21.1 Subsidiaries of the Registrant(8)
23.1 Consent of Catalyst Corporate Finance Lawyers. Reference is made to
Exhibit 5.1
23.2 Consent of Ernst & Young LLP, Independent Auditors
24.1* Power of Attorney of Felix Theeuwes
27.1 Financial Data Schedule
</TABLE>
------------
* Previously filed
+ Confidential treatment has been requested with respect to certain
portions of this exhibit. Omitted portions have been filed separately
with the Securities and Exchange Commission.
(1) Filed as an exhibit to Registrant's Form 20-F for the year ended
February 28, 1998 and incorporated herein by reference.
(2) Filed as an exhibit to Registrant's Form 8-A on December 3, 1998 and
incorporated herein by reference.
(3) Filed as an exhibit to Registrant's Form S-8 on September 1, 1999 and
incorporated herein by reference.
<PAGE> 98
(4) Filed as an exhibit to Registrant's Form 10-K for the period ended March
31, 1999 and incorporated herein by reference.
(5) Filed as an exhibit to Registrant's Form 10-Q for the quarter ended June
30, 1999 and incorporated herein by reference.
(6) Filed as an exhibit to Registrant's Form 10-Q for the quarter ended
September 30, 1999 and incorporated herein by reference.
(7) Filed as an exhibit to Registrant's Form 10-Q for the quarter ended
December 31, 1999 and incorporated herein by reference.
(8) Filed as an exhibit to Registrant's Form 10-K for the year ended March
31, 2000 and incorporated herein by reference.
