GENETRONICS BIOMEDICAL CORP - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2003

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from
to

Commission File No. 0-29608

GENETRONICS BIOMEDICAL CORPORATION

(Exact name of Registrant as specified in its charter)

Delaware		33-0969592
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

11199 SORRENTO VALLEY ROAD SAN DIEGO, CALIFORNIA 92121-1334
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)

(858) 597-6006
(COMPANY’S TELEPHONE NUMBER, INCLUDING AREA CODE)

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 ý No o

The number of shares outstanding of the Company’s Common Stock, par value $ 0.001 per share, was 50,423,552 as of April 30, 2003.

GENETRONICS BIOMEDICAL CORPORATION

FORM 10-Q

For the Quarter Ended March 31, 2003

INDEX

Part I. Financial Information

	Item 1. Financial Statements

		a)	Consolidated Balance Sheets as of March 31, 2003 (Unaudited) and December 31, 2002

		b)	Consolidated Statements of Operations for the Three Months Ended March 31, 2003 and 2002 (Unaudited)

		c)	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002 (Unaudited)

		d)	Notes to Consolidated Financial Statements

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

	Item 3. Quantitative and Qualitative Disclosures About Market Risk

	Item 4. Controls and Procedures

Part II. Other Information

	Item 5. Other Information

	Item 6. Exhibits and Reports on Form 8-K

Signatures

Part I. Financial Information

Item 1. Financial Statements

GENETRONICS BIOMEDICAL CORPORATION

CONSOLIDATED BALANCE SHEETS

	March 31, 2003			December 31, 2002
	(Unaudited)
ASSETS
Current
Cash and cash equivalents	$	2,022,838		$	875,444
Receivables, net	171,403			75,588
Prepaid expenses and other	162,862			229,384
Assets of discontinued operations	—			1,517,496
Total current assets	2,357,103			2,697,912
Fixed assets, net	249,331			295,321
Patents and other assets, net	2,372,510			2,425,992
Total assets	$	4,978,944		$	5,419,225

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Accounts payable and accrued expenses	$	682,166		$	1,032,939
Current portion of obligations under capital leases	295			20,642
Deferred revenue	201,516			202,654
Liabilities of discontinued operations	—			401,769
Total current liabilities	883,977			1,658,004
Deferred rent	32,778			35,851
Total liabilities	916,755			1,693,855

Shareholders’ equity
Common stock, $0.001 par value	50,424			50,398
Additional paid in capital	57,160,264			57,137,202
Receivables from executive/shareholder	—			(33,445		)
Accumulated comprehensive income	—			(102,238		)
Accumulated deficit	(53,148,499		)	(53,326,547		)
Total shareholders’ equity	4,062,189			3,725,370
Total liabilities and shareholders’ equity	$	4,978,944		$	5,419,225

See accompanying notes

GENETRONICS BIOMEDICAL CORPORATION

CONSOLIDATED STATEMENTS OF
OPERATIONS

(Unaudited)

	Three Months Ended March 31, 2003			Three Months Ended March 31, 2002
REVENUE
License fee and milestone payments	$	1,471		$	1,470
Revenues under collaborative research and development arrangements	9,666			3,000
Total revenue	11,137			4,470

EXPENSES
Research and development	475,734			623,985
General and administrative	1,263,463			877,878
Interest income	(3,203		)	(6,005		)
Interest expense	20,433			2,049

Total expenses	1,756,427			1,497,907

Loss from continuing operations	(1,745,290		)	(1,493,437		)

Discontinued operations:

Gain on disposal	2,034,078			—

(Loss) income from operations	(110,740		)	31,621
Net income (loss)	$	178,048		$	(1,461,816	)
Amounts per common share – basic and diluted:

Loss from continuing operations	$	(0.03	)	$	(0.04	)
Income from discontinued operations	$	0.03		—

Net income (loss)	$	(—	)	$	(0.04	)

Weighted average number of common shares – basic	50,406,608			34,644,798

Weighted average number of common shares – diluted	50,632,087			34,644,798

See accompanying notes

GENETRONICS BIOMEDICAL CORPORATION

CONSOLIDATED STATEMENTS OF
CASH FLOWS

(Unaudited)

	Three Months Ended March 31, 2003			Three Months Ended March 31, 2002

OPERATING ACTIVITIES
Loss from continuing operations	$	(1,745,290	)	$	(1,493,437	)
Adjustments to reconcile loss from continuing operations to net cash used in operating activities:
Compensation for services paid in stock options	22,169			46,841
Valuation of warrants issued in connection with debt	19,800			—
Depreciation and amortization	143,391			154,006
Provision for inventory obsolescence	—			6,998
Loss on disposal of fixed assets	—			404
Deferred rent	(3,073		)	—
Realized loss on foreign currency translation adjustment	102,238			—
Deferred revenue	(1,138		)	20,529
Changes in non-cash working capital items:
Accounts receivable	(95,815		)	163,701
Inventories	—			(7,001		)
Prepaid expenses and other	66,522			748
Accounts payable and accrued expenses	(350,773		)	78,021
Cash used in operating activities	$	(1,841,969	)	$	(1,029,190	)

INVESTING ACTIVITIES
Disposal of capital assets	—			2,210
Increase in other assets	(43,919		)	(101,258		)
Cash provided by (used in) investing activities	$	(43,919	)	$	(99,048	)

FINANCING ACTIVITIES
Proceeds from issuance of bridge loan	1,000,000			—
Repayment of bridge loan	(1,000,000		)	—
Payments on obligations under capital leases	(20,347		)	(11,079		)
Proceeds from issuance of common shares — net	14,564			337,591
Cash provided by financing activities	$	(5,783	)	$	326,512

Net cash provided by (used in) discontinued operations	$	3,039,065		$	(256,604	)

Increase (decrease) in cash and cash equivalents	$	1,147,394		$	(1,058,330	)
Cash and cash equivalents, beginning of period	875,444			1,813,100
Cash and cash equivalents, end of period	$	2,022,838		$	754,770

See accompanying notes

GENETRONICS BIOMEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of Genetronics Biomedical Corporation (“Company”, “we” or “us”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The consolidated balance sheet as of March 31, 2003, consolidated statements of operations for the three months ended March 31, 2003 and 2002, and the consolidated statements of cash flows for the three months ended March 31, 2003 and 2002 are unaudited, but include all adjustments (consisting of normal recurring adjustments) which Genetronics Biomedical Corporation considers necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2003 shown herein are not necessarily indicative of the results that may be expected for the year ended December 31, 2003 or for any other period. For more complete information, these financial statements, and notes thereto, should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2002 included in the Company’s Form 10-K filed with the Securities and Exchange Commission.

The financial statements included herein have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business for the foreseeable future. The Company’s independent auditors issued a report on our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2002 that includes an explanatory paragraph regarding our ability to continue as a going concern. The Company had net income of $178,048 for the three months ended March 31, 2003, has working capital of $1,473,126 and an accumulated deficit of $53,148,499 at March 31, 2003. On January 31, 2003, we completed the sale of substantially all of the properties and assets that are primarily used in our BTX Division. Genetronics Biomedical’s stockholders, in a Special Stockholder’s Meeting held on January 31, 2003, voted to approve the proposed sale to Harvard Bioscience, Inc. The terms of the sale were $3.7 million in cash and royalties on net sales of BTX products above certain sales targets for a period of four years. The net gain on the sale of the BTX Division was $2,034,078. The Company incurred a net loss from continuing operations of $1,745,290. Including the cash proceeds received in January 2003 from the sale of the BTX Division, we believe we have sufficient funds to fund operations through September 2003. The ability of the Company to continue as a going concern is dependent upon its ability to achieve profitable operations and to obtain additional capital. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company continues to reduce its operating expenses through a reorganization of its operations by reducing its headcount, reducing facilities expenses, certain research and development expenses and

certain outside consulting and contract costs. As the reduction of above expenses alone will not prevent future operating losses, the Company is aggressively seeking further funding in order to satisfy its projected cash needs for at least the next twelve months. The Company will continue to rely on outside sources of financing to meet its capital needs beyond next year. The outcome of these matters cannot be predicted at this time. Further, there can be no assurance, assuming the Company successfully raises additional funds, that the Company will achieve positive cash flow. If the Company is not able to secure additional funding, it will be required to further scale back its research and development programs, pre-clinical studies and clinical trials, and general and administrative activities and may not be able to continue in business. These consolidated financial statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should the Company be unable to continue in business.

Certain reclassifications have been made to the financial statements for the three months ended March 31, 2002 to conform to the March 31, 2003 presentation.

2. Principles of Consolidation

These consolidated financial statements include the accounts of Genetronics Biomedical Corporation and its wholly owned subsidiary, Genetronics, Inc.

3. Shareholders’ Equity

Authorized and Issued Stock as of March 31, 2003:

Authorized: 300,000,000 shares of common stock with a par value of $ 0.001 per share and 10,000,000 shares of preferred stock with a par value of $ 0.001 per share

Issued: 50,423,552 shares of common stock with a par value of $50,424 No shares of preferred stock had been issued to date

Stock Options

The 2000 Stock Option Plan, effective July 31, 2000 (the “2000 Plan”), was approved by the shareholders on August 7, 2000, pursuant to which 10,000,000 shares of common stock are reserved for issuance. The 2000 Plan supercedes all previous stock option plans. As of March 31, 2003, 1,358,151 shares of common stock were available for grant under the 2000 Plan. At December 31, 2002, there were 1,817,151 stock options available for grant under the 2000 Plan.

During the three months ended March 31, 2003, the Company granted 825,000 stock options with a weighted average exercise price of $0.30.

At March 31, 2003, 7,363,400 stock options remain outstanding at exercise prices ranging from $0.18 to $5.50 with a weighted average remaining life of 6.9 years, of which 4,709,900 are vested as of March 31, 2003.

Warrants

On January 21, 2003, the Company entered into a $1,000,000 bridge loan with a major shareholder. Warrants to purchase 60,000 shares of the Company’s common stock at $.01 per share were granted in lieu of interest being charged to the loan. The warrants expire in January 2005. The warrants were valued at $19,800 using a fair value model and were charged to interest expense during the three months ended March 31, 2003. In February 2003, the bridge loan was paid in full with proceeds from the sale of the BTX Division.

Common Stock

Pursuant to a consulting agreement dated June 12, 2001, the Company agreed to issue 100,000 shares of common stock with a value of $55,000 based on the fair market value of the Company’s common stock on the completion date of the project in October 2001. The shares of common stock were issued on January 9, 2002.

In January 2002, the Company reduced the exercise price of 500,000 Agent’s Compensation Warrants from Cdn $1.35 to Cdn $1.10 and extended the expiration date to January 31, 2002. On January 16, 2002, the Company issued 500,000 shares of common stock in respect of the exercise of these warrants for gross proceeds of Cdn $550,000 (US $337,506).

In January 2002, the Company extended the expiration date of 499,199 consultant stock options from January 15, 2002 to January 31, 2002 and reduced the exercise price from between Cdn $1.25 and Cdn $4.13 to Cdn $1.15. On January 21, 2002 the Company issued 499,199 shares of common stock in respect of the exercise of these stock options for gross proceeds of Cdn $574,079 (US $361,287). As a result additional stock-based compensation was recorded in January 2002 of $39,936 at a fair value of $0.08 per option which was estimated by using the Black Scholes pricing model.

Special Warrants

On June 6, 2002, the Company closed a private placement of 10,225,891 special warrants. 7,985,574 special warrants were issued at a subscription price of $0.42 per special warrant and 2,240,317 special warrants were issued at a subscription price of $0.47 per special warrant, for gross proceeds of $4,406,890. Each $0.42 special warrant is exercisable, without additional payment, into one share of common stock and a warrant for the purchase of one-third of one share of common stock. Each full common stock purchase warrant is exercisable for 12 months to purchase a share of common stock at $0.70. Total warrants at $0.70 are 2,661,851 and expire on June 6, 2003. Each $0.47 special warrant is exercisable, without additional payment, into one share of common stock and a warrant for the purchase of forty percent of one share of common stock. Each full common stock purchase warrant is exercisable for 12 months to purchase one share of common stock at $0.65. A total of 896,125 such warrants are issuable and shall expire

on June 6, 2003. The gross proceeds of this financing were reduced by issuance costs including the agent’s commission of 6.0% of the gross proceeds of $264,413 and other issue costs of $306,708. In October 2002, these special warrants were converted into 10,225,891 shares of common stock and 3,557,976 common stock purchase warrants.

In connection with the issuance of the special warrants described in the preceding paragraph, the Company granted Series “A” special warrants to the placement agent to acquire 665,000 shares of common stock for $0.47 per share. These warrants expire on June 6, 2005.

On November 30, 2001, the Company closed a private placement of 5,212,494 special warrants at a price of $0.45 per special warrant for gross proceeds of $2,345,622. Each special warrant entitled the holder to acquire one share of Company common stock as well as a warrant to purchase one-half of a share of common stock, without payment of further consideration, on the exercise or deemed exercise of the special warrant. In April 2002, these special warrants were converted into 5,212,494 shares of common stock and 2,606,247 common stock purchase warrants. Each warrant entitles the holder to purchase one share of common stock at a price of $0.75 through May 30, 2003. The gross proceeds of this financing were reduced by issuance costs including the agent’s commission of 7.5% of the gross proceeds of $175,922 and other issue costs of $834,596. The placement agent was also granted Agent’s Series A Special Warrants entitling the agent to acquire 100,000 shares of common stock of the Company, without payment of further consideration as well as Agent’s Series B Special Warrants entitling the agent to acquire 521,249 Agent’s Share Purchase Warrants. Each Agent’s Share Purchase Warrant entitles the holder to acquire one share of common stock at a price of $0.45 per share, exercisable through May 30, 2003. In May 2002, the Series A Special Warrants were converted to 100,000 shares of common stock of the Company.

In November 2001, the Company entered into a note receivable agreement with one of its executive officers in the amount of $65,000, to enable the executive to purchase 144,000 special warrants offered through the Company’s private placement. The loan plus accrued interest, at an interest rate of 5.0%, is payable on or before November 9, 2004. In March 2002, the Company received a partial repayment of the loan balance in the amount of $33,847. In March 2003, the loan was paid in full with proceeds from the executive officer’s 2002 bonus.

4. Net Loss Per Share

Net loss per share is calculated in accordance with Statement of Financial Accounting Standards No. 128 “Earnings per Share”. Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of shares of common stock outstanding during the period. Diluted income (loss) per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common stock by application of the treasury stock method. Since the effect of the assumed exercise of common stock options and other convertible securities was anti-dilutive for March 31, 2002, the number of shares used in calculation of basic and diluted loss per share are the same for that period.

5. Discontinued Operations

The Company’s Board of Directors decided to focus the attention and resources of the Company on its Drug and Gene Delivery Division. In connection with this decision, the Company decided to sell the assets of the BTX Division. On January 31, 2003, we completed the sale of substantially all of the properties and assets that are primarily used in our BTX Division. Accordingly, the BTX Division, which was previously classified as a separate segment, has been classified as discontinued operations for financial reporting purposes.

Operating results of the Company’s discontinued operations are shown separately as a single line item in the accompanying consolidated statements of operations. The BTX Division had sales of $162,060 and $787,063 for the three months ended March 31, 2003 and 2002, respectively. These amounts are not included in sales in the accompanying unaudited consolidated statements of operations.

6. Generally Accepted Accounting Principles in Canada

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial statements, which, in the case of the Company, conform in all material respects with those in Canada (Canadian GAAP), except as described in the Company’s consolidated financial statements for the year ended December 31, 2002.

The impact of significant variations to Canadian GAAP on the consolidated statements of operations is as follows:

	Three Months Ended
	(Unaudited)
	March 31, 2003			March 31, 2002
Net income (loss) for the period, U.S. GAAP	$	178,048		$	(1,461,816	)
Adjustment for stock-based compensation non-employees	22,169			46,841
Net income (loss) for the period, Canadian GAAP	$	200,217		$	(1,414,975	)
Net income (loss) per common share, Canadian GAAP – basic and diluted	$	(—	)	$	(0.04	)
Weighted average number of common shares, Canadian GAAP:
Basic	50,406,608			34,644,798
Diluted	50,632,087			34,644,798

The impact of significant variations to Canadian GAAP on the consolidated balance sheet items is as follows:

	March 31, 2003			December 31, 2002
	(Unaudited)
Additional paid in capital	$	54,108,956		$	54,108,063
Accumulated deficit	$	(50,097,191	)	$	(50,297,408	)

7. Stock-based compensation

The Company follows Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB25) and related interpretations, in accounting for its employee stock options. Under APB25, because the exercise price of the Company’s options for common shares granted to employees is not less than the fair market value of the underlying stock on the date of grant, no compensation expense has been recognized. Options awarded to non-employees, including consultants, are recorded at their fair values using the Black Scholes option pricing model based on the vesting terms of the options. The Company has also adopted the disclosure-only alternative of FASB Statement No.123, Accounting for Stock-Based Compensation (SFAS 123).

Pro forma information regarding net income and earnings per share is required by SFAS 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted 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 three months ended March 31, 2003: risk free interest rate of 1.23% [three months ended March 31, 2002 — 5.22%]; dividend yield of 0%; volatility factor of the expected market price of the Company’s common stock of 1.22 [three months ended March 31, 2002 — 1.43]; and a weighted average expected life of the options of 9 years [three months ended March 31, 2002 — 9 years].

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 three months ended March 31, 2003 which were granted at fair market value on the date of grant was $ 0.30 [three months ended March 31, 2002 - $0.56].

Supplemental disclosure of pro forma net income (loss) and net income (loss) per common share is as follows:

	Three Months ended March 31, 2003			Three Months ended March 31, 2002
Pro forma net income (loss)	$	(171,499	)	$	(1,602,553	)
Pro forma basic and diluted net income (loss) per common share	$	(—	)	$	(0.05	)

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 includes 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 those statements related to development plans, intentions to seek licensing partners and additional sources of capital, intended inventory levels, expectations concerning the adequacy of existing cash resources and anticipated sources of future revenues, and other 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, potential changes in strategy and focus of potential collaborative partners, competitive conditions and demand for its products, 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 December 31, 2002.

General

The Company formerly conducted its operations through two separate divisions, the Drug and Gene Delivery Division and the BTX Division. The Drug and Gene Delivery Division is developing drug and gene delivery systems based on electroporation to be used in the treatment of disease. The Company’s Board of Directors, however, has decided to focus the attention and resources of the Company on its Drug and Gene Delivery Division and to sell substantially all of the assets of the BTX Division. On January 31, 2003, we completed the sale of substantially all of the properties and assets that are primarily used in our BTX Division. Accordingly, the BTX Division, which was previously classified as a separate segment, has been classified as discontinued operations for financial reporting purposes. BTX developed, manufactured and sold electroporation and electrofusion equipment to the research laboratory market. In the past, the Company’s revenues reflected product sales to the research market through the BTX Division and research grants through the Drug and Gene Delivery Division.

The Company is currently seeking a new licensing partner for the use of electroporation for the delivery of drugs in the treatment of cancer and delivery of genes into cells. The Company will not receive any additional milestone or licensing payments for development or sale of its products until a new strategic alliance 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. There can be no assurance that the Company will be able to contract with such a partner or that the Company can achieve the milestones set out in a new agreement.

Until the commercialization of clinical products, the Company expects revenues to continue to be attributable to collaborative research arrangements, licensing fees, grants 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 eight years. As of March 31, 2003, the Company has an accumulated deficit of $53,148,499. 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 administrative activities.

On June 15, 2001 the Company completed a change in its jurisdiction of incorporation from British Columbia, Canada into the state of Delaware. The change was accomplished through a continuation of Genetronics Biomedical Ltd., a British Columbia corporation, into Genetronics Biomedical Corporation, a Delaware corporation. All periods in the financial statements presented herein have been prepared in accordance with accounting principles generally accepted in the United Sates.

Critical Accounting Policies

There have been no changes in the Company’s critical accounting policies as discussed in the company’s form 10-K for year ended 2002.

Revenue recognition

The Company has adopted a strategy of co-developing or licensing its gene delivery technology for specific genes or specific medical indications. Accordingly, the Company has entered into collaborative research and development agreements. Payments under these agreements, which are non-refundable, are recorded as revenue as the related research expenditures are incurred pursuant to the terms of the agreement and provided collectibility is reasonably assured.

License fees comprise initial fees and milestone payments derived from collaborative licensing arrangements. Non-refundable milestone payments continue to be recognized upon (i) the achievement of specified milestones when the Company has earned the milestone payment, (ii) the milestone payment is substantive in nature and the achievement of the milestone was not reasonably assured at the inception of the agreement. The Company defers payments for milestone events which are reasonably assured and recognizes them ratably over the minimum remaining period of the Company’s performance obligations. Payments for milestones which are not reasonably assured are treated as the culmination of a separate earnings process and are recognized as revenue when the milestones are achieved.

Patent and license 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.

License costs are recorded based on the fair value of consideration paid and amortized using the straight-line method over the expected useful life of the underlying patents.

Long-lived assets

We assess the recoverability of the affected long-lived assets by determining whether the carrying value of such assets can be recovered through undiscounted future operating cash flows. If impairment is indicated, we reduce the carrying value of the asset to fair value. While our current and historical operating and cash flow losses are potential indicators of impairment, we believe the future cash flows to be received from the long-lived assets will exceed the assets’ carrying value, and accordingly, we have not recognized any impairment losses through March 31, 2003.

Research and Development Expenses

Since our inception, virtually all of our activities have consisted of research and development efforts related to developing our electroporation technologies. Accordingly, the large majority of our transactions to date have related to research and development spending. We expense all such expenditures in the period incurred.

Results of Operations

Revenues

The Company had total revenues of $11,137 for the three months ended March 31, 2003, compared to $4,470 for the three months ended March 31, 2002. Revenues under license fees and milestone payments for the three months ended March 31, 2003 were $1,471, compared to $1,470 for the three months ended March 31, 2002. The licenses fees which were recorded for the three month ended March 31, 2003 and 2002, resulted from the amortization of a $100,000 up-front license fee received according to a non-exclusive license and supply agreement entered into with Valentis, Inc. The Company will receive further payments, in the form of cash and stock of Valentis, if certain milestones are achieved under the agreement. In October 2002, the Company received an upfront milestone payment of $100,000. The Company is currently seeking a new licensing partner for the use of electroporation for the delivery of drugs in the treatment of cancer and delivery of genes into cells. Until a new strategic alliance 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 will not receive any significant milestone or licensing payments for development or sale of its products.

There were no revenues from grant funding for the three months ended March 31, 2003 and 2002. All active grants have expired, but the Company continues to pursue additional grants; however, no assurance can be given that any such awards will be realized.

During the three months ended March 31, 2003 and 2002, the Company recorded revenues under collaborative research and development arrangements in the amount of $9,666 and $3,000, respectively. Research and development collaborative revenues increased $6,666 or 222% for the three months ended March 31, 2003, as compared to the same periods of the previous year. This increase was due to the addition of a small collaborative research agreement in the gene therapy area entered into in late 2002 which was completed in early 2003.

Research and Development

Research and development expenses, which include clinical trial costs, for the three months ended March 31, 2003, were $475,734, compared to $623,985 for the three months ended March 31, 2002, a decrease of $148,251, or 24%, for the three months ended March 31, 2003, as compared to the same period of the previous year. The decrease in research and development expenses for the three months ended March 31, 2003, reflects a reduction in research and development activities due to limited financial resources, lower clinical/regulatory expenses and the fact that Company reduced headcount and the use of outside consultants to more effectively manage existing resources. The Company is currently planning to enter additional Phase III clinical trials, which is subject to the approval by the FDA. Clinical/regulatory expenses will increase substantially if a Phase III clinical trial is initiated.

General and Administrative Expenses

General and administrative expenses, which consist of business development expenses, and general administrative expenses, for the three months ended March 31, 2003, were $1,263,463, compared to $877,878 for the three months ended March 31 2002. General and administrative expenses increased by $385,585, or 44%, for the three months ended March 31, 2003, as compared to the same period of the previous year. The increase in general and administrative expenses for the three months ended March 31, 2003 mainly reflects one-time severance payments made to the employees of the BTX division, which was sold in January 2003. Increased financing and business development efforts have also contributed to the increase in general and administrative expenses during the three months ended March 31, 2003.

Interest Income

Interest income for the three month ended March 31, 2003, was $3,203, compared to $6,005 for the three months ended March 31, 2002, a decrease of $2,802, or 47%. The decrease in interest income for the three months ended March 31, 2003, resulted primarily from the diminishing availability of investment funds due to the continuing operating losses as well as an overall decline in interest rates.

Net Income (Loss)

The Company reported net income of $178,048 for the three months ended March 31, 2003, compared to a net loss of $1,461,816 for the three months ended March 31, 2002. The

increased net income was the results of a gain recorded in January 2003 of $2,034,078, from the sale of the BTX division.

Liquidity and Capital Resources

During the last six 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 equity securities.

As of March 31, 2003, Genetronics Biomedical had working capital of $1,473,126 compared with $1,039,908 as of December 31, 2002. The increase was primarily a result of the additional funds received in the three months ended March 31, 2003 from the sale of the BTX division. The current ratio increased from 1.63 as of December 31, 2002 to 2.67 as of March 31, 2003.

On January 21, 2003, the Company entered into a $1,000,000 bridge loan with a major shareholder. . In February 2003, the bridge loan was paid in full with proceeds from the sale of the BTX Instrument Division. Warrants to purchase 60,000 shares of the Company’s common stock at $.01 per share were granted in lieu of interest being charged to the loan. The warrants expire in January 2005.

On January 31, 2003, we completed the sale of substantially all of the properties and assets that are primarily used in our BTX Division. Genetronics Biomedical’s stockholders, in a Special Stockholder’s Meeting held on January 31, 2003, voted to approve the proposed sale to Harvard Bioscience, Inc. The terms of the sale are $3.7 million in cash, subject to certain adjustments, and royalty on net sales of BTX products above certain sales targets for a period of four years. The net gain on the sale of BTX was $2,034,078.

On November 30, 2001, the Company closed a private placement of 5,212,494 special warrants at a price of $0.45 per special warrant for gross proceeds of $2,345,622. Each special warrant entitled the holder to acquire one share of Company common stock as well as a warrant to purchase one-half of a share of common stock, without payment of further consideration, on the exercise or deemed exercise of the special warrant. In April 2002, these special warrants were converted into 5,212,494 shares of common stock and 2,606,247 common stock purchase warrants. Each warrant entitles the holder to purchase one share of common stock at a price of $0.75 through May 30, 2003. The gross proceeds of this financing were reduced by issuance costs including the agent’s commission of 7.5% of the gross proceeds of $175,922 and other issue costs of $420,763. The placement agent was also granted Agent’s Series A Special Warrants entitling the agent to acquire 100,000 shares of common stock of the Company, without payment of further consideration as well as Agent’s Series B Special Warrants entitling the agent to acquire 521,249 Agent’s Share Purchase Warrants. Each Agent’s Share Purchase Warrant entitles the holder to acquire one share of common stock at a price of $0.45 per share, exercisable through May 30, 2003. In May 2002, the Series A Special Warrants were converted to 100,000 shares of common stock of the Company.

As of March 31, 2003, the Company had an accumulated deficit of $53,148,499. The Company has operated at a loss since 1994, and it expects this to continue for some time. The amount of the accumulated deficit will continue to grow, as it will be expensive to continue clinical, research and development efforts. If these activities are successful and if the Company receives approval from the FDA to market equipment, then even more funding will be required to market and sell the equipment. As of the date of this filing, there is substantial doubt about the Company’s ability to continue as a going concern due to its historical negative cash flow and because the Company does not have access to sufficient committed capital to meet its projected operating needs for at least the next twelve months.

The Company is aggressively seeking further equity funding in order to satisfy its projected cash needs for at least the next twelve months. The Company retained the services of an investment bank to assist in securing financing for the immediate cash needs of the Company. The Company is also evaluating the sale of non-core assets and exploring potential partnerships as additional ways to fund operations. However, the Company will continue to rely on outside sources of financing to meet its capital needs beyond next year. The outcome of these matters cannot be predicted at this time. Further, there can be no assurance, assuming the Company successfully raises additional funds, that the Company will achieve positive cash flow. If the Company is not able to secure additional funding, it will be required to further scale back its research and development programs, preclinical studies and clinical trials, and selling, general, and administrative activities and may not be able to continue in business.

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;

• The cost involved in filing and maintaining patent claims;

• Competitor and market conditions;

• The ability to establish and maintain collaborative arrangements;

• The 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 ability to generate substantial funding to continue research and development activities, preclinical and clinical studies and clinical trials and manufacturing, scale-up, and selling, general, and administrative activities is subject to a number of risks and uncertainties and will depend on numerous factors including:

• The ability to raise funds in the future through public or private financings, collaborative arrangements, grant awards or from other sources;

• The potential for the Company to obtain equity investments, collaborative arrangements, license agreements or development or other funding programs in exchange for manufacturing, marketing, distribution or other rights to products developed by the Company; and

• The ability to maintain existing collaborative arrangements.

The Company cannot guarantee that additional funding will be available when needed or on favorable terms. If it is not, the Company will be required to scale back its research and development programs, preclinical studies and clinical trials, and selling, general, and administrative activities, or otherwise reduce or cease operations and its business and financial results and condition would be materially adversely affected.

Certain Risk Factors Related To The Company’s Business

We Have Operated At A Loss And We Expect To Continue To Accumulate A Deficit; Our Auditors Have Included In Their Report An Explanatory Paragraph Describing Conditions That Raise Substantial Doubt About Our Ability To Continue As A “Going Concern”.

As of March 31, 2003, we had a deficit of $53,148,499. We have operated at a loss since 1994, and we expect this to continue for some time. The amount of our 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 have received during the fiscal year beginning January 1, 2003, came from the sale of the BTX division. Other funds came from collaborative research arrangements, interest income on our investments and the exercise of stock options. We do not expect to receive enough money from these sources to pay for future activities. There is substantial doubt about our ability to continue as a going concern due to our historical negative cash flow and because we do not have access to sufficient committed capital to meet our

projected operating needs for at least the next twelve months. Our auditor has included in their report on the financial statements for the year ended December 31, 2002, an explanatory paragraph describing conditions that raise substantial doubt about our ability to continue as a going concern.

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 involve substantial costs. 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, maintaining, 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 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 receive such grants, or, if we do, that these transactions 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 may do this in the future to raise needed funds. Sale of our stock to new private or public investors usually results in existing stockholders 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 also lessens a stockholder’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 Or Raise More Money Or Change Strategic Direction.

If we are not able to raise needed money under acceptable terms, then we will have to take measures to cut costs, such as:

• Delay, scale back or discontinue one or more of our drug or gene delivery programs or other aspects of operations, including laying off some personnel or stopping or delaying clinical trials;

• Sell or license some of our technologies that we would not otherwise give up if we were in a better financial position;

• Sell or license some of our technologies under terms that are a lot less favorable than they otherwise might have been if we were in a better financial position; and

• Consider merging with another company or positioning ourselves to be acquired by another company.

If it became necessary to take one or more of the above-listed actions, then we may have a lower valuation, which probably would be reflected in our stock price.

If We Are Not Successful Developing Our Current Products, 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 products and programs that to us seem promising and that we could pursue. However, with limited resources, we may decide to change priorities and shift programs away from those that we had been pursuing, for the purpose of exploiting our core technology of electroporation. The choices we may make will be dependent upon numerous factors, which we cannot predict. 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. For example, we had to make a decision to forego commercial marketing opportunities in Europe given our financial condition.

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 our success 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 before we can seek regulatory approval to sell our products in the United States 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 our business will suffer. Additionally, much of the commercialization efforts for our products must be carried forward by a licensing partner. We may not be able to obtain such a partner.

Pre-Clinical And Clinical Trials Of Human-Use Equipment Are Unpredictable; If We Experience Unsuccessful Trial Results Our Business Will Suffer.

Before any of our human-use equipment can be sold, the Food and Drug Administration (FDA), or applicable foreign regulatory authorities, must determine that the equipment meets specified 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.

Clinical trials are unpredictable, especially human-use trials. Results achieved in early stage clinical trials may not be repeated in later stage trials, or in trials with more patients. When early, positive results are not repeated in later stage trials, pharmaceutical and biotechnology companies have suffered significant setbacks. Not only are commercialization timelines pushed back, but some companies, particularly smaller biotechnology companies with limited cash reserves, have gone out of business after releasing news of unsuccessful clinical trial results.

If we experience unexpected, inconsistent or disappointing results in connection with a clinical or pre-clinical trial our business will suffer. 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, 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 additional funds to keep the product(s) moving through the regulatory process. If we do not have or cannot raise the needed funds, then the testing of 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 the clinical development programs for 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. To date, our experience has

been that submission and approval of clinical protocols has taken longer than desired or expected.

Our Business Is Highly Dependent On Receiving Approvals From Various United States And International Government Agencies And Will Be Dramatically Affected If Approval To Manufacture And Sell Our Human-Use Equipment Is Not Granted Or Not Granted In A Timely Manner.

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 US 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 (such as, use for dermatology, use for transfer of a certain gene to a certain tissue, or 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.

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.

Any of the following events can occur and, if any did occur, any one could have a material adverse effect on us:

• As mentioned earlier, clinical trials may not yield sufficiently conclusive results for regulatory agencies to approve the use of our products;

• There can be delays, sometimes long, in obtaining approval for our human-use devices, and indeed, we have experienced such delays in obtaining FDA approval of our clinical protocols. Specifically, the FDA requested additional detailed information regarding our Phase II clinical studies. Between the production of this information and the FDA’s subsequent review, we estimate that this request added at least six months to the approval process;

• 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 On Collaborative And Licensing Relationships To Fund A Portion Of Our Research And Development Expenses; If We Are Unable To Maintain Or Expand Existing Relationships, Or Initiate New Relationships, We Will Have To Defer Or Curtail Research And Development Activities In One Or More Areas.

Our partners and collaborators fund a portion of our research and development expenses and assist us in the research and development of our human-use equipment. We have ten current partners and collaborators who fund roughly five percent of our research and development expenses. These collaborations and partnerships can help pay the salaries and other overhead expenses related to research. Our largest partner at this time is Valentis, Inc. In November 2001, we entered into a non-exclusive license and supply agreement with Valentis, whereby Valentis obtained rights to use our electroporation technology in the development of certain Genemedicine products. We received an upfront cash payment of $100,000 from Valentis in the first quarter of 2002 and fourth quarter of 2002, and we may receive additional revenues from this partnership depending on various regulatory approvals and other events outside of our control. In the past, we encountered operational difficulties after the termination of a similar agreement by a former partner, Ethicon, Inc., a Johnson & Johnson company. At the time of termination, proceeds from the Ethicon relationship funded roughly one-third of our research and development expenses. Because this partnership was terminated, we did not receive significant milestone payments which we had expected and were forced to delay some clinical trials as well as some product development. In order to obtain the funding necessary for these projects we pursued other licensing and development arrangements as well as private equity investments. Furthermore, the termination of this partnership damaged our reputation in the biotechnology community. While termination of, or any significant change in, any of our material collaborative relationships could adversely impact our business, the termination of the Ethicon partnership was the most significant to date. The Valentis partnership is not of the same size and scope as the Ethicon partnership and termination of the Valentis partnership would not, in and of itself, cause us to cease operations due to financial concerns. Termination of the Valentis partnership, however, would present operational difficulties as we would be required to reallocate existing and anticipated resources among various potential uses. We would likely have to defer or curtail our development activities in one or more areas because potential revenues available under the terms of the relationship would go unrealized.

Our clinical trials to date have used our equipment with the anti-cancer drug bleomycin. We do not currently intend 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 of the drug. In 1998, we signed a supply agreement with Abbott Laboratories under which Abbott would sell us bleomycin for inclusion in our package. If it becomes necessary or desirable to include bleomycin in our package, and this relationship with Abbott should be terminated, then we would have to form a relationship with another provider of this generic drug before any product could be launched.

We also rely on scientific collaborators at universities and companies to further our research and test our equipment. In most cases, we lend our equipment to a collaborator, teach him or her how to use it, and together design experiments to test the equipment in one of the collaborator’s fields of expertise. We aim to secure agreements that restrict collaborators’ rights to use the equipment outside of the agreed upon research, and outline the rights each of us will have in any results or inventions arising from the work.

Nevertheless, there is always risk that:

• Our equipment will be used in ways we did not authorize, which can lead to liability and unwanted competition;

• We may determine that our technology has been improperly assigned to us or a collaborator may claim rights to certain of our technology, which may require us to pay license fees or milestone payments and, if commercial sales of the underlying product is achieved, royalties;

• We may 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 may 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 may develop a negative view of us.

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.

We Could Be Substantially Damaged If Physicians And Hospitals Performing Our Clinical Trials Do Not Adhere To Protocols Or Promises Made In Clinical Trial Agreements.

Our company also works and has worked with a number of hospitals to perform clinical trials, primarily in oncology. We depend on these hospitals to recruit patients for the trials, to perform the trials according to our protocols, and to report the results in a thorough, accurate and consistent fashion. Although we have agreements with these hospitals, which govern what each party is to do with respect to the protocol, patient safety, and avoidance of conflict of interest, there are risks that the terms of the contracts will not be followed.

For instance:

Risk of Deviations from Protocol. The hospitals or the physicians working at the hospitals may not perform the trial correctly. Deviations from protocol may make the clinical data not useful and the trial could be essentially worthless.

Risk of Improper Conflict of Interest. Physicians working on protocols may have an improper economic interest in our company, or other conflict of interest. When a physician has a personal stake in the success of the trial, such as can be inferred if the physician owns stock, or rights to purchase 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 limited cash reserves similar to ours have resulted in companies going out of business. While these risks are ever present, to date our contracted physicians and clinics have been successful in collecting significant data regarding the clinical protocols under which they have operated, and we are unaware of any conflicts of interest or improprieties regarding our protocols.

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 prevent others from using its patented technology. If someone infringes upon the patented material of a patent holder, then the patent holder has the right to initiate legal proceedings against that person to protect the patented material. These proceedings, however, can be lengthy and costly. We are in the process of performing an ongoing review of our patent portfolio to confirm that our key technologies are adequately protected. If we determine that any of our patents require either additional disclosures or revisions to existing information, we may ask that such patents be reexamined or reissued, as applicable, 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. The United States or foreign patent offices may not 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. Some of the issued patents we now own or license may be determined to be invalid. If we have to defend the validity of any of our patents, the costs of such defense could be substantial, 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, and our partners, try to avoid infringement, there is the risk that we will use a patented technology owned by another person and/or be charged with infringement. Defending or indemnifying a third party against a charge of infringement can involve lengthy and costly legal actions, and there can be no guarantee of a successful outcome. Biotechnology companies of roughly our size and financial position have gone out of business after fighting and losing an infringement battle. If we, or our partners, 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 significant risks.

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, 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 or use. If competitors’ products are better than ours, for whatever reason, then we could make less money from sales and our products risk becoming obsolete.

There are many reasons why a competitor might be more successful than us, including:

Financial Resources. Some competitors have greater financial resources and can afford more technical and development 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. However, we feel that our patent position adequately protects our technology portfolio.

Faster to Market. Some companies with competitive technologies may move through stages of development, approval, and marketing faster than us. If a competitor receives FDA approval before us, then it will be authorized to sell its products before we can sell ours. Because

the first company “to market” often has a significant advantage over late-comers, a second place position could result in less than anticipated sales.

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 substantial costs, training, and time. Alternatively, we may decide 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 may not be able to undertake this effort on our own, or contract with another to do this at a reasonable cost. Regardless of the route we take, we may not be able to successfully commercialize any product.

The Market For Our 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 behavior 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 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;

• Public concern as to the safety or efficacy of our human-use products including public perceptions regarding gene therapy in general;

• Stockholders’ 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 human-use products are not yet approved for sale in the United States and some other jurisdictions and we may never obtain those approvals. Even if we do obtain approvals to sell our human-use products in the United States, those sales may not 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 stock would likely fall.

There Is A Risk Of Product Liability With Human-Use Equipment

The testing, marketing and sale of human-use products expose 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, we run the risk that use (or misuse) of the equipment will result in personal injury. The chance of such an occurrence will increase after a product type is on the market.

We possess liability insurance in connection with ongoing business and products, and we will purchase additional policies if such policies are determined by management to be necessary. The insurance we purchase may not provide adequate coverage in the event a claim is made, however, and we may be required to pay claims 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.

If and when our human-use equipment is commercialized, there is always the risk of product defects. Product defects can lead to loss of future sales, decrease in market acceptance, damage to our brand or reputation, and product returns and warranty costs. These events can occur whether the defect resides in a component we purchased from a third party or whether it was due to our design and/or manufacture. We expect that our sales agreements will 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 Products In Sufficient Volumes At Commercially Reasonable Rates.

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 may not be able to 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. There are no immediate dates set forth for launch of our products in the United States. We plan on launching these products once we successfully perform a Phase III clinical study, obtain the requisite regulatory approval, and engage a partner who has the financial resources and marketing capacity to bring our products to market.

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.

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 financial performance.

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. Our staff may not decide to stay with our company, and we may not be able to replace departing employees or build departments with qualified individuals.

We have an employment agreement in place for Avtar Dhillon, our President and Chief Executive Officer. If Mr. Dhillon 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, 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.

A Majority Of Our Directors Are Canadian Citizens And Service And Enforcement Of Legal Process Upon Them May Be Difficult.

A majority of our directors are residents of Canada and most, if not all, of these persons’ assets are located outside of the United States. It may be difficult for a stockholder in the United States to effect service or realize anything from a judgment against these Canadian residents as a result of any possible civil liability resulting from the violation of United States federal securities laws. We currently have five directors, four of whom are Canadian citizens.

Our Actual Results Could Differ Materially From Those Anticipated In Our Forward-Looking Statements.

Any statements in this Form 10-Q about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “believe,” “anticipate,” “should,” “intend,” “plan,” “will,” “expects,” “estimates,” “projects,” “positioned,” “strategy,” “outlook” and similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties, which could cause actual results to differ materially from the results expressed in the statements. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this Form 10-Q. The following cautionary statements identify important factors that could cause our actual results to differ materially from those projected in the forward-looking statements made in this Form
10-Q. Among the key factors that have a direct impact on our results of operations are:

• the risks and other factors described under the caption “Risk Factors” in this Form 10-Q;

• general economic and business conditions;

• industry trends;

• our assumptions about customer acceptance, overall market penetration and competition from providers of alternative products and services;

• our actual funding requirements; and

• availability, terms and deployment of capital.

Because the risk factors referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, you should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the

date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s exposure to market risk for changes in interest rates related primarily to the increase or decrease in the amount of interest income the Company can earn on its cash equivalents and on the increase or decrease in the amount of interest expense the Company must pay with respect to its capital lease obligations. The Company is subject to interest rate risk on its capital lease arrangements which carry an average fixed annual rate of approximately 17% and on its cash equivalents which at March 31, 2003 had an average interest rate of approximately 1.4%. Under its current policies, the Company does not use interest rate derivative instruments to manage exposure to interest rate changes. The Company ensures the safety and preservation of its invested principal funds by limiting default risk, market risk and reinvestment risk. The Company mitigates default risk by investing in investment grade securities. A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would not materially affect the fair value of the Company’s interest sensitive financial instruments. Declines in interest rates over time will, however, reduce the interest income while increases in interest rates over time will increase the interest expense.

Item 4. Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), within 90 days of the filing date of this report. Based on their evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective.

There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in the paragraph above.

Part II. Other Information

Items 1, 2, 3, and 4 are not applicable and have been omitted.

Item 5. Other Information

On November 8, 2002, the Board of Directors approved resolutions that direct the Registrant to de-list from the Toronto Stock Exchange, and on January 17, 2003, the Registrant de-listed from the Toronto Stock Exchange. The Registrant intends to remain listed on the American Stock Exchange.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit Number		Description of Document
99.1		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

During the three-month period ending March 31, 2003, the Registrant filed one current report on Form 8-K.

On February 13, 2003 under Item 2 – Acquisition or Disposition of Assets. Regarding the sale of substantially all of the properties and assets that were primarily used in the Registrant’s BTX Division to Harvard Bioscience, Inc., a Delaware corporation, for a purchase price of $3.7 million, which occurred on January 31, 2003. Further under Item 7 – Financial Statements and Exhibits. Pro forma financial information for the Registrant giving effect to the sale of the BTX Division.

GENETRONICS BIOMEDICAL CORPORATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		Genetronics Biomedical Corporation


Date:	May 19, 2003	By:	/s/ Avtar Dhillon
			Avtar Dhillon, Chief Executive Officer


Date:	May 19, 2003	By:	/s/ Peter Kies
			Chief Financial Officer

CERTIFICATIONS

I, Avtar Dhillon, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Genetronics Biomedical Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated: March 14, 2003


/s/ AVTAR DHILLON
Avtar Dhillon, President and Chief Executive Officer

I, Peter Kies, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Genetronics Biomedical Corporation;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Dated: March 14, 2003


/s/ PETER KIES
Peter Kies, Chief Financial Officer