<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM
____________________TO_____________________
COMMISSION FILE NO. 0-29608
GENETRONICS BIOMEDICAL LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BRITISH COLUMBIA, CANADA 33-002-4450
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.
for Genetronics, Inc.)
11199 SORRENTO VALLEY ROAD 92121-1334
SAN DIEGO, CALIFORNIA (Zip Code)
(Address of principal executive offices)
Company's telephone number, including area code: (858) 597-6006
Indicate by check mark whether the Company (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the Company's Common Stock, no par
value, was 27,264,218 as of August 8, 2000.
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<PAGE> 2
GENETRONICS BIOMEDICAL LTD.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements Page
----
<S> <C>
a) Consolidated Balance Sheets as of June 30, 2000 (Unaudited)
and March 31, 2000............................................... 2
b) Consolidated Statements of Loss and Deficit for the Three
Months Ended June 30, 2000 and 1999 (Unaudited).................. 3
c) Consolidated Statements of Cash Flows for the Three Months
Ended June 30, 2000 and 1999 (Unaudited)......................... 4
d) Notes to Consolidated Financial Statements (Unaudited)........... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk........... 15
PART II. OTHER INFORMATION
Item 2. Changes in securities................................................ 16
Item 6. Exhibits and Reports on Form 8-K..................................... 17
SIGNATURES........................................................................... 18
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENETRONICS BIOMEDICAL LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In U.S. dollars)
June 30, March 31,
2000 2000
$ $
(Unaudited) (Note)
----------- --------
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents 8,253,460 9,742,344
Accounts receivable, net of allowance for
uncollectible accounts of $29,927
[March 31, 2000 - $54,925] 999,316 1,120,450
Inventories [note 5] 837,316 611,642
Prepaid expenses and other 199,781 139,423
----------- -----------
TOTAL CURRENT ASSETS 10,289,873 11,613,859
----------- -----------
Fixed assets, net 988,657 1,014,811
Other assets, net 1,433,463 1,383,634
----------- -----------
12,711,993 14,012,304
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued expenses 1,633,431 1,784,084
Current portion of obligations under
capital leases 54,050 53,098
Deferred revenue 268,664 268,665
----------- -----------
TOTAL CURRENT LIABILITIES 1,956,145 2,105,847
----------- -----------
Obligations under capital leases 51,778 65,286
Deferred rent 17,450 9,972
----------- -----------
TOTAL LIABILITIES 2,025,373 2,181,105
=========== ===========
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Share capital [note 6] 42,258,240 30,491,793
Additional paid in capital 35,768 35,768
Special Warrants [note 6] -- 11,002,992
Cumulative translation adjustment (101,665) (100,911)
Deficit (31,505,723) (29,598,443)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 10,686,620 11,831,199
----------- -----------
12,711,993 14,012,304
=========== ===========
</TABLE>
Note: The Financial statements at March 31, 2000 are derived from Audited
financial statements but do not include all of the footnote and other
disclosures required by generally accepted accounting principles.
See accompanying notes
2
<PAGE> 4
GENETRONICS BIOMEDICAL LTD.
CONSOLIDATED STATEMENTS OF
LOSS AND DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
(In U.S. dollars)
THREE THREE
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999
$ $
------------ ------------
<S> <C> <C>
REVENUE
Net sales 1,164,788 699,078
Grant funding 12,387 198,385
Revenues under collaborative research
and development arrangements 75,001 --
Interest income 138,378 68,283
----------- -----------
1,390,554 965,746
----------- -----------
EXPENSES
Cost of sales 454,640 326,737
Research and development 1,394,830 1,969,863
Selling, general and administrative 1,443,288 1,606,663
Interest expense 5,076 6,711
----------- -----------
3,297,834 3,909,974
----------- -----------
NET LOSS FOR THE PERIOD (1,907,280) (2,944,228)
Deficit, beginning of period (29,598,443) (19,998,501)
----------- -----------
DEFICIT, END OF PERIOD (31,505,723) (22,942,729)
=========== ===========
NET LOSS PER COMMON SHARE (0.08) (0.14)
- BASIC AND DILUTED [note 7] =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 23,629,490 21,673,079
=========== ===========
</TABLE>
See accompanying notes
3
<PAGE> 5
GENETRONICS BIOMEDICAL LTD.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In U.S. dollars)
THREE THREE
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999
$ $
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss for the period (1,907,280) (2,944,228)
Items not involving cash:
Depreciation and amortization 135,321 127,247
Provision for (recovery of) uncollectible accounts (24,998) __
Provision for inventory allowances (6,245) __
Loss on disposal of fixed assets 12,904 __
Deferred rent 7,478 3,587
Changes in non-cash working capital items:
Accounts receivable 146,132 141,127
Inventories (219,429) (98,903)
Prepaid expenses and other (60,358) (53,641)
Accounts payable and accrued expenses (150,653) (196,883)
Deferred revenue (1) __
---------- ----------
CASH USED IN OPERATING ACTIVITIES (2,067,129) (3,028,868)
========== ==========
INVESTING ACTIVITIES
Purchase of fixed assets (82,209) (17,329)
Increase in other assets (89,691) (155,964)
---------- ----------
CASH USED IN INVESTING ACTIVITIES (171,900) (173,293)
========== ==========
FINANCING ACTIVITIES
Payments on obligations under capital leases (12,556) (10,855)
Proceeds from issuance of Special Warrants
- net of issue costs -- 11,431,065
Proceeds from issuance of common shares
- net of issue costs 763,455 82,521
---------- ----------
CASH PROVIDED BY FINANCING ACTIVITIES 750,899 11,502,731
---------- ----------
Effect of exchange rate changes on cash (754) (2,820)
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,488,884) 8,297,750
Cash and cash equivalents, beginning of period 9,742,344 6,189,284
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD 8,253,460 14,487,034
========== ==========
</TABLE>
See accompanying notes
4
<PAGE> 6
GENETRONICS BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars)
(Unaudited)
JUNE 30, 2000
1. BASIS OF PRESENTATION
The Consolidated Statements of Loss and Deficit and Cash Flows for the
three months ended June 30, 2000 and June 30, 1999, and the Consolidated Balance
Sheets as of June 30, 2000 have been prepared by the Company in accordance with
Canadian generally accepted accounting principles for interim financial
information. In the opinion of management, all adjustments (which include
reclassifications and normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows at June 30, 2000
and for all periods presented, have been made.
The accounting policies and methods of computation adopted in these
financial statements are the same as those of the audited consolidated financial
statements for the year ended March 31, 2000, with the exception of the change
in accounting policy related to income taxes (note 4).
Certain information and note disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these consolidated financial statements
and notes thereto should be read in conjunction with the audited consolidated
financial statements for the year ended March 31, 2000 included in the
Genetronics Biomedical Ltd. Annual Report on Form 10-K filed with the Securities
and Exchange Commission. The results of operations for the three months ended
June 30, 2000 are not necessarily indicative of the results for the full year.
2. PRINCIPLES OF 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. Effective May 2000, the
Company closed the operations of its wholly owned subsidiary Genetronics SA, a
company incorporated in France, and subsequently sold its investment for nominal
consideration to Geser SA, a company owned by Genetronics SA's former General
Manager. Significant intercompany accounts and transactions have been eliminated
on consolidation.
3. ACCOUNTING POLICIES
Future Income Taxes
Future income taxes are recognized for the future income tax consequences
attributable to differences between the carrying values of assets and
liabilities and their respective income tax bases. Future income tax assets and
liabilities are measured using enacted income tax rates expected to apply to
taxable income in the years in which temporary differences are expected to be
recovered or settled. The effect on future income tax assets and liabilities of
a change in rates is included in earnings in the period that includes the
enactment date. Future income tax assets are recorded in the financial
statements if realization is considered more likely than not.
5
<PAGE> 7
4. CHANGE IN ACCOUNTING PRINCIPLE
Effective April 1, 2000, the Company adopted the new recommendations of The
Canadian Institute of Chartered Accountants with respect to accounting for
income taxes. The change has been applied retroactively however the comparative
financial statements have not been restated. The change in accounting policy did
not result in a material adjustment in the current period or to opening deficit.
Before the adoption of the new recommendations, income tax expense was
determined using the deferral method of tax allocation.
5. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, 2000 March 31, 2000
$ $
------------- --------------
<S> <C> <C>
Raw Materials 665,515 490,926
Work in process 129,064 79,683
Finished Goods 124,929 129,470
Less: allowance for obsolescence (82,192) (88,437)
------- -------
837,316 611,642
======= =======
</TABLE>
6. SHARE CAPITAL
Authorized and Issued Share Capital as at June 30, 2000:
Authorized: 100,000,000 common shares without par value 100,000,000 Class A
preferred shares without par value
Issued: 27,264,218 common shares for a total of $42,258,240
Authorized and Issued Share Capital as at March 31, 2000:
Authorized: 100,000,000 common shares without par value 100,000,000 Class A
preferred shares without par value
Issued: 22,832,324 common shares for a total of $30,491,793
Stock Options Outstanding as at June 30, 2000:
4,477,275 stock options outstanding at exercise prices ranging from $1.12
to $5.50 of which 3,109,196 are vested as at June 30, 2000 with a weighted
average remaining life of 6.2 years
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
before deducting the agent's commission of $1,005,000 and other issue costs.
Each Special Warrant entitled 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
was 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 would 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. On June 16, 2000 the remaining
4,164,500 Special Warrants were converted into common shares.
6
<PAGE> 8
The Company also issued to the Agent's nominee 30,000 common shares for
corporate finance services and 418,750 Special Warrants exercisable, for no
additional consideration, into 418,750 share purchase warrants, which were
exercisable into 418,750 common shares at a price of $3.31 per share on or
before June 16, 2000. During the year ended March 31, 2000, the Company issued
151,300 common shares pursuant to the exercise of 151,300 of these share
purchase warrants. During the three months ended June 30, 2000 the Company
issued 180,500 common shares pursuant to the exercise of 180,500 of these share
purchase warrants. The remaining 86,950 Special Warrants expired unexercised on
June 16, 2000.
During the three months ended June 30, 2000 the Company issued 86,894
common shares pursuant to the exercise of stock options at prices ranging from $
2.02 to $3.75.
7. LOSS PER COMMON SHARE
Basic loss per common share is computed by dividing the net loss by the
weighted average shares outstanding during the period. Diluted earnings per
share reflect the potential dilution that would occur if securities or other
contracts to issue common stock were exercised or converted to common stock.
Since the effect of the assumed exercise of common stock options and other
convertible securities was anti-dilutive, basic and diluted loss per share as
presented on the consolidated statements of loss and deficit are the same.
8. INCOME TAXES
Significant components of the Company's future tax assets as of April 1,
2000 are shown below. A valuation allowance would be recognized to fully offset
the future tax assets as of April 1, 2000 as realization of such assets is
uncertain.
<TABLE>
<CAPTION>
$
-----------
<S> <C>
April 1, 2000
Capitalized research expense 246,000
Net operating loss carryforwards 10,834,000
Research and development credits 1,042,000
Share issue costs 854,000
Other -- net 262,000
-----------
Total future tax assets 13,238,000
Valuation allowance for future tax assets (13,238,000)
-----------
Net future tax assets --
===========
</TABLE>
9. SEGMENT INFORMATION
The Company's reportable business segments include the Company's U.S.
subsidiary's BTX Instrument Division and Drug and Gene Delivery Division. 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.
7
<PAGE> 9
<TABLE>
<CAPTION>
BTX DRUG AND GENE
INSTRUMENT DELIVERY
DIVISION DIVISION TOTAL
$ $ $
---------- ------------- ----------
<S> <C> <C> <C>
THREE MONTHS ENDED JUNE 30, 2000
Reportable segment net sales 1,164,788 -- 1,164,788
---------- ---------- ----------
Other reportable segment revenue -- 87,388 87,388
Total segment revenue 1,164,788 87,388 1,252,176
Add unallocated item
Interest income 138,378
----------
Total revenue 1,390,554
==========
Reportable segment cost of sales (454,640) -- (454,640)
Other reportable segment expenses (408,109) (1,277,788) (1,685,897)
---------- ---------- ----------
Net results of reportable segment 302,039 (1,190,400) (888,361)
---------- ----------
Add (deduct) unallocated items
Interest income 138,378
General and administrative (1,152,221)
Interest expense (5,076)
----------
Net loss (1,907,280)
==========
</TABLE>
<TABLE>
<CAPTION>
BTX DRUG AND GENE
INSTRUMENT DELIVERY
DIVISION DIVISION TOTAL
$ $ $
---------- ------------- ----------
<S> <C> <C> <C>
THREE MONTHS ENDED JUNE 30, 1999
Reportable segment net sales 699,078 -- 699,078
Other reportable segment revenue -- 198,385 198,385
---------- ---------- ----------
Total segment revenue 699,078 198,385 897,463
Add unallocated item
Interest income 68,283
----------
Total revenue 965,746
==========
Reportable segment cost of sales (326,737) -- (326,737)
Other reportable segment expenses (506,872) (1,850,282) (2,357,154)
---------- ---------- ----------
Net results of reportable segment (134,531) (1,651,897) (1,786,428)
---------- ---------- ----------
Add (deduct) unallocated items
Interest income 68,283
General and administrative (1,219,372)
Interest expense (6,711)
----------
Net loss (2,944,228)
==========
</TABLE>
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.
Approximately 40% and 32% of the BTX Instrument Division's net sales were made
to one customer for the three months ended June 30, 2000 and June 30, 1999,
respectively. The BTX Instrument Division exported approximately 36% and 37% of
its net sales for the three months ended June 30, 2000 and June 30, 1999,
respectively.
8
<PAGE> 10
Net sales by destination were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
------------------ ------------------
<S> <C> <C>
United States 745,868 441,268
Canada 49,007 9,211
Europe 201,732 79,972
East Asia 143,379 162,687
Rest of World 24,802 5,940
--------- -------
1,164,788 699,078
========= =======
</TABLE>
10. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada (Canadian GAAP), which,
in the case of the Company, conform in all material respects with those in the
United States (U.S. GAAP) and with the requirements of the Securities and
Exchange Commission (SEC), except as described in the Company's audited
consolidated financial statements for the year ended March 31, 2000.
The impact of significant variations to U.S. GAAP on the consolidated
statements of loss and deficit are as follows:
<TABLE>
<CAPTION>
THREE THREE
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999
$ $
------------ ------------
<S> <C> <C>
Loss for the period, Canadian GAAP (1,907,280) (2,944,228)
Adjustment for stock based compensation
- non-employees (87,693) (102,543)
----------- -----------
Loss for the period, U.S. GAAP (1,994,973) (3,046,771)
=========== ===========
Unrealized losses on foreign currency translation (754) (2,820)
----------- -----------
Comprehensive loss for the period, U.S. GAAP (1,995,727) (3,049,591)
=========== ===========
Loss per share, U.S. GAAP (0.08) (0.14)
=========== ===========
Weighted average number of shares,
U.S. GAAP 23,629,490 21,673,079
=========== ===========
</TABLE>
The impact of significant variations to U.S. GAAP on the Consolidated
Balance Sheet items is as follows:
<TABLE>
<CAPTION>
JUNE 30, 2000 MARCH 31, 2000
$ $
------------- --------------
<S> <C> <C>
Share capital 44,883,065 33,028,925
Deficit (34,130,548) (32,135,575)
=========== ===========
</TABLE>
11. NEW ACCOUNTING PRONOUNCEMENTS
On June 26, 2000, the SEC deferred the effective date of Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements". As a
result of this deferral, SAB No. 101 will be effective for the Company's fiscal
quarter beginning January 1, 2001, requiring retroactive application to the
beginning of the Company's 2001 fiscal year with restatement, if necessary. SAB
No. 101 expresses the views of the SEC staff in
9
<PAGE> 11
applying GAAP to certain revenue recognition issues. In March 2000, the FASB
issued Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation" (FIN. No. 44). FIN. No. 44 will be effective for the
Company's quarter beginning July 1, 2000.
The Company has not yet determined the impact, if any, of these
pronouncements on its consolidated financial statements.
12. SUBSEQUENT EVENTS
On July 26, 2000 the Company received notice from Ethicon Endo-Surgery,
Inc. that it had elected to exercise its discretionary right to terminate,
without cause, the Licensing and Development Agreement and the Supply Agreement
entered into with the Company. All rights for the development and distribution
of the Company's proprietary Electroporation Drug Delivery System for the
treatment of cancer will be returned to the Company. Ethicon Inc. or Ethicon
Endo-Surgery and Genetronics have been operating under the agreements since
October 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto. This Quarterly Report on
Form 10-Q may be deemed to include forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 that involve risk and uncertainty, including financial,
clinical, business environment and trend projections. Although the Company
believes that its expectations are based on reasonable assumptions, it can give
no assurance that its goals will be achieved. The important factors that could
cause actual results to differ materially from those in the forward-looking
statements herein include, without limitation, the current stage of development
of both the Company and its products, the timing and uncertainty of results of
both research and regulatory processes, the extensive government regulation
applicable to its business, the unproven safety and efficacy of its device
products, its significant additional financing requirements, the volatility of
its stock price, the uncertainty of future capital funding, its potential
exposure to product liability or recall, uncertainties relating to patents and
other intellectual property, including whether the Company will obtain
sufficient protection or competitive advantage therefrom, its dependence upon a
limited number of key personnel and consultants and its significant reliance
upon its collaborative partners for achieving its goals, and other factors
detailed in its Annual Report on Form 10-K for the year ended March 31, 2000.
GENERAL
Through its Drug and Gene Delivery Division, Genetronics is engaged in
developing drug and gene delivery systems based on electroporation to be used in
the site-specific treatment of disease. Through its BTX Instrument Division, the
Company develops, manufactures, and sells electroporation equipment to the
research laboratory market.
In the past the Company's revenues primarily reflected product sales to the
research market through the BTX Instrument Division and research grants through
the Drug and Gene Delivery Division. In October 1998 the Company entered into a
comprehensive License and Development Agreement and a Supply Agreement with
Ethicon, Inc., a Johnson & Johnson company, involving Genetronics' proprietary
drug and DNA delivery system for the electroporation therapy treatment of solid
tumor cancer. Ethicon Inc. received the right to market Genetronics products
for this field of medicine throughout the world, except Canada. As part of the
License and Development Agreement, the Company received an up-front licensing
fee. The Company has also received milestone payments.
10
<PAGE> 12
In August 1999, the Company announced that Ethicon Inc. transferred its
responsibilities and obligations under the License and Development and Supply
Agreements to Ethicon Endo-Surgery, Inc., which is also a Johnson & Johnson
company. Since mid-January 2000, the Company and Ethicon have been assembling
and reviewing existing clinical and regulatory information relating to human
clinical trials for treating certain cancers with bleomycin and the Company's
MedPulser(R) system. These reviews have delayed pre-commercialization activities
for the system in Europe and initiation of a pivotal or other clinical trial in
the United States and are expected to further delay European commercial launch
and initiation of new clinical trials for at least several more months. Pivotal
clinical trials are used to assess a drug for efficacy at several independent
sites in a statistically large number of patients.
On July 26, 2000 the Company received notice from Ethicon Endo-Surgery, Inc.
that Ethicon Endo-Surgery had elected to exercise its discretionary right to
terminate, without cause, the Licensing and Development Agreement and the Supply
Agreement entered into with Genetronics, Inc. and Genetronics Biomedical
Limited. All rights for the development and distribution of Genetronics
proprietary Electroporation Drug Delivery System for the treatment of cancer
will be returned to Genetronics.
Genetronics plans to seek a new licensing partner for the Electroporation
Drug Delivery System. The Company 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
the Company achieves the milestones specified in the new agreement or product
sales commence under the new agreement. The Company believes it has sufficient
current resources to initiate 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, the Company is continuing and intends
to complete the review of existing clinical and regulatory information related
to the Electroporation Drug Delivery System.
Until the commercialization of clinical products the Company expects
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, the Company has been unprofitable in the last five years. As
of June 30, 2000 the Company has incurred a cumulative deficit of $31,505,723.
The Company expects 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
The Company does not believe that inflation has had a material adverse
effect on net sales or results of operations. The Company has generally been
able to pass on increased costs related to inflation through increases in
selling prices.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
RESULTS OF OPERATIONS
Revenues
The BTX Instrument Division produced total revenues of $1,164,788 for the
three months ended June 30, 2000 which was an increase in the amount of
$465,710, or 67%, compared to total revenues of $699,078 for the three months
ended June 30, 1999.
Sales in the United States increased by 69% from the three-month period
ended June 30, 1999 to the three-month period ended June 30, 2000. The primary
reason for the increase was that sales to VWR, one of the Company's two domestic
distributors, more than doubled from the first quarter of 1999 to the first
quarter 2000. The significant increase of VWR sales is attributed in part to the
fact that the Company is working more closely with the VWR sales force.
11
<PAGE> 13
For the three months ended June 30, 2000 sales to all other destinations
outside of the United States, which represented about 31% of total sales,
increased by about 62% compared to the same three months of the previous year.
The increase was primarily attributable to higher sales to European countries
such as France, Sweden, and the United Kingdom. In the three months ended June
30, 2000 the BTX Instrument Division entered into a distribution agreement with
MERCK Eurolab, the leading distribution organization for laboratory products. As
a result of this distribution agreement the Company anticipates a further
increase of sales to the European market.
Revenues from grant funding decreased from $ 198,385 for the three months
ended June 30, 1999 to $ 12,387 for the three months ended June 30, 2000. The
reason for the lower grant revenues was that the two active grants in the field
of Oncology and Gene Therapy were winding down in the first quarter of 2000 and
no new grants have been awarded in the first quarter of 2000. However, the
Company has submitted four Small Business Innovation Research (SBIR) grant
applications in the fields of Gene Therapy and Oncology. The decision for an
award for these four grants is currently pending with the National Institutes of
Health. 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 three months ended June 30, 2000 the Drug and Gene Delivery Division
recorded contract research revenues in the amount of $75,001, as a result of
collaborative research agreements to develop Genetronics' electroporation
technology for use in particular gene therapy applications.
Cost Of Sales
Cost of sales increased by 127,903, or 39%, from $326,737, for the three
months ended June 30, 1999 to $454,640 for the three months ended June 30, 2000.
The increase was a result of higher sales in the three-month period ended June
30, 2000.
Gross Profit and Gross Margin
Primarily due to the higher sales, the gross profit for the three months
ended June 30, 2000 in the amount of $710,148 represented an increase of
$337,807, or 91%, compared with $372,341 for the three months ended June 30,
1999. The gross profit margin of 61% for the three months ended June 30, 2000
increased by 8% from 53% for the three months ended June 30, 1999. The primary
reason for the gross profit margin increase was that certain sales related fixed
costs could be allocated over a higher sales level for the three months ended
June 30, 2000.
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Research and Development/Clinical Trials
Research and development expenses decreased by $575,033, or 29%, from
$1,969,863 for the three months ended June 30, 1999 to $1,394,830 for the three
months ended June 30, 2000. During the three months ended June 30, 2000 the
Company used part of its internal resources in the R&D Department and the
Regulatory and Clinical Affairs Department to assemble and review jointly with
Ethicon existing clinical and regulatory information. As a result, clinical
trial activity and contract research activity decreased significantly over the
previous year's first quarter which contributed to the lower expenses for the
three months ended June 30, 2000. Also, the delay of pre-commercialization
activities for the MedPulser(R) system in Europe contributed to lower expenses
in the Engineering department.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, which include advertising,
promotion and selling expenses, decreased by $163,375, or 10%, from $1,606,663
for the three months ended June 30, 1999 to $1,443,288 for the three months
ended June 30, 2000. The primary reason for the lower expenses was that in the
year ended March 31, 2000 Genetronics SA, a subsidiary set up to manage the
clinical trial process in France, was winding down its operations and therefore
lower general and administrative expenses were incurred. In May of 2000
Genetronics agreed to transfer all of its shares in its subsidiary, Genetronics
SA, at nominal consideration to Geser SA, a company owned by Genetronics SA's
former General Manager.
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 BTX Instrument Division reported a net surplus in the amount of
$302,039 for the three months ended June 30, 2000 compared to net expenditures
in the amount of $134,531 for the three months ended June 30, 1999. The
significantly improved net result was primarily attributable to the 67% increase
in revenues over the previous year which contributed towards gross margin.
The Drug and Gene Delivery Division reported net expenditures in the amount
of $1,190,400 for the three months ended June 30, 2000 compared to $1,651,897
for the three months ended June 30, 1999, a decrease of $461,497, or 28%. The
decreased net expenditures were primarily a result of the lower clinical trial
and engineering expenses.
Net Loss
For the three months ended June 30, 2000, the Company recorded a net loss
of $1,907,280, compared with a net loss of $2,944,228 for the three months ended
June 30, 1999. The significant increase in revenues for the BTX Instrument
Division and the decrease in operating expenses for the Drug and Gene Delivery
Division were the main factors for the decrease in net loss.
LIQUIDITY AND CAPITAL RESOURCES
During the last five fiscal years, the Company's primary uses of cash have
been to finance research and development activities and clinical trial
activities in the Drug and Gene Delivery Division. Since inception, the Company
has satisfied its cash requirements principally from proceeds from the sale of
equities. In June 1999 the Company closed a private placement of 4,187,500
Special Warrants at a price of $3.00 per special warrant for total consideration
of $12,562,500 before deducting the agent's commission of $1,005,000 and other
issue costs. Each warrant entitled the holder to acquire one common share in the
capital of the Company at no additional cost upon exercise. In March 2000, the
Company issued 23,000 common shares pursuant to the exercise
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and conversion of 23,000 Special Warrants. On June 16, 2000 the remaining
4,164,500 Special Warrants were converted into common shares.
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 for corporate finance services and 418,750 Special
Warrants exercisable, for no additional consideration, into 418,750 share
purchase warrants, which were exercisable into 418,750 common shares at a price
of $3.31 per share on or before June 16, 2000. During the year ended March 31,
2000, the Company issued 151,300 common shares pursuant to the exercise of
151,300 of these share purchase warrants. During the three months ended June 30,
2000 the Company issued 180,500 common shares pursuant to the exercise of
180,500 of these share purchase warrants for net proceeds to the Company in the
amount of $597,455. The remaining 86,950 Special Warrants expired unexercised on
June 16, 2000.
As of June 30, 2000 the Company had working capital of $8,333,728, compared
to $9,508,012, as of March 31, 2000. The decrease was a result of the operating
loss in the three months ended June 30, 2000. The current ratio decreased from
5.52 as of March 31, 2000 to 5.26 as of June 30, 2000.
The Company has a trade finance credit facility with a bank to borrow up to
$2,000,000. 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 less 1%, or the LIBOR rate plus 1.75%, and initially
expired on June 30, 2000. On June 26, 2000 the Company received confirmation
from the bank that the term of the credit facility was extended to September 29,
2000. At June 30, 2000, there was no outstanding balance drawn on this credit
facility.
Inventories increased from $611,642 at March 31, 2000 to $837,316, at June
30, 2000, primarily as the result of a build-up of inventory in the BTX
Instrument Division. The build-up of inventory was necessary in order to have
product available for an expected increase in sales to Europe in the upcoming
months as a result of the new distribution agreement with MERCK Eurolab.
Receivables decreased by $121,134, or 11%, from $1,120,450 at March 31,
2000 to $999,316 at June 30, 2000. The decrease was a result of significantly
lower receivables from Ethicon which more than offset higher receivables from
BTX Instrument customers. The lower receivables from Ethicon were due to no
product for clinical trials being shipped in the three months ended June 30,
2000 due to the review of clinical and regulatory information by Ethicon and the
Company. The higher receivables from BTX Instrument customers were a result of
the increase in sales and a higher percentage of receivables from certain
distributors to which extended payment terms are granted.
Current liabilities decreased from $2,105,847 at March 31, 2000 to
$1,956,145, at June 30, 2000. The decrease was primarily a result of payments of
certain fiscal year-end accruals in the three-month period ended June 30, 2000.
The Company believes that its existing cash will be sufficient to fund its
operations at least through the next twelve months.
The Company's long term capital requirements will depend on numerous
factors including
- The progress and magnitude of the research and development programs,
including preclinical and clinical trials;
- The time involved in obtaining regulatory approvals;
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- The cost involved in filing and maintaining patent claims;
- Competitor and market conditions;
- The Company's ability to establish and maintain collaborative arrangements;
- The Company's 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
The Company's 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:
- The company's 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 the Company in
exchange for manufacturing, marketing, distribution or other rights to
products developed by the Company; and
- The Company's ability to maintain its existing collaborative arrangements
The Company cannot guarantee that additional funding will be available when
needed. If it is not, the Company will be required to scale back its research
and development programs, preclinical studies and clinical trials and
administrative activities and its business and financial results and condition
would be materially adversely affected.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest rates.
The risks related to foreign currency exchange rates are immaterial and the
Company does not use derivative financial instruments.
The Company has invested its excess cash and cash equivalents in United
States government, municipal, and corporate debt securities with high quality
credit ratings and an average maturity of no more than three months. These
investments are not held for trading or other speculative purposes. Given the
short-term nature of these investments, and that the Company has no borrowings
outstanding, the Company is not subject to significant interest rate risk.
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PART II. OTHER INFORMATION
ITEMS 1 AND 3 THROUGH 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
ITEM 2. CHANGE IN SECURITIES
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
before deducting the agent's commission of $1,005,000 and other issue costs.
Each Special Warrant entitled 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
was 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 Warrant
not exercised prior to the Expiry date was deemed to have been exercised and was
converted to a common share. In March 2000, the Company issued 23,000 common
shares pursuant to the exercise and conversion of 23,000 Special Warrants. On
June 16, 2000 the remaining 4,164,500 Special Warrants were converted into
common shares.
The Company also issued to the Agent's nominee 30,000 common shares for
corporate finance services and 418,750 Agent's Special Warrants exercisable, for
no additional consideration, into 418,750 share purchase warrants, which were
exercisable into 418,750 common shares at a price of $3.31 per share on or
before June 16, 2000. During the year ended March 31, 2000, the Company issued
151,300 common shares pursuant to the exercise of 151,300 of these share
purchase warrants for total consideration of $500,803. During the three months
ended June 30, 2000 the Company issued 180,500 common shares pursuant to the
exercise of 180,500 of these share purchase warrants for total consideration of
$597,455. The remaining 86,950 Agent's Special Warrants expired unexercised on
June 16, 2000.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Distribution Agreement effective April 1, 2000 by and
between the Company and Merck Eurolab Holding GmbH(1)
10.2 Letter of Extension of Trade Credit Facility dated June
26, 2000 by Union Bank of California
10.3 First Amendment to Agreement Concerning Termination of
Employment of Lois Crandell dated May 24, 2000 by and
between the Registrant and Lois J. Crandell(2)
10.4 First Amendment to Consulting Services Agreement dated
May 24, 2000 by and between the Registrant and Lois J.
Crandell(2)
10.5 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(2)
10.6 First Amendment to Consulting Services Agreement dated
May 24, 2000 by and between the Registrant and Gunter A.
Hofmann(2)
27 Financial Data Schedule (filed only electronically with
the SEC)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended June 30, 2000.
--------
(1) Confidential treatment has been requested with request to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(2) Incorporated by reference from the form 10-K filed for the year ended March
31, 2000.
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GENETRONICS BIOMEDICAL LTD.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Genetronics Biomedical Ltd.
Date: By:
8/11/00 /s/ Martin Nash
-------------------- ----------------------------------------------
Martin Nash, Chief Executive Officer
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