UNITED STATES
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, 2004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission File Number: 0-27239
GENEMAX CORP.
(Exact name of registrant as specified in its charter)
Nevada 88-0277072
(State of incorporation) (I.R.S. Employer Identification No.)
1681 Chestnut Street, Suite 400
Vancouver, British Columbia
Canada V6J 4M6
______________
(Address of Principal Executive Offices)
(604) 331-0400
______________
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Number of shares outstanding of the issuer's Common Stock:
Class OUTSTANDING AT SEPTEMBER 30, 2004
_____ _________________________________
Common Stock, $0.001 par value 20,103,875
FORM 10-QSB
INDEX
Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets, September 30, 2004
(unaudited) and December 31, 2003 3
Consolidated Statements of Operations for the nine
months and three months ended September 30, 2004
and 2003 (unaudited) and for the period from July
27, 1999 (inception) to September 30, 2004 (unaudited) 4
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2004 and 2003 (unaudited)
and for the period from July 27, 1999 (inception) to
September 30, 2004 (unaudited) 5
Notes to Interim Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 3. Controls and Procedures 19
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
2
GENEMAX CORP.
(A DEVELOPMENT STAGE COMPANY)
INTERIM CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2004 2003
_______________________________________________________________________________________________________________________________
(unaudited)
ASSETS
CURRENT ASSETS
Cash $ 28,567 $ 19,451
Prepaid expenses 1,555 1,033
_______________________________________________________________________________________________________________________________
30,122 20,484
FURNITURE AND EQUIPMENT, (Note 4)
44,064 72,722
net of depreciation of $150,164 (2003 - $121,506)
DEFERRRED FINANCE FEES (Notes 2 and 5) 190,857 -
_______________________________________________________________________________________________________________________________
$ 265,043 $ 93,206
===============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 965,945 $ 661,755
Convertible loans payable (Note 5) 464,600 -
Due to related parties (Note 6) 173,486 75,196
_______________________________________________________________________________________________________________________________
1,604,031 736,951
_______________________________________________________________________________________________________________________________
COMMITMENTS AND CONTINGENCIES (Notes 1, 3, 6 and 9)
STOCKHOLDERS' EQUITY
Capital stock (Note 7)
Common stock, $0.001 par value, 50,000,000 shares authorized
20,103,875shares issued and outstanding (2003 - 18,808,034) 20,104 18,808
Additional paid-in capital 9,222,398 8,401,949
Common stock purchase warrants 801,550 734,085
Deficit accumulated during the development stage (11,341,470) (9,751,665)
Accumulated other comprehensive income (loss) (41,570) (46,922)
_______________________________________________________________________________________________________________________________
(1,338,988) (643,745)
_______________________________________________________________________________________________________________________________
$ 265,043 $ 93,206
===============================================================================================================================
The accompanying notes are an integral part of these interim consolidated
financial statements
3
GENEMAX CORP.
(A DEVELOPMENT STAGE COMPANY)
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
July 27, 1999
Three months ended Nine months ended (inception)
September 30, September 30, to September
30,
2004 2003 2004 2003 2004
__________________________________________________________________________________________________________________________________
INTEREST INCOME $ - $ - $ - $ - $ 26,571
__________________________________________________________________________________________________________________________________
Consulting fees 3,000 27,295 17,832 112,013 638,692
Consulting fees - stock based (Note 7) 32,875 246,125 59,125 807,625 2,810,400
Depreciation 8,857 10,462 28,658 31,875 150,164
License fees 60,103 - 121,557 - 328,800
Management fees 42,979 57,175 149,919 168,865 864,491
Office and general 62,062 171,935 228,042 782,281 1,400,669
Professional fees 70,770 63,273 328,222 217,471 1,116,730
Research and development 116,362 409,079 600,346 977,726 3,248,030
Research and development-stock based - - - - 612,000
Travel 2,402 7,805 55,504 50,332 198,065
__________________________________________________________________________________________________________________________________
399,410 993,149 1,589,805 3,148,188 11,368,041
__________________________________________________________________________________________________________________________________
NET LOSS FOR THE PERIOD $ (399,410) $ (993,149) $(1,589,805) $(3,148,188) $(11,341,470)
==================================================================================================================================
BASIC NET LOSS PER SHARE $ (0.02) $ (0.06) $ (0.08) $ (0.19)
=================================================================================================================
WEIGHTED AVERAGE 20,103,875 17,290,563 19,878,027 16,606,984
COMMON SHARES OUTSTANDING
=================================================================================================================
The accompanying notes are an integral part of these interim consolidated
financial statements
4
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
2004 2003 2004
________________________________________________________________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (1,589,805) $ (3,148,188) $ (11,341,470)
Adjustments to reconcile net loss to net cash from operating activities:
- depreciation 28,658 31,875 150,164
- non-cash interest and finance fees 40,600 - 40,600
- non-cash consulting fees - - 5,750
- non-cash license fees - - 10,500
- stock-based compensation 59,125 807,625 3,422,400
- prepaid expenses (522) - 4,445
- accounts payable 415,389 483,791 1,062,860
________________________________________________________________________________________________________________________________
(1,058,550) (1,824,897) (6,656,746)
NET CASH USED IN OPERATING ACTIVITIES
________________________________________________________________________________________________________________________________
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Purchase of furniture and equipment - (2,251) (194,228)
Pre reverse acquisition advances from Eduverse - - 250,000
Cash acquired on reverse acquisition of Eduverse - - 173,373
________________________________________________________________________________________________________________________________
- (2,251) 229,145
NET CASH FROM (USED IN) INVESTING ACTIVITIES
________________________________________________________________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on sale and subscriptions of common stock 550,000 988,000 5,695,360
Deferred finance fees (85,976) - (85,976)
Convertible loans payable 500,000 - 500,000
Loans payable - - 136,245
Advances from related parties 98,290 301,592 252,109
________________________________________________________________________________________________________________________________
NET CASH FLOWS FROM FINANCING ACTIVITIES 1,062,314 1,289,592 6,497,738
________________________________________________________________________________________________________________________________
EFFECT OF EXCHANGE RATE CHANGES 5,352 (21,780) (41,570)
________________________________________________________________________________________________________________________________
INCREASE (DECREASE) IN CASH 9,116 (559,336) 28,567
CASH, BEGINNING OF PERIOD 19,451 642,589 -
________________________________________________________________________________________________________________________________
CASH, END OF PERIOD $ 28,567 $ 83,253 $ 28,567
================================================================================================================================
SIGNIFICANT OTHER NON-CASH TRANSACTIONS:
The Company issued 52,900 shares of common stock on the exercise of stock
options at $1.00 per share, 304,370 shares of common stock on the exercise of
stock options at $0.50 per share and 10,000 in settlement of accounts payable
at $1.00 per share for consideration of the settlement and assignment of
amounts owing by the Company totaling $215,085 as described in Note 7.
The accompanying notes are an integral part of these interim consolidated
financial statements
5
GENEMAX CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
________________________________________________________________________________
(unaudited)
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
On May 9, 2002, GeneMax Corp. ("GMC" 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 GMC. 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.
GPI is a private Delaware company incorporated 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 3). The lead
product resulting from these licenses is a cancer immunotherapy vaccine, on
which the Company has been completing pre-clinical work in anticipation of
clinical trials. Specifically the Company has moved the technology through
issuance of a U.S. patent, tested various viral vectors needed to deliver the
gene that forms the basis for the vaccine, licensed a preferred viral vector and
contracted out production of clinical grade vaccine (refer to Note 3). The
Company plans to continue development of the lead product vaccine through
clinical trials. The other technologies licensed include assays, which the
Company plans to use for generation of a pipeline of immune-modulation products.
The assay technology acquired has received patent protection.
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 $1,573,909, a capital deficiency of $1,338,988 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
6
operations. Costs relating to future clinical trials of the Company's cancer
immunotherapy vaccine are imminent as part of normal product development and
advancement. Since internally generated cash flow will not fund development and
commercialization of the Company's products, the Company will require
significant additional financial resources and will be dependant on future
financings to fund its ongoing research and development as well as other working
capital requirements. The Company's future capital requirements will depend on
many factors including the rate and extent of scientific progress in its
research and development programs, the timing, cost and scope involved in its
clinical trials, obtaining regulatory approvals and pursuing further patent
protections and the timing and costs of its commercialization activities.
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, 2003 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, 2004 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2004.
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").
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries GPI and GPC as described in Note 1. 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.
7
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
DEFERRED FINANCE FEES
The Company defers direct costs incurred in connection with the sale of common
shares which are offset against the proceeds of the financing upon completion.
Costs incurred in connection with Convertible loans payable are deferred and
amortized as a financing cost over the term of the convertible loans. Upon
conversion of the loan, any unamortized amount of deferred financing costs will
be charged to stockholders' equity as a cost of financing.
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.
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.
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.
8
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
________________________________________________________________________________
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, 2004 a full deferred tax asset valuation
allowance has been provided and no deferred tax asset benefit has been recorded.
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, 2003.
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 for employees 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.
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,
2004 2003
____________________________________________
Net loss for the period as reported $ (1,589,805) $ (3,148,188)
SFAS 123 compensation expense (274,500) (46,500)
____________________________________________
Pro-forma net loss for the period $ (1,864,305) $ (3,194,688)
============================================
Pro-forma basic net loss per share $ (0.09) $ (0.19)
============================================
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 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.
9
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
________________________________________________________________________________
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.
NOTE 3 - 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 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 founders' common shares to UBC and an additional 3,600,000 founders'
common shares to certain principals involved in the UBC research. Having
satisfied all of the conditions on or before March 6, 2000, GPI exercised the
Option and obtained from UBC, the exclusive license rights as described above
for meeting the specific terms of the Option plus a further payment 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 totaling CAN$498,980 to be paid in
four equal installments 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, 2004
CAN$235,759 (December 31, 2003 - CAN$471,518) is payable in connection with the
CRA, plus non-invoiced amounts for the month of September 2004 (estimated by the
Company to be approximately CDN$78,000). In addition, as required by the CRA,
GPI has purchased certain laboratory equipment in connection with the ongoing
research. Although the current contract period ended on August 31, 2004, the
Company anticipates negotiating an amendment for an extension of the contract
with UBC in the near future, which would incorporate amounts owing for work
carried out on behalf of the Company by UBC subsequent to August 31, 2004.
During the quarter ended March 31, 2004, the Company entered in to an exclusive
worldwide license agreement with UBC for the use of a novel assay technology
intended to be used to screen and select new drugs that regulate immune
responses. The term of the license is for the longer of 20 years and the last
expiry of a patent obtained in connection with the technology. In consideration
for the license, during 2003 the Company paid to UBC 10,000 restricted shares of
common stock with a fair value of $10,000 and must pay an annual maintenance fee
of $500 and all costs required to obtain any patents related thereto.
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 until June 30, 2003. As at September 30, 2004 GPI owes CAN$38,709 to
UBC to fund GPI's obligations under the CANVAC Agreement.
10
NOTE 3 - RESEARCH AGREEMENTS (CONT'D)
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
Euros. To December 31, 2003 the Company had made all payments required totalling
$115,490 (100,000 Euros), a further $60,864 was incurred during the first
quarter of 2004 (50,000 Euros) and a further $60,103 (50,000 Euros) was incurred
during the third quarter of 2004 leaving $120,967 owing as at September 30, 2004
under the terms of the agreement.
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 December 31, 2003 the Company has made all
payments required under the terms of the agreement totalling $108,500 and during
2004 a further $15,000 has been incurred and is owing as at September 30, 2004.
NOTE 4 - FURNITURE AND EQUIPMENT
September 30, December 31,
2004 2003
________________________________
(unaudited)
Office furniture and equipment $ 10,425 $ 10,425
Laboratory equipment 183,803 183,803
________________________________
194,228 194,228
Less: accumulated depreciation (150,164) (121,506)
________________________________
$ 44,064 $ 72,722
================================
NOTE 5 -CONVERTIBLE NOTES PAYABLE
During the quarter ended June 30, 2004 the Company issued two unsecured
convertible promissory notes in the principal amount of $500,000, that bear
interest at 8% per annum and are due twelve months from the date of issue. The
unpaid amount of principal and interest may be converted at any time at the
holder's option into shares of the Company's common stock at a price of $0.60
per share. In addition, the holders of the notes were granted common stock
purchase warrants entitling the holder to purchase an additional 416,667 shares
of the Company's common stock at a price of $0.66 per share for a period of 2
years and the Company granted a further 125,000 common stock purchase warrants
with an estimated fair value of $15,000 as a finder's fee entitling the holder
to purchase an additional 83,333 shares of the Company's common stock at a price
of $0.60 per share for a period of 2 years and 41,667 shares of the Company's
common stock at a price of $0.66 per share for a period of 2 years. The Company
also incurred $74,100 of costs in connection with this financing resulting in a
total of $89,100 being recorded as deferred finance fees. These costs will be
expensed over the term of the convertible promissory notes or the remaining
unamortized amount will be charged to stockholders' equity if the notes are
converted. As of September 30, 2004, $36,000 of the deferred finance fees have
been expensed. As at September 30 2004 $11,667 of accrued and unpaid interest is
included in accounts payable.
11
NOTE 5 -CONVERTIBLE NOTES PAYABLE (CONT'D)
The fair value of the convertible promissory notes at issuance was estimated to
be $450,000 based on an estimated fair value interest rate on debt with
comparable risk profiles of 20%. As a result, the fair value of the equity
component of this instrument (comprised of the common stock purchase warrants
and the debt conversion feature) was estimated to be the remaining $50,000. The
equity component was attributed entirely to the common stock purchase warrants
and recorded as a separate component of stockholders' equity as the conversion
feature did not to have a beneficial intrinsic value and its fair value was
otherwise determined not to be material. The Company will record a further
interest expense over the term of the notes of $50,000 resulting from the
difference between the stated and fair value interest rates such that the
carrying value of the notes will be increased to the face value of $500,000 at
maturity. To September 30, 2004 a further interest expense of $14,600 has been
accrued resulting in a carrying value of the notes of $464,600.
NOTE 6 -RELATED PARTY TRANSACTIONS
Effective December 31, 2003 the Board of Directors of the Company approved the
amendment of an existing consulting agreement for research and development
services and an existing management services agreement between the Company and
two officers and directors of the Company. Under the terms of the amended
agreements, the two directors will be paid CAN$15,158 and CAN$13,375,
respectively, commencing January 1, 2004 for terms ending February 1, 2005 and
March 6, 2006.
Also the Board of Directors of the Company agreed to grant to Dr. Wilf
Jefferies, one of the above noted directors and the head researcher at UBC
(refer to Note 4), up to a five year anti-dilution right whereby Dr. Jefferies
will be guaranteed the rights, subject to achieving certain developmental
milestones, allowing him to purchase and own (by way of stock options, and/or
convertible preferred shares or as otherwise determined by the Board of
Directors) not less than 25% of the fully diluted outstanding shares of common
stock of the Company, with such anti-dilution rights, terms and conditions being
subject to applicable regulatory approvals. As at September 30, 2004, Dr.
Jefferies owned or had rights to 17.4% (December 31, 2003 - 19.4%) of the
Company's fully diluted shares of common stock.
Effective December 31, 2003 the Board of Directors of the Company approved
entering into a month-to-month management consulting agreement with another
officer and director for services for the period from January 1, 2004 to April
15, 2004 for a total of approximately $32,000. During the quarter ended June 30,
2004 this director resigned and accordingly $20,642 has been reclassified as
accounts payable.
During the period the Company entered into an agreement with the Company's new
CFO. Under the terms of the agreement the CFO will be paid a total of CAN$5,350
per month for twelve months ending May 21, 2005. In addition, in connection with
this agreement the Company granted the CFO 100,000 stock options as described in
Note 7.
During the period the Company entered into an agreement with the Company's new
Chief Operating Officer ("COO"). Under the terms of the agreement the COO will
be paid a daily fee of Cdn. $1,000 plus GST to a maximum of 2 days per week. The
agreement commenced as of August 30, 2004 and will continue for one year from
that date. The Company also granted to the COO 300,000 stock options exercisable
at US$0.50 per share as described in Note 7.
The following amounts have been incurred to these related parties:
Nine months ended September 30,
2004 2003
_______________________________
Consulting fees $ - $ 31,000
Management fees 139,919 168,865
Research and development 102,759 100,979
_______________________________
$ 242,678 $ 300,844
===============================
12
NOTE 6 -RELATED PARTY TRANSACTIONS (CONT'D)
The Company has total commitments remaining relating to the above management and
consulting agreements for the period ended December 31, 2004 and the year ended
December 31, 2005 of approximately $120,909 and $441,264 respectively.
During the period ended September 30, 2004, GPI and the Company incurred
$242,678 in fees to these related parties, made payments of $123,746 and
reclassified $20,642 to accounts payable resulting in $173,486 owing to these
related parties as at September 30, 2004 (December 31, 2003 - $75,196). Amounts
due to related parties are unsecured, non-interest bearing and have no specific
terms of repayment.
Refer to Notes 3 and 8
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. Effective December 31, 2003 the Company's board of directors
approved an increase in the authorized capital to 300,000,000 voting common
shares and 50,000,000 non-voting preferred shares subject to shareholder
approval which has not been obtained to date.
During the period the Company issued 52,900 shares of common stock on the
exercise of stock options at $1.00 per share the consideration for which was the
settlement of accounts payable owing to the option holder totalling $52,900.
During the period the Company issued 304,370 shares of common stock on the
exercise of stock options at $0.50 per share for proceeds of $152,185 which was
paid by way of offset of amounts originally owing by the Company to certain
consultants of the Company which were assigned by these consultants to certain
options holders. These amounts were originally owing by the Company as a result
of cash advances made to the Company totalling $50,000 and expenses incurred on
behalf of the Company totalling $102,185.
During the period the Company commenced a private placement of units at $0.70
per unit. Each unit consists of one common share and one share purchase warrant.
Each share purchase warrant entitles the holder to purchase an additional common
share of the Company at a price of $0.70 per share for a period of two years.
The Company issued 857,143 shares of common stock on the purchase of 857,143
units for total proceeds of $600,000. The Company issued 71,428 shares of common
stock as a placement fee and paid a further $50,000 in connection with this
financing. The fair value of the warrants was estimated to be $60,000 and was
recorded as separate component of stockholders' equity.
During the period the Company issued 10,000 shares of common stock on settlement
of accounts payable of $10,000
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.
Effective April 16, 2003 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
effective July 9, 2003 the Company filed a Form S-8 Registration Statement to
register 500,000 shares in connection with the Plan. Effective December 16,
2003, the Board of Directors approved the further increase in the number of
options available under the Plan from 4,500,000 to 10,000,000, and during the
current period filed a Form S-8 Registration Statement effective January 26,
2004 to register a further 2,250,000 shares in connection with the Plan.
13
NOTE 7 - CAPITAL STOCK (CONT'D)
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.
In connection with the reverse acquisition of GPI, the Company granted a total
of 2,135,000 stock options to previous holders of stock options of GPI with
terms and conditions consistent with their original GPI stock options. Of these
stock options, 150,000 are 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 September
30, 2004 a total of $95,000 (December 31, 2003 - $59,375) has been recorded as
consulting fees in connection with these options.
During the period the Company granted 100,000 stock options to the Company's new
CFO at a price of $0.70 per share with 50% subject to immediate vesting and the
remaining 50% vesting over time or subject to achieving certain financing
milestones. These options were granted at a price less than the market price at
the date of grant and, in accordance with APB 25, this intrinsic value of $5,000
will be expensed upon vesting of the options of which $2,500 has been expensed
as at June 30, 2004. The additional fair value of these options at the date of
grant of $67,000 was estimated using the Black-Scholes option pricing model with
an expected life of five years, a risk-free interest rate of 3% and an expected
volatility of 182%. This additional fair value will be disclosed in Note 2 on a
pro-forma basis upon vesting of the options.
During the period the Company granted 550,000 stock options to an officer and
directors of the Company and 25,000 stock options to a consultant at a price of
$0.50 per share for a period of five years subject to immediate vesting. The
fair value of the consultant options of $21,000 was expensed during the period
and the fair value of the officer and director options of $241,000 has been
disclosed in Note 2 on a pro-forma. The fair value of these options at the date
of grant totalling $262,000 was estimated using the Black-Scholes option pricing
model with an expected life of five years, a risk-free interest rate of 3% and
an expected volatility of 185%.
Of the stock options granted to date, a total of 160,000 originally granted at
prices ranging from $1.90 per share to $8.50 per share have been repriced to
$1.00 per share and as a result, 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"). No adjustment
was required during the period relating the variable accounting for these
incentive stock options.
The Company's stock option activity is as follows:
Weighted Average
Number of Weighted Average Remaining
options Exercise Price Contractual Life
________________________________________________________
Balance, December 31, 2002 3,168,000 $ 0.86 2.27 years
Granted during the year 4,325,000 0.59
Forfeited during the year (420,000) 1.00
Exercised during the year (2,318,630) 0.61
________________________________________________________
Balance, December 31, 2003 4,754,370 0.74 5.55 years
Granted during the period* 675,000 0.53
Forfeited during the period (20,000) 1.00
Exercised during the period (357,270) 0.57
________________________________________________________
Balance, June 30, 2004 5,052,100 $ 0.72 4.66 years
========================================================
14
NOTE 7 - CAPITAL STOCK (CONT'D)
SHARE PURCHASE WARRANTS
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, 2002 846,860 $ 1.95 2.71 years
Issued during the year 299,175 1.93
Exercised during the year - -
Expired during the year (69,500) 2.82
_________________________________________________________
Balance, December 31, 2003 1,076,535 1.89 1.53 years
Issued during the period 1,398,810 0.68
Exercised during the period - -
Expired during the period (279,675) 1.54
_________________________________________________________
Balance, September 30, 2004 2,195,670 $ 1.16 1.34 years
================= ==================== ==================
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 $7,920,000 at September 30, 2004
(December 31, 2003 - $6,388,000) 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 - CONTINGENT LIABLITY
GeneMax has requested that its transfer agent, X-Clearing Corp., deliver company
documents to a new transfer agent. X-Clearing is claiming a security lien on
company documents. Management is in the process of assessing the validity of
X-Clearing's claim. Following filing of a complaint by GeneMax, a preliminary
court hearing was held in Denver CO on September 22, 2004, following which both
sides agreed to attempt a voluntary mediation process. No agreement or
settlement has been reached through this process to date and the amount at issue
is not determinable at this time.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
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, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). 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.
OVERVIEW
The Company has raised $4,930,315 in funding since the May 2002
announcement of the GeneMax Pharmaceuticals acquisition for all subscriptions of
the Company's common stock (including option exercises). Management believes
that an estimated $14,000,000 is required over the next three years for expenses
associated with the balance of pre-clinical development and commencement of
Phase I-II clinical trials for the TAP Cancer Vaccine and for various operating
expenses. Assuming the Company raises additional funds, we plan to continue with
preclinical work in the next quarter, including the advancement of the Molecular
Medicine contract for production, optimization and testing of the cancer
vaccine.
The Company's contract with The University of British Columbia
("Collaborative Research Agreement" or "CRA") expired pursuant to its
Termination Date of August 31, 2004; however, the Company intends to negotiate
an extension/renewal of the CRA in the near future. The failure to successfully
negotiate an extension or renewal of the CRA could have a material adverse
effect upon the Company and its operations.
The Company has not generated any cash flow to fund its operations and
activities due primarily to the nature of lengthy product development cycles
that are normal to the biotech industry. Therefore, the Company must raise
additional funds in the future to continue operations. The Company intends to
finance its operating expenses with further issuances of common stock or other
securities. The Company believes that 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.
16
During the quarter we advanced work on the Molecular Medicine contract.
Management believes that the first phase of the contract is essentially complete
with the delivery of vector clones to the Company. We are currently in the
process of evaluating the vector clones.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2004 Compared to Three Months Ended September
30, 2003 and Nine Months Ended September 30, 2004 Compared to Nine Months Ended
September 30, 2003
Net revenues during the three and nine months ended September 30, 2004
and 2003 were $0. The lack of revenues during these quarters was the result of
our continued focus on research and development of the TAP technologies.
Consulting fees for the quarter ended September 30, 2004 were $ 3,000
as compared to $ 27,295 during the quarter ended September 30, 2003, a decrease
of 89%. Consulting fees for the nine months ended September 30, 2004 were
$17,832 as compared to $ 112,013 during the nine-month period ended September
30, 2003, a decrease of approximately 84%. The decreased consulting fees were
primarily the result of the reduction in the use of consultants providing
services to the Company.
Consulting fees - stock based for the quarter ended September 30, 2004
were $ 32,875 as compared to $ 246,125 during the quarter ended September 30,
2003), a decrease of 87%. Consulting fees - stock based for the nine months
ended September 30, 2004 were $59,125 as compared to $807,625 during the
nine-month period ended September 30, 2003, a decrease of approximately 93%. The
decreased consulting fees were the result of the reduction in stock option
grants to consultants.
License fees for the quarter ended September 30, 2004 were $60,103 as
compared to $ $0 during the quarter ended September 30, 2003. License fees for
the nine months ended September 30, 2004 were $121,557 as compared to $0 during
the nine-month period ended September 30, 2003. The license fees are the result
of a research license and option agreement with Crucell Holland B.V. on August
7, 2003 pursuant to which the Company is billed semi-annually for the license
fee.
Management fees for the quarter ended September 30, 2004 were $42,979
as compared to $57,175 during the quarter ended September 30, 2003, a decrease
of approximately 25%. Management fees for the nine months ended September 30,
2004 were $149,919 as compared to $168,865 during the nine-month period ended
September 30, 2003, a decrease of approximately 11%. The reduction in management
fees was due principally to the termination of the ICI Consulting Agreement on
December 31, 2003.
Office and general expenses for the quarter ended September 30, 2004
were $62,062 as compared to $171,935 during the quarter ended September 30,
2003, a decrease of approximately 64%. Office and general expenses for the nine
months ended September 30, 2004 were $228,042 as compared to $782,281 during the
nine months ended September 30, 2003, a decrease of approximately 71%. The
decreased office and general expenses were primarily the result of a reduction
in investor relations expenditures, including media production, mailing, and
printing.
Professional fees for the quarter ended September 30, 2004 were $70,770 as
compared to $63,273 during the quarter ended September 30, 2003, an increase of
approximately 12%. Professional fees for the nine months ended September 30,
2004 were $328,222 as compared to $217,471 during the quarter ended September
30, 2003, an increase of approximately 51%. The increased professional fees were
primarily the result of higher legal costs relating to potential financing
opportunities.
17
Research and development expenses for the quarter ended September 30,
2004 were $116,362 as compared to $409,079 during the quarter ended September
30, 2003, a decrease of approximately 72%. Research and development expenses for
the nine months ended September 30, 2004 were $600,346 as compared to $977,726
during the nine months ended September 30, 2003, a decrease of approximately
39%. The decrease in research and development expenses was primarily the result
of reduced contract payments to Molecular Medicine and the termination of the
CRA on August 31, 2004.
Travel expenses for the quarter ended September 30, 2004 were $2,402 as
compared to $7,805 during the quarter ended September 30, 2003, a decrease of
approximately 69%. Travel expenses for the nine months ended September 30, 2004
were $55,504 as compared to $50,332 during the nine months ended September 30,
2003, an increase of approximately 10%. The decreased travel expenses during the
quarter ended September 30, 2004 were the result of decreased travel expenses
for financing and investor relations purposes that were incurred in 2003. The
increase in travel expenses during the nine months ended September 30, 2004,
were primarily the result of increased travel for financing and investor
relations purposes that were incurred in the quarter ended March 31, 2004.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2004, the Company had $28,567 in cash. Generally,
the Company has financed operations to date through the proceeds of the private
placement of equity and debt securities.
Net cash used in operating activities during the nine months ended
September 30, 2004 was $1,058,550. The Company had no revenues during the
quarter ended September 30, 2004. Expenditures were primarily the result of
research and development and professional fees.
The Company has recorded $85,976 in deferred finance fees. Of this
amount $74,100 was the result of the issuance of the two unsecured promissory
notes during the quarter ended June 30, 2004. The remaining $11,876 is the
result of the Company's attempts to raise additional capital through private
placements of shares of the Company's common stock. The Company continues to
seek additional financings from multiple sources. As of September 30, 2004, we
anticipate that we will need significant financing to enable us to meet our
anticipated expenditures for the next 18 months, which is anticipated to be $6
million assuming a single Phase 1 clinical trial commences within that time
frame.
The Company is currently in breach of the Collaborative Research
Agreement with UBC, Research License and Option Agreement with UBC
(CDN$235,759.00 due June 1, 2004), Research License Agreement with Crucell (Euro
50,000 due February 29, 2004 and a further Euro 50,000 due August 29, 2004) and
the Production Service Agreement with Molecular Medicine ($15,000 due March 24,
2004) because of failure to make the noted payments pursuant to these
agreements. The Company's failure to cure the breach of these agreements within
the time frames specified may result is termination of these agreements. The
termination any of these agreements would have a material adverse effect upon
the Company and its business. None of these material agreements has been
declared in default or been terminated for cause. The Collaborative Research
Agreement with UBC expired on August 31, 2004 as scheduled, and the Company
intends to negotiate a renewal.
18
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. Our ability to continue as a going concern is dependent upon our
ability to obtain the necessary financing to meet our obligations and pay our
liabilities arising from our business operations when they come due. We will be
unable to continue as a going concern if we are unable to obtain sufficient
financing. The Company's future capital requirements will depend on many factors
including the rate and extent of scientific progress in its research and
development programs, the timing, cost and scope involved in its clinical
trials, obtaining regulatory approvals and pursuing further patent protections
and the timing and costs of its commercialization activities.
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. 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.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements that have
or are reasonably likely 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.
ITEM 3. CONTROLS AND PROCEDURES
An evaluation was conducted under the supervision and with the
participation of the Company's management, including Ronald L. Handford, the
Company's Chief Executive Officer and Edward Farrauto, the Company's Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of September 30, 2004. Based on
that evaluation, Mr. Handford and Mr. Farrauto concluded that the Company's
disclosure controls and procedures were effective as of such date to ensure that
information required to be disclosed in the reports that it files or submits
under the Exchange Act, is recorded, processed, summarized and reported within
the time periods specified in Commission rules and forms. Such officers also
confirm that there was no change in the Company's internal control over
financial reporting during the three months ended September 30, 2004 that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
GLOBAL SECURITIES LITIGATION
19
On approximately September 4, 2002, the Company initiated litigation
against Global Securities Corporation and Union Securities Corporation (the
"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 British Columbia Complaint was modified in December 2002 to
include further individual brokers as defendants and John or Jan Doe's 1-10 and
to better define the causes of action (the "Amended British Columbia
Complaint"). The claims made by the Company against the Defendants involve the
alleged illegal naked short selling of the Company's shares of common stock. The
Company is seeking damages from the Defendants that include loss of investment
opportunity, injury to reputation, artificial issuance of shares that results in
devaluation of the Company's securities, and other damages.
The Defendants have filed an amended statement of defense and
counterclaim in response to the Company's Amended Claim generally denying the
allegations and counterclaiming for defamation relating to statements made by
the Company about the litigation in news releases. The Company has filed a
motion for document production and for records from the Canadian Depository for
Securities. The Defendants motion to obtain a summary hearing on whether the
actions of the Defendants were unlawful was heard on January 28, 2004. The Court
dismissed the Defendants' motion on February 6, 2004. On April 30, 2004 the
Defendants delivered a further motion seeking the summary dismissal of the
Company's claims on the basis that the Amended Statement of Claim discloses no
reasonable claim. The hearing of the various motions was adjourned in June 2004
and a new hearing date for the motions has not yet been set.
The Company is currently in negotiations with Global to settle the
dispute. However, there can be no assurance that such negotiations will be
successful.
NEVADA LITIGATION
On November 14, 2003, the Company and Alexander Cox, a shareholder of
the Company filed a complaint against various broker-dealers, market makers and
clearing agents allegedly involved in naked short sales in the Second Judicial
District Court of the State of Nevada (Case No. CV-N-03-0656-ECR-RAM). The
complaint alleges the defendants engaged in the unlawful "shorting" of the
Company's shares of common stock, fraud, statutory misrepresentation, securities
law violations pursuant to the Nevada Securities Act, negligence, common law
misrepresentation, breach of the covenant of good faith and fair dealing,
conversion, deceptive trade practices, racketeering, interference with
contracts, interference with prospective economic advantages, prima facie tort,
and conspiracy. The defendants have filed an answer to our complaint and on
March 8, 2004 filed a motion to dismiss the claims in the complaint. The
dismissal was granted as to Knight Securities.
X-CLEARING LITIGATION
In September of 2004, GeneMax brought a civil action in Colorado
District Court for the City and County of Denver (Case No. 2004 CV 7271) seeking
replevin of its corporate stock transfer records from X-Clearing Corp., its
transfer agent. The Company alleges, among other things, that X-Clearing was
claiming an excessive and unwarranted termination fee as a condition to
GeneMax's proposed termination of its services as transfer agent and that
X-Clearing was wrongfully withholding GeneMax's shareholder and stock transfer
records in order to secure that claim. The Court conducted a replevin hearing on
September 22, 2004, and denied GeneMax's request for immediate release of the
records. The parties subsequently entered into a voluntary mediation process to
resolve the dispute. X-Clearing has not yet filed a response to GeneMax's
complaint on account of the ongoing settlement discussions. The issue in the
settlement discussions is how much is to be paid to X-Clearing on account of the
proposed termination of its services as transfer agent and the form of such
payment, which cannot be determined at this time.
20
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibits
31.1 Certification of Chief Executive Officer Pursuant to Rule
13a-14(a) or 15d-14(a) of the Securities Exchange Act of
1933, as amended.
31.2 Certification of Chief Financial Officer Pursuant to Rule
13a-14(a) or 15d-14(a) of the Securities Exchange Act of
1933, as amended.
32.1 Certification Pursuant to 18 U.S.C. 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
2. Form 8-K
Form 8-K filed on September 1, 2004 announcing appointment of
Konstantine Sarafis as the Chief Operating Officer of the Corporation
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 19, 2004 GENEMAX CORP.
/s/RONALD L. HANDFORD
___________________________________________
Ronald L. Handford, Chief Executive Officer
/s/EDWARD FARRAUTO
________________________________________
Edward Farrauto, Chief Financial Officer
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ronald Handford, certify that:
I have reviewed this quarterly report on Form 10-QSB of Genemax Corp.;
1. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period discovered
by this quarterly report;
2. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
3. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure control
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date") and;
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
4. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls, and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
5. The registrant's certifying officers and I have indicated in this quarterly
report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 19, 2004 /s/RONALD HANDFORD
___________________________________
Ronald Handford, Chief Executive
Officer
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Edward Farrauto, certify that:
I have reviewed this quarterly report on Form 10-QSB of Genemax Corp.;
1. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period discovered
by this quarterly report;
2. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
3. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure control
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date") and;
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
4. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls, and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
5. The registrant's certifying officers and I have indicated in this quarterly
report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 19, 2004 /s/EDWARD FARRAUTO
___________________________________
Edward Farrauto, Chief Financial
Officer
EXHIBIT 32.1
CERTIFICATIONS PURSUANT TO SECURITIES EXCHANGE ACT OF 1934
RULE 13A-14(B) OR 15D-14(B) AND
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of GeneMax Corp. (the "Company")
on Form 10-QSB for the quarter ended September 30, 2004, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), Ronald L.
Handford, Chief Executive Officer and Edward Farrauto, Chief Financial Officer
of the Company, each certifies for the purpose of complying with Rule 13a-14(b)
or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the "Exchange Act")
and Section 1350 of Chapter 63 of Title 18 of the United States Code, that:
1. the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Exchange Act; 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 19, 2004 /s/RONALD L. HANDFORD
__________________________________________
Ronald L. Handford, President, Chief
Executive Officer
Date: November 19, 2004 /s/EDWARD FARRAUTO
__________________________________________
Edward Farrauto, Chief Financial Officer