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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 2
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
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NO.
FOR GENETRONICS, INC.)
</TABLE>
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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
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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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. [ ]
*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. 2
to the Form S-1 on Form S-3 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.
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<PAGE> 2
PROSPECTUS
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 AUGUST 8, 2000, THE LAST SALE PRICE OF A COMMON SHARE ON THE AMERICAN
STOCK EXCHANGE WAS US$1.50 PER SHARE AND ON THE TORONTO STOCK EXCHANGE WAS
CDN$2.40. SEE "PRICE RANGE OF STOCK."
-------------------------
INVESTING IN THE COMMON SHARES INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
-------------------------
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.
-------------------------
August 14, 2000
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TABLE OF CONTENTS
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Prospectus Summary.................. 3
Summary Financial Data.............. 5
Risk Factors........................ 6
Selling Shareholders................ 19
Plan of Distribution................ 19
Use of Proceeds..................... 21
Dividend Policy..................... 21
Common Share Price Range............ 21
American Stock Exchange............. 21
Toronto Stock Exchange.............. 22
Capitalization...................... 25
Selected Financial Data............. 26
Management's Discussion and Analysis
of Financial Condition and
Operating Results................. 27
</TABLE>
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Business............................ 37
Management.......................... 51
Certain Transactions and
Relationships..................... 65
Principal Shareholders.............. 66
Description of Capital Stock........ 68
Legal Matters....................... 70
Experts............................. 70
Where You Can Find More
Information....................... 71
Index to Financial Statements....... F-1
</TABLE>
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.
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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.
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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.
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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:
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 and development
arrangements..................... 191,335 33,048 6,025
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
</TABLE>
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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
</TABLE>
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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.
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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
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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;
- 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).
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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.
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. On July 26, 2000, we
received written notice from Ethicon Endo-Surgery, Inc. that it had elected to
exercise its discretionary right to terminate, without cause, the License and
Development Agreement and the Supply Agreement. If we are unable to enter into a
relationship with a new partner for the Electoporation Drug Delivery System, our
business could be adversely impacted. Moreover, loss of or any significant
change in any of our material collaborative relationships could adversely impact
our business.
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
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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 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
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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 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
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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
11
<PAGE> 13
advantage over late-comers, a second place position could result in less
than anticipated sales.
- 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
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<PAGE> 14
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;
- 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. 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
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<PAGE> 15
- 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;
- 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, for which we received written notice on July 26,
2000, that Ethicon has elected to exercise its discretionary right to
terminate, without cause, the License and Development Agreement and the
Supply 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
14
<PAGE> 16
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
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,
15
<PAGE> 17
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;
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<PAGE> 18
- 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
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<PAGE> 19
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.
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<PAGE> 20
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
19
<PAGE> 21
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.
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 $100,000. All expenses for the issuance of a supplement to this
prospectus, when requested by selling shareholder(s), will also be paid by us.
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<PAGE> 22
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of any of the shares
of common stock covered by this prospectus by the selling shareholders. All
proceeds from the resale of shares of our common stock described in this
prospectus will be for the accounts of the selling shareholders.
DIVIDEND POLICY
We have not declared or paid any dividends on our common shares since our
inception. Our directors expect that while we are unprofitable, earnings will
not be distributed to shareholders by way of a dividend. The declaration of
dividends on our common shares will depend upon the directors' assessment of,
among other factors, earnings, capital requirements and our operating and
financial condition. See "Description of Capital Stock-Dividend Policy".
COMMON SHARE PRICE RANGE
MARKET INFORMATION
Our outstanding common shares have been listed on the Toronto Stock
Exchange (TSE) since September 2, 1997 under the symbol "GEB." Prior to
September 2, 1997, our common shares were traded on the Vancouver Stock Exchange
under the symbol "GEB." In addition, since December 8, 1998, our common shares
have been traded on the American Stock Exchange (AMEX) also under the symbol
"GEB." The following tables sets forth, for the periods indicated, the high and
low sales prices for the common shares as reported by the American Stock
Exchange and the Toronto Stock Exchange.
AMERICAN STOCK EXCHANGE
<TABLE>
<CAPTION>
COMMON SHARE
PRICE(US$)
-------------
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>
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<PAGE> 23
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.
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
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<PAGE> 24
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 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
23
<PAGE> 25
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.
24
<PAGE> 26
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.
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<PAGE> 27
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>
MARCH 31, MARCH 31, MARCH 31, FEB. 28, FEB. 29,
FISCAL PERIODS 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
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, FEBRUARY 28, FEBRUARY 29,
FISCAL PERIODS ENDED 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.
26
<PAGE> 28
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
and have received some milestone payments. 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. On July 26, 2000, we received written notice
from Ethicon Endo-Surgery, Inc. that it had elected to exercise its
discretionary right to terminate, without cause, the License and Development
Agreement and the Supply Agreement. All rights for the development and
distribution of Genetronics proprietary electroporation drug delivery system for
the treatment of cancer will be returned to Genetronics. We plan to seek a new
licensing partner for the Electroporation Drug Delivery System. We will not
receive any milestone or licensing payments for development or sale of the
products contemplated under the Ethicon agreement unless and until a new
agreement is in place with a new partner and we achieve the milestones specified
in the new agreement or product sales commence under the new agreement. We
believe we have sufficient current resources to initiate a variety of activities
directed toward product launch and marketing in Canada and Europe, and for
initiation of a Phase III clinical study in the United States. In addition, we
are continuing and intend to complete the review of existing clinical and
regulatory information related to the Electroporation Drug Delivery System.
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. Genetronics is continuing these reviews, which
have delayed pre-commercialization activities for the system in
27
<PAGE> 29
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, we expect revenues to
continue to be attributable to product sales to the research market, grants,
collaborative research arrangements, and interest income.
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
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<PAGE> 30
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 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 existence or absence of contractual milestones,
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.
29
<PAGE> 31
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 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 our 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.
30
<PAGE> 32
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.
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<PAGE> 33
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. A 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
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<PAGE> 34
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 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.
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<PAGE> 35
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.
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
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<PAGE> 36
$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;
- 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
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<PAGE> 37
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.
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<PAGE> 38
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.
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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 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. On July 26, 2000, we received written notice from
Ethicon Endo-Surgery, Inc. that it had elected to exercise its discretionary
right to terminate, without cause, the License and Development Agreement and the
Supply Agreement. All rights for the development and distribution of Genetronics
proprietary electcorporation drug delivery system for the treatment of cancer
will be returned to Genetronics.
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.
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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 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
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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 MedPulser(R)
electroporation system for the treatment of solid tumors with bleomycin in
Europe.
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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
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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
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
are continuing our project of 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
more 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.
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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.
Current Developments
On July 26, 2000, we received written notice from Ethicon Endo-Surgery,
Inc. that it had elected to exercise its discretionary right to terminate,
without cause, the License and Development Agreement and the Supply Agreement.
All rights for the development and distribution of Genetronics proprietary
electroporation drug delivery system for the treatment of cancer are as a result
expected to be returned to Genetronics. 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. Genetronics is continuing these reviews which 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.
We plan to seek a new licensing partner for the Electroporation Drug
Delivery System. We will not receive any milestone or licensing payments for
development or sale of the products contemplated under the Ethicon agreement
unless and until a new agreement is in place with a new partner and we achieve
the milestones specified in the new agreement or product sales commence under
the new agreement. We believe we have sufficient current resources to initiate a
variety of activities directed toward product launch and marketing in Canada and
Europe, and for initiation of a Phase III clinical study in the United States.
In addition, we are continuing and intend to complete the review of existing
clinical and regulatory information related to the Electroporation Drug Delivery
System.
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
Basal Cell Cancer........ Clinical Trials Two pilot studies N/A
completed.
Genital Warts............ Developmental N/A N/A
ONCOLOGY
Head and Neck Cancer..... Clinical Trials Phase II Clinical CE Mark and ISO
Trials 9001 Received
Melanoma................. Clinical Trials N/A CE Mark and ISO
9001 Received
Metastatic Liver
Cancer................... Clinical Trials N/A CE Mark and ISO
9001 Received
Peripheral Sarcoma....... Preclinical data N/A CE Mark and ISO
9001 Received
Breast Cancer............ Preclinical data N/A CE Mark and ISO
9001 Received
Prostate Cancer.......... Preclinical data N/A CE Mark and ISO
9001 Received
Glioma................... Preclinical data N/A CE Mark and ISO
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 encoding
genes.................... Preclinical data N/A N/A
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
PGE-1 delivery for
Erectile dysfunction..... Tolerance Study One Device N/A
Tolerance Study
completed
Calcitonin
(osteoporosis)........... Preclinical data N/A N/A
Vitamin C................ Preclinical data N/A N/A
</TABLE>
-------------------------
"N/A" means not applicable.
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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.
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<PAGE> 47
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., 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.
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<PAGE> 48
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 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
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<PAGE> 49
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. On July 26, 2000, we received written
notice from Ethicon Endo-Surgery, Inc. that it had elected to exercise its
discretionary right to terminate, without cause, the License and Development
Agreement and the Supply Agreement. All rights for the development and
distribution of Genetronics proprietary electroporation drug delivery system for
the treatment of cancer are as a result expected to be returned to Genetronics.
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
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<PAGE> 50
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>
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998
PERIOD ENDED: 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>
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
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<PAGE> 51
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 at a later date.
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.
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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
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<PAGE> 53
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. 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.
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<PAGE> 54
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 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
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<PAGE> 55
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.
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
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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 $32,600 for certain administration fees charged by a company
where one of the principals was an officer of our former French subsidiary.
BOARD-COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for determining the compensation
of the executive officers of our company. The members of the Compensation
Committee are James L. Heppell (Chair), Gordon J. Politeski, and Gordon
Blankstein.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation of Gunter A. Hofmann, Lois
J. Crandell, Martin Nash and James Lierman for the last three completed fiscal
years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ---------------
COMPENSATION SECURITIES
----------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR(1) SALARY($) BONUS($)(2) OPTIONS/SARS(3) COMPENSATION(4)
--------------------------- ------- --------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Martin Nash............... 2000 201,808 -0- 300,000 17,347
Director, President and 1999 140,573 27,200 127,200 7,520
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 1999 136,500 200,000 127,000 3,072
President(7) 1998 146,463 45,000 20,000 3,777
Gunter A. Hofmann......... 2000 107,146 -0- 97,000(10) 296,467(11)
Former Chairman 1999 179,785 35,200 135,200 14,083
and Chief Scientific 1998 188,923 -0- 25,000 13,383
Officer(9)
Lois J. Crandell.......... 2000 114,324 -0- 26,700(13) 247,271(14)
Former Director,
President 1999 179,990 43,125 143,125 14,065
and Chief Executive 1998 184,465 -0- 65,000 13,244
Officer(12)
</TABLE>
-------------------------
(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.
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<PAGE> 58
(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. Also includes $174,498 of severance and other
termination payments not paid but accrued as of March 31, 2000.
(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. Also includes $113,544 of severance and other
termination payments not paid but accrued as of March 31, 2000.
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<PAGE> 59
STOCK OPTION GRANTS AND EXERCISES IN LAST FISCAL YEAR
The following table sets out stock options and stock appreciation rights
granted to each Named Executive Officer during the fiscal year ended March 31,
2000:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES % OF TOTAL EXERCISE ANNUAL RATES OF STOCK
UNDERLYING OPTIONS/SARS OR BASE PRICE APPRECIATION FOR
OPTIONS/SARS GRANTED TO PRICE OPTION TERM
GRANTED EMPLOYEES IN (US$/ 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
UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
SECURITIES VALUE AT FISCAL YEAR END(1) AT FISCAL YEAR-END($)(2)
ACQUIRED ON REALIZED --------------------------------- ---------------------------
NAME OF EXECUTIVE OFFICER EXERCISE ($) (#)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
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<PAGE> 60
Unexercised In-the-Money Options/SARs at Fiscal Year-end
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
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<PAGE> 61
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 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
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<PAGE> 62
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 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.
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<PAGE> 63
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.
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<PAGE> 64
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. 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
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<PAGE> 65
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.
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<PAGE> 66
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.
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<PAGE> 67
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
BENEFICIAL OWNER OF COMMON STOCK(1) COMMON STOCK(2) STOCK(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
66
<PAGE> 68
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.
(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.
67
<PAGE> 69
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.
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<PAGE> 70
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.
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,
69
<PAGE> 71
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.
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.
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<PAGE> 72
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
71
<PAGE> 73
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>
<CAPTION>
PAGE
----
<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> 74
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.
Chartered Accountants
Vancouver, Canada,
May 3, 2000.
F-2
<PAGE> 75
GENETRONICS BIOMEDICAL LTD.
(INCORPORATED UNDER THE LAWS OF BRITISH COLUMBIA)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS AT AS AT
MARCH 31, 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:
<TABLE>
<S> <C>
Director Director
</TABLE>
F-3
<PAGE> 76
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> 77
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> 78
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.
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
F-6
<PAGE> 79
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
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.
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.
F-7
<PAGE> 80
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
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.
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
F-8
<PAGE> 81
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
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.
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.
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].
F-9
<PAGE> 82
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
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>
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-10
<PAGE> 83
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.
9. SHARE CAPITAL
AUTHORIZED
100,000,000 common shares without par value
100,000,000 Class A preferred shares without par value
F-11
<PAGE> 84
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
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>
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].
F-12
<PAGE> 85
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
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.
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,
F-13
<PAGE> 86
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
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.
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-14
<PAGE> 87
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
Stock option transactions for the respective periods and the number of
stock options outstanding are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
NO. OF COMMON AVERAGE EXERCISE
SHARES 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.
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.
F-15
<PAGE> 88
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
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>
<S> <C>
2001....................................... $ 514,669
2002....................................... 522,909
2003....................................... 526,832
2004....................................... 531,228
2005....................................... 402,155
----------
$2,497,793
==========
</TABLE>
(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
F-16
<PAGE> 89
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
based on a percentage of future funding upon the occurrence of certain
events as described in the agreement.
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.
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
F-17
<PAGE> 90
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
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>
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.
F-18
<PAGE> 91
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
The Company has non-capital losses for Canadian income tax purposes which
may be used to reduce future taxable income, expiring as follows:
<TABLE>
<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.
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-19
<PAGE> 92
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
<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>
<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-20
<PAGE> 93
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
<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>
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-21
<PAGE> 94
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.
<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
F-22
<PAGE> 95
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
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) 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.
F-23
<PAGE> 96
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
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>
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].
F-24
<PAGE> 97
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
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>
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-25
<PAGE> 98
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
II-1
<PAGE> 99
his heirs or personal representatives against any liability incurred by him as
such director, officer, employee or agent.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
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
</TABLE>
II-2
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
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)
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>
II-3
<PAGE> 101
-------------------------
* 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.
(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;
II-4
<PAGE> 102
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-5
<PAGE> 103
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 August 10, 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 August 10, 2000
--------------------------------------------- Officer, Chief Financial
Martin Nash Officer and Director
(Principal Executive
Officer and Principal
Financial Officer)
* Executive Vice President August 10, 2000
---------------------------------------------
James Lierman
* Director August 10, 2000
---------------------------------------------
James L. Heppell
* Director August 10, 2000
---------------------------------------------
Gordon Politeski
* Director August 10, 2000
---------------------------------------------
Felix Theeuwes
* Director August 10, 2000
---------------------------------------------
Suzanne L. Wood
*By: /s/ MARTIN NASH August 10, 2000
--------------------------------------------
Martin Nash
(Attorney-in-fact)
</TABLE>
II-6
<PAGE> 104
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
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.+
</TABLE>
<PAGE> 105
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
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)
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.
<PAGE> 106
(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.
(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.
