U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _______
Commission file number 0-27239
GENEMAX CORP.
-------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 88-0277072
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
435 Martin Street, Suite 2000
Blaine, Washington 98230
-------------------------------
(Address of Principal Executive Offices)
(360) 332-7734
--------------
(Issuer's telephone number)
N/A
---
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding as of November 11, 2003
- ------ -----------------------------------
Common Stock, $0.001 par value 17,913,004
Transitional Small Business Disclosure Format (check one)
Yes No X
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERIM CONSOLIDATED BALANCE SHEETS 2
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS 3
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS 4
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION OR PLAN OF OPERATION
ITEM 3. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENEMAX CORP.
(A DEVELOPMENT STAGE COMPANY)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
CONSOLIDATED BALANCE SHEETS
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
GENEMAX CORP.
(A DEVELOPMENT STAGE COMPANY)
INTERIM CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2003 2002
- --------------------------------------------------------------------------------------------- ---------------- ----------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash $ 83,253 $ 642,589
Prepaid expenses 6,000 6,000
- --------------------------------------------------------------------------------------------- ---------------- ----------------
89,253 648,589
FURNITURE AND EQUIPMENT, (Note 5)
net of depreciation of $111,013 (2002 - $79,138) 83,215 112,839
- --------------------------------------------------------------------------------------------- ---------------- ----------------
$ 172,468 $ 761,428
============================================================================================= ================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 786,404 $ 264,613
Due to related parties (Note 6) 72,578 30,986
- --------------------------------------------------------------------------------------------- ---------------- ----------------
858,982 295,599
- --------------------------------------------------------------------------------------------- ---------------- ----------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 4 and 6)
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Capital stock (Note 7)
Common stock, $0.001 par value, 25,000,000 shares authorized
17,592,519 shares issued and outstanding (2002 - 15,847,519) 17,592 15,847
Additional paid-in capital 5,794,145 3,621,665
Common stock subscriptions - 200,000
Common stock purchase warrants 654,100 610,700
Deficit accumulated during the development stage (7,120,948) (3,972,760)
Accumulated other comprehensive income (loss) (31,403) (9,623)
- --------------------------------------------------------------------------------------------- ---------------- ----------------
(686,514) 465,829
- --------------------------------------------------------------------------------------------- ---------------- ----------------
$ 172,468 $ 159,470
============================================================================================= ================ ================
The accompanying notes are an integral part of these interim consolidated financial statements
GENEMAX CORP.
(A DEVELOPMENT STAGE COMPANY)
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
July 27, 1999
Three months ended Nine months ended (inception) to
September 30, September 30, September 30,
2003 2002 2003 2002 2003
- --------------------------------------------- ---------------- ---------------- --------------- ---------------- ----------------
(Note 1) (Note 1) (Note 1)
INTEREST INCOME $ - $ 96 $ - $ 125 $ 26,571
OTHER INCOME
- --------------------------------------------- ---------------- ---------------- --------------- ---------------- ----------------
EXPENSES
Consulting fees 27,295 66,536 112,013 102,036 466,290
Consulting fees - stock based (Note 7) 246,125 - 807,625 - 1,437,900
Depreciation 10,462 10,186 31,875 30,547 111,013
License fees - - - - 79,243
Management fees 57,175 43,990 168,865 104,312 656,071
Office and general 171,935 17,711 782,281 59,514 1,029,707
Professional fees 63,273 140,548 210,407 212,797 727,974
Research and development 409,079 259,489 977,726 622,130 2,510,766
Travel 7,805 8,131 50,332 9,952 128,555
- --------------------------------------------- ---------------- ---------------- --------------- ---------------- ----------------
993,149 546,591 3,148,188 1,141,288 7,147,519
- --------------------------------------------- ---------------- ---------------- --------------- ---------------- ----------------
NET LOSS FOR THE PERIOD $(993,149) $ (546,495) $(3,148,188) $ (1,141,163) $(7,120,948)
============================================= ================ ================ =============== ================ ================
BASIC NET LOSS PER SHARE $ (0.06) $ (0.04) $ (0.19) $ (0.09)
============================================= ================ =============== ================ ================
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 17,290,563 14,728,443 16,606,984 12,543,866
============================================= ================ =============== ================ ================
The accompanying notes are an integral part of these interim consolidated financial statements
GENEMAX CORP.
(A DEVELOPMENT STAGE COMPANY)
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
July 27, 1999
(inception) to
Nine months Ended September 30 September 30,
2003 2002 2003
- -------------------------------------------------------------------------- ----------------- ----------------- -----------------
(Note 1) (Note 1)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (3,148,188) $ (1,141,163) $ (7,120,948)
Adjustments to reconcile net loss to net cash from operating activities:
- depreciation 31,875 30,547 111,013
- non-cash consulting fees - - 5,750
- non-cash license fees - - 500
- stock-based compensation 807,625 - 1,437,900
- accounts payable 483,791 258,294 734,120
- -------------------------------------------------------------------------- ----------------- ----------------- -----------------
NET CASH USED IN OPERATING ACTIVITIES (1,824,897) (852,322) (4,831,665)
- -------------------------------------------------------------------------- ----------------- ----------------- -----------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Purchase of furniture and equipment (2,251) - (194,228)
Pre reverse acquisition advances from Eduverse (Note 3) - 250,000 250,000
Cash acquired on reverse acquisition of Eduverse (Note 3) - 173,373 173,373
- -------------------------------------------------------------------------- ----------------- ----------------- -----------------
NET CASH FROM (USED IN) INVESTING ACTIVITIES (2,251) 423,373 229,145
- -------------------------------------------------------------------------- ----------------- ----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on sale and subscriptions of common stock 988,000 311,500 4,169,730
Bank overdraft - 11,164 -
Loans payable - 68,545 136,245
Advances from related parties 301,592 30,272 411,201
- -------------------------------------------------------------------------- ----------------- ----------------- -----------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 1,289,592 421,481 4,717,176
- -------------------------------------------------------------------------- ----------------- ----------------- -----------------
EFFECT OF EXCHANGE RATE CHANGES (21,780) (4,093) (31,403)
- -------------------------------------------------------------------------- ----------------- ----------------- -----------------
INCREASE (DECREASE) IN CASH (559,336) (11,561) 83,253
CASH, BEGINNING OF PERIOD 642,589 11,561 -
- -------------------------------------------------------------------------- ----------------- ----------------- -----------------
CASH, END OF PERIOD $ 83,253 $ - $ 83,253
========================================================================== ================= ================= =================
Non-cash transactions:
Refer to Note 7
The accompanying notes are an integral part of these interim consolidated financial statements
GENEMAX CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
(unaudited)
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
On May 9, 2002, GeneMax Corp. (formerly Eduverse.com) ("GMC", "Eduverse" or "the
Company"), a Nevada corporation entered into a letter of intent to acquire 100%
of the issued and outstanding common shares of GeneMax Pharmaceuticals Inc. (a
development stage company) ("GPI"), in exchange for a total of 11,431,965
restricted shares of common stock of Eduverse. In connection with this
transaction, Eduverse changed its name to GeneMax Corp. During July and August,
2002 the Company completed the transaction pursuant to a definitive Share
Exchange Agreement and issued 11,231,965 restricted shares of common stock to
the GPI stockholders and 200,000 shares of common stock as a finder's fee.
This acquisition has been accounted for as a reverse merger with GPI being
treated as the accounting parent and GMC, the legal parent, being treated as the
accounting subsidiary. Accordingly, the consolidated results of operations of
the Company include those of GPI for all periods shown and those of GMC since
the date of the reverse merger.
GPI is a private Delaware company incorporated on July 27, 1999 which has a
wholly-owned subsidiary, GeneMax Pharmaceuticals Canada Inc. ("GPC"), a private
British Columbia company incorporated May 12, 2000. GPI is a development stage
company which was formed for the purpose of building a biotechnology business
specializing in the discovery and development of immunotherapeutics aimed at the
treatment and eradication of cancer, and therapies for infectious diseases,
autoimmune disorders and transplant tissue rejection.
During 2000 GPI and the University of British Columbia ("UBC") entered into a
world-wide license agreement providing GPI the exclusive license rights to
certain patented and unpatented technologies originally invented and developed
by UBC. Also during 2000 GPI and UBC entered into a Collaborative Research
Agreement ("CRA") appointing UBC to carry out further development of the
licensed technology and providing GPI the option to acquire the rights to
commercialize any additional technologies developed within the CRA in
consideration for certain funding commitments (Refer to Note 4).
The consolidated financial statements have been prepared on the basis of a going
concern which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has a working capital
deficiency of $769,729, a capital deficiency of $686,514 and has incurred
significant losses since inception and further losses are anticipated in the
development of its products raising substantial doubt as to the Company's
ability to continue as a going concern. The ability of the Company to continue
as a going concern is dependent on raising additional capital to fund ongoing
research and development and ultimately on generating future profitable
operations.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and conforms with instructions to Form 10-QSB of
Regulation S-B. They may not include all information and footnotes required by
generally accepted accounting principles for complete financial statements.
However, except as disclosed herein, there has been no material changes in the
information disclosed in the notes to the financial statements for the year
ended December 31, 2002 included in the Company's Annual Report on Form 10-KSB
filed with the Securities and Exchange Commission. The interim unaudited
financial statements should be read in conjunction with those financial
statements included in the Form 10-KSB. In the opinion of Management, all
adjustments considered necessary for a fair presentation, consisting solely of
normal recurring adjustments, have been made. Operating results for the nine
months ended September 30, 2003 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2003.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These consolidated financial statements have been presented in United States
dollars and prepared in accordance with United States Generally Accepted
Accounting Principles ("US GAAP").
GENEMAX CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
(unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries GPI and GPC as described in Notes 1 and 3. All
significant intercompany balances and transactions are eliminated on
consolidation.
USE OF ESTIMATES AND ASSUMPTIONS
Preparation of the Company's financial statements in conformity with United
States generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation is computed at the
following rates over the estimated useful lives of the assets:
Office furniture and equipment 36 months straight-line
Laboratory equipment 60 months straight-line
RESEARCH AND DEVELOPMENT COSTS
The Company has acquired exclusive development and marketing rights to certain
technologies through a License Agreement and a Collaborative Research Agreement
with UBC. The rights and license acquired are considered rights to unproven
technology which may not have alternate future uses and therefore, have been
expensed as incurred as research and development costs. Also, ongoing costs
incurred in connection with the Collaborative Research Agreement are considered
costs incurred in the development of unproven technology which may not have
alternate future uses and therefore, have been expensed as incurred as research
and development costs.
FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with the requirements of SFAS No. 107, the Company has determined
the estimated fair value of financial instruments using available market
information and appropriate valuation methodologies. The fair value of financial
instruments classified as current assets or liabilities including cash, prepaid
expense, loans and accounts payable and due to related parties approximate
carrying value due to the short-term maturity of the instruments.
FOREIGN CURRENCY TRANSLATION
The financial statements are presented in United States dollars. In accordance
with Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation", foreign denominated monetary assets and liabilities are translated
to their United States dollar equivalents using foreign exchange rates which
prevailed at the balance sheet date. Revenue and expenses are translated at
average rates of exchange during the year. Related translation adjustments are
reported as a separate component of stockholders' equity, whereas gains or
losses resulting from foreign currency transactions are included in results of
operations.
NET LOSS PER COMMON SHARE
Basic earnings (loss) per share includes no dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Dilutive earnings (loss) per share reflect
the potential dilution of securities that could share in the earnings of the
Company. The accompanying presentation is only of basic loss per share as the
potentially dilutive factors are anti-dilutive to basic loss per share.
GENEMAX CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
(unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
In December 2002, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure" ("SFAS No. 148"), an amendment of Financial
Accounting Standard No. 123 "Accounting for Stock-Based Compensation" ("SFAS No.
123"). The purpose of SFAS No. 148 is to: (1) provide alternative methods of
transition for an entity that voluntarily changes to the fair value based method
of accounting for stock-based employee compensation, (2) amend the disclosure
provisions to require prominent disclosure about the effects on reported net
income of an entity's accounting policy decisions with respect to stock-based
employee compensation, and (3) to require disclosure of those effects in interim
financial information. The disclosure provisions of SFAS No. 148 were effective
for the Company for the year ended December 31, 2002 and the required
disclosures have been made below.
The Company has elected to continue to account for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees",
("APB No. 25") and comply with the disclosure provisions of SFAS No. 123 as
amended by SFAS No. 148 as described above. In addition, in accordance with SFAS
No. 123 the Company applies the fair value method using the Black-Scholes
option-pricing model in accounting for options granted to consultants. Under APB
No. 25, compensation expense is recognized based on the difference, if any, on
the date of grant between the estimated fair value of the Company's stock and
the amount an employee must pay to acquire the stock. Compensation expense is
recognized immediately for past services and pro-rata for future services over
the option-vesting period.
In accordance with SFAS No. 123, the Company applies the fair value method using
the Black-Scholes option-pricing model in accounting for options granted to
consultants.
The following table illustrates the pro forma effect on net income (loss) and
net income (loss) per share as if the Company had accounted for its for
stock-based employee compensation using the fair value provisions of SFAS No.
123 using the assumptions as described in Note 7:
For the nine months ended
September 30,
2003 2002
----------------- -----------------
Net loss for the period as reported $ (3,148,188) $ (1,141,288)
SFAS 123 compensation expense (46,500) -
----------------- -----------------
Pro-forma net loss for the period $ (3,194,688) $ (1,141,288)
================= =================
Pro-forma basic net loss per share $ (0.19) $ (0.09)
================= =================
The Company accounts for equity instruments issued in exchange for the receipt
of goods or services from other than employees in accordance with SFAS No. 123
and the conclusions reached by the Emerging Issues Task Force in Issue No.
96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring or in Conjunction with Selling Goods or Services" ("EITF
96-18"). Costs are measured at the estimated fair market value of the
consideration received or the estimated fair value of the equity instruments
issued, whichever is more reliably measurable. The value of equity instruments
issued for consideration other than employee services is determined on the
earlier of a performance commitment or completion of performance by the provider
of goods or services as defined by EITF 96-18.
The Company has also adopted the provisions of the Financial Accounting
Standards Board Interpretation No.44, Accounting for Certain Transactions
Involving Stock Compensation - An Interpretation of APB Opinion No. 25 ("FIN
44"), which provides guidance as to certain applications of APB 25. FIN 44 is
generally effective July 1, 2000 with the exception of certain events occurring
after December 15, 1998.
GENEMAX CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
(unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company follows the liability method of accounting for income taxes. Under
this method, deferred income tax assets and liabilities are recognized for the
estimated tax consequences attributable to differences between the financial
statement carrying values and their respective income tax basis (temporary
differences). The effect on deferred income tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. At September 30, 2003 a full deferred tax asset valuation
allowance has been provided and no deferred tax asset benefit has been recorded.
NOTE 3 - EDUVERSE ACQUISITION
Effective May 9, 2002 the Company entered into a letter of intent to acquire
100% of the issued shares in the capital of GPI in exchange for 11,231,965
restricted shares of common stock plus 200,000 restricted shares of common stock
for a finder's fee. The Company also agreed to issue an additional 188,154
restricted shares of common stock in settlement of $188,154 of accrued GPI
management, consulting and research and development fees. Effective July 15,
2002, pursuant to a definitive Share Exchange Agreement, the Company commenced
the closing and acquired 5,880,304 shares of GPI from non-British Columbia
shareholders of GPI in exchange for the issuance of 5,880,304 restricted shares
of common stock. The Company also issued a take-over bid circular to British
Columbia GPI shareholders and acquired a further 4,487,001 shares of GPI in
exchange for 4,487,001 restricted shares of common stock effective August 13,
2002. Also during the 2002, the Company completed the acquisition by acquiring
the remaining 864,660 shares of GPI in exchange for 864,660 restricted shares of
common stock. Also, 744,494 outstanding GPI common stock purchase warrants were
exchanged on a one for one basis for the Company's common stock purchase
warrants with identical terms and conditions and the Company issued 2,135,000
stock options to holders of GPI stock options (refer to Note 8). All GPI stock
options and common stock purchase warrants were then cancelled. As a result of
this transaction, the former stockholders of GPI owned 75% of the 15,320,119
total issued and outstanding shares of the Company as at July 15, 2002. In
connection with this transaction, Eduverse changed its name to GeneMax Corp
("GMC").
This acquisition has been accounted for as a recapitalization using accounting
principles applicable to reverse acquisitions with GPI being treated as the
accounting parent (acquirer) and GMC being treated as the accounting subsidiary
(acquiree). The value assigned to the capital stock of consolidated GMC on
acquisition of GPI is equal to the book value of the capital stock of GPI plus
the book value of the net assets of GMC as at the date of the acquisition.
The book value of GMC's capital stock subsequent to the reverse acquisition is
calculated and allocated as follows:
GPI capital stock $ 1,924,725
GMC net assets 493,712
-----------------
$ 2,418,437
=================
Capital stock $ 15,320
Additional paid-in capital 620,600
Share purchase warrants 1,867,517
-----------------
2,503,437
GMC subscriptions receivable pre reverse acquisition (100,000)
GMC subscriptions received pre reverse acquisition 15,000
-----------------
Consolidated Capital accounts post reverse acquisition $ 2,418,437
=================
GENEMAX CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
(unaudited)
NOTE 3 - EDUVERSE ACQUISITION (CONTINUED)
These consolidated financial statements include the results of operations of GPI
since July 27, 1999 (inception) and the results of operations of GMC since the
date of the reverse merger effective July 15, 2002.
For the period from October 13, 1999 (inception) to July 14, 2002 the weighted
average number of common shares outstanding is deemed to be 11,431,965 being the
number of shares issued by GMC (including 200,000 common shares issued as
finders' fees) to effect the reverse acquisition of GPI.
NOTE 4 - RESEARCH AGREEMENTS
UNIVERSITY OF BRITISH COLUMBIA ("UBC")
Effective September 14, 1999 GPI entered into an Option Agreement ("Option")
whereby UBC granted GPI an option to obtain a world-wide license from UBC
providing GPI the exclusive license rights to certain patented and unpatented
cancer immuno-therapy technologies originally invented and developed by UBC. The
Option was for a term of 180 days and was considered exercised upon execution of
the License Agreement with UBC as described below. Prior to being eligible to
exercise the Option, GPI was to make a reasonable commercial effort to raise
equity funding in an amount not less than CAN$1,000,000 to fund ongoing research
and issue 500,000 common shares to UBC and an additional 3,600,000 common shares
to certain principals involved in the UBC research.
Effective March 6, 2000, having satisfied the conditions of the Option, GPI
obtained from UBC, the exclusive license rights as described above for
consideration of $78,743. The License will terminate after 15 years or upon the
expiration of the last patent obtained relating to the licensed technology. The
cost of obtaining any patents will be the responsibility of GPI. The technology
remains the property of UBC, however, it may be utilized and improved by GPI.
Concurrent with the execution of the license the head researcher at UBC became a
director of GPI.
GPI and UBC entered into a Collaborative Research Agreement ("CRA") dated
September 1, 2000 appointing UBC to carry out further development of the
licensed technology and providing GPI the option to acquire the rights to
commercialize any additional technologies developed within the CRA in
consideration for certain funding commitments totalling CAN$498,980 to be paid
in four equal instalments of CAN$124,725 due upon execution of the CRA,
September 30, 2000, January 1, 2001 and March 31, 2001 of which $374,215 was
paid. Through a series of amendments between November 28, 2000 and September 9,
2002, the funding commitment was increased to a total of CAN$ 2,973,049 of which
CAN$991,515 was to be paid for the year ended December 31, 2002, CAN$1,135,801
to be paid in 2003 and CAN$471,518 to be paid in 2004. As at September 30, 2003
CAN$394,436 (December 31, 2002 - CAN$115,303) is payable in connection with the
CRA. In addition, as required by the CRA, GPI has purchased certain laboratory
equipment in connection with the ongoing research.
CANADIAN NETWORK FOR VACCINES AND IMMUNOTHERAPEUTICS OF CANCER AND CHRONIC VIRAL
DISEASES ("CANVAC") Effective January 1, 2001 GPI and UBC entered into a one
year Network Affiliate Agreement with CANVAC (the "CANVAC Agreement") whereby
CANVAC would provide a grant to GPI and UBC to further fund the research
activities in connection with the CRA. Under the terms of the CANVAC Agreement,
CANVAC would provide a CAN$85,000 research grant to UBC upon GPI contributing
CAN$117,300 towards the UBC research. The amounts paid by GPI do not qualify as
amounts paid under the CRA funding schedule outlined above. During 2001, all
amounts required under the CANVAC agreement were paid to UBC by GPI. During 2002
CANVAC contributed a further CAN$56,100 to continue funding the research
activities for 2002 and 2003. As at September 30, 2003 GPI owes CAN$38,709 to
UBC to fund GPI's obligations under the CANVAC Agreement.
GENEMAX CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
(unaudited)
NOTE 4 - RESEARCH AGREEMENTS
CRUCELL HOLLAND B.V. ("CRUCELL") - RESEARCH LICENSE AND OPTION AGREEMENT
Effective August 7, 2003 Crucell and GPI entered into a five year Research
License and Option Agreement whereby Crucell granted to GPI a non-exclusive
worldwide license for the research use of its adenovirus technology. The
Agreement includes an option for a non-exclusive worldwide commercial license to
manufacture, use, offer for sale, sell and import products using the technology.
Under the terms of the Agreement, the Company is required to make initial and
ongoing option maintenance payments over the five year term totalling $450,000.
To September 30, 2003 the Company has made all payments required under the terms
of the Agreement totalling $115,490.
MOLECULAR MEDICINE BIOSERVICES, INC. ("MOLECULAR MEDICINE") - PRODUCTION SERVICE
AGREEMENT
Effective March 18, 2003 Molecular Medicine and GMC entered into a Production
Service Agreement, as amended by a Production Service Agreement Amendment dated
August 29, 2003, whereby Molecular Medicine will produce under Good
Manufacturing Practices, the clinical vector for delivery of the TAP gene used
in the Company's cancer immunotherapy product. The product will incorporate the
Crucell vector and GMC's TAP1 gene. Total obligations under the contract are
$232,000 payable to Molecular Medicine plus an estimated $110,000 to $145,000 in
third-party testing costs. To September 30, 2003 the Company has incurred
$108,500 in connection with this agreement.
NOTE 5 - FURNITURE AND EQUIPMENT
September 30, December 31,
2003 2002
--------------- -----------------
Office furniture and equipment $ 34,284 $ 32,033
Laboratory equipment 159,944 159,944
--------------- -----------------
194,228 191,977
Less: accumulated depreciation (111,013) (79,138)
--------------- -----------------
$ 83,215 $ 112,839
=============== =================
NOTE 6 -RELATED PARTY TRANSACTIONS
During 1999 and 2000 GPI entered into consulting, management and research and
development agreements with certain directors and private companies controlled
by directors of the Company. These agreements have terms ranging from month to
month to five years. In addition, in connection with the reverse merger, the
Company entered into a management services agreement with Investor
Communications, Inc. ("ICI"), a significant shareholder, whereby ICI will
provide various corporate services on a month-by-month basis for a fee of
$10,000 per month plus expenses. The following amounts have been incurred to
these related parties:
For the nine months ended Sept 30,
2003 2002
------------------ ------------------
Consulting fees $ 31,000 $ 33,000
Management fees 168,865 60,322
Research and development 100,979 76,268
------------------ ------------------
$ 300,844 $ 169,590
================== ==================
GENEMAX CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
(unaudited)
NOTE 6 -RELATED PARTY TRANSACTIONS (CONTINUED)
The Company has total commitments relating to the above agreements for the years
ended December 31, 2003 through 2005 of $51,600, $159,800 and $7,900
respectively.
A director of the Company has been contracted by ICI and is part of the
management team provided to the Company and was paid $25,875 during the nine
months ended September 30, 2003.
During the nine months ended September 30, 2003 GPI and the Company incurred
$300,844 (2002 - $169,590) in fees and $619,302 (2002 - $NIL) in expense
reimbursements to these related parties, made net repayments of $618,554 (2002 -
$62,247). In addition, during the nine months ended September 30, 2003 ICI
assigned $260,000 of its debt to third parties leaving $72,578 owing at
September 30, 2003 (December 31, 2002 - $30,986). Amounts due to related parties
are unsecured, non-interest bearing and have no specific terms of repayment.
Refer to Notes 3, 4 and 7.
NOTE 7 - CAPITAL STOCK
The authorized capital of the Company consists of 50,000,000 voting common
shares with $0.001 par value and 5,000,000 non-voting preferred shares with
$.001 par value.
GMC CAPITAL STOCK TRANSACTIONS DURING THE PERIOD ENDED SEPTEMBER 30, 2003:
During 2002 the Company commenced a private placement of up to 1,000,000 units
at $5.00 per unit. Each unit consists of one common share and one half share
purchase warrant. Each whole share purchase warrant will entitle the holder to
purchase an additional common share of the Company at a price of $7.50 per share
for a period of one year. During the period the Company issued 43,000 shares of
common stock on the purchase of 43,000 units for total proceeds of $215,000 of
which $185,000 had been received as of December 31, 2002 and $30,000 was
received during the period. This financing was subsequently terminated.
During the period the Company commenced a private placement of up to 5,000,000
units at $1.00 per unit. Each unit consists of one common share and one half
share purchase warrant. Each whole share purchase warrant will entitle the
holder to purchase an additional common share of the Company at a price of $1.50
per share for a period of one year. During the period the Company issued 419,000
shares of common stock on the purchase of 419,000 units for total proceeds of
$419,000. A finder's fee of $31,500 and 31,500 shares with a fair value of
$31,500 is payable to this transaction ($25,000 paid at September 30, 2003). The
fair value of the warrants was estimated to be $43,400 and was recorded as
separate component of stockholders' equity. Refer to Note 9.
During the period the Company issued 898,000 shares of common stock on the
exercise of stock options at $0.50 per share for proceeds of $449,000 and issued
385,000 shares of common stock on the exercise of stock options at $1.00 per
share for cash proceeds of $125,000 and the remaining $260,000 was paid by way
of the settlement of the third party debts received on assignment from ICI
(refer to Note 6).
During the period the Company paid $10,000 in connection with the settlement of
$15,000 of subscriptions received in 2000 which were under dispute. As a result
of the settlement the Company recorded a contribution to additional paid in
capital in period of $5,000 and has been released from any further claims
relating to this matter.
STOCK OPTIONS
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of APB No. 25 and complies with the disclosure
provisions of SFAS No. 123 and SFAS No. 148. In accordance with SFAS No. 123 the
Company applies the fair value method using the Black-Scholes option-pricing
model in connection with accounting for options granted to consultants and the
disclosure provision relating to options granted to employees
GENEMAX CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
(unaudited)
NOTE 7 - CAPITAL STOCK (CONTINUED)
STOCK OPTION PLAN
On September 30, 2002 the Board of Directors of the Company approved the
adoption of a new stock option plan (the "Plan") allowing for the granting of up
to 3,500,000 options to directors, officers, employees and consultants of the
Company and its subsidiaries. Options granted under the Plan shall be at prices
and for terms as determined by the Board of Directors with terms not to exceed
10 years. The Plan further provides that the Board of Directors may grant to any
key personnel of the Company who is eligible to receive options, one or more
Incentive Stock Options at a price not less than fair market value and for a
period not to exceed 10 years from the date of grant. Options and Incentive
Stock Options granted under the Plan may have vesting requirements as determined
by the Board of Directors.
During the period, the Board of Directors approved an increase in the number of
options available under the Plan from 3,500,000 to 4,500,000. Also during the
period, the Company filed a Form S-8 Registration Statement to register 500,000
shares in connection with the Plan.
The Plan incorporates a previous grant of 1,000,000 options to ICI and or its
designates or employees. During 2002 102,000 of these options were exercised at
$0.50 per share for proceeds of $51,000. During the period 898,000 of these
options were exercised at $0.50 per share for proceeds of $449,000.
The Plan incorporates previous grants in the aggregate of 500,000 options to
International Market Trend AG and or its designates or employees. During the
period 360,000 of these options were exercised at $1.00 per share for proceeds
of $360,000, of which $100,000 was cash and $260,000 was debt settlements.
In connection with the reverse acquisition as described in Note 3, the Company
granted 1,740,000 options and 245,000 incentive stock options at $1.00 per share
to previous holders of stock options of GPI to replace options previously
granted by GPI at $0.60 per share. In accordance with accounting principles
applicable to accounting for business combinations, the fair value of the stock
options granted in connection with a business combination is included in the
determination of the purchase price. The fair value of these options at the date
of grant of $1,885,750 was estimated using the Black-Scholes option pricing
model with an expected life of three years, a risk-free interest rate of 4% and
an expected volatility of 226%.
In addition, also in connection with the reverse acquisition as described in
Note 3, the Company granted 150,000 incentive stock options to previous holders
of stock options of GPI with terms and conditions consistent with their original
GPI stock options subject to straight line vesting for a period of 36 months
commencing October 1, 2002. The fair value of these incentive stock options will
be recorded as compensation expense over the vesting period. The fair value of
these options at the date of grant of $142,500 was estimated using the
Black-Scholes option pricing model with an expected life of three years, a
risk-free interest rate of 4% and an expected volatility of 226%. To June 30,
2003 a total of $35,625 (December 31, 2002 - $11,875) has been recorded as
consulting fees in connection with these options.
During the remainder of 2002 the Company granted a further 135,000 incentive
stock options at prices ranging from $5.50 per share to $8.50 per share subject
to immediate vesting. The fair value of these options at the date of grant of
$618,400 was estimated using the Black-Scholes option pricing model with an
expected life of three years, a risk-free interest rate of 4% and an expected
volatility of 229%. During 2002 the $618,400 was recorded as consulting fees in
connection with these options. During the period, the exercise price of these
options was reduced to $1.75 per share and as a result, these options are
subject to variable accounting in accordance with the provisions of the
Financial Accounting Standards Board Interpretation No.44, Accounting for
Certain Transactions Involving Stock Compensation - An Interpretation of APB
Opinion No. 25 ("FIN 44"). As at June 30, 2003, compensation expense of $33,750
was recorded in connection with these options to reflect an increase in the
quoted market price of these options which was reversed as at September 30, 2003
to reflect a subsequent decrease in the quoted market price of these options.
During the period ended September 30, 2003 the Company granted 300,000 stock
options to a consultant at a price of $1.00 per share subject to immediate
vesting. The fair value of these options at the date of grant of $504,000 was
estimated using the Black-Scholes option pricing model with an expected life of
three years, a risk-free interest rate of 3% and an expected volatility of 219%.
During the period the $504,000 was recorded as a consulting fee.
GENEMAX CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
(unaudited)
NOTE 7 - CAPITAL STOCK (CONTINUED)
During the period ended September 30, 2003 the Company granted 200,000 stock
options to a consultant at a price of $1.00 per share subject to immediate
vesting. The fair value of these options at the date of grant of $268,000 was
estimated using the Black-Scholes option pricing model with an expected life of
three years, a risk-free interest rate of 3% and an expected volatility of 225%.
During the period the $268,000 was recorded as a consulting fee.
Also during the period ended September 30, 2003 the Company granted 25,000 stock
options to an employee at a price of $1.90 per share subject to immediate
vesting. The fair value of these options at the date of grant of $46,500 (as
disclosed in Note 2 on a pro-forma basis) was estimated using the Black-Scholes
option pricing model with an expected life of three years, a risk-free interest
rate of 3% and an expected volatility of 228%.
The Company's stock option activity, as restated to reflect the modification of
the exercise prices as described above, is as follows:
Weighted Average
Number of Weighted Average Remaining
options Exercise Price Contractual Life
---------------- -------------------- ---------------------
Balance, December 31, 2001 - $ - -
Granted prior to reverse acquisition 1,000,000 0.50
Granted in connection with reverse acquisition 2,135,000 1.00
Granted subsequent to reverse acquisition 135,000 1.75
Exercised during 2002 (102,000) 0.50
---------------- -------------------- ---------------------
Balance, December 31, 2002 3,168,000 0.89 2.33 years
Granted during the period 525,000 1.05
Forfeited during the period (350,000) 1.00
Exercised during the period (1,283,000) 0.65
---------------- -------------------- ---------------------
Balance, September 30, 2003 2,060,000 $ 1.06 2.08 years
================ ==================== =====================
SHARE PURCHASE WARRANTS
In connection with the reverse acquisition of GPI, the Company assumed 744,494
share purchase warrants previously outstanding in GPI. In accordance with
accounting principles applicable to accounting for business combinations, the
fair value of the share purchase warrants assumed in connection with a business
combination is included in the determination of the purchase price. The fair
value of these share purchase warrants as at the date of the reverse acquisition
of $620,600 was estimated using the Black-Scholes option pricing model with an
expected life of 2.95 years, a risk-free interest rate of 4% and an expected
volatility of 236%.
The Company's share purchase warrant activity is as follows:
Weighted Average
Number of Weighted Average Remaining
warrants Exercise Price Contractual Life
--------------- -------------------- ---------------------
Balance, December 31, 2001 - $ - -
GPI warrants assumed 744,494 1.16
Issued during 2002 212,700 5.00
Exercised 2002 - -
Expired 2002 (110,334) 2.50
--------------- -------------------- ---------------------
Balance, December 31, 2002 846,860 1.95 2.71 years
Issued during the period 231,000 2.06
--------------- -------------------- ---------------------
Balance, September 30, 2003 1,077,860 $ 1.97 1.73 years
=============== ==================== =====================
GENEMAX CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
(unaudited)
NOTE 8 - INCOME TAXES
There were no temporary differences between GPI's tax and financial bases that
result in deferred tax assets, except for the Company's net operating loss
carryforwards amounting to approximately $5,677,000 at September 30, 2003 which
may be available to reduce future year's taxable income. These carryforwards
will expire, if not utilized, commencing in 2008. Management believes that the
realization of the benefits from these deferred tax assets appears uncertain due
to the Company's limited operating history and continuing losses. Accordingly a
full, deferred tax asset valuation allowance has been provided and no deferred
tax asset benefit has been recorded.
NOTE 9 - SUBSEQUENT EVENTS
Subsequent to September 30, 2003, the Company has received subscription
agreements for an additional 126,350 units towards its current private placement
of up to 5,000,000 units at $1.00 per unit. Each unit consists of one common
share and one half share purchase warrant. Each whole share purchase warrant
will entitle the holder to purchase an additional common share of the Company at
a price of $1.50 per share until September 1, 2004.
Effective October 21, 2003 the Company re-priced a total of 160,000 stock
options from exercise prices ranging from $1.75 to $1.90 per share to a new
exercise price of $1.15 per share.
Statements made in this Form 10-QSB that are not historical or current
facts are "forward-looking statements" made pursuant to the safe harbor
provisions of Section 27A of the Securities Act of 1933 (the "Act") and Section
21E of the Securities Exchange Act of 1934. These statements often can be
identified by the use of terms such as "may," "will," "expect," "believe,"
"anticipate," "estimate," "approximate" or "continue," or the negative thereof.
The Company intends that such forward-looking statements be subject to the safe
harbors for such statements. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. Any forward-looking statements represent management's best
judgment as to what may occur in the future. However, forward-looking statements
are subject to risks, uncertainties and important factors beyond the control of
the Company that could cause actual results and events to differ materially from
historical results of operations and events and those presently anticipated or
projected. The Company disclaims any obligation subsequently to revise any
forward-looking statements to reflect events or circumstances after the date of
such statement or to reflect the occurrence of anticipated or unanticipated
events.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATION
GENERAL
GeneMax Corp., a Nevada corporation (the "Company"), is a
product-focused biotechnology company specializing in the application of the
latest discoveries in cellular immunology and cancer biology to the development
of proprietary therapeutics aimed at the treatment and eradication of cancer and
therapies for infectious diseases, autoimmune disorders and transplant tissue
rejection. The Company's operating subsidiaries are GeneMax Pharmaceuticals
Inc., a Delaware corporation ("GeneMax Pharmaceuticals"), and the subsidiary of
GeneMax Pharmaceuticals named GeneMax Pharmaceuticals Canada Inc., which is a
corporation organized under the laws of British Columbia. The Company currently
trades on the OTC Bulletin Board under the symbol "GMXX" and the Frankfurt and
Berlin Stock Exchanges under the symbol "GX1".
PRIOR BUSINESS OPERATIONS
SHARE EXCHANGE AGREEMENT
During fiscal year ended December 31, 2002, the Company consummated and
finalized the acquisition of GeneMax Pharmaceuticals Inc., a Delaware
corporation ("GeneMax Pharmaceuticals"). On May 9, 2002 and effective July 15,
2002, Eduverse.com (now known as GeneMax Corp.), GeneMax Pharmaceuticals, the
shareholders of GeneMax Pharmaceuticals (the "GeneMax Shareholders"), and
Investor Communications International, Inc., a Washington corporation ("ICI")
entered into a share exchange agreement (the "Share Exchange Agreement"). In
accordance with the terms of the Share Exchange Agreement and the securities
laws of Canada, a Directors' Circular dated July 15, 2002 (the "Directors'
Circular") was distributed to certain management, insiders and directors of
GeneMax Pharmaceuticals and other Canadian shareholders (the "Canadian GeneMax
Shareholders").
Pursuant to the terms of the Share Exchange Agreement, the Directors'
Circular and related settlements, the Company acquired from the GeneMax
Shareholders and the Canadian GeneMax Shareholders one hundred percent (100%) of
the issued and outstanding shares of common stock of GeneMax Pharmaceuticals and
its subsidiary interest. In accordance with the terms of the Share Exchange
Agreement, the Directors' Circular and related settlement agreements, the
Company issued shares of its restricted common stock as follows: (i)
approximately 6,571,304 shares of restricted common stock to the GeneMax
Shareholders in proportion to their respective holdings in GeneMax
Pharmaceuticals; (ii) approximately 4,479,001 shares of restricted common stock
to the Canadian GeneMax Shareholders pursuant to the terms of the Directors'
Circular; (iii) 181,660 shares of restricted common stock to certain creditors
of GeneMax Pharmaceuticals at $0.75 per share for settlement of an aggregate
debt in the amount of $136,245; (iv) 188,154 shares of its restricted common
stock to certain creditors of GeneMax Pharmaceuticals at $1.00 per share for
settlement of an aggregate debt in the amount of $188,154; and (v) 200,000
shares of restricted common stock to a third party.
The Company issued an aggregate of 11,620,119 shares of its restricted
common stock under the Share Exchange Agreement and Directors' Circular. Certain
warrant instruments were issued in accordance with the terms and provisions of
warrant agreements pursuant to which the holder thereof has the right to convert
such warrant into shares of common stock on a one-to-one basis at either the
rate of $2.50 per share, $0.75 per share or $1.00 per share. Pursuant to the
Share Exchange Agreement, Directors' Circular and related settlement agreements,
there were an aggregate of 744,494 warrant instruments issued, of which 110,334
warrants were issued convertible into 110,334 shares of common stock at the rate
of $2.50 per share expiring on September 1, 2002. The 110,334 warrants were not
converted by the holders thereof into shares of common stock and expired on
their terms. Thus, as of the date of this Quarterly Report, there are an
aggregate of 634,160 warrant instruments issued comprised of the following: (i)
277,500 warrants issued and outstanding which may be converted into 277,500
shares of common stock at the rate of $1.00 per share expiring December 1, 2005;
(ii) 175,000 warrants issued and outstanding which may be converted into 175,000
shares of common stock at the rate of $1.00 per share expiring May 1, 2006; and
(iii) 181,660 warrants issued and outstanding which may be converted into
181,660 shares of common stock at the rate of $0.75 per share expiring May 1,
2006.
VOLUNTARY POOLING AGREEMENT
The Company and GeneMax Pharmaceuticals desired to provide for and
maintain an orderly trading market and stable price for the Company's shares of
Common Stock. Therefore, the Company, certain shareholders of GeneMax
Pharmaceuticals and of the Company, and Global Securities Transfer Inc., the
Company's transfer agent ("Global Securities"), entered into a voluntary pooling
agreement dated May 9, 2002 and effective July 15, 2002 (the "Pooling
Agreement"). Pursuant to the terms and provisions of the Pooling Agreement,
certain shareholders of GeneMax Pharmaceuticals and certain shareholders of the
Company (the "Pooled Shareholders") representing up to an aggregate of 9,158,280
shares of common stock, respectively (the "Pooled Shares"), generally agreed
that the Pooled Shares will be subject to a contractual restrictive holding
period. The Pooled Shareholders further agreed that that the Pooled Shares may
not be traded and will become available for trading and released and sold in the
following manner: (i) an initial ten percent (10%) of the Pooled Shares will be
released to the Pooled Shareholders on the date which is one calendar year from
the closing date of the Share Exchange Agreement (the "First Release Date"); and
(ii) a further ten percent (10%) will be released to the Pooled Shareholders on
each of the dates which are every three (3) calendar months from the First
Release Date in accordance with each Pooled Shareholder's respective
shareholdings.
The Pooling Committee so constituted in accordance with the Pooling Agreement in
consultation with the Board of Directors, established that it act in accordance
with the terms of the Pooling Agreement, to extend the first Pooling Agreement
share release by a further 12 months from the date of the first contemplated
share release as defined by the original terms of the Pooling Agreement.
SECURED AND CONVERTIBLE LOAN AGREEMENT
As a condition to entering into and in accordance with the Share
Purchase Agreement, the Company and ICI agreed to advance to GeneMax
Pharmaceuticals the aggregate principal sum of not less than $250,000 within
five (5) business days of ICI raising an aggregate of $700,000. As a result of
the acquisition, the Loan became an intercompany account between the Company, as
parent, and GeneMax Pharmaceuticals, as subsidiary.
CURRENT BUSINESS OPERATIONS
The Company is a product-focused biotechnology company specializing in
the application of the latest discoveries in cellular immunology and cancer
biology to the development of proprietary therapeutics aimed at the treatment
and eradication of cancer and therapies for infectious diseases, autoimmune
disorders and transplant tissue rejection. The Company's technologies are based
on an understanding of the function of a protein "pump" within cells that is
essential in the processing of tumor antigens, known as Transporters associated
with Antigen Processing ("TAP").
The Company's strategic vision is to be a product-driven biotechnology
company, focusing primarily on use of its patented TAP technology to restore the
TAP function within cancerous cells, thus making them immunogenic. As a result,
the MHC Class I Proteins, which is defined as when cancers are not able to cause
an immune response because they no longer express key immune proteins on their
cell surface (known as "MHC Class I Proteins"), can signal the immune system to
attack the cancer. The Company intends to develop the TAP technology as a
therapeutic cancer vaccine that will restore the normal immune recognition.
Management believes that its cancer vaccine is the only therapeutic approach
that addresses this problem of "non-immunogenicity" of cancer. Management
believes that this therapy will have a strong competitive advantage over other
cancer therapies, since restoring the TAP protein will direct the immune system
to specifically target the cancerous cells without damaging healthy tissue.
PRODUCTS
TAP CANCER VACCINE
The Company has developed a patented therapeutic cancer vaccine to
restore the TAP protein (the "TAP Cancer Vaccine"). The TAP Cancer Vaccine is
targeted at those cancers that are deficient in the TAP protein, which include
commonly occurring breast cancer, prostate cancer, lung cancer, liver cancer,
melanoma, renal cancer and colorectal cancer.
The TAP Cancer Vaccine would deliver the TAP protein and genetic
information, thus "turning on" the defective TAP signaling system within the
cancer cells. These cancer cells would then transport cancer antigen proteins to
the cell surface using the individual's specific MHC Class I proteins. As a
result, the immune response would be targeted to the entire repertoire of cancer
antigen proteins produced by the cancer cell, rather than just to the single
cancer antigen (as delivered by usage of current cancer vaccines). The TAP
Cancer Vaccine would allow the immune response to respond to the cancer even if
the TAP protein and genetic information is only delivered to a small portion of
the cancer cells. In addition, the TAP Cancer Vaccine would generate a strong
immune response to any TAP-deficient cancer, regardless of the patient's
individual genetic variability either in the MHC Class I proteins or in the
cancer-specific proteins.
TAP CANCER VACCINE DEVELOPMENT PROGRAM. The Company is currently
developing the TAP Cancer Vaccine at the University of British Columbia
Biomedical Research Centre under a collaborative research agreement.
COLLABORATIVE RESEARCH AGREEMENT. During May 2000, GeneMax
Pharmaceuticals and the BRC Biotechnology Laboratory at the University of
British Columbia ("BRC") entered into a contract research agreement (the
"Collaborative Research Agreement"), to carry out further development of the TAP
technologies as a cancer vaccine and other commercial products and to provide
GeneMax Pharmaceuticals with the option to acquire the rights to commercialize
any additional technologies developed with the Collaborative Research Agreement.
In accordance with the terms of the Collaborative Research Agreement: (i) the
Company provides funding pursuant to certain commitments for three PHD
scientists, as well as support technicians and students; (ii) BRC provides the
Company with access to the laboratories and equipment at the BRC, as well as
other facilities of the University of British Columbia; and (iii) Dr. Wilfred
Jefferies, the inventor of the TAP technologies and the Chief Scientific Officer
and a director of the Company, will provide supervision of all scientific
activity.
Pursuant to a series of amendments to the Collaborative Research
Agreement, the funding commitment was increased to an aggregate of $2,973,049
Canadian Dollars, of which $991,515 was to be paid during fiscal year ended
December 31, 2002, $1,135,801 to be paid during fiscal year ended December 31,
2003, and $471,518 to be paid during fiscal year ended December 31, 2004. As of
September 30, 2003, an aggregate of $394,436 Canadian Dollars is payable by
GeneMax Pharmaceuticals in connection with the Collaborative Research Agreement.
Moreover, in accordance with the terms of the Collaborative Research Agreement,
GeneMax Pharmaceuticals has purchased certain laboratory equipment in connection
with the ongoing research.
As of the date of this Quarterly Report, the research under the
Collaborative Research Agreement will continue in the future to support the
commercial development of the TAP Cancer Vaccine and to develop enhanced vaccine
products and other therapeutics based on the TAP technology.
LICENSE AGREEMENT. During March 2000, GeneMax Pharmaceuticals and the
University of British Columbia ("UBC") entered into an exclusive world-wide
license agreement (the "License Agreement"). Pursuant to the terms of the
License Agreement, UBC granted to GeneMax Pharmaceuticals exclusive licensing
rights to certain patented and unpatented cancer immuno-therapy technologies
originally invented and developed by Dr. Jefferies and the scientific team at
UBC including the: (i) cell-based peptide transfer assay (the "Peptide Transfer
Assay"), and (ii) cancer immuno-therapy based on restoration of antigen
presentation through transporters associated with antigen-processing
technologies, the basis for the Company's lead product which is the TAP Cancer
Vaccine. GeneMax Pharmaceuticals obtained the exclusive licensing rights to this
technology for the consideration of $78,743 and issuance to UBC of equity, with
no royalty components or provisions. Pursuant to further terms of the License
Agreement: (i) the License Agreement will terminate after the latter of fifteen
years or the expiration of the last patent obtained relating to the licensed
technology; (ii) GeneMax Pharmaceuticals will bear the cost of obtaining any
patents; and (iii) the technology remains the property of UBC, however, it may
be utilized and improved by GeneMax Pharmaceuticals. The Company expects the
approval of multiple further patents.
NETWORK AFFILIATE AGREEMENT. On January 1, 2001, GeneMax
Pharmaceuticals, UBC and the Canadian Network for Vaccines and
Immunotherapeutics of Cancer and Chronic Viral Diseases ("CANVAC") entered into
a one-year network affiliate agreement (the "Network Affiliate Agreement").
Pursuant to the terms of the Network Affiliate Agreement, CANVAC would provide
an $85,000 Canadian Dollars research grant to UBC to further fund research
activities upon GeneMax Pharmaceuticals contributing $117,300 Canadian Dollars
towards the UBC research. During fiscal year 2001, all amounts required under
the Network Affiliate Agreement were paid by GeneMax Pharmaceuticals to UBC. As
of the date of this Quarterly Report, GeneMax Pharmaceuticals and CANVAC are no
longer negotiating an amendment to the Network Affiliate Agreement regarding
continuation of funding the research activities conducted at UBC. During 2002
CANVAC contributed a further CAN$56,100 to continue funding the research
activities for 2002 and 2003. As of the date of this Quarterly Report, the
balance due and owing to UBC by GeneMax Pharmaceuticals is $38,709 (Canadian
Dollars).
RESEARCH LICENSE AND OPTION AGREEMENT. On August 7, 2003, GeneMax
Pharmaceuticals and Crucell Holland B.V. ("Crucell") entered into a research
license and option agreement (the "License and Option Agreement"). Pursuant to
the terms and provisions of the License and Option Agreement, Crucell granted to
GeneMax Pharmaceuticals: (i) a non-exclusive worldwide license for the research
and use of its adenovirus technology; and (ii) an option for a non-exclusive
worldwide commercial license to manufacture, use, offer for sale, sell and
import products using the adenovirus technology. In the event of termination by
GeneMax Pharmaceuticals or pursuant to a default, there are no provisions for
any contingent liabilities. However, pursuant to further terms and provisions of
the License and Option Agreement, a material breach may result in reasonable
damages and legal costs being awarded to the damaged party. As of September 30,
2003, the Company has incurred $115,490 payable to Crucell pursuant to the terms
of the License and Option Agreement.
PRODUCTION SERVICE AGREEMENT. On March 18, 2003, as amended August 29,
2003, the Company and Molecular Medicine BioServices Inc. ("Molecular Medicine")
entered into a production service agreement (the "Production Service
Agreement"). Pursuant to the terms and provisions of the Production Service
Agreement: (i) Molecular Medicine shall prepare adenodiral vector product under
Good Manufacturing Practices, including working cell bank, master viral bank,
pilot production run and clinical vector product lot, which such product will
incorporate the Crucell vector and the Company's TAP gene/protein; and (ii) the
Company shall pay to Molecular Medicine a total of $232,000, plus an estimate
$110,000-$145,000 in third-party testing expenses. There are no contingent
liabilities relating to default or termination by the Company other than
termination fees (the unused balance of the $94,250 initiation pre-payment fee)
and outstanding work commitments. As of September 30, 2003, the Company has
incurred $108,500 pursuant to the terms of the Production Service Agreement.
TAP CANCER VACCINE TESTING PROGRAM. Management of the Company believes
that the key milestone of efficacy in animal models of cancer has been attained
and that other scientific research teams have independently validated the
experimental data from these animal studies. The proof of principle for TAP as a
cancer vaccine was established in research conducted the last ten years in the
laboratory at BRC by Dr. Wilfred Jefferies. The initial studies were conducted
using a small-cell lung cancer cell line that was derived from an aggressive,
metastatic cancer. These cells have multiple defects in the "antigen
presentation pathway" in that they are not detected by the immune system. When
the TAP protein was introduced into these cells, antigen presentation was
restored. In addition, a series of animal studies have demonstrated the ability
of TAP to restore an immune response. This study was published in Nature
Biotechnology (Vol. 18, pp. 515-520, May 2000). The TAP Technology was further
validated in melanoma.
PRE-CLINICAL TESTING. As of the date of this Quarterly Report, the TAP
Cancer Vaccine is undergoing formal pre-clinical testing, which includes: (i)
evaluation of several strains of vaccinia and adenovirus vectors for their
respective ability to deliver and express the TAP protein and genetic
information in tumors; (ii) good manufacturing practice ("GMP") production of
the TAP Cancer Vaccine; and (iii) performance and completion of toxicology
studies using the TAP Cancer Vaccine on at least two animal species to confirm
its non-toxicity.
Upon completion of the formal pre-clinical testing, the Company intends
to compile and summarize the data and submit it to two governmental agencies,
the U.S. Federal Drug Administration ("FDA") and Health Canada ("HC"), in the
form of an investigational new drug application (the "IND"). The IND will
include data on the vaccine production, animal studies and toxicology studies,
as well as the proposed protocal for the Phase I human clinical trials.
PHASE I HUMAN CLINICAL TRIALS. Management of the Company believes that
the Phase I human clinical trials will commence late in the second quarter of
2004, subject to financing, and are planned to be conducted at the British
Columbia Cancer Agency in Vancouver, British Columbia. As of the date of this
Quarterly Report, the Company has presented information on the TAP Cancer
Vaccine to members of the Department of Advanced Therapeutics. The Phase I
trials will generally be designed to provide data on the safety of the TAP
Cancer Vaccine when used by humans.
PEPTIDE TRANSFER ASSAY
The Company is also currently developing potential products that may
interrupt the chain of events involved in certain autoimmune diseases. As of the
date of this Quarterly Report, the Company is developing a peptide transfer
assay, which is a cell-based assay designed to evaluate compounds and drugs for
their ability to stimulate or suppress the immune response (the "Peptide
Transfer Assay"). The Peptide Transfer Assay's application will be to identify
compounds effective in the treatment of cancer, infectious diseases, and
autoimmune diseases. Autoimmune diseases include psoriasis, rheumatoid
arthritis, multiple sclerosis, myasthenia gravis and diabetes. T cells and
antibodies in the body's immune system normally identify and destroy foreign
substances and cancerous cells. Autoimmune diseases are generally caused by the
abnormal destruction of healthy body tissues when T cells and antibodies react
against normal tissue.
Management of the Company believes that the Peptide Transfer Assay is a
novel and sophisticated cell-based assay. Management of the Company expects that
the Peptide Transfer Assay will be of significant interest to pharmaceutical
companies, companies with natural product libraries, anti-sense or gene
libraries or proprietary rights to chemical compounds (e.g. combinatorial
chemistry companies). As of the date of this Quarterly Report, management of the
Company believes that the Peptide Transfer Assay is ready for development for
high-throughput screening and partnering.
INTELLECTUAL PROPERTY, PATENTS AND TRADEMARKS
Patents and other proprietary rights are vital to the business
operations of the Company. The Company's policy is to seek appropriate patent
protection both in the United States and abroad for its proprietary technologies
and products. Pursuant to the License Agreement, the Company has acquired the
exclusive world-wide license to a portfolio of intellectual property as follows:
METHOD OF ENHANCING EXPRESSION OF MHC CLASS I MOLECULES BEARING
ENDOGENOUS PEPTIDES
On March 26, 2002, the United States Patent and Trademark Office issued
a patent for the use of "TAP-1 (transporters associated with antigen processing)
as an immunotherapy against all cancers ("US Patent No. 6,361,770"). The patent
is titled "Method of Enhancing Expression of MHC Class I Molecules Bearing
Endogenous Peptides" and provides comprehensive protection and coverage to both
in vivo and ex vivo applications of TAP-1 as a therapeutic against all cancers
with a variety of delivery mechanisms. The inventors were Dr. Wilfred Jefferies,
Dr. Reinhard Gabathuler, Dr. Gerassimos Kolaitis and Dr. Gregor S.D. Reid, who
collectively assigned the patent to UBC. During the lengthy application process,
many proofs of the application were required by the U.S. Patent and Trademark
Office for a patent of such relevance and applicability to all cancers to be
approved, and included proofs in multiple forms of cancer tumors including small
cell lung carcinoma and melanoma cancer. Management of the Company considers
issuance of this patent as a major product development milestone for the
Company.
As of the date of this Quarterly Report, the Company has pending
applications filed for patent protection in France, United Kingdom, Germany,
Switzerland and Japan.
METHOD OF IDENTIFYING MHC CLASS I RESTRICTED ANTIGENS ENDOGENOUSLY
PROCESSED BY A SECRETORY PATHWAY
On August 11, 1998, the U.S. Patent and Trademark Office issued to UBC
a patent for the use of bioengineered cell lines to measure the output of the
MHC Class I restricted antigen presentation pathway as a way to screen for
immunomodulating drugs ("US Patent No. 5,792,604"). The patent is titled "Method
of Identifying MHC Class I Restricted Antigens Endogenously Processed by a
Secretory Pathway." This patent covers the assay which can identify compounds
capable of modulating the immune system. The inventors were Dr. Wilfred
Jefferies, Dr. Reinhard Gabathuler, Dr. Gerassimos Kolaitis and Dr. Gregor S.D.
Reid, who collectively assigned the patent to UBC.
As of the date of this Quarterly Report, the Company has been granted
the European application and has filed for patent protection in the UK, France,
Germany, Switzerland, Italy, Sweden and Finland. The Company has also filed for
protection in Canada and Japan.
TAP VACCINES
UBC filed a patent application with the U.S. Patent and Trademark
Office for patent protection of extension of TAP-1 for use in viral vaccines as
a method for increasing immune responses. As of the date of this Quarterly
Report, UBC has not received an order granting a patent.
The Company intends to continue to work with UBC to file additional
patent applications with respect to any novel aspects of its technology to
protect its intellectual property. The Company has not conducted in-depth
validity and infringement studies on the patents and patent applications that
the Company has in-licensed, and it is possible that these patents or patent
applications may be challenged or may not provide protection.
The patent positions of biotechnology and pharmaceutical companies are
generally uncertain and involve complex legal and factual issues. No assurance
can be given that any patent issued to or licensed by the Company will provide
protection that has commercial significance. The Company cannot assure that: (i)
the patents will afford protection against competitors with similar compounds or
technologies; (ii) the patent applications pending will be issued; (iii) other
companies will not obtain patents claiming aspects or technologies similar to
those covered by the issued patents; (iv) the patents of other companies will
not have an adverse effect on the Company's ability to do business; or (v) the
patents issued to or licensed by the Company will not be infringed, challenged,
invalidated or circumvented.
Moreover, management of the Company believes that obtaining foreign
patents may, in some cases, be more difficult than obtaining domestic patents
because of differences in patent laws. The Company also recognizes that the
patent protection may generally be stronger in the United States and Canada than
abroad. Conversely, the protection provided by foreign patents may be weaker
than that provided by domestic patents.
RESULTS OF OPERATION
The Company's financial statements have been prepared which incorporate
financial data and figures of GeneMax Pharmaceuticals. Thus, the comparative
results are those of GeneMax Pharmaceuticals prior to the acquisition and are
not the financial results of the Company, and the current period comparative
results include the financial data and figures of the Company subsequent to the
acquisition of GeneMax Pharmaceuticals. The following discussions of the results
of operations and financial position of the Company should be read in
conjunction with the financial statements and notes pertaining to them that
appear elsewhere in this Form 10-QSB.
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2003 COMPARED TO NINE-MONTH PERIOD ENDED
SEPTEMBER 30, 2002
The Company's net losses during the nine-month period ended September
30, 2003 were approximately ($3,148,188) compared to a net loss of approximately
($1,141,163) during the nine-month period ended September 30, 2002 (an increase
of $2,007,025).
Net revenues during the nine-month periods ended September 30, 2003 and
2002 were $-0-. The lack of revenues during the nine-month periods ended
September 30, 2003 and 2002 resulted from the consummation of the acquisition of
GeneMax Pharmaceuticals and the resulting emphasis on the research and
development of the TAP Technologies. Interest income of $125 was recorded for
the nine-month period ended September 30, 2002.
During the nine-month period ended September 30, 2003, the Company
recorded operating expenses of $3,148,188 compared to $1,141,288 of operating
expenses recorded during the nine-month period ended September 30, 2002 (an
increase of $2,006,900). The operating expenses incurred during the nine-month
period ended September 30, 2003 consisted primarily of the following: (i) office
and general expenses of approximately $782,281 compared to $59,514 incurred
during the nine-month period ended September 30, 2002; (ii) research and
development of approximately $977,726 compared to $622,130 incurred during the
nine-month period ended September 30, 2002; (iii) $807,625 recorded as
consulting fees relating to the grant of stock options compared to $-0- recorded
as consulting fees relating to grant of stock options during the nine-month
period ended September 30, 2002; (iv) professional fees of approximately
$210,407 compared to $212,797 incurred during the nine-month period ended
September 30, 2002; (v) management fees of approximately $168,865 compared to
$104,312 incurred during the nine-month period ended September 30, 2002; (vi)
consulting fees of approximately $112,013 compared to $102,036 incurred during
the nine-month period ended September 30, 2002; (vii) travel expenses of
approximately $50,332 compared to $9,952 incurred during the nine-month period
ended September 30, 2002; and (viii) depreciation expenses of approximately
$31,875 compared to $30,547 incurred during the nine-month period ended
September 30, 2002. The overall increase in operating expenses, including the
increase in office and general expenses and research and development expenses,
is due primarily to the increased scale and scope of overall corporate activity
pertaining to the acquisition of GeneMax Pharmaceuticals and the ongoing
research and development relating to the TAP technology and the TAP Cancer
Vaccine.
Of the $3,148,188 incurred as operating expenses, an aggregate of
$300,844 was incurred payable to certain directors and/or private companies
controlled by those directors of the Company pursuant to consulting, management
and research and development agreements as described in the following
paragraphs.
CONSULTING SERVICES AGREEMENT. The Company and Investor Communications
International Inc. ("ICI") entered into a consulting services agreement dated
August 12, 2002 (the "Consulting Services Agreement"). Pursuant to the terms and
provisions of the Consulting Services Agreement: (i) ICI shall provide to the
Company such finance and managerial services as may be determined by the Board
of Directors, from time to time, and in its sole and absolute discretion, in
order to develop the various business interests of the Company in the drug
discovery and development industry, involving the patented drug discovery assay
for immunomodulatory compounds and the pipeline aimed at treatment of cancer,
infectious diseases, autoimmune disorders and transplant tissue rejection; and
(ii) the Company shall pay ICI a monthly fee not to exceed $10,000 in accordance
with the services performed.
During the nine-month period ended September 30, 2003, an aggregate of
$90,000 in fees was incurred to ICI for services rendered to the Company under
the Consulting Services Agreement on a month-to-month basis, as needed. In
addition, ICI incurred expenses on behalf of the Company during the period
totaling $607,305. Based upon $2,154, which remained due and owing to ICI at
December 31, 2002, and in combination with other amounts due and owing, this
resulted in a total of $699,459 due and owing to ICI. During the nine-month
period ended September 30, 2003, the Company paid ICI $428,621 and settled a
further $260,000 as described below. As of September 30, 2003, an aggregate
amount of $10,838 remains due and owing to ICI by the Company relating to fees,
cash advances and interest.
As of September 2, 2003, an aggregate of $260,000 was settled pursuant
to the terms and provisions of a settlement agreement (the "ICI Settlement
Agreement"). Pursuant to the terms and provisions of the Settlement Agreement:
(i) ICI agreed to settle such debt by entering into respective assignment
agreements with certain creditors of ICI, who had also provided bona fide
services to the Company pursuant to consulting and management services provided
between the Company and International Market Trend AG ("IMT"), which services
did not include directly or indirectly promotion or maintenance of a market for
the Company's securities nor were rendered in connection with the offer or sale
of securities in a capital-raising transaction; (ii) the Company agreed to
accept the assignment by such creditor of that certain receivable as
consideration for the payment of the exercise of the Stock Options granted to
IMT and/or its employees or consultants at $1.00 per option to acquire shares of
Common Stock of the Company; and (iii) the Company agreed to issue the shares of
Common Stock in the name of the creditor in accordance with the respective
notice and agreement of exercise of option. See "Part II. Other Information.
Item 2. Changes in Securities and Use of Proceeds".
Mr. Grant Atkins, a director of the Company, is employed by ICI and is
part of the management team provided by ICI to the Company, and derives
remuneration from ICI for such services rendered to the Company. During the
nine-month period ended September 30, 2003, Mr. Atkins received $25,875 from ICI
as compensation for services rendered to the Company. In addition, $11,997 is
owing to Mr. Atkins as at September 30, 2003 for expenses incurred on behalf of
the Company.
GENEMAX PHARMACEUTICALS CONSULTING AGREEMENT. GeneMax Pharmaceuticals
and 442668 B.C. Ltd. ("442668"), a corporation whose president and member of the
board of directors is Dr. Wilfred Jefferies, a director and the Chief Scientific
Officer of the Company, entered into a consulting services agreement dated
February 1, 2000 (the "GeneMax Pharmaceuticals Consulting Agreement"). Pursuant
to the terms and provisions of the GeneMax Pharmaceuticals Consulting Agreement:
(i) Dr. Jefferies agreed to provide technical, research and technology
development services to GeneMax Pharmaceuticals for a period of five years; and
(ii) Dr. Jefferies shall be paid a monthly fee of $10,000 Canadian Dollars and
reimbursement of expenses.
During the nine-month period ended September 30, 2003, an aggregate of
$67,506 in fees was incurred to 442668 for services rendered by Dr. Jefferies to
the Company under the GeneMax Pharmaceuticals Consulting Agreement. Based upon
$-0- due and owing to 442668 at December 31, 2002, this resulted in $67,506 due
and owing to 442668. During the nine-month period ended September 30, 2003, the
Company paid $59,657 to 442668. As of September 30, 2003, an aggregate amount of
$7,849 remains due and owing to 442668 by the Company.
During the nine-month period ended September 30, 2003, Dr. Jefferies
received $59,657 through 442668 as compensation for services rendered to the
Company under the GeneMax Pharmaceuticals Consulting Agreement.
GENEMAX PHARMACEUTICALS MANAGEMENT AGREEMENT. GeneMax Pharmaceuticals
and Ronald L. Handford, the President/Chief Executive Officer and a director of
the Company ("Handford"), entered into a management services agreement dated
August 1, 1999 (the "GeneMax Pharmaceuticals Management Agreement"). Pursuant to
the terms and provisions of the GeneMax Pharmaceuticals Management Agreement:
(i) Handford agreed to provide general managerial services to GeneMax
Pharmaceuticals for a period of five years; and (ii) Handford shall be paid a
monthly fee of $11,000 U.S. Dollars and reimbursement of expenses. Effective May
1, 2002, GeneMax Pharmaceuticals and Handford agreed to reduce the monthly fee
to $12,500 Canadian Dollars until the earlier of the Company reaching a senior
board listing or commencement of clinical trials, at which time the fee will be
reviewed in accordance with market norms.
During the nine-month period ended September 30, 2003, an aggregate of
$78,865 in fees was incurred to Handford for services rendered by Handford to
the Company under the GeneMax Pharmaceuticals Management Agreement. Based upon
$16,332, which was due and owing to Handford at December 31, 2002, this resulted
in $95,197 due and owing Handford. During the nine-month period ended September
30, 2003, the Company paid Handford $69,695. As of September 30, 2003, an
aggregate amount of $25,502 remains due and owing to Handford by the Company.
GENEMAX PHARMACEUTICALS SERVICES AGREEMENT. GeneMax Pharmaceuticals and
Alan Lindsay and Associates Ltd. ("AL&A"), a corporation whose sole officer,
director and shareholder is Alan Lindsay, a prior director of the Company,
entered into a services agreement dated May 31, 2002 (the "GeneMax
Pharmaceuticals Services Agreement"). Pursuant to the terms and provisions of
the GeneMax Pharmaceuticals Services Agreement, Mr. Lindsay agreed to provide
general consulting services to GeneMax Pharmaceuticals on a month-to-month
basis. Pursuant to further terms and provisions of the GeneMax Pharmaceuticals
Services Agreement, AL&A was to be paid a monthly fee of $2,500 U.S. Dollars and
reimbursement of expenses.
During the nine-month period ended September 30, 2003, an aggregate of
$10,000 in fees was incurred to AL&A for services rendered to the Company under
the GeneMax Pharmaceuticals Services Agreement. Based upon $12,500, which
remained due and owing to AL&A at December 31, 2002, this resulted in $22,500
due and owing AL&A. During the nine-month period ended September 30, 2003, the
Company paid AL&A $10,000. As of September 30, 2003, an aggregate amount of
$12,500 remains due and owing to AL&A.
During the nine-month period ended September 30, 2003, Mr. Lindsay
received an aggregate of $10,000 through AL&A as compensation for services
rendered to the Company under the GeneMax Pharmaceuticals Services Agreement.
As of May 7, 2003, Mr. Lindsay tendered his resignation as a member of
the board of directors of the Company. Therefore, as of May 7, 2003, the GeneMax
Pharmaceuticals Services Agreement was terminated and no fees were incurred by
the Company during the three-month period ended September 30, 2003.
DAVIDSON AGREEMENT. GeneMax Pharmaceuticals and James D. Davidson
("Davidson"), previously the Chief Financial Officer and a director of the
Company, entered into a verbal month-to-month agreement (the "Davidson
Agreement"). Pursuant to the terms of the Davidson Agreement: (i) Davidson
agreed to perform such duties and services as required commensurate with his
position as the Chief Financial Officer of the Company and such other duties
commensurate with this position as a director on the Board of Directors; (ii)
Davidson was to be paid a monthly fee of $2,000 and reimbursement of expenses.
Effective July 15, 2002, GeneMax Pharmaceuticals agreed to increase the monthly
fee to $5,000 upon commencement of Davidson's duties associated with his
position as Chief Financial Officer and a director of the Company after the
acquisition of GeneMax Pharmaceuticals.
During the nine-month period ended September 30, 2003, an aggregate of
$20,000 in fees was incurred to Davidson for services rendered by Davidson to
the Company under the Davidson Agreement. During the nine-month period ended
September 30, 2003, the Company paid Davidson $20,000. As of September 30, 2003,
an aggregate amount of $-0- remains due and owing to Davidson by the Company.
As of April 16, 2003, Mr. Davidson tendered his resignation as the
Chief Financial Officer and a member of the board of directors of the Company.
Therefore, as of April 16, 2003, the Davidson Agreement was terminated and no
fees were incurred by the Company during the three-month period ended September
30, 2003.
As discussed above, the increase in net loss during the nine-month
period ended September 30, 2003 as compared to the nine-month period ended
September 30, 2002 is attributable primarily to the increased scale and scope of
overall corporate activity pertaining to the ongoing research and development
relating to the TAP technology and the TAP Cancer Vaccine. The Company's net
loss during the nine-month period ended September 30, 2003 was approximately
($3,148,188) or ($0.19) per common share compared to a net loss of approximately
($1,141,163) or ($0.09) per common share during the nine-month period ended
September 30, 2002. The weighted average of common shares outstanding were
16,606,984 for the nine-month period ended September 30, 2003 compared to
12,543,866 for the nine-month period ended September 30, 2002.
THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2003 COMPARED TO THREE-MONTH PERIOD ENDED
SEPTEMBER 30, 2002
The Company's net losses during the three-month period ended September
30, 2003 were approximately ($993,149) compared to a net loss of approximately
($546,495) during the three-month period ended September 30, 2002 (an increase
of $446,654).
Net revenues during the three-month periods ended September 30, 2003
and 2002 were $-0-. Interest income of $96 was recorded for the three-month
period ended September 30, 2002.
During the three-month period ended September 30, 2003, the Company
recorded operating expenses of $993,149 compared to $546,591 of operating
expenses recorded during the three-month period ended September 30, 2002 (an
increase of $446,558). The operating expenses incurred during the three-month
period ended September 30, 2003 consisted primarily of the following: (i)
$246,125 recorded as consulting fees relating to the grant of stock options
compared to $-0- recorded as consulting fees relating to grant of stock options
during the three-month period ended September 30, 2002; (ii) office and general
expenses of approximately $171,935 compared to $17,711 incurred during the
three-month period ended September 30, 2002; (iii) research and development of
approximately $409,079 compared to $259,489 incurred during the three-month
period ended September 30, 2002; (iv) professional fees of approximately $63,273
compared to $140,548 incurred during the three-month period ended September 30,
2002; (v) consulting fees of approximately $27,295 compared to $66,536 incurred
during the three-month period ended September 30, 2002; (vi) management fees of
approximately $57,175 compared to $43,990 incurred during the three-month period
ended September 30, 2002; (vii) travel expenses of approximately $7,805 compared
to $8,131 incurred during the three-month period ended September 30, 2002; and
(viii) depreciation expenses of approximately $10,462 compared to $10,186
incurred during the three-month period ended September 30, 2002. The overall
increase in operating expenses, including the increase in office and general
expenses and research and development expenses, is due primarily to the
increased scale and scope of overall corporate activity pertaining to the
ongoing research and development relating to the TAP technology and the TAP
Cancer Vaccine.
As discussed above, the increase in net loss during the three-month
period ended September 30, 2003 as compared to the three-month period ended
September 30, 2002 is attributable primarily to the increased scale and scope of
overall corporate activity pertaining to the ongoing research and development
relating to the TAP technology and the TAP Cancer Vaccine. The Company's net
loss during the three-month period ended September 30, 2003 was approximately
($993,149) or ($0.06) per common share compared to a net loss of approximately
($546,495) or ($0.04) per common share during the three-month period ended
September 30, 2002. The weighted average of common shares outstanding were
17,290,563 for the three-month period ended September 30, 2003 compared to
14,728,443 for the three-month period ended September 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial statements have been prepared assuming that it
will continue as a going concern and, accordingly, do not include adjustments
relating to the recoverability and realization of assets and classification of
liabilities that might be necessary should the Company be unable to continue in
operation.
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2003
As of September 30, 2003, the Company's current assets were $89,253 and
its current liabilities were $858,982, which resulted in a working capital
deficit of $769,729. As of September 30, 2003, the Company's total assets were
$172,468 consisting of: (i) $89,253 in current assets comprised of $83,253 in
cash and $6,000 in prepaid expenses; and (ii) $83,215 in furniture and equipment
(net of depreciation). As of September 30, 2003, the Company's total liabilities
of $858,982 consisted primarily of: (i) $786,404 in accounts payable and accrued
liabilities; and (ii) amounts due to related parties of $72,578 pertaining to
the managerial and consulting agreements discussed above.
As of September 30, 2003, the Company's stockholders' equity decreased
to ($686,514) from ($659,646) at June 30, 2003.
The Company has not generated positive cash flows from operating
activities. For the nine-month period ended September 30, 2003, net cash flows
used in operating activities was ($1,824,897) compared to ($852,322) of net cash
flows used in operating activities for the nine-month period ended September 30,
2002 (an increase of $972,575). The increase in cash flows used in operating
activities during the nine-month period ended September 30, 2003 compared to the
nine-month period ended September 30, 2002 resulted from: (i) a net loss of
($3,148,188) incurred during the nine-month period ended September 30, 2003
compared to a net loss of ($1,141,163) incurred during the nine-month period
ended September 30, 2002; (ii) an increase in stock-based compensation to
$807,625 during the nine-month period ended September 30, 2003 compared to $-0-
during the nine-month period ended September 30, 2002; and (iii) an increase in
accounts payable to $483,791 during the nine-month period ended September 30,
2003 compared to $258,294 during the nine-month period ended September 30, 2002.
The Company's cash flows used in investing activities during the
nine-month period ended September 30, 2003 was ($2,251) compared to cash flows
from investing activities of $423,373 during the nine-month period ended
September 30, 2002. The change in cash flows used in investing activities during
the nine-month period ended September 30, 2003 compared to cash flows from
investing activities during the nine-month period ended September 30, 2002
resulted primarily from pre-reverse acquisition advances from Eduverse.com in
the amount of $250,000 recorded during the nine-month period ended September 30,
2002 compared to $-0- recorded during the nine-month period ended September 30,
2003 and cash acquired on reverse acquisition of Eduverse.com in the amount of
$173,373 recorded during the nine-month period ended September 30, 2002 compared
to $-0- recorded during the nine-month period ended September 30, 2003.
Net cash flows from financing activities was $1,289,592 during the
nine-month period ended September 30, 2003 compared to $421,481 in net cash
flows from financing activities during the nine-month period ended September 30,
2002. The increase in net cash flows from financing activities during the
nine-month period ended September 30, 2003 compared to the nine-month period
ended September 30, 2002 resulted primarily from proceeds on sale and
subscription of common stock in the amount of $988,000 compared to $311,500
during the nine-month period ended September 30, 2002 and from advances from
related parties in the amount of $301,592 compared to $30,272 during the
nine-month period ended September 30, 2002.
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this Quarterly Report, the Company does not have any
off-balance sheet arrangements that have or are reasonably like to have a
current or future effect on the Company's financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors. The
term "off-balance sheet arrangement" generally means any transaction, agreement
or other contractual arrangement to which an entity unconsolidated with the
Company is a party, under which the Company has (i) any obligation arising under
a guarantee contract, derivative instrument or variable interest; or (ii) a
retained or contingent interest in assets transferred to such entity or similar
arrangement that serves as credit, liquidity or market risk support for such
assets.
PLAN OF OPERATION
As of the date of this Quarterly Report, management of the Company
estimates that GeneMax Pharmaceuticals previously raised approximately
$2,000,000 in funding and the Company has raised $3,548,850 in funding since the
May 2002 announcement of the GeneMax Pharmaceuticals acquisition. Management of
the Company believes that an estimated $14,000,000 is required over the next
three years for payment of expenses associated with the balance of pre-clinical
development and commencement of Phase I-II clinical trials for the TAP Cancer
Vaccine and for corporate expenses and other expected development initiatives.
FUNDING
As of the date of this Quarterly Report, the Company is engaged in a
private placement offering under Rule 506 of Regulation D or Regulation S of the
Securities Act of 1933, as amended (the "1933 Securities Act"). Pursuant to the
terms of the private placement, the Company is offering 5,000,000 units in the
capital of the Company (the "Unit"), at a subscription price of $1.00 per Unit,
with each such Unit being comprised of one share of restricted common stock and
one-half of one non-transferable share purchase warrant (the "Warrant"), and
each such whole Warrant entitling the holder thereof to purchase one additional
share of restricted common stock at an exercise price of $1.50 per Warrant for a
period commencing on the date of the issuance of the Unit by the Company and
ending on September 1, 2004. As of the date of this Quarterly Report, the
Company has sold 545,350 Units at $1.00 per Unit, consisting of 545,350 shares
of common stock and 262,500 Warrants, for aggregate gross proceeds of $545,350.
See "Part II. Other Information. Item 2. Changes in Securities and Use of
Proceeds."
Current management of the Company anticipates an increase in operating
expenses over the next three years to pay expenses associated with the
successful completion of the balance of pre-clinical development and
commencement of Phase I-II clinical trials for the TAP Technology and corporate
expenses. Pursuant to these operational requirements, the Company must raise
additional funds. The Company may finance these expenses with further issuance
of common stock of the Company. The Company believes that any anticipated
private placements of equity capital and debt financing, if successful, may be
adequate to fund the Company's operations over the next twelve months.
Thereafter, the Company expects it will need to raise additional capital to meet
long-term operating requirements. If the Company raises additional funds through
the issuance of equity or convertible debt securities other than to current
shareholders, the percentage ownership of its current shareholders would be
reduced, and such securities might have rights, preferences or privileges senior
to its common stock. Additional financing may not be available upon acceptable
terms, or at all. If adequate funds are not available or are not available on
acceptable terms, the Company may not be able to conduct its proposed business
operations successfully, which could significantly and materially restrict or
delay the Company's overall business operations.
Management of the Company estimates that as of the date of this
Quarterly Report, the Company has raised approximately $3,548,850 in funding, in
addition to funds raised privately by GeneMax Pharmaceuticals prior to the
acquisition. Management of the Company believes that an estimated $14,000,000 is
required over the next three years for payment of expenses associated with the
balance of pre-clinical development and commencement of Phase I-II clinical
trials for the TAP Cancer Vaccine. The Company must raise additional capital to
execute its business plan according to time schedules provided by management.
Furthermore, the Company has not generated sufficient cash flow in the past to
fund its operations and activities due primarily to the nature of lengthy
product development cycles that are normal to the biotech industry.
Historically, the Company has relied upon internally generated funds, funds from
the sale of shares of stock and loans from its shareholders and private
investors to finance its operations and growth. The Company's future success and
viability are dependent on the Company's ability to raise additional capital
through further private offerings of its stock or loans from private investors.
There can be no assurance, however, that the Company will be able to raise
additional capital. The Company's inability to successfully raise additional
capital would have a material and adverse affect upon the Company and its
shareholders.
ITEM III. CONTROLS AND PROCEDURES
(a) The Company, under the supervision of the President, has conducted
an evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures within ninety (90) days of the filing date of
this Quarterly Report. Based upon the results of this evaluation, the Company
believes that they maintain proper procedures for gathering, analyzing and
disclosing all information in a timely fashion that is required to be disclosed
in its reports under the Securities Exchange Act of 1934, as amended. There have
been no significant changes in the Company's controls subsequent to the
evaluation date.
(b) There were no significant changes in the Company's internal control
or in other factors that could significantly affect the Company's internal
controls subsequent to the evaluation date.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(a) On approximately May 9, 2003, the Company initiated litigation
against LOM Securities (Bermuda) Limited, LOM (Holdings) Limited, Brian Lines,
and Black Corporations 1-100 (the "LOM Defendants"), by filing a Company and
Demand for Jury in the United States District Court, State of Nevada, Case No.
CV-N-03-0246-HDM-VPC (the "LOM Complaint"). The claims made by the Company
against the LOM Defendants involve the alleged establishment, facilitation and
participation, directly or indirectly, in activities allowing the LOM Defendants
and others to establish and/or hold "short" positions in the Company's common
stock and causing at least 1,916,833 restricted shares of common stock of the
Company to be included in and reflected on investment account statements of
clients of the LOM Defendants which were not, in fact, on deposit in such client
accounts. The LOM Complaint further alleges that the LOM Defendant failed and
refused to take reasonable measure or care with regard to their trading,
clearing and/or transfer of shares of the Company and breached their respective
duties in contravention of the laws and rules and regulations of the Securities
Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.
The claims against the LOM Defendants also specifically allege fraud and
misrepresentation, negligence, conversion, deceptive trade practice,
racketeering, interference with contracts and interference with prospective
economic advantages. The Company is seeking damages in excess of $10,000,000.
(b) On approximately September 4, 2002, the Company initiated
litigation against Global Securities Corporation and Union Securities
Corporation (the "B.C. Defendants") by filing a Writ of Summons and Statement of
Claim in the Supreme Court of British Columbia, Registry No. S024914 (the
"British Columbia Complaint"). The claims made by the Company against the B.C.
Defendants in the British Columbia Complaint involve the alleged illegal naked
short selling of the Company's shares of common stock conducted by the B.C.
Defendants to manipulate share price for profit and gain in violation of the
provisions of the Company's bylaws, the Investment Dealers Association of
Canada, the National Association of Securities Dealers, the Criminal Code of
Canada, and the Securities Exchange Act of 1934, as amended (the "Naked Short
Sales"). The claims against the B.C. Defendants specifically allege violation of
fair-trading practices, negligence and/or fraud and share price manipulation.
The Company is seeking damages from the B.C. Defendants resulting from the
alleged actions of the B.C. Defendants that include loss of investment
opportunity, injury to reputation, artificial issuance of shares that results in
illegal devaluation of the Company's securities, and other damages.
As of the date of this Quarterly Report, the B.C. Defendants have filed
a statement of defense generally denying the allegations and counterclaiming for
defamation relating to statements made by the Company about the litigation in
news releases. The Claim has been modified to include further individual brokers
as defendants and John or Jane Doe's 1-10. The Company recently filed a motion
for document production and for records from the Canadian Depository and the
parties have been engaged in preliminary discovery, which includes response to
interrogatories, production of some documents and request for further production
of documents. Management of the Company intends to aggressively pursue and
continue its legal actions and to further review its potential legal remedies.
(c) On approximately October 3, 2002, the Company initiated litigation
against various broker-dealers, market makers and clearing agents (the U.S.
Defendants") allegedly involved in the Naked Short Sales by filing a Complaint
in the U.S. District Court for the District of Nevada, File No. S024914 (the
"United States Complaint"). The claims made by the Company against the U.S.
Defendants in the United States Complaint alleged unlawful "shorting" activities
involving the Company's shares of common stock including fraud, negligence,
violation of U.S. securities laws, racketeering (RICO) and conspiracy. The
Company sought an injunction against the U.S. Defendants to enjoin the unlawful
shorting activities and substantial damages, including punitive damages.
As of the date of this Quarterly Report, the U.S. District Court
dismissed the United States complaint for lack of standing to allege causes of
action regarding securities issues under the 1933 Securities Act and the
Securities Exchange Act of 1934, as amended, and as a result, the issues of the
case were not heard.
(d) On November 14, 2003, the Company and Alexander Cox, as shareholder
of the Company, initiated litigation against various broker-dealers, market
makers and clearing agents as named in the United States Complaint allegedly
involved in the Naked Short Sales by filing a complaint in the "Second Judicial"
District Court of the State of Nevada (the "State Complaint"). The claims made
by the Company and Alexander Cox against the various defendants in the State
Complaint mirror many of those allegations and causes of action contained in the
United States Complaint, including unlawful "shorting" activities involving the
Company's shares of common stock, fraud, negligence, violation of securities
law, racketeering (RICO) and conspiracy.
Except as disclosed above, management is not aware of any other legal
proceedings contemplated by any governmental authority or other party involving
the Company or its properties. No director, officer or affiliate of the Company
is (i) a party adverse to the Company in any legal proceedings, or (ii) has an
adverse interest to the Company in any legal proceedings. Management, however,
is aware that the Securities and Exchange Commission filed a complaint in the
United States District Court for the District of Maryland naming Agora
Publishing and other defendants, which in the text of the complaint references
Mr. James D. Davidson. In consideration of complications and controversy
resulting from such litigation and the potential for negative investor
perceptions, on April 16, 2003, Mr. Davidson tendered his resignation as the
Chief Financial Officer and a director of the Company. On or about October 20,
2003, the United States District Court for the District of Maryland issued an
order to the Securities and Exchange Commission to strike paragraphs 40-42 of
the complaint so referencing Mr. Davidson on the grounds that they are
immaterial, impertinent, scandalous and false. Management is not aware of any
other legal proceedings pending or that have been threatened against the Company
or its properties.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
NON-QUALIFIED STOCK OPTION PLAN
On May 15, 2002, the Board of Directors unanimously approved and
adopted a stock option plan and on September 30, 2002, the Board of Directors
approved the adoption of a new stock option plan (the "Stock Option Plan"),
which provides authorization to the Board of Directors to grant up to 3,500,000
Stock Options to directors, officers, employees and consultants of the Company
and its subsidiaries. On April 16, 2003, the Board of Directors of the Company
unanimously approved and ratified the adoption of an amendment to the Stock
Option Plan, which provides authorization to the Board of Directors to grant up
to a total number of stock options not to exceed 4,500,000 to directors,
officers, employees and consultants of the Company and its subsidiaries.
GRANTS OF OPTIONS
In accordance with the terms and provisions of the Stock Option Plan,
and as of the date of this Quarterly Report, the Board of Directors of the
Company has granted an aggregate of 3,795,000 stock options as follows: (i)
1,740,000 stock options and 395,000 incentive stock options exercisable at $1.00
per share to previous holders of stock options of GeneMax Pharmaceuticals to
replace stock options previously granted by GeneMax Pharmaceuticals at $0.60 per
share; (ii) 1,000,000 stock options at $0.50 per share to ICI and/or its
employees or consultants who, in such capacities, rendered bona fide services on
behalf of the Company including, but not limited to, administrative and
managerial (which shares were subject to an S-8 registration statement filed
with the Securities and Exchange Commission); (iii) 20,000 stock options at
$5.50 per share; (iv) 15,000 stock options at $7.50 per share; (v) 100,000 stock
options at $8.50 per share; (vi) 25,000 stock options at $1.90 per share; and
(vii) 500,000 stock options at $1.00 per share to International Market Trend AG
("IMT") or its employees or consultants who, in such capacities, rendered bona
fide services on behalf of the Company including but not limited to,
administrative and managerial (which shares were subject to an S-8 registration
statement filed with the Securities and Exchange Commission on August 12, 2003).
During the nine-month period ended September 30, 2003, the Company
re-priced 100,000 stock options originally at $8.50 (granted to Dr. Karl
Hellstrom, a director of the Company), 20,000 stock options originally at $5.50
and 15,000 stock options originally at $7.50 all to a new exercise price of
$1.75 per share; subsequent to the nine-month period ended September 30, 2003,
the Company re-priced all of these 135,000 stock options from $1.75 per share to
a new exercise price of $1.15 per share. Moreover, during the three-month period
ended September 30, 2003, the Company re-priced 25,000 stock options originally
at $1.90 to a new exercise price of $1.15 per share. During the nine-month
period ended September 30, 2003, a total of 350,000 share options have been
forfeited.
EXERCISE OF OPTIONS
Of the 3,795,000 stock options granted, and as of the date of this
Quarterly Report: (i) 1,000,000 stock options have been exercised at $0.50 per
share for aggregate proceeds of $500,000 by employees or consultants of ICI in
accordance with the terms of the respective notice and agreement of exercise of
option; (ii) 25,000 stock options have been exercised at $1.00 per share for
aggregate proceeds of $25,000 in accordance with the terms of the notice and
agreement of exercise of option; and (iii) 500,000 stock options have been
exercised at $1.00 per share for aggregate proceeds of $185,00 and $315,000 in
settlement and assignment of debt as described below by employees or consultants
of IMT in accordance with the terms of the respective notice and agreement of
exercise of option.
ICI. As of September 2, 2003, the Company was indebted to ICI in the
amount of $260,000 (the "Debt"). ICI and certain creditors of ICI, who also had
performed bona fide services to the Company pursuant to the Management Services
Agreement with IMT (the "Designate"), entered into respective assignment
agreements dated September 2, 2003 pursuant to which ICI assigned a portion of
its right, title and interest in the Debt to such Designate in satisfaction and
release of the debt due and owing such creditor by ICI (the "Receivable").
Subsequently, such Designate and the Company entered into a respective
assignment agreement dated September 2, 2003 (collectively, the "Assignment
Agreement"). Pursuant to the terms of the Assignment Agreement, the Designate
assigned to the Company the Receivable as consideration for cash payment for the
exercise of the aggregate of 260,000 Stock Options at $1.00 per option pursuant
to the terms of respective notice and agreements of exercise of options.
NEWPORT CAPITAL CORP. As of October 9, 2003, the Company was indebted
to Newport Capital Corp. ("Newport") in the amount of $100,000 pursuant to
advances (the "Debt"). Newport and certain creditors of Newport, who also had
performed bona fide services to the Company (the "Designate"), entered into
respective assignment agreements dated October 9, 2003 pursuant to which Newport
assigned a portion of its right, title and interest in $55,000 of the Debt to
such creditor in satisfaction and release of the debt due and owing such
Designate by Newport (the "Receivable"). Subsequently, such Designate and the
Company entered into a respective assignment agreement dated September 2, 2003
(collectively, the "Assignment Agreement"). Pursuant to the terms of the
Assignment Agreement, the Designate assigned to the Company the Receivable as
consideration for cash payment for the exercise of the 55,000 Stock Options at
$1.00 per option pursuant to the terms of respective notice and agreement of
exercise of options.
As of the date of this Quarterly Report, an aggregate of 500,000 Stock
Options have been exercised at $1.00 per option as described above and the
Company has issued 500,000 shares of its Common Stock to such Designates.
PRIVATE PLACEMENT OFFERING
As of the date of this Quarterly Report, the Company engaged in a
private placement offering under Regulation S and Rule 506 of Regulation D of
the Securities Act of 1933, as amended (the "1933 Securities Act"). Pursuant to
the terms of the private placement, the Company is offering 5,000,000 units in
the capital of the Company (the "Unit"), at a subscription price of $1.00 per
Unit, with each such Unit being comprised of one share of restricted common
stock and one-half of one non-transferable share purchase warrant (the
"Warrant"), and each such whole Warrant entitling the holder thereof to purchase
one additional share of restricted Common Stock at an exercise price of $1.50
per Warrant for a period commencing on the date of the issuance of the Unit by
the company and ending on September 1, 2003. As of the date of this Quarterly
Report, the Company has sold 545,350 Units at $1.00 per Unit, consisting of
545,350 shares of Common Stock and 272,625 Warrants, for aggregate gross
proceeds of $545,350. The per share price of the offering was arbitrarily
determined by the Board of Directors based upon analysis of certain factors
including, but not limited to, stage of development, industry status, investment
climate, perceived investment risks, assets and net estimated worth of the
Company. The Company issued shares of common stock to sixteen investors, all of
which were deemed accredited investors as that term is defined under Regulation
D. The investors executed subscription agreements and acknowledged that the
securities to be issued have not been registered under the 1933 Securities Act,
that the investors understood the economic risk of an investment in the
securities, and that the investors had the opportunity to ask questions of and
receive answers from the Company's management concerning any and all matters
related to acquisition of the securities. No underwriter was involved in the
transaction.
PARC PLACE INVESTMENTS AG
On September 30, 2003, the Company and Parc Place Investments AC ("Parc
Place") entered into a financial consulting services agreement (the
"Agreement"). Pursuant to the terms and provisions of the Agreement: (i) Parc
Place agreed to be engaged as a financial consultant to the Company and to
render advice, consultation, information and services, including services
pertaining to the private placement offering discussed above; and (ii) the
Company agreed to pay to Parc Place an aggregate of up to twenty percent (20%)
of the capital raised in the private placement offering, such amount to be paid
in cash up to a maximum of ten percent (10%) of the capital raised and balance
by issuance of shares of its restricted Common Stock at $0.001 per share.
As of the date of this Quarterly Report, the Company has issued
44,135 shares of its restricted Common Stock to Parc Place.
The following table sets forth the name and address, as of the date of
this Quarterly Report, and the approximate number of shares of Common Stock of
the Company owned of record or beneficially by each person who owned of record,
or was known by the Company to own beneficially, more than five percent (5%) of
the Company's common stock, and the name and shareholdings of each officer and
director, and all officers and directors as a group as of the date of this
Quarterly Report. As of the date of this Quarterly Report, there are 17,913,004
shares of Common Stock issued and outstanding.
- --------------------------------------------------------------------------------
Title of Class Name and Address of Amount and Nature Percent of
Beneficial Owner of Class Class
- --------------------------------------------------------------------------------
(1)(2)
Common Stock James D. Davidson 1,316,666 7.35%
321 S. St. Asaph Street
Alexandria, Virginia 22314
(1)(3)
Common Stock Ronald L. Handford 1,266,000 7.06%
3432 West 13th Avenue
Vancouver, British Columbia
Canada V5Y 1W1
(1)(4)
Common Stock 442668 B.C. Ltd. 3,270,465 18.26%
12596 23rd Avenue
Surrey, British Columbia
Canada V4A 2C2
(5)
Common Stock Dr. Karl Hellstrom 100,000 0.005%
720 Broadway
Seattle, Washington 98122
Common Stock Grant R. Atkins 0 0%
435 Martin Street, Suite 2000
Blaine, Washington 98230
(6)
Common Stock All current officers 4,636,465 34.00%
and directors as a group
(4 persons)
- --------------------------------------------------------------------------------
(1)
These are restricted shares of common stock.
(2)
Mr. James Davidson was an initial founding shareholder of GeneMax
Pharmaceuticals. This figure includes (a) 788,333 shares of common stock held of
record by Mr. Davidson; (b) an aggregate of 500,000 shares of common stock held
of record by Mr. Davidson's two minor children, respectively, over which Mr.
Davidson has sole voting and disposition rights; (c) an assumption of the
exercise of an aggregate of 13,333 warrants exercisable into 13,333 shares of
common stock at the rate of $0.75 per share expiring on May 1, 2006; and (d) an
assumption of the exercise by Mr. Davidson of an aggregate of 15,000 warrants
exercisable by Mr. Davidson into 15,000 shares of common stock at the rate of
$1.00 per share expiring December 1, 2005. This figure does not include an
assumption of the exercise by Mr. Davidson of an aggregate of 150,000 stock
options to acquire 150,000 shares of common stock at $1.00 per share, which
exercise rights expired on July 15, 2003 and were forfeited by Mr. Davidson in
accordance with the terms of the stock option plan pursuant to Mr. Davidson's
resignation as the Chief Financial Officer and a director of the Company. As of
the date of this Quarterly Report, no warrants have been exercised.
(3)
Mr. Ronald Handford is an initial founding shareholder of GeneMax
Pharmaceuticals. This figure includes (a) 808,000 shares of common stock held of
record by Mr. Handford; (b) 100,000 shares of common stock held of record by
Handford Management Inc. over which Mr. Handford has sole voting and disposition
rights; (c) an assumption of the exercise by Mr. Handford of an aggregate of
8,000 warrants into 8,000 shares of common stock at $0.75 per share expiring
December 1, 2005; and (d) an assumption of the exercise by Mr. Handford of an
aggregate of 350,000 stock options to acquire 350,000 shares of common stock at
$1.00 per share. On approximately May 4, 2003, the 325,000 shares of common
stock previously held of record by Aberdeen Holdings Limited and the 325,000
shares of common stock previously held of record by Latitude 32 Holdings Ltd.
were transferred to Mr. Handford as the holder of record. As of the date of this
Quarterly Report, no warrants nor stock options have been exercised.
(4)
Dr. Wilfred Jefferies is an initial founding shareholder of GeneMax
Pharmaceuticals. Dr. Jefferies has sole voting and disposition rights over the
2,770,465 shares of common stock held of record by 442668 B.C. Ltd. This figure
also includes an assumption of the exercise by Dr. Jefferies of an aggregate of
500,000 stock options to acquire 500,000 shares of common stock at $1.00 per
share. As of the date of this Quarterly Report, no stock options have been
exercised.
(5)
This figure includes the assumption of the exercise by Dr. Hellstrom of an
aggregate of 100,000 stock options to acquire 100,000 shares of common stock at
$8.50 per share (which have been re-priced to $1.15 per share). As of the date
of this Quarterly Report, 68,750 stock options have vested and the remaining
stock options will vest over the next fifteen months. As of the date of this
Quarterly Report, no stock options have been exercised.
(6)
This figure includes the assumption of the exercise of an aggregate of 8,000
warrants into 8,000 shares of common stock and the assumption of the exercise of
950,000 stock options into 950,000 shares of common stock.
Notwithstanding the Pooling Agreement, there are no arrangements or
understanding among the entities and individuals referenced above or their
respective associates concerning election of directors or any other matters
which may require shareholder approval.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No report required.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No report required.
ITEM 5. OTHER INFORMATION
No report required.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
31.1 Form 302 Certification - CEO
31.2 Form 302 Certification - CFO
32.1 Form 906 Certification - CEO
32.2 Form 906 Certification - CFO
Reports on Form 8-K:
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GENEMAX CORP.
Dated: November 13, 2003 By: /s/ Ronald L. Handford
------------------------------
President/Chief Executive Officer
Dated: November 13, 2003 By: /s/ Grant R. Atkins
---------------------------------
Chief Financial Officer
EXHIBIT 31.1
CERTIFICATIONS
I, Ronald L. Handford, certify that:
1. I have reviewed this Form 10-QSB of Genemax Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15-(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the small
business issuer's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: November 13, 2003 /s/ RONALD L. HANDFORD
___________________________________
Ronald L. Handford
President and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATIONS
I, Grant Atkins, certify that:
1. I have reviewed this Form 10-QSB of Genemax Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15-(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the small
business issuer's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: November 13, 2003 /s/ GRANT ATKINS
___________________________________
Grant Atkins
Chief Financial Officer
EXHIBIT 32.1
SECTION 1350 CERTIFICATIONS
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION
1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Genemax Corporation (the
"Company") on Form 10-QSB for the period ended September 30, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Ronald L. Handford, President/Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that based on my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: November 13, 2003
/s/ RONALD L. HANDFORD
______________________________________
Ronald L. Handford
President/Chief Executive Officer
A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER
DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT
APPEARS IN TYPED FORM WITHIN THE ELECTRONIC VERSION OF THIS WRITTEN STATEMENT
REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO GENEMAX CORPORATION AND WILL BE
RETAINED BY GENEMAX CORPORATION AND FURNISHED TO THE SECURITIES AND EXCHANGE
COMMISSION OR ITS STAFF UPON REQUEST.
EXHIBIT 32.2
SECTION 1350 CERTIFICATIONS
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION
1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Genemax Corporation (the
"Company") on Form 10-QSB for the period ended September 30, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Grant Atkins, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that based on my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: November 13, 2003
/s/ GRANT ATKINS
______________________________________
Grant Atkins
Chief Financial Officer
A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER
DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT
APPEARS IN TYPED FORM WITHIN THE ELECTRONIC VERSION OF THIS WRITTEN STATEMENT
REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO GENEMAX CORPORATION AND WILL BE
RETAINED BY GENEMAX CORPORATION AND FURNISHED TO THE SECURITIES AND EXCHANGE
COMMISSION OR ITS STAFF UPON REQUEST.