Edgar Filing: GENETRONICS BIOMEDICAL CORP

Genetronics Biomedical Corporation

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K/A
Amendment No. 2 to Form 10-K


		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 2001




		OR




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









11199 SORRENTO VALLEY ROAD SAN DIEGO, CALIFORNIA (Address of principal executive offices)		92121-1334 (Zip Code)

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

COMMON STOCK, $0.001 PAR VALUE

(Title of Class)

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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X Box) No (Box)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X Box)

The number of shares outstanding of the Registrant’s Common Stock, which at the time of the original 10-K filing had no par value, was 33,756,718 as of May 10, 2001. The aggregate market value of the voting stock (which consists solely of shares of Common Stock) held by non-affiliates of the Company as of May 10, 2001 was approximately $43,999,300 based on $1.48 per share, the closing price on that date of Common Stock on the American Stock Exchange. *

Excludes 4,027,461 shares of Common Stock held by directors and officers, and shareholders whose beneficial ownership exceeds 10% of the shares outstanding on May 10, 2001. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the Company, or that such person is controlled by or under common control with the Company.

DOCUMENTS INCORPORATED BY REFERENCE

Certain exhibits filed with the Registrant’s prior registration statements, Forms 10-K, 10-Q, and 8-K are incorporated herein by reference into Part IV of this report.

EXPLANATORY NOTE

This Amendment No. 2 on Form 10-K/A is filed by Genetronics Biomedical Corporation (formerly known as Genetronics Biomedical Ltd.) as an amendment to its Annual Report on Form 10-K for the fiscal year ended March 31, 2001 to amend and restate in their entirety Items 1, 6, 7, and the financial statements included in Item 14 (a) (including the notes thereto), so that such sections are presented in accordance with the generally accepted accounting principles in the United States. Such sections had been previously presented in accordance with the generally accepted accounting principles in Canada. Unless otherwise noted or indicated by context, all statements in this Amendment are made as of March 31, 2001.

TABLE OF CONTENTS


	ITEM 1. BUSINESS
	ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
SIGNATURES
REPORT OF INDEPENDENT AUDITORS
CONSOLIDATED BALANCE SHEETS [See Note 1 – Nature of Business and Basis of Presentation]
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS [See Note 1 – Nature of Business and Basis of Presentation]
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY [See Note 1 – Nature of Business and Basis of Presentation]
CONSOLIDATED STATEMENTS OF CASH FLOWS [See Note 1 – Nature of Business and Basis of Presentation]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXHIBIT 23.1

ITEM 1. BUSINESS

OVERVIEW

We were incorporated in British Columbia, Canada on August 8, 1979 under the name of Concord Energy Corp. We changed our name to United Safety Technology Inc. on February 17, 1988, to Consolidated United Safety Technology Inc. on January 3, 1990, and then to Genetronics Biomedical Ltd., on September 29, 1994. 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. We carry on our business through our operating subsidiary Genetronics, Inc., a California corporation. Genetronics, Inc. was incorporated in California on June 29, 1983. Genetronics, Inc. had a subsidiary called Genetronics S.A., which was incorporated in France on January 30, 1998. Genetronics S.A. was formed primarily to manage clinical trials that were being conducted in France. Effective May 2000, the Company closed the operations of Genetronics S.A. and subsequently sold its investment for nominal consideration to Geser S.A., a company owned by Genetronics S.A.’s former General Manager. All of our business activities are conducted through Genetronics, Inc. Unless otherwise indicated, all references to Genetronics or the Company refer to Genetronics Biomedical Corporation and Genetronics, Inc. on a consolidated basis.

The Company’s originally filed Form 10-K included consolidated financial statements for the year ended March 31, 2001 prepared in accordance with Canadian generally accepted accounting principles. As a result of the change in its jurisdiction of incorporation, the Company is filing this amendment to Form 10-K whereby its consolidated financial statements will be presented in accordance with U.S. GAAP. In addition, selected Consolidated Financial Data and Management’s Discussion and Analysis have been modified to address the results of operations as presented in accordance with U.S. GAAP.

We are a San Diego-based drug and gene delivery company specializing in developing technology and hardware focused on electroporation. Electroporation is the application of brief, controlled pulsed electric fields to cells, which cause tiny pores to temporarily open in the cell membrane. Immediately after electroporation, the cell membrane is more permeable to drugs and other agents. In the lab, researchers use electroporation to introduce genes, drugs, and other compounds into cells and experimental animals. This is a common and well-known procedure and more than 4,000 scientific papers have been published describing results achieved using electroporation.

While widely used in the research arena, electroporation is a relatively new technology in the therapeutic arena. One of the major difficulties in many forms of drug or gene therapy is that the pharmaceutical agent or gene is often not able to penetrate the relatively impermeable walls of cells. The pores produced by electroporation permit entry of such agents into cells to a much greater extent than if the drug or gene was administered without electroporation. When electroporation is used in conjunction with drugs, genes, or other therapeutic agents, it is referred to as Electroporation Therapy (“EPT”). We operate through our two divisions: (i) the Drug and Gene Delivery Division, through which we are developing drug and gene delivery systems based on electroporation to be used in the treatment of disease and, (ii) the BTX Instrument Division, which develops, manufactures, and sells electroporation equipment to the research laboratory market for in vitro and for in vivo animal experimentation.

The Drug and Gene Delivery Division focuses on the development of human-use equipment that is designed to allow physicians to use EPT to achieve more efficient and cost-effective delivery of drugs or genes to patients with a variety of illnesses, including cancer. Our proprietary electroporation drug and gene delivery system, the Genetronics MedPulser® system, has been used with bleomycin, a chemotherapeutic agent, in clinical trials conducted in the United States, Australia, Europe and Canada for treatment of head and neck cancer, as well as melanoma, liver, pancreatic, basal cell and Kaposi sarcoma cancers.

DRUG AND GENE DELIVERY DIVISION

OVERVIEW

Through our Drug and Gene Delivery Division, we are developing drug and gene delivery systems based on the technology of electroporation to be used in combination with drugs or genes in the treatment of disease. There are many diseases where improved drug delivery is important. Our Drug and Gene Delivery Division has identified five potential areas of application for our electroporation technology — oncology, gene therapy, dermatology, cardiology and transdermal drug delivery. At present, the primary areas of our focus are oncology and gene therapy.

Our Drug and Gene Delivery Division’s most advanced product candidates treat solid malignant tumors such as squamous cell carcinoma, melanoma, and adenocarcinoma in the areas of application of oncology and dermatology. We have completed Phase II clinical trials in the United States of EPT and bleomycin in the treatment of head and neck cancer and melanoma. Initial results from the clinical trials carried out in Europe have allowed us to obtain a CE Mark certification qualifying the MedPulser® system for sale in Europe with respect to the treatment of head and neck cancer and melanoma using EPT and bleomycin. We intend to initiate the marketing of the MedPulser® System in Europe in 2001.

We intend to develop and pursue other appropriate targets using the MedPulser® System to deliver bleomycin or other chemotherapeutic agents. Such studies will begin as Phase I or Phase II clinical trials. Phase I clinical trials are early stage trials in human subjects, used to test a drug or delivery system for safety. Phase II clinical trials assess the effectiveness of a treatment, as well as adding to safety data. Phase III clinical trials evaluate the comparative safety and efficacy of a drug or delivery system and the data from these trials are used by regulatory agencies to approve or reject a product licensing application.

Our drug delivery system, including the MedPulser® instrument and the disposable applicators, are subject to various regulatory requirements depending on the country of sale. The Drug and Gene Delivery Division MedPulser® system has been awarded ISO 9001, EN46001 and ISO 13485 registration, as well as CE mark certification in Europe.

MARKET

Our Drug and Gene Delivery Division is expected to enter the commercial market with equipment to be used in the treatment of cancer (oncology). Cancer is a life threatening disease affecting millions of people worldwide. The World Health Organization reports that cancer will remain one of the leading causes of death worldwide for years to come. In the United States, approximately 13 million new cases were diagnosed between 1990 and 1999. To further illustrate the market potential for EPT, solid tumor cancers, the first target for EPT, constitute the majority of all cancers. The majority of cancer victims are over age 65 and are supported by government-funded programs. In the United States the costs of cancer, including mortality, morbidity and direct medical costs, exceed $107 billion per year: some $37 billion for direct medical costs (total of all health expenditures); at least $11 billion for indirect morbidity costs (cost of lost productivity due to illness); and over $59 billion for indirect mortality costs.

There is still very much that scientists do not know about cancer; consequently, there are significant unmet needs in the treatment of cancer. The oncology business unit within the Drug and Gene Delivery Division has initially targeted those indications for which current treatment modalities result in a poor quality of life and very high mortality rates. Specialized applicators are being designed which will allow EPT to treat other solid tumor cancers with minimally invasive procedures.

In the United States, the cumulative dollar value of treatments and technologies commonly used in the curative and palliative management of cancer exceeded $8 billion in 1999 and is expected to continue growing at a rate of approximately 12% annually. Our analyses project that EPT could be applicable to over 4,000,000 cancer patients. This analysis is based upon the reported incidence of head and neck cancers throughout the world as reflected by statistics obtained from the American Cancer Society, the World Health Organization and the National Institutes of Health.

TREATMENT OF TUMORS

Equipment made by our BTX Instrument Division has been used by our investigators and in other laboratories to screen drugs for their effectiveness in killing tumor cells in test tubes and to study the drugs’ mode of action. Our scientists, and outside researchers, also have studied the combination of electroporation and various agents to destroy tumors in animals and humans.

In most of the clinical protocols, the site of the tumor is anesthetized and the chemotherapeutic agent of choice (bleomycin) is injected directly into the tumor. The therapeutic agent is allowed to diffuse throughout the tumor, which can take one to several minutes depending on the size, type and location of the tumor. Once the drug is distributed in the tumor, the electrical field is applied by the MedPulser® system so as to create a greater permeability in the cells walls to allow the chemotherapeutic agent to enter the cells.

The entire procedure can be completed in 20 minutes or less and typically needs to be done only once. The dosage of drug used in the published results is based on tumor volume, and is typically a small fraction (1/3 to as little as 1/50) of the dosage that would be used systemically. As a result of the lower dosage administered locally, side effects have been minimal. Tumor death with sloughing and ulceration were common reactions following EPT. No episodes of injury to normal (non-tumor) tissue adjacent to the tumors have been observed.

MEDPULSER® SYSTEM

The MedPulser® system is an electroporation system designed for the clinical application of EPT. The technology is intended to treat various malignant and non-malignant tumors by locally applying a controlled electric field to targeted tumor tissues previously injected with a chemotherapeutic agent. The controlled short duration electric field pulses temporarily increase the cellular membrane permeability of the tumor cell membrane allowing the therapeutic agent to more easily enter the tumor cells and kill them.

The system has two components: (1) a medical instrument which creates the electric field (the MedPulser® instrument); and (2) a single use, sterile, disposable electrode applicator. The electrodes may be needles, plates, or other configurations, depending on the geometry of the tumor and its location.

The instrument was designed for ease of use, such that minimal user input is needed to apply the therapy. Based on the size and anatomical location of the tumor to be treated, a physician selects the most appropriate electrode applicator. The chosen applicator is then connected to the MedPulser® instrument,

and it is the connection of applicator to instrument that automatically configures the therapy parameters for that particular applicator size and shape. Currently, several different electrode applicator configurations are available. The applicators vary in needle length, needle gauge, electrode needle spacing, tip angle and handle configuration so as to allow the physician to access a greater range of tumors.

New models of electrode applicators will be considered in the future to address customer needs. The system is designed such that the installed base of MedPulser® generator instruments allows for a wide variety of new electrode applicator configurations. Also, the system incorporates other features to minimize the possibility of applicator reuse as well as prevent the use of competitive applicators with the MedPulser® instrument. The commercial version MedPulser® system has been certified by an independent test laboratory as meeting strict international product standards. Our drug delivery device, including the MedPulser® system and the disposable electrode applicators, are subject to various regulatory requirements, depending on the country of sale.

In the United States, EPT utilizing the MedPulser® system and bleomycin drug is currently regulated as a combination drug-device system. We will be required to obtain both drug labelling and device approvals from the United States Food and Drug Administration (“FDA”). Clinical trials (Phase I, II and III) to support drug indication labelling require filing an Investigational New Drug Application (“IND”), followed by submission of a United States New Drug Application, and submission of a device Pre-Market Approval or 510(k), for marketing approval.

In most of the rest of the world, we anticipate that the MedPulser® system will be regulated as a device. In Europe, the device comes under the Medical Device Directive 93/42/EEC (“MDD”) and marketing requires CE mark certification of conformity to the quality system, production and clinical investigation essential requirements of the directive. We have obtained CE mark certification for electroporation devices, which allows us to sell and use the MedPulser® electroporation system for the treatment of solid tumors with bleomycin in Europe.

MEDICAL DEVICE MANUFACTURING

Our Drug and Gene Delivery Division must comply with a variety of regulations to manufacture our products for sale around the world. In Europe, we must comply with MDD. Our Drug and Gene Delivery Division has demonstrated the quality system is in place by securing ISO 9001 approval. It demonstrated compliance with international medical device standards with EN 46001 and ISO 13485 recognition. These all occurred in January 1999. In March 1999, the CE Mark was obtained for the MedPulser® electroporation system. To sell in the United States, we will need to be in compliance with FDA current Good Manufacturing Practices (GMP).

We employ modern manufacturing practices, which include outsourcing of significant custom assemblies used in the manufacture of the MedPulser® instrument. The instrument final assembly, testing and quality control functions are performed in a physically distinct area of the company where the appropriate controls are employed. We outsource the manufacture of the disposable electrode applicators to a GMP/ISO9002 compliant contract manufacturer.

CLINICAL STUDIES

North America Trials

In late 1997 the FDA gave us clearance to initiate multi-center Phase II clinical trials in the United States utilizing the MedPulser® electroporation system in combination with intralesional bleomycin to treat squamous cell carcinoma of the head and neck in patients who failed conventional therapies. We obtained IND clearance from the Canadian Health Protection Branch to initiate similar clinical trials in Canada. Two protocols were initiated. One cross-over-controlled study evaluated the effectiveness of the bleomycin-EPT treatment in tumors that failed an initial bleomycin-alone treatment. The second study was a single arm study that evaluated the effect of the bleomycin-EPT treatment as an initial therapy of the study tumors.

Twenty-five patients were enrolled in the controlled study and 25 patients were enrolled into the single arm bleomycin-EPT trial. The results based on the primary endpoint for response (50% or greater reduction in tumor size) are provided in the table below.


						Clinical Response(1) (2) (3)

						Responding			Non-Responding
Clinical Trial		Patients		Tumors		Tumors			Tumors

North America Phase I/II			8		8		6(75	%)		2(25	%)




North America Phase II			25		37		1(3	%)		36(97	%)




	01 Study — Bleomycin only
North America Phase II			17		20		11(55	%)		9(45	%)




	01 Study
North America Phase II			25		31		18(58	%)		13(42	%)




	02 Study
European Study			12		18		10(56	%)		8(44	%)

(1)		A “clinical response” is a clinically significant measurable result which is obtained on the basis of a defined course of treatment.




(2)		Four tumors could not be evaluated




(3)		Control Group patients received only drug, no electric field

The two Phase II protocols involved a total of 42 tumors treated with bleomycin and EPT. Tumors treated in the trial include squamous cell carcinoma of the face, oral cavity, pharynx, larynx and sinus. The size of tumors treated ranged from less than one cubic centimeter to more than 132 cubic centimeters. In the crossover controlled Phase II study, patients initially received only the drug. Patients who did not respond to the drug alone were then treated with the complete system of drug and electric field. Of the 37 tumors on 25 patients treated only with the drug, only one demonstrated a clinical response. Seventeen of these patients, having 20 lesions, were subsequently treated with bleomycin and EPT and 55% achieved a clinical response. In the open-label Phase II study, all patients received full EPT as their initial treatment. Among the 25 patients (31 tumors) so treated, 58% achieved a clinical response.

A limited, well-controlled Phase III trial for palliative treatment of head and neck cancer in patients who failed conventional therapy may be sufficient to support NDA submission for this indication. Treatment of other diseases will involve expanded Phase II and Phase III trials pending successful outcome of the initial Phase I/II studies.

International Trials

In late 1997 and early 1998, we received ethics committee approval from multiple Consulting Committees for the Protection of Humans in Biomedical Research (CCPPRB) to initiate clinical trials in France in patients with pancreatic cancer, metastatic cancer in the liver, head and neck cancer, melanoma and Kaposi’s sarcoma. There were a total of 46 patients enrolled in these trials. CCPPRB provides oversight of proposed and actual human clinical trials to protect the participants in these trials and ensure that safety standards are met. These trials were initiated to demonstrate the MedPulser® system device’s safety and performance in treating a variety of solid tumors in support of CE mark certification in accordance with the essential requirements of the Medical Device Directive (MDD). Results from those patients in this trial with head and neck cancer are reported under North America Trials above. We achieved CE mark certification in March 1999 from notified body TUV Product Service GMBH (TUV). TUV oversees and audits clinical trials, reviews the results of the these trials and certifies compliance with established European standards. The CE mark certification allows us to market our MedPulser® device within the EU member countries.

Current Developments

On October 6, 1998, we entered into a comprehensive License and Development Agreement and a Supply Agreement with Ethicon, Inc., a Johnson & Johnson company, involving our proprietary drug delivery system for EPT treatment of cancer. In August 5, 1999, these agreements were assigned to Ethicon Endo-Surgery, Inc., another Johnson & Johnson company. Ethicon, Inc. and Ethicon Endo-Surgery, Inc. are referred to as Ethicon in this filing. On July 26, 2000, we received written notice from Ethicon Endo-Surgery, Inc. that it had elected to exercise its discretionary right to terminate, without cause, the License and Development Agreement and the Supply Agreement. All rights for the development and distribution of Genetronics proprietary electroporation drug delivery system for the treatment of cancer were returned to Genetronics on termination of the agreement on January 2001.

In September 2000, we executed an exclusive license agreement with the University of South Florida Research Foundation, Inc. (“USF”) that granted to us the worldwide license to USF’s rights in certain patents and patent applications generally related to needle electrodes. Genetronics and USF jointly developed these electrodes. The needle electrodes are components of Genetronics’ electroporations systems and are used to deliver electric pulses to cells and tissues during the process of electroporation. Pulsed electric fields generated during the electroporation process cause a temporary but significant increase in the permeability of human cells. This makes it easier for drugs and genes to enter cells, a key element for successful cancer or gene therapy treatment. In April 2001, we initiated a limited release of the MedPulser® Electroporation Therapy System, to key head and neck surgeons in several countries through a European Access Program (EAP). We have initiated a marketing evaluation of the technology, under the EAP, with a select group of

thought leaders at premier cancer centers in Austria, the United Kingdom, Germany, the Netherlands, Switzerland, and the Czech Republic. Genetronics has a CE Mark certification qualifying the MedPulser® system for sale in Europe for the treatment of solid tumors. The lead indication for the planned launch of the MedPulser® Electroporation Therapy System is the treatment of head and neck cancers and the initiation of the EAP represents the beginning of the commercialization phase of our EPT program for head and neck cancer in Europe. We believe we have sufficient current resources to initiate a variety of activities directed toward the MedPulser® system launch and marketing in Europe, and for initiation of a Phase III clinical study in the United States. In April 2001, we completed a review of our existing clinical and regulatory information related to the Electroporation Drug Delivery System and submitted the results of this review to the FDA. The responses are described above under “Clinical Studies—North America Trials.” The response rate determined pursuant to the review is consistent with previous data disclosed by us.

Research and Development Summary

We perform an ongoing review of our patent portfolio to confirm that our technologies are adequately protected. Each year we review our patent portfolio and write-off all abandoned patents.

Our Drug and Gene Delivery Division has, in the past, focused its research primarily in the areas of oncology, gene therapy, vascular therapy, transdermal delivery and dermatology. At present, the primary areas of focus are oncology and gene therapy.

The following table summarizes the programs of the Drug and Gene Delivery Division, the primary indications for each product and the current status of development. “Developmental” means the program is at the planning stage, protocols are being developed, and little if any animal work has commenced. “Preclinical data” means the program is at the stage where results from animal studies have been obtained. “Clinical Trials” means that human data is available. “Tolerance study” means a pilot clinical study to determine patient tolerance of electrical pulses at therapeutic dose.

Summary Table


		Stage of Approval

		United States &
Programs	Development Status	Canada	Europe

DERMATOLOGY




Basal Cell Cancer	Clinical Trials	Two pilot studies completed	N/A




Genital Warts	Developmental	N/A	N/A




ONCOLOGY




Head and Neck Cancer	Clinical Trials	Phase II Clinical Trials	CE Mark and ISO 9001 Received




Melanoma	Clinical Trials	N/A	CE Mark and ISO 9001 Received




Metastatic Liver Cancer	Clinical Trials	N/A	CE Mark and ISO 9001 Received




Peripheral Sarcoma	Preclinical data	N/A	CE Mark and ISO 9001 Received




Breast Cancer	Preclinical data	N/A	CE Mark and ISO 9001 Received




Prostate Cancer	Preclinical data	N/A	CE Mark and ISO 9001 Received




Glioma	Preclinical data	N/A	CE Mark and ISO 9001 Received




GENE THERAPY




In vivo Gene Transfer — blood protein encoding genes	Preclinical data	N/A	N/A




In vivo Gene Transfer — DNA vaccines	Preclinical data	N/A	N/A




In vivo Gene Transfer anti-inflammatory protein encoding genes	Preclinical data	N/A	N/A




In vivo Gene Transfer vascular protein encoding genes	Preclinical data	N/A	N/A




VASCULAR THERAPY




Coronary Artery Disease, Marker genes & drugs	Preclinical data	N/A	N/A




Vascular Disease, Heparin delivery (anti-restenosis)	Preclinical data	N/A	N/A




TRANSDERMAL DELIVERY




PGE-1 delivery for Erectile dysfunction	Tolerance Study	One Device Tolerance Study completed	N/A




Calcitonin (osteoporosis)	Preclinical data	N/A	N/A




Vitamin C	Preclinical data	N/A	N/A

“N/A” means not applicable.

GENE THERAPY

Gene therapy, in classical terms, involves the introduction of new genetic information into cells (transfection) for therapeutic purposes. Somatic cells of the body are transfected with a specific functioning gene to compensate for a genetic defect that results in a deficiency of a specific protein factor. In this context, one goal of gene therapy is to convert target cells or tissues into “protein factories” for the production and secretion of a normal protein locally or into the circulation. Many vexing genetic illnesses, including those currently treated by regular injection of a missing protein, can potentially be “cured” by supplying the functional gene to a sufficient number of cells under conditions which allow these cells to produce a therapeutically effective dose of the gene product.

Currently, single-gene recessive genetic disorders are the most accessible targets for correction by gene therapy, but ultimately polygenic and acquired diseases can and will be treated by using genes as pharmaceutical agents. In principle, any aspect of metabolism can be manipulated by modifying gene function, and it is this application of gene therapy that has enormous potential, extending far beyond the treatment of rare genetic diseases. For example, the ability to influence cellular metabolism by introducing specific genes has led to extensive investigation into the use of gene therapy for cancer treatment. By adding a tumor suppressor gene to certain types of cancers, the uncontrolled growth of those cells potentially could be brought under normal regulation. Likewise, transfecting tumor cells with genes capable of inducing programmed cell death can result in tumor ablation.

The methods of introducing genes have two specific approaches. Gene therapy can be performed either ex vivo or in vivo. Ex vivo gene therapy is the transfection of cells outside the body. Typically, a small amount of tissue is removed from the patient and the cells within that tissue are put into culture. The genetically modified cells, typically blood, bone marrow or others, are then returned to the patient, usually by blood transfusion or direct engraftment. In vivo gene therapy is the introduction of genetic information directly into cells in the patient’s body. Theoretically, any tissue or cell type in the body can be used, and the choice is dependent on the specific goals of treatment and indications being treated. For internal tissue targets, a gene may be transfused through the blood stream to the organ or site of action, or it may be injected at the desired site, which is then electroporated to allow the gene to pass through the cell membrane.

Genes can also be applied topically or by injection to skin and then transferred into the cells of the skin by electroporation. Skin gene delivery by electroporation for gene therapy is currently being investigated at Genetronics as a safe, effective and cost-competitive approach. The skin is also a target for DNA vaccination. “Vaccinating” skin with DNA that encodes a specific antigen present in infectious agents or in tumor cells can produce beneficial immunological responses. Genes can also be used to directly fight cancer. The thymidine kinase gene, in conjunction with the prodrug ganciclovir, produces a potent antitumor effect based on drug toxicity and programmed cell killing via a bystander effect. Animal trials treating glioblastomas using this strategy have shown substantial success.

To make gene therapy a reality, many obstacles have to be overcome, including the safe, efficient delivery of the intact DNA construct into the host cells. The instrumentation we use for high-efficiency in vivo gene transfer is derived from the instrumentation developed for intratumoral and transdermal drug delivery. We believe electroporation will become the method of choice for DNA delivery to cells in many applications of gene therapy.

Because of the broad applicability of this technology, we have adopted the strategy of co-developing or licensing our technology exclusively or non-exclusively for specific genes or specific medical indications. In most cases, we contribute proprietary technology, expertise and instrumentation to optimize the delivery technology for particular applications. A partner company provides its proprietary DNA constructs, may conduct the pre-clinical research and clinical trials, and may introduce the new treatment and products to the marketplace. Genetronics and the partner company would share in the commercial success of the project. We have actively sought partners to develop this exciting technology to its full potential. On November 8, 1999, we entered into an 18-month research and option agreement with Boehringer Ingelheim International GmbH (Boehringer Ingelheim) related to the development of our electroporation technology for use in particular gene therapy applications. While the research results were successful Boehringer Ingelheim decided not to pursue that subject field and declined to exercise the option to license. On June 9, 2000, we announced that research studies using our electroporation systems were presented at a major international gene therapy conference. Additionally, in collaborations with Chiron Corporation and Valentis, Inc., our technology was shown to effectively deliver a variety of genes and DNA vaccines to skin and muscle of animals, including non-human primates.

BTX INSTRUMENT DIVISION

OVERVIEW

Our company, through our BTX Instrument Division, began developing and manufacturing electroporation equipment for the research laboratory market in 1983 and sold our first product in 1985. BTX was founded to develop and manufacture high quality scientific instrumentation that can be used by

research scientists to perform various types of electroporation and electrofusion experiments. Electroporation in research is commonly used for transformation and transfection of all cell types, as well as for general molecular delivery at the cellular level. Electrofusion is the fusing together of two or more cells to form hybrid cells. Transformation is a process by which the genetic material carried by an individual cell is altered by incorporation of exogenous DNA into its genome. Transfection is the uptake, incorporation, and expression of exogenous DNA by eukaryotic cells.

The BTX Instrument Division is the second largest developer and marketer of electroporation instruments and supplies, with more than 2,000 customers in universities, companies, and research institutions worldwide. Our BTX Instrument Division sells its electroporation/electro cell fusion instrumentation and accessories to customers located in all states and territories of the United States and in over 47 foreign countries. The majority of our products are sold to customers in the United States, Europe and East Asia. The BTX Instrument Division currently produces an extensive line of electroporation instruments and accessories, including electroporation and electro cell fusion instruments, a monitoring device, and an assortment of electrodes and accessories.

PRODUCTS

BTX developed the square wave generator and graphic pulse analyzer for in vivo gene delivery and nuclear transfer research, fields that are rapidly increasing in scientific and medical interest. BTX also has developed a large volume flow-through electroporation system which offers an extensive collection of in situ and high throughput screening electroporation applicators.

BTX focused its efforts in recent years on product development and promotion of a new line of products for developing sophisticated applications. We released the ECM™ 830 in December 1998. It is a sophisticated square wave electroporation system with a menu driven digital user interface. In August 1999 we introduced the ECM 630, an Exponential Decay Wave Electroporation system that utilizes a Precision Pulse Technology, the new BTX Platform technology, and an all-new digital user interface. During the fiscal years ended March 31, 2001 and 2000, publications outlined the utilization of BTX equipment in newly developing animal in vivo gene delivery research. In the support of this research, we expanded our in vivo electrode offering and continue to emphasize the development of novel applicators.

The BTX Instrument Division’s product line includes two exponential decay wave generators, one square wave generator, one electro cell fusion instrument and a graphic wave display monitor. In addition, this Division markets over 43 different types of electrodes and related accessories, as well as the standard disposable electroporation cuvettes, containers for holding liquid samples.

Exponential decay generators have been traditionally used for the electroporation of all cell types. Square wave generators have shown the greatest utility in the electroporation of mammalian and plant cells, as well as for animal in vivo applications. The Electro Cell Fusion System is used by researchers for embryo manipulation, hybridoma and quadroma formation, as well as for all cell fusion techniques, including applications involving adoptive immunotherapy.

While we, through our BTX Instrument Division, sell devices purportedly used by others for non-human embryo cloning, we do not ourself conduct embryo cloning. All of our BTX Instrument Division instruments sold to the research market carry the label “not for human use.” We are not aware of any regulations or industry guidelines limiting the use of our instrumentation in the animal research market. We comply with all National Institutes of Health guidelines on cloning and gene therapy. We also comply with all Federal and State regulations regarding the restrictions on research imposed on federally funded grants.

The BTX Instrument Division supplies three cuvette models, as do our competitors, plus some 43 additional specialized chambers electrodes, and accessories for electroporation. BTX in situ electrodes (e.g., Petri Pulser™ electrodes) position us to expand the electroporation market for adherent cell transfection applications, while high throughput screening electrodes and large volume production systems (e.g., 96-Well Coaxial Electrode, ElectroFlowPorator™ system), respectively, provide the BTX Instrument Division with an entry into the large volume and multi-sample processing arenas used by the major pharmaceutical and biotech companies conducting drug research.

The BTX Instrument Division meets regulatory requirements necessary to provide instrumentation to the research market for in vivo and in vitro animal experimentation. The BTX Instrument Division does not market equipment for use in humans, and, therefore, is not required to receive marketing approval from the FDA.

DISTRIBUTION

The main distributors of our BTX Instrument Division products in North America are VWR Scientific Products Corporation and Fisher Scientific Company, the two largest laboratory products suppliers in the United States. Both VWR and Fisher have over 250 representatives dedicated to the biological sciences in North America. Both VWR and Fisher have dedicated Life Science Programs in which BTX participates. The Fischer Scientific distribution agreement was signed in December 2000 and it is anticipated that they will become a main distributor in the fiscal year ended March 31, 2002. In addition, the BTX Instrument Division distributes instruments and supplies through Intermountain Scientific Corporation, which has 20 field sales specialists in the United States. The BTX Instrument Division has over 45 international distributors in 47 countries, of which Merck Eurolab

Holding GmbH is the biggest distributor in Europe. VWR Scientific Products Corporation and Merck Eurolab Holding GmbH are both members of the Merck Group. The BTX Instrument Division supports its distributors with advertising, exhibit exposure and lead generation.

ADVERTISING

The BTX Instrument Division advertises in major national and international scientific journals such as Science, Nature, Genetic Engineering News, and BioTechniques. The Division also attends and displays our products at about one scientific conference per month such as American Association for Cancer Research, American Society for Gene Therapy, and Neuroscience meeting. On a quarterly basis the BTX Instrument Division utilizes direct mail to an identified mailing list for specific product promotion. The BTX Instrument Division works closely with distribution partners in joint marketing campaigns and other value-added suppliers in co-marketing efforts.

COMPETITION

The main competitors of our BTX Instrument Division in the research marketplace are BioRad Laboratories, Eppendorf Scientific, Inc. and Hybaid Corporation. There are other companies entering and departing this market on a regular basis. The majority of these companies have other molecular biology product lines besides electroporation, while electroporation and electrofusion is the only business of the BTX Instrument Division. Most competing manufacturers concentrate on the exponential decay wave system and do not compete in the square wave market at this time. In the past 12 months, the competition in the marketing of electroporation cuvettes has increased, leading to the development of BTX-supplied private label products for both VWR and Fisher Scientific.

STRATEGIC PARTNERS

LICENSE AND DEVELOPMENT AGREEMENTS

On October 6, 1998, we entered into a comprehensive License and Development Agreement and a Supply Agreement with Ethicon, Inc., a Johnson & Johnson company, involving the use of our MedPulser® system for Electroporation Therapy in the treatment of solid tumor cancer. In addition, Johnson & Johnson Development Corporation purchased $6 million of shares of common stock of our company at a price of $2.68 per share, pursuant to the October 6, 1998 Stock Purchase Agreement. On August 5, 1999, we announced that Ethicon, Inc. had assigned the License and Development Agreement and Supply Agreement to Ethicon Endo-Surgery, Inc., another Johnson & Johnson company. On July 26, 2000, we received written notice from Ethicon Endo-Surgery, Inc. that it had elected to exercise its discretionary right to terminate, without cause, the License and Development Agreement and the Supply Agreement. As a result, all rights for the development and distribution of Genetronics proprietary electroporation drug delivery system for the treatment of cancer were returned to Genetronics in January 2001.

On September 20, 2000, the University of South Florida Research Foundation, Inc. (“USF”) granted to Genetronics, Inc. and Genetronics Biomedical Ltd. an exclusive, worldwide license to its rights in certain patents and patent applications generally related to needle electrodes. Genetronics and USF jointly developed these electrodes. The needle electrodes are components of Genetronics electroporation systems and are used to deliver electric pulses to cells and tissues during the process of electroporation. Pulsed electric fields generated during the electroporation process cause a temporary but significant increase in the permeability of human cells. This makes it easier for drugs and genes to enter cells, a key element for successful cancer or gene therapy treatment. The terms of the exclusive license include a royalty to be paid to USF based on net sales or products under the license. At March 31, 2001, no royalty had accrued as the Company had not yet generated any sales from this product. In addition, Genetronics has issued a total of 150,000 common shares and a total of 600,000 warrants of which 300,000 will vest subject to the achievement of certain milestones in Genetronics Biomedical Ltd. to USF and its designees, Drs. Heller, Jaroszeski, and Gilbert.

COLLABORATIVE RESEARCH AGREEMENTS

On November 8, 1999, we entered into an 18-month research and option agreement with Boehringer Ingelheim to develop our electroporation technology for use in a particular gene therapy application. Under the terms of the agreement, we will develop hardware and perform preclinical research relating to DNA delivery for cancer DNA vaccination. While the research results were successful Boehringer Ingelheim decided not to pursue that subject field and declined to exercise the option to license. On August 28, 2000, we announced that we had entered into a collaborative agreement with Johnson & Johnson Research Pty Ltd., a wholly owned subsidiary of Johnson & Johnson, located in Eveleigh, Australia, to explore the feasibility of using electroporation, Genetronics platform technology, to deliver nucleic acid materials into tumors in vivo.

Sales and Revenue

The following table provides the amount of net product sales, interest income, and revenue from grant funding and research and development agreements generated by us for the past three fiscal years. Segmented financial information is contained in 16 of the Consolidated Financial Statements that begin on Page F-1. The following table sets forth our selected consolidated financial data for the periods indicated, derived from consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States.


		March 31, 2001		March 31, 2000		March 31, 1999
Period Ended:		12 months		12 months		12 months

PRODUCT SALES




	United States	$	2,890,875	$	2,905,065	$	2,174,364




	Rest of World		1,562,064		1,229,371		1,259,741




INTEREST INCOME




	United States		431,729		497,586		248,417




	Canada		11,900		58,607		52,494




GRANT FUNDING




	United States		101,086		334,901		354,135




REVENUES UNDER COLLABORATIVE RESEARCH AND DEVELOPMENT ARRANGEMENTS




	Germany		411,616		91,335		0




	United States		48,095		100,000		33,048




LICENSE FEE AND MILESTONE PAYMENTS




	United States		3,730,392		416,667		4,500,000

We, like many biomedical companies, devote a substantial portion of our annual budget to research and development. For the year ended March 31, 1999, research and development expenses totaled $8,086,959; for the year ended March 31, 2000, they totaled $6,977,220 and for the year ended March 31, 2001, they totaled $6,436,377. These amounts far exceed revenues from research arrangements and contribute substantially to our losses. We anticipate a reduction in losses when we market products developed by our Drug and Gene Delivery Division. The launch of the first such products in Europe is anticipated to be in 2001, and will most likely be followed by launch in the United States subject to FDA approval at a later date.

INTELLECTUAL PROPERTY

As of April 21, 2001, we had 36 issued United States patents and 48 issued and granted foreign patents. The duration of these patents are from ten to seventeen years. In addition, as of April 21, 2001 we had 3 allowed United States patent applications, an additional 18 pending United States applications, and additional pending foreign patent applications. We also license certain technologies in our business, the typical duration of these licenses range from ten to seventeen years.

We have registered on the Principal Register of the United States Patent and Trademark Office the following trademarks: BTX (Mark), BTX (Logo), ELECTRONIC GENETICS, MANIPULATOR, OPTIMIZOR, HUMAN IN SQUARE (Design), ENHANCER, and MEDPULSER. The following United States trademark applications are pending: COSMETRONICS and GENETRODES. We have registered the BTX and MEDPULSER trademarks in Canada, and have applied to trademark GENETRONICS in Canada. We have a European Community Trade Mark registration for GENETRONICS, BTX and for MEDPULSER. We have registered the MEDPULSER and BTX marks in Japan. We have registered the BTX mark in South Korea and have registered the GENETRONICS mark in the United Kingdom. We are not aware of any claims of infringement or other challenges to our right to use our marks.

EMPLOYEES

As of May 10, 2001, we employed 66 people on a full-time basis. Of the total, 21 were in product research and development, 10 in sales, marketing and support, 11 in manufacturing, and 24 in finance and administration. Our success is dependent on our ability to attract and retain qualified employees. Competition for employees is intense in the biomedical industry. None of our employees is subject to collective bargaining agreements.

CERTAIN RISK FACTORS RELATED TO THE COMPANY’S BUSINESS

OUR BUSINESS MODEL MAY CHANGE AS OUR PRIORITIES AND OPPORTUNITIES CHANGE AND OUR BUSINESS MAY NEVER DEVELOP TO BE PROFITABLE OR SUSTAINABLE.

There are many programs that to us seem promising and that we could pursue. 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 other aspects of 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.

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 that 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 product 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.

UNPREDICTABILITY OF CONDUCTING PRE-CLINICAL AND CLINICAL TRIALS OF OUR HUMAN-USE EQUIPMENT.

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

If any of the following events arise during our clinical trials or data review, then we would expect this to have a serious negative effect on our company and your investment:

— The delivery of drugs or other agents by electroporation 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 to the end of the trial, or data and document review;

— The reporting clinical data may change over time as a result of the continuing evaluation of patients or the current assembly or 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.

OUR BUSINESS IS HIGHLY DEPENDENT ON RECEIVING APPROVALS FROM VARIOUS UNITED STATES AND INTERNATIONAL GOVERNMENT AGENCIES AND CAN BE DRAMATICALLY AFFECTED IF APPROVAL TO MANUFACTURE AND SELL OUR HUMAN-USE EQUIPMENT IS NOT GRANTED.

The production and marketing of our human-use equipment and the ongoing research, development, preclinical testing, and clinical trial activities are subject to extensive regulation. Numerous governmental agencies in the U.S. 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.

Our company has 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:


	— There can be delays, sometimes long, in obtaining approval for our human-use devices;


	— The rules and regulations governing human-use equipment such as ours can change during the review process, which can result in the need to spend time and money for further testing or review;


	— If approval for commercialization is granted, it is possible the authorized use will be more limited than we believe is necessary for commercial success, or that approval may be conditioned on completion of further clinical trials or other activities; and


	— Once granted, approval can be withdrawn, or limited, if previously unknown problems arise with our human-use product or data arising from its use.

WE RELY HEAVILY ON COLLABORATIVE AND LICENSING RELATIONSHIPS, AND WILL BE NEGATIVELY AFFECTED IF WE CANNOT MAINTAIN OR EXPAND EXISTING RELATIONSHIPS, AND INITIATE NEW ONES.

We rely and will continue to rely on partners and collaborators to fund some of our research and development expenses and to assist us in the research and development of our human-use equipment. Our largest partner had been Ethicon Endo-Surgery, Inc., a Johnson & Johnson company. On July 26, 2000, we received written notice from Ethicon Endo-Surgery, Inc. that it had elected to exercise its discretionary right to terminate, without cause, our License and Development Agreement and our Supply Agreement. If we are unable to enter into a relationship with a new partner for the Electroporation Drug Delivery System, our business could be adversely impacted. Moreover, loss of or any significant change in any of our material collaborative relationships could adversely impact our business.

Our clinical trials to date have used our equipment with the anti-cancer drug bleomycin. 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 commercialise 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.

WE RELY HEAVILY ON OUR PATENTS AND PROPRIETARY RIGHTS TO ATTRACT PARTNERSHIPS AND MAINTAIN MARKET POSITION.

Another factor that will influence our success is the strength of our patent portfolio. Patents give the patent holder the right to keep others out of its patented territory. If someone practices within the patented territory of a patent holder, then the patent holder has the right to charge that person with infringement and begin legal proceedings, which can be lengthy and costly. We perform an ongoing review of our patent portfolio to confirm that our key technologies are adequately protected. If necessary, we may ask that one or more of our patents be re-examined or reissued by the United States patent office.

The patenting process, enforcement of issued patents, and defense against claims of infringement are inherently risky. Because our Drug and Gene Delivery Division relies heavily on patent protection, for us, the risks are significant and include the following:


	— Risk of Inadequate Patent Protection for Product. 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, then it will require a lot of time and money to do so, and there is no guarantee of a successful outcome. In the event an important patent related to our drug delivery technology is found to be invalid, we may lose competitive position and may not be able to receive royalties for products covered in part or whole by that patent under license agreements.

— Risk of Being Charged With Infringement. Although we try to avoid infringement, there is the risk that we will use a patented technology owned by another person and/or be charged with infringement. Defending against a charge of infringement can involve lengthy and costly legal actions, with no guarantee of a successful outcome. Biotechnology companies of roughly our size and financial position have gone out of business after fighting and losing an infringement battle. If we were prevented from using or selling our human-use equipment, then our business would be seriously affected.

— Freedom to Operate Risks. We are aware that patents related to electrically assisted drug delivery have been granted to, and patent applications filed by, our potential competitors. We, along with some of 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 will make less money from sales and our products risk becoming obsolete.

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


	— Superior Financial Resources. Some competitors have significantly more financial resources than we do. They can afford more technical and development setbacks than we can, and can devote more resources in an effort to improve development times or pursue alternate approaches.


	— Greater Experience. Some competitors have been in the drug delivery business longer than we have. They have greater experience than us in critical areas like clinical testing, obtaining regulatory approval, and sales and marketing. This experience or their name recognition may give them a competitive advantage over us.

— Superior Patent Position. Some competitors may have a better patent position protecting their technology than we have or will have to protect our technology. If we cannot use our patents to prevent others from copying our technology or developing similar technology, or if we cannot obtain a critical license to another’s patent that we need to make and use our equipment, then we would expect our competitive position to lessen.

— Faster to Market. Some companies with competitive technologies may move through stages of development, approval, and marketing faster than 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 a lot of money, 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.

WE HAVE OPERATED AT A LOSS AND WE EXPECT TO CONTINUE TO ACCUMULATE A DEFICIT; THERE IS A DOUBT ABOUT OUR ABILITY TO CONTINUE AS A "GOING CONCERN".

As of December 31, 2001, we had a deficit of $47,361,720. 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 April 1, 2001 came from the sale and distribution of special warrants in November of 2001 and sales of BTX research-use equipment. 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 completely 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.

WE WILL HAVE A NEED FOR SIGNIFICANT AMOUNTS OF MONEY IN THE FUTURE AND THERE IS NO GUARANTEE THAT WE WILL BE ABLE TO OBTAIN THE AMOUNTS WE NEED.

As discussed, we have operated at a loss, and expect that to continue for some time in the future. Our plans for continuing clinical trials, conducting research, furthering development and, eventually, marketing our human-use equipment will cost significant amounts of money. The extent of these costs will depend on many factors, including some of the following:


	— The progress and breadth of preclinical testing and the size of our drug delivery programs, all of which directly influence cost;


	— The costs involved in complying with the regulatory process to get our human-use products approved, including the number, size, and timing of necessary clinical trials and costs associated with the current assembly and review of existing clinical and pre-clinical information;


	— The costs involved in patenting our technologies and defending them;


	— Changes in our existing research and development relationships and our ability to enter into new agreements;


	— The cost of manufacturing our human-use and research-use equipment; and


	— Competition for our products and our ability, and that of our partners, to commercialize our products.

We plan to fund operations by several means. We will attempt to enter into contracts with partners that will fund either general operating expenses or specific programs or projects. Some funding also may be received through government grants. We cannot promise that we will enter into any such contracts or receive such grants, or, if we do, that our partners and the grants 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.

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 those actions, then we may have a lower valuation, which probably would be reflected in our stock price.

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, either up or down, will affect the stock price.

Some factors that we would expect to depress the price of our stock include:


	— Adverse clinical trial results;


	— Announcement that the FDA denied our request to approve our human-use product for commercialization in the United States, or similar denial by other regulatory bodies which make independent decisions outside the United States. To date, Europe is the only foreign jurisdiction in which we have sought approval for commercialization;


	— Announcement of legal actions brought by or filed against us for patent or other matters, especially if we do not win such actions;


	— Cancellation of important corporate partnerships or agreements;


	— 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 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 products, 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 shares of common stock would likely fall.

OUR BTX INSTRUMENT DIVISION MARKETS ONLY TO THE ELECTROPORATION PRODUCT NICHE MARKETS AND RELIES ON DISTRIBUTION RELATIONSHIPS FOR SALES.

The BTX Instrument Division currently markets only electroporation equipment to the research market. If our research-use equipment loses its competitive position, because the BTX Instrument Division does not have any other product line on which to rely, our sales would likely decline. Therefore, if we do not develop and introduce new products directed to research-use electroporation, at a reasonable price, then we will lose pace with our competitors. We may not have the necessary funds for our BTX Instrument Division to stay competitive and that division may not ultimately succeed.

The research-use equipment is sold through United States and international distributors. Approximately 39% of BTX instrument sales during the twelve months ended March 31, 2001 were through our distribution relationships with the Merck Group, which includes Merck Eurolab Holding GmbH and VWR Scientific Products Corporation. This accounted for about 19% of our total revenue. We rely heavily on our relationships with VWR and Fisher Scientific Company to sell our product in the United States and on Merck Eurolab Holding GmbH to sell our product in Europe. We may not be able to maintain or replace our current distribution relationship with the Merck Group, Fisher, or other distributors, or establish sales, marketing and distribution capabilities of our own. If we cannot develop or maintain distribution relationships for major markets such as the United States and Europe, then the BTX Instrument Division may suffer declining sales, which would have an effect on our financial performance.

THERE IS A RISK OF PRODUCT LIABILITY WITH HUMAN-USE EQUIPMENT AND RESEARCH-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, and with respect to the research-use equipment that is currently marketed by our BTX Instrument Division, we

run the risk that use (or misuse) of the equipment will result in personal injury. The chance of such an occurrence will increase after a product type is on the market.

We purchased liability insurance in connection with the ongoing oncology clinical trials, and we would expect to purchase additional policies for any additional clinical trial. The insurance we purchase may not provide adequate coverage in the event a claim is made, 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.

With respect to our research-use equipment, there is always the risk of product defects. Product defects can lead to loss of future sales, decrease in market acceptance, damage to our brand or reputation, and product returns and warranty costs. These events can occur whether the defect resides in a component we purchased from a third party or whether it was due to our design and/or manufacture. Our sales agreements typically contain provisions designed to limit our exposure to product liability claims. However, we do not know whether these limitations are enforceable in the countries in which the sale is made. Any product liability or other claim brought against us, if successful and of sufficient magnitude, could negatively impact our financial performance, even if we have insurance.

WE CANNOT BE CERTAIN THAT WE WILL BE ABLE TO MANUFACTURE OUR HUMAN-USE AND RESEARCH-USE EQUIPMENT IN SUFFICIENT VOLUMES AT COMMERCIALLY REASONABLE RATES.

Our products must be manufactured in sufficient commercial quantities, in compliance with regulatory requirements, and at an acceptable cost to be attractive to purchasers. We rely on third parties to manufacture and assemble most aspects of our equipment.

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.

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.

OUR BTX INSTRUMENT DIVISION MUST MANAGE THE RISKS OF INTERNATIONAL OPERATIONS.

Our BTX Instrument Division sells a significant amount of its research-use equipment to customers outside of the United States. In the year ended March 31, 2001, 35% of BTX’s revenues were from BTX sales into non-U.S. countries. Like any company having foreign sales, BTX’s sales are influenced by many factors outside of our control.

For instance, the following factors can negatively influence BTX’s sales or profitability in foreign markets:


	— We are subject to foreign regulatory requirements, foreign tariffs and other trade barriers that may change without sufficient notice;


	— Our expenses related to international sales and marketing, including money spent to control and manage distributors, may increase to a significant extent due to political and/or economic factors out of our control;


	— We are subject to various export restrictions and may not be able to obtain export licenses when needed;


	— Some of the foreign countries in which we do business suffer from political and economic instability;


	— Some of the foreign currencies in which we do business fluctuate significantly;


	— We may have difficulty collecting accounts receivables or enforcing other legal rights; and


	— We are subject to the Foreign Corrupt Practices Act, which may place us at a competitive disadvantage to foreign companies that do not have to adhere to this statute.

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 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.

THE MAJORITY OF OUR DIRECTORS ARE CANADIAN CITIZENS AND SERVICE AND ENFORCEMENT OF LEGAL PROCESS UPON THEM MAY BE DIFFICULT.

The 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.

OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN OUR FORWARD-LOOKING STATEMENTS.

This report contains forward-looking statements, including statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance, especially as they relate to our product development plans and expectation of clinical trial progress and results. These statements are often, but not always, made through the use of words or phrases such as “believe,” “anticipate,” “may,” “could,” “believe,” “predict,” “potential,” “continue,” “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 report. 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 report. 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 annual report;


	— 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 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth our selected consolidated financial data for the periods indicated, derived from consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States. The data set forth below should be read in conjunction with our Consolidated Financial Statements and the Notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth below. Effective January 23, 1998, our Board of Directors approved the change of our fiscal year-end from February 28 to March 31.


		Twelve			Twelve			Twelve			Thirteen			Twelve
		Months			Months			Months			Months			Months
		Ended			Ended			Ended			Ended			Ended
		March 31,			March 31,			March 31,			March 31,			Feb. 28,
Fiscal Periods Ended		2001			2000			1999			1998			1997

Net Sales			4,452,939			4,134,436			3,434,105			3,097,198			3,040,734




License Fee and milestone payments			3,730,392			416,667			4,500,000			0			0




Revenues Under Collaborative Research and Development Arrangements and Government grants			560,797			526,236			387,183			134,094			47,439




Interest Income			443,629			556,193			300,911			427,498			71,206




Cumulative effect on prior years of change in accounting policy (1)			(3,647,059	)		—			—			—			—




Net Loss for Period			(8,866,355	)		(10,703,830	)		(7,150,537	)		(7,904,166	)		(3,330,110	)




Amounts per common share:




	Loss before cumulative effect of a change in accounting principle		(0.19	)		(0.48	)		(0.35	)		(0.44	)		(0.26	)




	Cumulative effect of a change in accounting principle		(0.13	)		—			—			—			—




Net Loss			(0.32	)		(0.48	)		(0.35	)		(0.44	)		(0.26	)




Pro Forma loss assuming the change in accounting principle is applied retroactively			(5,219,296	)		(10,468,538	)		(11,032,891	)		(7,904,166	)		(3,330,110	)




Pro Forma loss per common share assuming the change in accounting principle is applied retroactively			(0.19	)		(0.47	)		(0.54	)		(0.44	)		(0.26	)




Total Assets			11,486,266			14,012,304			9,807,644			9,242,887			4,161,129




Long Term Liabilities			117,463			118,384			164,276			98,410			95,493




Dividends per Share			0			0			0			0			0

(1)

During the fourth quarter ended March 31, 2001, the Company changed its method of accounting for revenue recognition in accordance with Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements. Effective April 1, 2000, the Company recorded the cumulative effect of the accounting change.

The following is a summary of the results of operations in accordance with accounting principles generally accepted in the United States for fiscal year ended March 31, 2001:(1)


	First Quarter Ended						Second Quarter Ended						Third Quarter Ended						Fourth Quarter Ended
	June 30, 2000						Sept. 30, 2000						Dec. 31, 2000						March 31, 2001
	Previously						Previously						Previously
	Reported			As Restated			Reported			As Restated			Reported			As Restated
Revenue




Net Sales		1,164,788			1,164,788			1,172,951			1,172,951			1,049,238			1,049,238			1,065,962




License fee and milestone payments		—			58,823			83,333			142,156			—			58,823			3,470,590




Revenues under collaborative research and development arrangements and government grants		87,388			87,388			153,488			153,488			170,626			170,626			149,295




Interest Income		138,378			138,378			118,286			118,286			83,384			83,384			103,581

Total Revenue		1,390,554			1,449,377			1,528,058			1,586,881			1,303,248			1,362,071			4,789,428




Gross Profit		710,148			710,148			581,406			581,406			586,817			586,817			649,450




Net income/(loss) before cumulative effect of change in accounting principle		(2,007,171	)		(1,948,348	)		(2,107,320	)		(2,048,497	)		(2,225,404	)		(2,166,581	)		944,130




Cumulative effect of a change in accounting principle		—			(3,647,059	)		—			—			—			—			—

Net income/(loss)		(2,007,171	)		(5,595,407	)		(2,107,320	)		(2,048,497	)		(2,225,404	)		(2,166,581	)		944,130

Amounts per common share:




Income/(loss) before cumulative effect of change in accounting principle		(0.08	)		(0.08	)		(0.08	)		(0.08	)		(0.08	)		(0.08	)		0.03




Cumulative effect of a change in accounting principle		—			(0.16	)		—			—			—			—			—

Net loss		(0.08	)		(0.24	)		(0.08	)		(0.08	)		(0.08	)		(0.08	)		0.03

Weighted average # shares		23,629,490			23,629,490			27,272,642			27,272,642			27,289,218			27,289,218			32,404,066

(1) During the fourth quarter ended March 31, 2001, the Company changed its method of accounting for revenue recognition in accordance with Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements. Pursuant to Financial Accounting Standards Board Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, effective April 1, 2000, the Company recorded the cumulative effect of the accounting change and accordingly, the quarterly information for the first three quarters of fiscal year ended March 31, 2001 which had been previously reported has been restated. No restatement for the fiscal year ended March 31, 2000 was necessary.

The following is a summary of the results of operations in accordance with accounting principles generally accepted in the United States for fiscal year ended March 31, 2000:


	First Quarter Ended			Second Quarter Ended			Third Quarter Ended			Fourth Quarter Ended
	June 30, 1999			Sept. 30, 1999			Dec. 31, 1999			March 31, 2000
Revenue:




Net Sales		699,078			1,081,300			1,025,822			1,328,236




License fee and milestone payments		—			333,334			83,333			—




Revenues under collaborative research and development arrangements and government grants		266,668			158,520			104,490			96,558




Interest Income		—			176,410			164,898			214,885




Total Revenue:		965,746			1,649,564			1,378,543			1,639,679




Gross Profit:		372,341			642,444			501,954			593,798




Net income/(loss)		(3,046,771	)		(3,031,514	)		(2,000,566	)		(2,624,979	)

Amounts per common share:




Net loss per common share		(0.14	)		(0.14	)		(0.09	)		(0.12	)

Weighted average # shares		21,673,079			22,017,670			22,212,606			22,525,405

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(All figures in U.S. Dollars unless noted otherwise.)

The following discussion should be read in conjunction with the Consolidated Financial Statements and the Notes thereto prepared in accordance with U.S. GAAP contained elsewhere in this Form 10-K. The following discussion and analysis explains trends in our financial condition and results of operations for the years ended March 31, 2001, March 31, 2000 and March 31, 1999. This discussion and analysis of the results of operations and financial condition of our Company should be read in conjunction with the Consolidated Financial statements and the Notes thereto included elsewhere in this Form 10-K.

OVERVIEW

Through its Drug and Gene Delivery Division, the Company 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 for non-human use.

In the past the Company’s revenues primarily reflected product sales to the research market through the BTX Instrument Division, research grants through the Drug and Gene Delivery Division, and revenues from collaborative research and development arrangements. From October 1998 to August 2000 the Company received up-front licensing fees and milestone payments from Ethicon, Inc. and Ethicon Endo-Surgery, Inc.

The Company 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 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 Europe, and for initiation of a Phase III clinical study in the United States.

Until it achieves 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 March 31, 2001, the Company has incurred a cumulative deficit of $41,001,930. 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.

RESULTS OF OPERATIONS

YEAR ENDED MARCH 31, 2001 COMPARED TO YEAR ENDED MARCH 31, 2000

REVENUES

The BTX Instrument Division produced net sales of $4,452,939 for the twelve months ended March 31, 2001, compared with net sales of $3,827,537, for the twelve months ended March 31, 2000, which meant an increase of $625,402, or 16.3%. The primary factor contributing to this increase was the result of higher sales through the Company’s main distributors, VWR Scientific and Merck Eurolab, both members of the Merck Group. Merck Eurolab was added as a distributor in April of 2000. Also, in December 2000 the Company signed a non-exclusive distributorship agreement with Fisher Scientific Company to further promote sales to the United States.

Non-U.S. sales increased by $332,693, or 27%, from $1,229,371 for the twelve months ended March 31, 2000 to $1,562,064 for the twelve months ended March 31, 2001. Export sales as a percentage of total sales by the BTX Instrument Division increased slightly from 32% in the twelve months ended March 31, 2000 to 35% in the twelve months ended March 31, 2001. The increase is mainly attributable to the addition of Merck Eurolab as a distributor to promote sales to Europe.

Total sales for the Company increased only by 8% since in the Drug Delivery Division no product for clinical trials was shipped in the year ended March 31, 2001 as opposed to shipments in the previous year. That is mainly attributable to the fact that the Phase II clinical trials were winding down and that in July 2000 the Company received notice from Ethicon that it had elected to exercise its discretionary right to terminate the License and Development Agreement and Supply Agreement.

Revenues from government grants funding decreased from $334,901 for the year ended March 31, 2000 to $101,086 for the year ended March 31, 2001. The reason for the decrease in grant revenues was that activities for grants awarded in previous years in the Oncology field and Gene Therapy field were winding down in the year ended March 31, 2001 and all active grants had expired by December 31, 2000. No new grants have been awarded as of the

time of this filing. 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.

During the year ended March 31, 2001 the Drug and Gene Delivery Division recorded revenues under collaborative research and development arrangements in the amount of $459,711 as a result of collaborative research agreements to develop electroporation technology for use in particular gene therapy applications. This represents a significant increase over the same period of the previous year since the Company did not enter into these research agreements until the end of calendar 1999.

During the fourth quarter ended March 31, 2001, the Company changed its accounting policy for upfront non-refundable license payments received in connection with collaborative license arrangements in accordance with Staff Accounting Bulletin No. 101 (SAB 101), as amended by SAB 101(A) and (B), issued by the U. S. Securities and Exchange Commission. The Company received $4,000,000 in up-front licensing fees through April 1, 2000. In accordance with SAB 101, the Company is required to record these fees over the life of the arrangement, which was terminated in the year ended March 31, 2001.

In January 2001, the Company recognized revenue from Ethicon in the amount of $3,730,392 as a result of the terminated License and Development Agreement which comprised non-refundable deferred revenue.

Interest income for the year ended March 31, 2001 in the amount of $443,629 decreased by $112,564, or 25%, compared to the interest income for the year ended March 31, 2000 in the amount of $556,193. The decrease in interest income was attributable to the cash used in operating activities which resulted in decreased levels of interest bearing financial instruments.

COST OF SALES

Cost of sales for the BTX Instrument Division increased by $143,146, or 8%, from $1,781,972, for the twelve months ended March 31, 2000 to $1,925,118 for the twelve months ended March 31, 2001. The increase was primarily a result of the 16.5% increase in net sales.

GROSS PROFIT AND GROSS MARGIN

Primarily due to the higher sales, the gross profit for the BTX Instrument Division for the twelve months ended March 31, 2001 in the amount of $2,527,821, increased by $482,256, or 24%, compared with $2,045,565 for the twelve months ended March 31, 2000.

The gross profit margin for BTX products increased slightly from 53% for the twelve months ended March 31, 2000 to 57% for the twelve months ended March 31, 2001. The 4% increase is mainly attributable to a change in product mix in favor of products with a higher profit margin due to the successful implementation of a niche market strategy in developing a market for the ECM 830 and ECM 2001.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses which include advertising, promotion and selling expenses, decreased by $755,993, or 11%, from $6,714,718 for the twelve months ended March 31, 2000 to $5,958,725 for the twelve months ended March 31, 2001. While selling expenses for the year ended March 31, 2001 remained relatively constant compared to the previous year, general and administrative expenses decreased significantly. The decrease was primarily due to an approximately $900,000 reduction of stock based compensation expense incurred by the Company from March 31, 2000 to March 31, 2001 as a result of the Company’s decision to reduce the grant of stock options to consultants.

RESEARCH AND DEVELOPMENT/CLINICAL TRIALS

Research and development costs decreased by $540,843, or 8%, from $6,977,220 for the twelve months ended March 31, 2000 to $6,436,377 for the twelve months ended March 31, 2001.

The expenses in the twelve months ended March 31, 2001, decreased over the previous year, primarily in the clinical and regulatory areas as a result of the delay of initiation of pivotal and other clinical trials in the U.S. These lower expenses more than offset higher expenses in the Gene Therapy area due to the increased focus on this field and higher engineering expenses in the BTX Instrument Division. The higher BTX Instrument engineering expenses were primarily related to an increase in the effective headcount and skill level of personnel assigned to a project to improve manufacturability and engineering design of the overall BTX product line.

NET INCOME/LOSS (NET INCOME/LOSS OF REPORTABLE SEGMENTS DOES NOT INCLUDE UNALLOCATED ITEMS SUCH AS INTEREST INCOME AND EXPENSE AND GENERAL AND ADMINISTRATIVE COSTS)

The BTX Instrument Division reported a net income in the amount of $670,903 for the twelve months ended March 31, 2001 compared to a net income in the amount of $332,657 for the twelve months ended March 31, 2000. The $338,246 increase was attributable to the 16.5% increase in net sales, which more than offset the higher operating expenses.

The Drug and Gene Delivery Division reported a net loss in the amount of $5,166,428 for the twelve months ended March 31, 2001 compared to a net loss in the amount of $6,073,667 for the twelve months ended March 31, 2000, a decrease of $907,239. The decrease is a result of lower operating expenditures in the year ended March 31, 2001, which did not include – as opposed to the previous year – any restructuring charges. The lower operating expenses more than offset the decrease in revenues for the Drug Delivery Division, which were a result of lower revenues from grant funding and milestone payments.

For the twelve months ended March 31, 2001 the Company recorded a total net loss of $8,866,355 compared with a total net loss of $10,703,830 for the twelve months ended March 31, 2000, which meant a decrease of $1,837,475, or 17%. The higher loss in the previous year was mainly attributable to the one-time restructuring charges in the amount of $597,183 and the higher research and development expenses.

YEAR ENDED MARCH 31, 2000 COMPARED TO YEAR ENDED MARCH 31, 1999

REVENUES

The BTX Instrument Division produced net sales of $3,827,537 for the twelve months ended March 31, 2000, compared with net sales of $3,434,105 for the twelve months ended March 31, 1999, which meant an increase of $393,432, or 11%. The primary factor contributing to this increase was the result of higher sales through domestic distributors, which increased by 31% over the previous year due to the successful implementation of the dedicated life sciences program at VWR.

Non-U.S. sales were basically flat. They decreased by $30,370, or 2%, from $1,259,741 for the twelve months ended March 31, 1999 to $1,229,371 for the twelve months ended March 31, 2000. As a result of the increased sales to domestic distributors non-U.S. sales as a percentage of total sales by the BTX Instrument Division decreased from 37% in the twelve months ended March 31, 1999 to 32% in the twelve months ended March 31, 2000.

In August of 1999 we introduced the ECM 630, an Exponential Decay Wave Electroporation system, which utilizes a Precision Pulse Technology, the new BTX Platform technology, and an all-new digital user interface. The introduction of the new product also resulted in additional sales amounting to $448,629. The overall increase in sales was also attributed to the increased focus on application-based sales in the in vivo gene therapy area.

Our Drug and Gene Delivery Division had its first product sales in the twelve months ended March 31, 2000 in the amount of $306,899. The product sales were to Ethicon and consisted of medical instruments and applicators which were designated for market development activities and future clinical trials.

Revenues from government grant funding decreased from $354,135 for the twelve months ended March 31, 1999 to $334,901 for the twelve months ended March 31, 2000. The grant revenues in the twelve months ended March 31, 2000 were primarily a result of activities within the oncology field for which a Phase II Small Business Innovative Research (SBIR) grant was awarded to us by the National Institutes of Health (“NIH”) in September 1997. In the year ended March 31, 2000 we also received revenues from a Phase I SBIR grant which was awarded in February of 1999 for an In Vivo Skin-Targeted Gene Therapy project. Revenues from grant funding may fluctuate from period to period based on the level of grant funding awarded and the level of research activity related to the grants awarded.

In the twelve months ended March 31, 2000, our Drug and Gene Delivery Division recorded milestone revenues in the amount of $416,667. The milestones achieved were part of the License and Development Agreement with Ethicon involving the use of the MedPulser® system for Electroporation Therapy in the treatment of solid tumor cancer. The decrease in license fees and milestone payments from $4,500,000 for the twelve months ended March 31, 1999 to $416,667 for the twelve months ended March 31, 2000 was a result of the $4,000,000 licensing fee received from Ethicon in October of 1998 and recorded as revenue prior to the adoption of SAB 101 in fiscal 2001.

In the twelve months ended March 31, 2000 we recorded contract research revenues under collaborative research and development arrangements in the amount of $191,335, primarily as a result of collaborative research agreements to develop our electroporation technology for use in particular gene therapy applications.

Interest income for the twelve months ended March 31, 2000 in the amount of $556,193 increased by $255,282, or 85%, compared to the interest income for the twelve months ended March 31, 1999 in the amount of $300,911. The increase in interest income was attributable to the proceeds from the private placement in June 1999, which were invested in interest-bearing instruments.

COST OF SALES

Cost of sales for our BTX Instrument Division increased by $143,337, or 9%, from $1,638,635, for the twelve months ended March 31, 1999 to $1,781,972, for the twelve months ended March 31, 2000. The increase was primarily a result of higher net sales.

Our Drug and Gene Delivery Division recorded cost of sales in the amount of $241,927 for the twelve months ended March 31, 2000. For the prior year no cost of sales were incurred since no products were sold.

GROSS PROFIT AND GROSS MARGIN

Primarily due to the higher sales, the gross profit for our BTX Instrument Division for the twelve months ended March 31, 2000 in the amount of $2,045,565, increased by $250,095, or 14%, compared with $1,795,470 for the twelve months ended March 31, 1999.

The gross profit margin for BTX products increased from 52% for the twelve months ended March 31, 1999 to 53% for the twelve months ended March 31, 2000.

Our Drug Delivery Division recorded a gross profit in the amount of $64,972 for the twelve months ended March 31, 2000. The low gross profit margin of 21% was expected since the products sold were designated for market development and future clinical trials and therefore were sold at a highly discounted price.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses, which include advertising, promotion and selling expenses, increased by $686,967, or 11%, from $6,027,751 for the twelve months ended March 31, 1999 to $6,714,718 for the twelve months ended March 31, 2000. The increase was primarily due to higher sales and marketing expenses in our BTX Instrument Division, partially as a result of efforts to increase product sales and promote the newly introduced ECM 630. General and administrative expenses for the year ended March 31, 2000 increased due to higher stock based compensation expenses.

RESEARCH AND DEVELOPMENT/CLINICAL TRIALS

Research and development costs decreased by $1,109,739, or 14%, from $8,086,959 for the twelve months ended March 31, 1999 to $6,977,220 for the twelve months ended March 31, 2000.

The overall lower research and development expenses were primarily a result of lower clinical/regulatory expenses due to the winding down of the Head & Neck Phase II clinical trials in the United States and Canada and decreased activities related to the development of the Drug and Gene Delivery products. Reduced expenses in the transdermal and vascular therapy areas, as the result of a shift in our primary focus to oncology and gene therapy, also contributed to the lower research and development expenses. The above noted lower R&D expenses in our Drug and Gene Delivery Division more than offset increased engineering expenses in our BTX Instrument Division, which were incurred in the process of upgrades to certain BTX instrument products.

RESTRUCTURING CHARGES

In the summer of 1999 we undertook a review of our operating structure to identify opportunities to improve operating effectiveness. As a result of this review, certain staffing changes occurred. We also announced that our employment of two senior executives ended in September 1999. In December 1999, we entered into an Agreement for Termination of Employment with each of the two senior executives. In accordance with the staffing changes and the terms of the Termination of Employment Agreements, we recorded restructuring charges of $597,183 for the twelve months ended March 31, 2000. We paid $309,141 of the restructuring charges in the fiscal year ended March 31, 2000 and $277,151 in the fiscal year ended March 31, 2001.

NET INCOME/LOSS (NET INCOME/LOSS OF REPORTABLE SEGMENTS DO NOT INCLUDE UNALLOCATED ITEMS SUCH AS INTEREST INCOME AND EXPENSE AND GENERAL AND ADMINISTRATIVE COSTS)

Our BTX Instrument Division reported a net income in the amount of $332,657 for the twelve months ended March 31, 2000 compared to a net income in the amount of $366,386 for the twelve months ended March 31, 1999. The lower net income for the year ended March 31, 2000 was attributable to the higher engineering expenses to upgrade certain BTX instrument products and the increase in sales and marketing expenses. The higher operating expenses more than offset the higher gross profit for the year.

The Drug and Gene Delivery Division reported a net loss in the amount of $6,073,667 for the twelve months ended March 31, 2000 compared to a net loss in the amount of $2,858,343 for the twelve months ended March 31, 1999, an increase of $3,215,324. The increase in net loss was a result of the one-time $4,000,000 up-front licensing fee received in the twelve months ended March 31, 1999 from Ethicon as part of the License and Development Agreement. Not including the one-time licensing fee, the net loss for the year ended March 31, 2000 decreased by approximately $785,000, primarily as a result of the lower research and development expenses.

For the twelve months ended March 31, 2000 the Company recorded a total net loss of $10,703,830 compared with a total net loss of $7,150,537 for the twelve months ended March 31, 1999, which meant an increased loss of $3,553,293, or 50%. The lower loss for the twelve months ended March 31, 1999 was primarily a result of the $4,000,000 up-front license fee received from Ethicon in October of 1998.

The Company does not believe that inflation has had a material impact on its result of operations for the years ended March 31, 2001, March 31, 2000, and March 31, 1999.

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 equity securities. 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 and share issue costs of $1,498,742. In March 2000, the Company issued 23,000 common shares pursuant to the exercise and conversion of 23,000 Special Warrants and on June 16, 2000 the remaining 4,164,500 Special Warrants were exercised and converted into common shares. During the year ended March 31, 2000, 988,542 common shares were issued upon exercise of options in the amount of $1,516,239.

In connection with the issuance of 4,187,500 Special Warrants, the Company issued to the Agent 418,750 compensation warrants exercisable at a price of $3.31 per share. During the year ended March 31, 2000, the Company issued 151,300 common shares pursuant to the exercise of 151,300 of these compensation warrants for net proceeds to the Company in the amount of $500,803. During the twelve months ended March 31, 2001 the Company issued 180,500 common shares pursuant to the exercise of 180,500 of these compensation warrants for net proceeds to the Company in the amount of $597,455. The remaining 86,950 compensation warrants expired unexercised on June 16, 2000.

On January 17, 2001 the Company completed a public offering of 6,267,500 common shares at a price of Canadian $1.35 per share for gross proceeds of Canadian $8,461,125 (US $5,640,750) less expenses of Canadian $1,102,877 (US $734,368). The Company has also issued to the Agent compensation warrants exercisable until January 16, 2002 to purchase 500,000 common shares, at Canadian $1.35 per common share. During the year ended March 31, 2001, 111,894 common shares were issued upon the exercise of stock options in the amount of $249,332. 50,000 common shares were also issued as compensation for corporate finance services.

As of March 31, 2001, the Company had working capital of $6,736,869, compared to $9,508,012, as of March 31, 2000. The decrease is a result of the $8,866,355 net loss for the year ended March 31, 2001, mainly offset by the net proceeds of $5,798,169 from the issuance of common shares.

Accounts receivable decreased by $216,924, or 19%, from $1,120,450 at March 31, 2000 to $903,526 at March 31, 2001. The decrease was primarily a result of the payment in the first quarter of 2000 of Ethicon receivables that had been outstanding as of March 31, 2000. Receivables from Ethicon decreased since no product for clinical trials was shipped in the twelve months ended March 31, 2001.

Inventories increased from $611,642 at March 31, 2000 to $756,543 at March 31, 2001, primarily as the result of a build-up of inventory in the BTX Instrument Division. The Company built up finished goods inventory levels in anticipation of substantial orders from Merck Eurolab, a European distributor. As of March 31, 2001 these anticipated orders still had not been received at the level expected as it has taken longer than planned to promote the distribution to the nine divisions of Merck Eurolab situated in various countries in Europe. In addition, the newly signed agreement with Fisher Scientific Company requires the Company to meet delivery schedules, which necessitated increased inventory levels. Also, in order to eliminate backorders, the Company increased safety stock levels, which resulted in a higher overall inventory level. The Company increased its allowance for obsolescence to provide for excess inventory caused by a delay in the anticipated launch in Europe of drug and gene delivery products.

Current liabilities decreased from $2,105,847 at March 31, 2000 to $1,512,545 at March 31, 2001. A part of the year-end accruals as of March 31, 2000 consisted of $288,042 accrued restructuring charges which, except for $10,891, were paid during the year ended March 31, 2001. Also, deferred revenues decreased from $268,665 as of March 31, 2000 to $50,029 as of March 31, 2001. The reason for the decrease is that a large up-front cash payment was received towards the end of the year ended March 31, 2000 from one of the Company’s collaborative research partners was initially booked as deferred revenue and then recognized as revenues during the year ended March 31, 2001.

Our cash requirements are dependent upon a number of factors, including the achievement and timing of regulatory approvals, the timing and expense of preclinical and clinical studies, sales and marketing of our BTX and MedPulser® products, new technological innovations, market acceptance of our products and potential products, grant funding and the establishment of new collaborative research and development arrangements. As of March 31, 2001, we believed that we had sufficient funds to support our planned operations at least through March 31, 2002.

As of September 30, 2001, we had a deficit of $45,396,297. We have operated at a loss since 1994, and we expect this to continue for some time. The amount of the accumulated deficit will continue to grow, as it will be expensive to continue our clinical, research, and development efforts. If these activities are successful, and if we receive approval from the FDA to market human-use equipment, then even more money will be required to market and sell the equipment. As of January 11, 2002, 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. We are, however, aggressively seeking further funding in order to satisfy our projected cash needs for at least the next twelve months.

Our 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;


	Our ability to establish and maintain collaborative arrangements;


	Our ability to obtain grants to finance research and development projects; and


	The cost of manufacturing scale-up and the cost of commercialization activities and arrangements

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


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


	The potential for our 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 our company; and


	Our ability to maintain our existing collaborative arrangements.

We cannot guarantee that additional funding will be available when needed or on favorable terms. If it is not, we will be required to scale back our 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.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) Index to Financial Statements

The consolidated financial statements required by this item are submitted in a separate section beginning on page F-1 of this Annual Report on Form 10-K.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, State of California, on the 25th day of February, 2002.


		Genetronics Biomedical Corporation


		By:		/s/ AVTAR DHILLON

				Avtar Dhillon President and Chief Executive Officer (Authorized Officer)

GENETRONICS BIOMEDICAL CORPORATION
(formerly Genetronics Biomedical Ltd.)
(in United States dollars)

Index to Financial Statements

The consolidated financial statements required by this form are submitted in a separate section beginning on page F-2 of this Annual Report on Form 10-K (as amended by Form 10-K/A).


	PAGE

Report of Independent Auditors		F-2




Consolidated Balance Sheets as of March 31, 2001 and March 31, 2000		F-3




Consolidated Statements of Loss and Comprehensive Loss for the years ended March 31, 2001, March 31, 2000 and March 31, 1999		F-4




Consolidated Statements of Shareholders’ Equity for the years ended March 31, 2001, 2000 and 1999		F-5




Consolidated Statements of Cash Flows for the years ended March 31, 2001, March 31, 2000, and March 31, 1999		F-6




Notes to Consolidated Financial Statements		F-7

F-1

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of
Genetronics Biomedical Corporation (formerly Genetronics Biomedical Ltd.)

We have audited the consolidated balance sheets of Genetronics Biomedical Corporation (formerly Genetronics Biomedical Ltd.) as at March 31, 2001 and 2000 and the consolidated statements of loss and comprehensive loss, shareholders’ equity and cash flows for each of the years in the three year period ended March 31, 2001. Our audits also included the information as at and for each of the years in the three year period ended March 31, 2001 included in the financial statement schedule listed in the Index at Item 14(a)(2). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.

We conducted our audits in accordance with Canadian and United States generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at March 31, 2001 and 2000 and the results of its operations and its cash flows for each of the years in the three year period ended March 31, 2001 in accordance with accounting principles generally accepted in the United States. Also, in our opinion, the information as at and for each of the years in the three year period ended March 31, 2001, included in the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, is presented fairly in all material respects.

As discussed in note 4 to the financial statements in 2001 the Company changed its method of accounting for revenue recognition.

On May 4, 2001 we reported separately to the shareholders of Genetronics Biomedical Corporation (formerly Genetronics Biomedical Ltd.) on financial statements for the same period, prepared in accordance with Canadian generally accepted accounting principles.

Vancouver, Canada,
May 4, 2001 (except as to notes 1, 2 and 11
which are as of December 19, 2001).

Chartered Accountants

Comments by Auditor for U.S. Readers on Canada-U.S. Reporting Differences

In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when since the date of completion of our audit of the financial statements and initial issuance of our report thereon dated May 4, 2001 the Company has experienced conditions and events that cast substantial doubt on the Company’s ability to continue as a going concern, such as those described in Note 1 to the financial statements. Our report to the shareholders dated May 4, 2001 (except for notes 1, 2 and 11 which are as of December 19, 2001) is expressed in accordance with Canadian reporting standards which do not permit a reference to such events and conditions in the auditors’ report when these are adequately disclosed in the financial statements.

Vancouver, Canada,
December 19, 2001

Chartered Accountants

F-2

Genetronics Biomedical Corporation
a Delaware corporation

CONSOLIDATED BALANCE SHEETS
[See Note 1 – Nature of Business and Basis of Presentation]


As at March 31		(Expressed in U.S. dollars)

		2001			2000
		$			$

		[restated notes 1, 2, and 11]

ASSETS




Current




Cash and cash equivalents [note 5]			3,721,326			9,742,344




Short-term investments [note 5]			2,806,620			—




Accounts receivable, net of allowance for uncollectible accounts of $42,037 [2000 - $54,925] [note 6]			903,526			1,120,450




Inventories [note 7]			756,543			611,642




Prepaid expenses and other			61,399			139,423

Total current assets			8,249,414			11,613,859

Fixed assets, net [note 8]			904,026			1,014,811




Other assets, net [note 9]			2,332,826			1,383,634

			11,486,266			14,012,304

LIABILITIES AND SHAREHOLDERS’ EQUITY




Current




Accounts payable and accrued expenses [notes 10, 12 and 17]			1,393,585			1,784,084




Current portion of obligations under capital leases [note 13]			68,931			53,098




Deferred revenue			50,029			268,665

Total current liabilities			1,512,545			2,105,847

Obligations under capital leases [note 13]			48,532			65,286




Deferred rent			34,901			9,972

Total liabilities			1,595,978			2,181,105

Commitments [note 13]




*Shareholders’ equity [note 11***]




Common stock — par value $0.001




	Authorized shares: 100,000,000




	Issued and outstanding: 33,756,718 at March 31, 2001 and 22,832,324 at March 31, 2000		33,757			22,832




Class A Preferred stock — par value $0.001




	Authorized shares: 100,000,000




	Issued and outstanding: nil at March 31, 2001 and 2000




Additional paid in capital [note 11]			50,958,547			33,041,861




Special warrants [note 11]			—			11,002,992




Other accumulated comprehensive loss			(100,086	)		(100,911	)




Deficit			(41,001,930	)		(32,135,575	)

Total shareholders’ equity			9,890,288			11,831,199

			11,486,266			14,012,304

See accompanying notes

F-3

Genetronics Biomedical Corporation

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
[See Note 1 – Nature of Business and Basis of Presentation]


				(Expressed in U.S. dollars)

	Year ended			Year ended			Year ended
	March 31			March 31			March 31
	2001			2000			1999
	$			$			$

REVENUE




Net sales [notes 6 and 16]		4,452,939			4,134,436			3,434,105




License fee and milestone payments [note 6]		3,730,392			416,667			4,500,000




Government grants		101,086			334,901			354,135




Revenues under collaborative research and development arrangements		459,711			191,335			33,048

		8,744,128			5,077,339			8,321,288

EXPENSES




Cost of sales		1,925,118			2,023,899			1,638,635




Research and development [note 19]		5,771,774			6,402,962			8,086,959




Selling, general and administrative [notes 12 and 19]		6,623,328			7,886,159			6,027,751

		14,320,220			16,313,020			15,753,345

Loss from operations		(5,576,092	)		(11,235,681	)		(7,432,057	)




Other Income (expense)




Interest Income		443,629			556,193			300,911




Interest Expense		(20,380	)		(24,342	)		(19,391	)




Foreign exchange loss		(66,453	)		—			—





Net loss before cumulative effect of change in accounting policy		(5,219,296	)		(10,703,830	)		(7,150,537	)




Cumulative effect on prior years of change in accounting policy for revenue recognition [note 4]		(3,647,059	)		—			—

Net loss		(8,866,355	)		(10,703,830	)		(7,150,537	)




Foreign currency translation gain (loss) adjustment		(1,327	)		2,090			(83,294	)




Unrealized gain on short-term investments		2,152			—			—

Comprehensive loss		(8,865,530	)		(10,701,740	)		(7,233,831	)

Loss per common share:




Loss before change in accounting principle		(0.19	)		(0.48	)		(0.35	)




Cumulative effect of a change in accounting principle		(0.13	)		—			—

Loss per common share — basic and diluted		(0.32	)		(0.48	)		(0.35	)

Pro forma loss assuming the change in accounting principle is applied retroactively		(5,219,296	)		(10,468,538	)		(11,032,891	)




Pro Forma loss per common share-basic and diluted assuming the change in accounting principle is applied retroactively		(0.19	)		(0.47	)		(0.54	)




Weighted average number of common shares		27,648,854			22,107,190			20,272,801

See accompanying notes

F-4

Genetronics Biomedical Corporation

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
[See Note 1 – Nature of Business and Basis of Presentation]


												Additional
			Common Stock						Special			Paid-in
			Shares			Amount			Warrants			Capital
			#			$			$			$

						[restated note 11]						[restated note 11]

Balance at March 31, 1998				19,070,130			19,070			—			22,429,876




For cash




		Pursuant to private placement (net of issuance costs of $125,947)		2,242,611			2,243			—			5,871,810




		Pursuant to exercise of stock options		61,525			61			—			90,362




		Pursuant to exercise of warrants		292,000			292			—			830,693




Stock-based compensation				—			—			—			546,700




Unrealized loss on foreign currency translation				—			—			—			—




Net loss				—			—			—			—

Balance at March 31, 1999				21,666,266			21,666			—			29,769,441




For cash




	Pursuant to exercise of stock options			988,542			989			—			1,515,250




	Pursuant to exercise of Agent’s Special Warrants			151,300			151			—			500,652




Issued for corporate finance services				30,000			30			—			91,860




Issuance of Special Warrants (net of issuance costs of $1,498,742)				—			—			11,063,758			—




Issued pursuant to exercise of Special Warrants				23,000			23			(60,766	)		60,743




Cancelled escrow shares [note 11 ]				(26,784	)		(27	)		—			27




Stock-based compensation				—			—			—			1,103,888




Unrealized gain on foreign currency translation				—			—			—			—




Net loss				—			—			—			—

Balance at March 31, 2000				22,832,324			22,832			11,002,992			33,041,861




For cash




	Pursuant to private placement (net of issuance costs of $734,368) [note 11]			6,267,500			6,268			—			4,900,114




	Pursuant to exercise of stock options			111,894			112			—			249,220




	Pursuant to exercise of warrants [note 11]			180,500			180			—			597,275




Issued for corporate finance services [note 11]				50,000			50			—			44,950




Issued pursuant to exercise of Special Warrants [note 11]				4,164,500			4,165			(11,002,992	)		10,998,827




Issued pursuant to license agreement [note 11]				150,000			150			—			900,300




Stock-based compensation													226,000




Unrealized loss on foreign currency translation				—			—			—			—




Unrealized gains on short-term investments				—			—			—			—




Net loss				—			—			—			—

Balance at March 31, 2001				33,756,718			33,757			—			50,958,547

[Additional columns below]

[Continued from above table, first column(s) repeated]


			Other
			Accumulated						Total
			Comprehensive			Accumulated			shareholder’s
			Loss			Deficit			equity
			$			$			$

Balance at March 31, 1998				(19,707	)		(14,281,208	)		8,148,031




For cash




		Pursuant to private placement (net of issuance costs of $125,947)		—			—			5,874,053




		Pursuant to exercise of stock options		—			—			90,423




		Pursuant to exercise of warrants		—			—			830,985




Stock-based compensation				—			—			546,700




Unrealized loss on foreign currency translation				(83,294	)		—			(83,294	)




Net loss				—			(7,150,537	)		(7,150,537	)

Balance at March 31, 1999				(103,001	)		(21,431,745	)		8,256,361




For cash




	Pursuant to exercise of stock options			—			—			1,516,239




	Pursuant to exercise of Agent’s Special Warrants			—			—			500,803




Issued for corporate finance services				—			—			91,890




Issuance of Special Warrants (net of issuance costs of $1,498,742)				—			—			11,063,758




Issued pursuant to exercise of Special Warrants				—			—			—




Cancelled escrow shares [note 11 ]				—			—			—




Stock-based compensation				—			—			1,103,888




Unrealized gain on foreign currency translation				2,090			—			2,090




Net loss				—			(10,703,830	)		(10,703,830	)

Balance at March 31, 2000				(100,911	)		(32,135,575	)		11,831,199




For cash




	Pursuant to private placement (net of issuance costs of $734,368) [note 11]			—			—			4,906,382




	Pursuant to exercise of stock options			—			—			249,332




	Pursuant to exercise of warrants [note 11]			—			—			597,455




Issued for corporate finance services [note 11]				—			—			45,000




Issued pursuant to exercise of Special Warrants [note 11]				—			—			—




Issued pursuant to license agreement [note 11]				—			—			900,450




Stock-based compensation				—			—			226,000




Unrealized loss on foreign currency translation				(1,327	)		—			(1,327	)




Unrealized gains on short-term investments				2,152			—			2,152




Net loss				—			(8,866,355	)		(8,866,355	)

Balance at March 31, 2001				(100,086	)		(41,001,930	)		9,890,288

See accompanying notes

F-5

Genetronics Biomedical Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS
[See Note 1 – Nature of Business and Basis of Presentation]


		(Expressed in U.S. dollars)

		Year ended			Year ended			Year ended
		March 31			March 31			March 31
		2001			2000			1999
		$			$			$

OPERATING ACTIVITIES




Net loss for the year			(8,866,355	)		(10,703,830	)		(7,150,537	)




Items not involving cash:




	Depreciation and amortization		655,497			566,358			410,268




	Restructuring Charges		(277,451	)		288,042			—




	Stock-based compensation		226,000			1,103,888			546,700




	Provision for (recovery of) uncollectible accounts		(12,888	)		43,149			7,472




	Provision for inventory obsolescence		108,522			65,620			10,976




	Write-down of fixed assets		17,156			—			—




	Loss on disposal of fixed assets		—			—			18,986




	Write-down of other assets		31,360			—			—




	Deferred rent		24,929			408			(14,345	)




	Deferred revenue		(218,636	)		268,665			—




Changes in non-cash working capital items:




	Accounts receivable		229,812			(386,951	)		(280,393	)




	Inventories		(253,423	)		(21,356	)		(271,792	)




	Prepaid expenses and other		78,024			(133,328	)		(1,141	)




	Accounts payable and accrued expenses		(113,048	)		118,599			404,906

Cash used in operating activities			(8,370,501	)		(8,790,736	)		(6,318,900	)

INVESTING ACTIVITIES




Purchase of short-term investments			(2,804,468	)		—			—




Purchase of fixed assets			(263,970	)		(289,511	)		(414,186	)




Increase in other assets			(320,587	)		(495,581	)		(287,771	)

Cash used in investing activities			(3,389,025	)		(785,092	)		(701,957	)

FINANCING ACTIVITIES




Payments on obligations under capital leases			(58,334	)		(45,892	)		(24,016	)




Proceeds from issuance of Special Warrants, net of issue costs			—			11,155,648			—




Proceeds from issuance of common shares, net of issue costs			5,798,169			2,017,042			6,795,461

Cash provided by financing activities			5,739,835			13,126,798			6,771,445

Effect of exchange rate changes on cash			(1,327	)		2,090			(83,294	)

Increase (decrease) in cash and cash equivalents			(6,021,018	)		3,553,060			(332,706	)




Cash and cash equivalents, beginning of year			9,742,344			6,189,284			6,521,990

Cash and cash equivalents, end of year			3,721,326			9,742,344			6,189,284

See accompanying notes

F-6

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

Genetronics Biomedical Corporation (the “Company”) was incorporated on August 8, 1979 under the laws of British Columbia. The Company carries out its business through its United States wholly-owned subsidiary, Genetronics, Inc., that was incorporated in California on June 29, 1983. Through its BTX Instrument Division, the Company develops, manufactures, and markets electroporation instrumentation and accessories used by scientists and researchers to perform genetic engineering techniques, such as cell fusion, gene transfer, cell membrane research and genetic mapping in research laboratories worldwide. Through its Drug and Gene Delivery Division, the Company is developing drug delivery systems which are designed to use electroporation to enhance drug or gene delivery in the areas of oncology, dermatology, gene therapy, cardiology and transdermal drug delivery. The Company sells the majority of its BTX products to customers in the United States, Europe, and East Asia.

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. Concurrent with the continuation of the Company in Delaware, the shareholders authorized for issuance 100,000,000 common shares with a $0.001 par value.

The Company’s consolidated financial statements for the year ended March 31, 2001 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 incurred a net loss of $4,394,367 for the six months ended September 30, 2001 and has an accumulated deficit of $45,396,297 at September 30, 2001. 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. In October 2001, the Company reduced its operating expenses through a reorganization of its operations by reducing its headcount by approximately 20%. As the reduction of the headcount 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 flows. 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. 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.

2. ACCOUNTING POLICIES

As a result of the continuation of the Company from British Columbia, Canada, to Delaware, these financial statements have been prepared in accordance with generally accepted accounting principles in the United States. The following is a summary of significant accounting policies used in the preparation of these consolidated financial statements.

F-7

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

2. ACCOUNTING POLICIES (cont’d.)

Consolidation

These consolidated financial statements include the accounts of Genetronics Biomedical Corporation and its wholly-owned subsidiary, Genetronics, Inc., a private company incorporated in the state of California. Effective May 2000, Genetronics Inc. closed the operations of its wholly owned subsidiary Genetronics SA, a company incorporated in France and subsequently sold its investment in Genetronics SA for nominal consideration to Geser SA, a company owned by the former General Manager of Genetronics SA. Significant intercompany accounts and transactions have been eliminated on consolidation.

Use of estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts recorded in the consolidated financial statements. Actual results could differ from those estimates.

Foreign currency translation

Through December 31, 2000, the functional currency of the Company was the Canadian dollar, while the reporting currency in the consolidated financial statements was the U.S. dollar. Assets and liabilities were translated into U.S. dollars using current exchange rates in effect at the balance sheet date. Revenue and expense accounts were translated using the weighted average exchange rate during the year. Gains and losses resulting from this process were recorded in shareholders’ equity as an adjustment to the cumulative translation adjustment account.

Effective January 1, 2001, due to a change in circumstances, the functional currency of the Company changed to the U.S. dollar. Accordingly, non-U.S. monetary assets and liabilities are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Revenue and expenses are translated at the average exchange rate for the year. Gains or losses arising on this foreign currency translation are recorded in net loss.

The accounts of the Company’s French subsidiary, an integrated entity to the Company’s U.S. subsidiary, were recorded in French francs and have been translated into U.S. dollars such that monetary assets and liabilities were translated at the year-end exchange rates. Non-monetary assets and liabilities were translated using historical rates of exchange. Revenues and expenses were translated at the rates of exchange prevailing on the dates such items are recognized in earnings. Exchange gains and losses were included in income for the year. The effect on the statement of loss of transaction gains and losses was insignificant.

F-8

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

2. ACCOUNTING POLICIES (cont’d.)

Cash equivalents

The Company considers all highly liquid investments with maturities of 90 days or less, when purchased, to be cash equivalents. Cash equivalents are stated at cost, which approximates market value.

Short-term investments

Short-term investments are classified as available-for-sale and carried at market values with unrealized gains or losses reflected as a component of other accumulated comprehensive loss.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) and replacement cost for raw materials and net realizable value for finished goods and work in process. Cost includes materials, direct labor and applicable overhead. The Company records an inventory provision for any excess parts related to the BTX Instrument Division and Drug and Gene Delivery Division products and any obsolete products that have been discontinued.

Fixed assets

Fixed assets are stated at cost and depreciated over the estimated useful lives of the assets (five to seven years) using the straight-line method. Leasehold improvements and equipment under capital leases are being depreciated over the shorter of the estimated useful lives of the assets or the term of the lease. Depreciation of leased assets is included in depreciation and amortization.

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.

F-9

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

2. ACCOUNTING POLICIES (cont’d.)

Long-Lived Assets

In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, if indicators of impairment exist, the Company assesses 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, the Company measures the future discounted cash flows associated with the use of the asset to determine fair value. While the Company’s current and historical operating and cash flow losses are indicators of impairment, the Company believes the future discounted cash flows to be received from the long-lived assets will exceed the assets carrying value, and accordingly, the Company has not recognized any impairment losses through March 31, 2001.

Future income taxes

The Company accounts for income taxes using the liability method of tax allocation. 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 consolidated financial statements if realization is considered more likely than not.

Advertising costs

Advertising costs are expensed as incurred. Advertising expense for the year ended March 31, 2001 was $198,329 [2000 — $225,035; 1999 — $173,600].

Government grants

The Company receives non-refundable grants under available government programs. Government grants towards current expenditures are recorded as revenue when there is reasonable assurance that the Company has complied with all conditions necessary to receive the grants, collectibility is reasonably assured and as the expenditures are incurred.

Revenue recognition

Sales are recognized upon delivery of products to its customers if a signed contract exists, the sales price is fixed and determinable, collection of the resulting receivables is reasonably assured and any uncertainties with regard to customer acceptance are insignificant. Sales are recorded net of discounts. The Company’s sales to customers and end users do not contain any customer acceptance and/or price protection provisions. All sales to customers are final and therefore revenues are recognized at the time of delivery, except when the contract includes a right of return clause. To the extent there is a right of return clause, sales are recognized once the right of return has expired or the product has been sold to the end customer.

F-10

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

2. ACCOUNTING POLICIES (cont’d.)

A provision for the estimated warranty expense is established by a charge against operations at the time the product is sold.

The Company has adopted a strategy of co-developing or licensing our gene delivery technology for specific genes or specific medical indications. Accordingly, the Company has entered into collaborative research and development agreements and has received funding for pre-clinical research and clinical trials. 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 are recognized upon the achievement of specified milestones when the Company has earned the milestone payment, the milestone payment is substantive in nature and the achievement of the milestone was not reasonably assured at the inception of the agreement.

Prior to the adoption of SAB 101, the Company initially recognized up-front non-refundable payments as revenue upon receipt, as these fees were non-refundable and the Company had transferred the technology and product rights upon the contract’s inception and incurred costs in excess of the up-front fees prior to the initiation of each arrangement. Upon the adoption of SAB 101, up-front non-refundable payments received which require the ongoing involvement of the Company are deferred and amortized into income on a straight-line basis over the term of the relevant license or related underlying product development period.

Shipping and handling costs

Costs incurred to ship the Company’s goods to the buyer are charged to cost of sales as incurred. Amounts billed to the customer as a reimbursement for shipping and handling costs are recorded in net sales as the related revenue is recognized.

Loss per common share

Basic loss per common share is computed by dividing the net loss for the year by the weighted average number of common shares outstanding during the year. Diluted loss per common share is calculated in accordance with the treasury stock method and reflects 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 common share are the same.

Leases

Leases have been classified as either capital or operating leases. Leases which transfer substantially all of the benefits and risks incidental to the ownership of assets are accounted for as if there was an acquisition of an asset and incurrence of an obligation at the inception of the lease. All other leases are accounted for as operating leases wherein rental payments are expensed as incurred.

F-11

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

2. ACCOUNTING POLICIES (cont’d.)

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 fair values using Black Scholes option pricing model based on the vesting terms of the options.

Recent accounting pronouncement

In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS133), as amended by SFAS137 and SFAS138. SFAS133, as amended, is effective for the Company’s year commencing April 1, 2001. The Company does not expect the adoption of SFAS133 to have a material impact on the Company’s operations or financial position.

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Standards ("SFAS") No. 141, "Business Combinations" and No. 142 Goodwill and Other Intangible Assets. SFAS 141 requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001 and provides guidance on the initial recognition and measurement of goodwill and other intangible assets. SFAS 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. SFAS 142 requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives. The Company does not believe that the adoption of SFAS 141 and SFAS 142 will have a significant effect on its financial statements.

3. FINANCIAL INSTRUMENTS

For certain of the Company’s financial instruments including cash equivalents, short-term investments, accounts receivable and accounts payable and accrued expenses the carrying values approximate fair value due to their short term nature. The obligations under capital lease bear rates which in management’s opinion approximate the current interest rate and therefore approximate fair value.

4. CHANGE IN ACCOUNTING PRINCIPLE

The Company has received cumulative up-front payments of approximately $4,000,000 through April 1, 2000. In accordance with SAB 101, the Company is required to record these fees over the life of the arrangement, which was terminated in the year ended March 31, 2001 (see note 6). As a result of this change, revenues in the year ended March 31, 2001 have increased by $3,647,059 and the cumulative effect of this change in accounting principle is a charge of $3,647,059 to net loss in the year ended March 31, 2001.

F-12

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

5. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Cash equivalents include approximately $3,018,819 [2000 — $9,100,768] of commercial papers and term deposits with an average interest rate of 5.44% at March 31, 2001 [2000 — 6.08%]. In addition, cash equivalents include amounts denominated in Canadian dollars aggregating $374,955 (Cdn $591,038) [2000 - $71,119 (Cdn $103,876)].

Short-term investments comprise mainly commercial paper and term deposits with an average interest rate of 5.39% at March 31, 2001 and maturities to June 15, 2001.

6. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK

The Company relies on distributors for the sale of its products. For the year ended March 31, 2001, approximately 39% of sales were through one distributor [2000 — 28%; 1999 — 24%]. As at March 31, 2001, $316,356 is due from two distributors which is included in accounts receivable [2000 — $597,330].

Credit is extended based on an evaluation of a customer’s financial condition and generally collateral is not required. To date, credit losses have not been significant.

By an exclusive license and development agreement dated October 2, 1998, the Company had granted the rights to its drug delivery technology to make, use and sell oncology products as defined in the agreement. The agreement was to expire at the expiration of certain patent rights covering the technology in 2016. Pursuant to the agreement, during the year ended March 31, 2001, and after giving effect to the change in the Company’s revenue recognition policy, the Company recognized license fee and milestone payments from the licensee in the amount of $3,730,392. Prior to the changes in accounting policy adopted in 2001, the Company recognized fees from this arrangement of $416,667 in fiscal 2000 and $4,500,000 in fiscal 1999. On July 26, 2000, the Company received notice that the licensee had elected to exercise its discretionary right to terminate, without cause, the license agreement. The agreement provided for a termination notice of 180 days; accordingly, the effective termination date was January 22, 2001, at which time the unamortized portion of the up-front license fee was recorded into income. All rights previously granted to the licensee were returned to the Company.

F-13

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

7. INVENTORIES


	2001			2000
	$			$

Raw materials		564,034			490,926




Work in process		85,006			79,683




Finished goods		304,462			129,470





		953,502			700,079




Less: allowance for obsolescence		(196,959	)		(88,437	)

		756,543			611,642

8. FIXED ASSETS

Accumulated

Net book

Cost

depreciation

value

2001

Machinery, equipment and office furniture

1,767,009

1,018,103

748,906

Leasehold improvements

435,304

368,078

67,226

Equipment under capital leases

256,788

168,894

87,894

2,459,101

1,555,075

904,026

2000

Machinery, equipment and office furniture

1,567,415

765,065

802,350

Leasehold improvements

427,647

301,918

125,729

Equipment under capital leases

199,375

112,643

86,732

2,194,437

1,179,626

1,014,811

During the year ended March 31, 2001, the Company wrote off $17,156 of fixed assets that had no future value [2000 — $nil; 1999 — $nil].

F-14

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

9. OTHER ASSETS


	2001		2000
	$		$

Patent costs, net		1,471,590		1,350,174




License costs, net		834,792		—




Other		26,444		33,460

		2,332,826		1,383,634

Patent costs are net of accumulated amortization of $465,358 at March 31, 2001 [2000 — $298,267]. License costs are net of accumulated amortization of $65,658 at March 31, 2001 [2000 — $nil].

The Company has two primary groups of patents (Group 1 and Group 2), which are being amortized over a period of 8 years and 17 years, respectively. The patent balance, net of accumulated amortization, of Group 1 totaled $925,134 at March 31, 2001 [March 31, 2000 — $756,434]. The patent balance, net of accumulated amortization, of Group 2 totaled $546,456 at March 31, 2001 [March 31, 2000 - $593,740]. License costs, net of accumulated amortization, totaled $834,792 at March 31, 2001 [March 31, 2000 — $nil] and are being amortized over a period of 8 years.

During the year ended March 31, 2001, the Company wrote off patent costs of $31,360 with respect to patents not directly related to the Company’s current focus [2000 — $nil; 1999 — $nil].

10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES


	2001		2000
	$		$

Trade accounts payable		907,584		875,646




Accrued compensation [note 12]		347,277		717,416




Customer deposits		4,192		115,264




Accrued expenses		134,532		75,758

		1,393,585		1,784,084

F-15

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

11. SHARE CAPITAL

As a result of the Company’s continuation into Delaware [note 1] on June 15, 2001, the Company changed its no par value common shares to $0.001 par value common shares. The shareholders’ equity for all periods presented has been reclassified to conform to this presentation.

On January 17, 2001, the Company completed a public offering of 6,267,500 common shares at a price of Cdn $1.35 per share for gross proceeds of Cdn $8,461,125 (U.S. $5,640,750) less expenses of Cdn $1,102,877 (U.S. $734,368). The Company has also granted the Agent compensation warrants exercisable until January 16, 2002 to purchase 500,000 common shares, at Cdn $1.35 per common share. The Company has also issued to the Agent 50,000 common shares as compensation for corporate finance services.

On September 15, 2000, the Company entered into an exclusive license agreement with the University of South Florida Research Foundation, Inc. (“USF”), whereby USF granted the Company an exclusive, worldwide license to USF’s rights in patents and patent applications generally related to needle electrodes (“License Agreement”). These electrodes were jointly developed by the Company and USF. Pursuant to the License Agreement, the Company granted USF and its designees warrants to acquire 600,000 common shares for $2.25 per share until September 14, 2010. Of the total warrants granted, 300,000 vest at the date of grant and the remainder will vest upon the achievement of certain milestones. The 300,000 non-forfeitable vested warrants were valued at $553,950 using the Black-Scholes pricing model and were recorded as other assets with a credit to additional paid in capital. The remaining 300,000 warrants are forfeitable and will be valued at the fair value on the date of vesting using the Black-Sholes pricing model.

In addition, pursuant to the above License Agreement, the Company issued a total of 150,000 common shares with a fair market value of $346,500 to USF and its designees for no additional consideration. The fair market value of the common shares on September 15, 2000 was recorded as other assets and a credit to share capital.

During the year ended March 31, 2000, the Company cancelled 26,784 common shares held in escrow for no consideration. Accordingly, the weighted average per common share amount attributed to the cancelled shares of $35,768 has been allocated to additional paid in capital.

F-16

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

11. SHARE CAPITAL (cont’d.)

Special Warrants

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 and other costs of $1,498,742 and other issue costs. Each Special Warrant entitles the holder to receive, at no additional cost, one common share of the Company. During the year ended March 31, 2001, the Company issued 4,164,500 [2000 — 23,000] common shares pursuant to the exercise and conversion of these Special Warrants.

F-17

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

11. SHARE CAPITAL (cont’d.)

Warrants

In connection with the issuance of 1,955,000 common shares pursuant to an agency agreement dated April 15, 1997, the Company granted the agent warrants to acquire 200,000 common shares for Cdn. $4.30 per share until May 26, 1998. During the year ended March 31, 1999, the Company amended the terms of the warrants by increasing the exercise price to Cdn. $4.73 and extending the expiry date to November 30, 1998. These warrants were exercised during the year ended March 31, 1999.

In connection with the issuance of 4,187,500 Special Warrants pursuant to an agency agreement dated June 16, 1999, the Company issued to the Agent’s nominee for no additional consideration, 30,000 common shares 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, 2001, the Company issued 180,500 [2000 — 151,300] common shares pursuant to the exercise of 180,500 [2000 — 151,300] of these share purchase warrants. The unexercised balance of 86,950 share purchase warrants expired.

Stock options

The Company has three stock option plans pursuant to which stock options are granted to executive officers, directors, employees and consultants.

The 1995 stock option plan (the “1995 Plan”) was approved by the shareholders in 1995 and subsequently amended in 1997. The 1995 Plan was suspended by the Board of Directors in June 1997 and no further options will be granted pursuant to this plan. As at March 31, 2001, there are 1,203,400 options outstanding pursuant to the 1995 Plan.

The 1997 stock option plan (the “1997 Plan”), as amended in 1999, was approved by the shareholders in July 1999. The 1997 Plan was suspended by the Board of Directors in July 2000 and no further options will be granted pursuant to this plan. As at March 31, 2001, there are 2,891,050 options outstanding pursuant to the 1997 Plan.

F-18

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

11. SHARE CAPITAL (cont’d.)

The 2000 Stock Option Plan (the “2000 Plan”), effective July 31, 2000, was approved by the shareholders on August 7, 2000, pursuant to which 7,400,000 common shares are reserved for issuance to executive officers, directors, employees and consultants of the Company. The 2000 Plan supercedes all previous stock option plans. At March 31, 2001, 1,165,300 common shares are available for future grants and 1,365,250 stock options are outstanding pursuant to the 2000 Plan. The options available for issuance under the 2000 Plan generally have a term of ten years and vest over a period of three years. The Plan will terminate on July 30, 2010.

During the year ended March 31, 2000, the Company amended the terms of certain stock options to former officers of the Company pursuant to the agreements in note 12, by accelerating the remaining vesting period of 200,000 stock options at an exercise price of $2.95 from 25% each year to 100% immediately and extending the expiration date of the 200,000 options and 413,325 vested options. As a result additional stock-based compensation was recorded in the fiscal year ended March 31, 2000 of $697,924 at a weighted average fair value of $1.14 which was estimated by using the Black Sholes Pricing Model.

The following table summarizes the stock options outstanding at March 31, 2001:


	Options outstanding					Options exercisable

	Number of					Number of
	options		Weighted	Weighted		options		Weighted
Range of	outstanding		average	average		exercisable		average
exercise	at March 31,		remaining	exercise		at March 31,		exercise
prices	2001		contractual life	price		2001		price
$	#		(years)	$		#		$

0.84 - 1.25		952,250	8.33 years		1.09		520,375		1.05




1.31 - 1.50		886,000	6.17 years		1.37		717,600		1.37




1.66 - 2.55		1,050,250	5.29 years		2.18		912,374		2.21




2.65 - 3.75		2,041,200	5.26 years		2.96		1,738,271		2.95




4.00 - 5.50		530,000	8.42 years		4.34		306,000		4.26

		5,459,700	6.25 years		2.36		4,194,620		2.38

F-19

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

11. SHARE CAPITAL (cont’d.)

Stock option transactions for the year and the number of stock options outstanding are summarized as follows:


	No. of common			Weighted average
	shares issuable			exercise price
	#			$

Balance, March 31, 1998		3,067,050			1.90




Options granted		1,783,736			2.84




Options exercised		(61,525	)		1.47




Options forfeited		(135,125	)		2.39

Balance, March 31, 1999		4,654,136			2.24




Options granted		1,048,200			3.57




Options exercised		(988,542	)		1.53




Options forfeited		(198,250	)		2.71

Balance, March 31, 2000		4,515,544			2.63




Options granted		1,537,000			1.43




Options exercised		(111,894	)		2.23




Options forfeited		(480,950	)		2.56

Balance, March 31, 2001		5,459,700			2.36

During the year ended March 31, 2001, the Company granted 50,000 stock options to one of its executive officers with an exercise price of $1.31, which were to vest upon the achievement of certain performance-based milestones. These options were forfeited in November 2000 as the milestones were not met.

At March 31, 2001, 147,500 stock options will vest based on the achievement of various milestones.

Pro forma information regarding net income and earnings per share is required by Statement of Financial Accounting Standard No. 123, Accounting for Stock Based Compensation (SFAS123), 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 year ended March 31, 2001: risk free interest rate of 5.6% [2000 — 6.1%; 1999 — 5.2%]; dividend yield of 0%; volatility factor of the expected market price of the Company’s common stock of 0.75 [2000 — 0.62; 1999 — 0.68]; and a weighted average expected life of the options of 9 years [2000 — 5; 1999 — 71/2].

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.

F-20

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

11. SHARE CAPITAL (cont’d.)

The weighted-average fair value of options granted during the year ended March 31, 2001 which were granted at fair market value on the date of grant was $1.51 [2000 — $2.56; 1999 — $3.19].

Supplemental disclosure of pro forma loss and loss per common share is as follows:


	Year ended			Year ended			Year ended
	March 31			March 31			March 31
	2001			2000			1999
	$			$			$

Pro forma loss		(10,636,154	)		(11,985,791	)		(9,169,837	)




Pro forma loss per common share		(0.38	)		(0.54	)		(0.45	)

Shareholder Rights Plan

In 1997, the shareholders approved the adoption of a Shareholder Rights Plan (the “Rights Plan”) to protect the Company’s shareholders from unfair, abusive or coercive take-over strategies. Under the Rights Plan, holders of common shares are entitled to one share purchase right (“Right”) for each common share held. If any person or group makes a take-over bid, other than a bid permitted under the plan or acquires 20% or more of the Company’s outstanding common shares without complying with the Rights Plan, each Right entitles the registered holder thereof to purchase, in effect, $20 equivalent of common shares of the Company at 50% of the prevailing market price.

F-21

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

12. RESTRUCTURING CHARGES

During the year ended March 31, 2000, the Company undertook a review of its operating structure to identify opportunities to improve operating effectiveness. As a result of this review, certain staffing changes occurred and in December 1999, the Company entered into termination agreements with two of its senior executives. In accordance with the staffing changes and the terms of the termination agreements, the Company has accrued and recorded severance costs and certain benefits amounting to $597,183 for the year ended March 31, 2000. As at March 31, 2001, $10,591 [2000 — $288,042] was included in accounts payable and accrued expenses relating to these restructuring charges.

13. COMMITMENTS

[a] The Company leases its facilities and certain motor vehicles under operating lease agreements which expire up to 2006. The facilities lease agreements require the Company to pay maintenance costs. Rent expense under operating leases was as follows:

Year ended

March 31

2001

2000

1999

Rentals

501,949

388,524

277,906

At March 31, 2001, future minimum lease payments under non-cancellable operating leases are as follows:


	$

2002		542,000




2003		545,000




2004		547,000




2005		411,000




2006		9,000

		2,054,000

F-22

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

13. COMMITMENTS (cont’d.)

[b] The Company leases certain office equipment under capital lease arrangements. At March 31, 2001 future minimum lease payments under non-cancellable capital leases are as follows:


	$

2002		82,889




2003		34,495




2004		19,841

Total minimum lease payments		137,225
Amounts representing interest (approximately 17%)		(19,762	)

Present value of future minimum lease payments		117,463
Less: current portion of capital lease obligations		(68,931	)

Long-term portion of capital leases		48,532

		[c] In accordance with a consulting agreement dated February 10, 2000, the Company may be required to issue 120,000 warrants to acquire common shares and pay a fee based on a percentage of future funding upon the occurrence of certain events as described in the agreement.

		[d] Pursuant to the USF license agreement entered into during the year ended March 31, 2001 [note 11], the Company is responsible for payment of royalties, based on a percentage of revenue from the licensed product. As at March 31, 2001, no royalties were payable.

F-23

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

14. INCOME TAXES

At March 31, 2001, the U.S. subsidiary has U.S. federal and California income tax net operating loss carryforwards available to reduce taxable income of future years. The difference between the U.S. federal and California tax loss carryforwards is primarily attributable to the capitalization of research and development expenses for California income tax purposes and the 50% limitation of California loss carryforwards. In addition, the U.S. subsidiary has U.S. federal and California research tax credit carryforwards available to reduce taxable income of future years. The California research tax credits of $421,000 may be carried forward indefinitely. The Company has non-capital losses for Canadian income tax purposes which may be used to reduce future taxable income. These loss carryforwards and tax credits expire as follows:


	U.S. federal						Non-capital
	research		U.S. federal		California		Canadian
	tax credits		losses		losses		losses
	$		$		$		$

Year ended March 31,




2002		—		—		769,000		323,000




2003		—		—		1,576,000		393,000




2004		—		—		212,000		602,000




2005		2,000		—		2,344,000		50,000




2006		6,000		—		6,263,000		1,223,000




2007		7,000		—		—		1,006,000




2008		14,000		46,000		—		1,115,000




2009		14,000		—		—		—




2010		18,000		542,000		—		—




2011		15,000		1,816,000		—		—




2012		58,000		2,947,000		—		—




2013		152,000		6,901,000		—		—




2014		266,000		4,691,000		—		—




2015		—		7,930,000		—		—




2020		155,000		—		—		—




2021		172,000		9,009,000		—		—

		879,000		33,882,000		11,164,000		4,712,000

F-24

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

14. INCOME TAXES (cont’d.)

Pursuant to Internal Revenue Code Sections 382 and 383, annual use of the subsidiary’s net operating loss and credit carryforwards may be limited because of a cumulative change in ownership of more than 50% which occurred during 1993 and as a result of the reverse takeover which occurred in 1995. However, the Company does not believe such limitations will have a material impact upon the utilization of these carryforwards.

Significant components of the Company’s future tax assets as of March 31 are shown below:


		2001			2000
		$			$

Future tax assets:




	Capitalized research expense		872,000			688,000




	Net operating loss carryforwards		13,608,000			10,834,000




	Research and development credits		1,177,000			1,042,000




	Share issue costs		642,000			854,000




	Other		213,000			262,000

Total future tax assets			16,512,000			13,680,000




Valuation allowance			(15,665,000	)		(13,238,000	)

Total future tax assets			847,000			442,000

Future tax liabilities:




	Difference between book and tax basis for patent and license costs		(847,000	)		(442,000	)

Total future tax liabilities			(847,000	)		(442,000	)

Net future tax assets			—			—

The potential income tax benefits relating to the future tax assets have been recognized in the accounts to the extent their realization meets the requirements of “more likely than not” under the liability method of tax allocation.

F-25

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

14. INCOME TAXES (cont’d.)

The reconciliation of income tax attributable to operations computed at the statutory tax rates to income tax expense (recovery), using a 45.62% statutory tax rate, at March 31, is:


	2001			2000
	$			$

Income taxes at statutory rates		(3,942,000	)		(4,379,000	)




Foreign rate differential		146,000			300,000




Losses not recognized (California)		525,000			145,000




Change in valuation allowance		3,142,000			3,817,000




Other		129,000			117,000

		—			—

F-26

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

15. PENSION PLAN

In 1995, the U.S. subsidiary adopted a 401 (k) Profit Sharing Plan covering substantially all of its employees in the United States. The defined contribution plan allows the employees to contribute a percentage of their compensation each year. The Company currently matches 50% of the employees contribution, up to 6% of annual compensation which is recorded as expense in the accompanying consolidated statements of loss as incurred. The Company’s contributions are invested in common shares of the Company which are included in the calculation of loss per common share for the years presented. The pension expense for the year ended March 31, 2001 was $60,761 [2000 — $87,104; 1999 — $66,297].

16. SEGMENTED INFORMATION

The Company’s reportable business segments include the BTX Instrument Division and the 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.

The accounting policies of the segments are the same as those described in note 2.

Substantially all of the Company’s assets and operations are located in the United States and predominantly all revenues are generated, based on the location of origin, in the United States.

F-27

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

16. SEGMENTED INFORMATION (cont’d.)


	BTX			Drug and Gene
	Instrument			Delivery			Reconciling
	Division			Division			Items			Total
	$			$			$			$

Year ended March 31, 2001




Reportable segment net sales		4,452,939			—			—			4,452,939




Other reportable segment revenue		—			4,291,189			—			4,291,189

Total revenue		4,452,939			4,291,189			—			8,744,128

Reportable segment cost of sales		(1,925,118	)		—			—			(1,925,118	)




Reportable segment research and development expenses		(625,819	)		(5,810,558	)		—			(6,436,377	)




Reportable segment selling, general and administrative expenses		(1,231,099	)		—			(4,727,626	)		(5,958,725	)




Interest income		—			—			443,629			443,629




Interest expense		—			—			(20,380	)		(20,380	)




Foreign exchange loss		—			—			(66,453	)		(66,453	)

Net income (loss) before cumulative effect of change in accounting policy		670,903			(1,519,369	)		(4,370,830	)		(5,219,296	)




Cumulative effect of change in accounting policy		—			(3,647,059	)		—			(3,647,059	)

Net income (loss)		670,903			(5,166,428	)		(4,370,830	)		(8,866,355	)


	BTX			Drug and Gene
	Instrument			Delivery			Reconciling
	Division			Division			Items			Total
	$			$			$			$
Year ended March 31, 2000




Reportable segment net sales		3,827,537			306,899			—			4,134,436




Other reportable segment revenue		—			942,903			—			942,903

Total revenue		3,827,537			1,249,802			—			5,077,339

Reportable segment cost of sales		(1,781,972	)		(241,927	)		—			(2,023,899	)




Restructuring charges		(19,729	)		(577,454	)		—			(597,183	)




Reportable segment research and development expenses		(473,132	)		(6,504,088	)		—			(6,977,220	)




Reportable segment selling, general and administrative expenses		(1,220,047	)		—			(5,494,671	)		(6,714,718	)




Interest income		—			—			556,193			556,193




Interest expense		—			—			(24,342	)		(24,342	)

Net income (loss)		332,657			(6,073,667	)		(4,962,820	)		(10,703,830	)

F-28

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

16. SEGMENTED INFORMATION (cont’d.)


	BTX			Drug and Gene
	Instrument			Delivery			Reconciling
	Division			Division			Items			Total
	$			$			$			$

Year ended March 31, 1999




Reportable segment net sales		3,434,105			—			—			3,434,105




Other reportable segment revenue		—			4,887,183			—			4,887,183





Total revenue		3,434,105			4,887,183			—			8,321,288

Reportable segment cost of sales		(1,638,635	)		—			—			(1,638,635	)




Reportable segment research and development expenses		(341,433	)		(7,745,526	)		—			(8,086,959	)




Reportable segment selling, general and administrative expenses		(1,087,651	)		—			(4,940,100	)		(6,027,751	)




Interest income		—			—			300,911			300,911




Interest expense		—			—			(19,391	)		(19,391	)

Net income (loss)		366,386			(2,858,343	)		(4,658,580	)		(7,150,537	)

During the year ended March 31, 2001, 35% of the Company’s net sales were from sales into non-U.S. countries [2000 — 30%; 1999 — 37%].

Net sales of the Company by customer location were as follows:


	Year ended		Year ended		Year ended
	March 31		March 31		March 31
	2001		2000		1999
	$		$		$

United States		2,890,875		2,905,065		2,174,364




Australia		36,096		34,114		15,933




Canada		19,966		42,991		35,565




Europe		742,227		463,966		466,585




East Asia		683,379		621,670		557,064




Other		80,396		66,630		184,594

Total		4,452,939		4,134,436		3,434,105

F-29

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

17. RELATED PARTY TRANSACTIONS

[a] The payments to parties not at arm’s length include the following:

	•		legal services provided by a law firm where one of the partners is a director of the Company

	•		accounting and administration services provided by a company where the principal is a director of the Company

	•		rent and administration fees paid to a company where one of the principals was an officer of the Company’s French subsidiary, as follows:


	Year ended		Year ended		Year ended
	March 31		March 31		March 31
	2001		2000		1999
	$		$		$

Legal services		239,225		161,042		93,778




Accounting and administration		28,780		29,055		26,735

Rent and administration		—		32,600		114,900

[b] Included in accounts payable and accrued expenses are the following amounts owed to the parties identified in note 17[a] which are payable under normal trade terms:


	2001		2000
	$		$

Legal services and accounting and administration		66,916		6,130

[c] Total expenses paid to the parties identified in note 17[a] and included in share issue costs were $95,263 [2000 — $129,300; 1999 - $18,573] for the year ended March 31, 2001. All transactions are recorded at their exchange amounts.

F-30

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

18. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Year ended

March 31

2001

2000

1999

Interest paid during the year

20,380

24,342

19,391

During the year ended March 31, 2001, the Company granted warrants and issued common shares pursuant to a license agreement [note 11] aggregating $900,450.

F-31

Genetronics Biomedical Corporation

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


March 31, 2001		(Expressed in U.S. dollars)

19. COMPARATIVE FIGURES

Certain of the comparative figures have been restated to conform with the presentation adopted in the current year.

20. SUBSEQUENT EVENTS

[i] Pursuant to the terms of an employment agreement, an executive officer who was terminated subsequent to March 31, 2001 is entitled to additional remuneration of one year’s salary which amounts to approximately $230,000 to be paid in bi-weekly installments.

[ii] In November 2001, the Company entered into a non-exclusive license agreement with Valentis to use its MedPulser® System in the development of its Genemedicine™ products. The Company will receive an insignificant upfront payment in the first quarter of 2002 and payments upon the achievement of specified milestones in the form of cash and stock of Valentis as well as a supply agreement between the two companies. The agreement expires in 2018.

F-32