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UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 
FORM 10-K
 
[   ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF       
THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF       
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM APRIL 1, 2001 TO DECEMBER 31, 2001
 
COMMISSION FILE NO. 0-29608
GENETRONICS BIOMEDICAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

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

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (858)597-6006
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
 
COMMON STOCK, $0.001 PAR VALUE
 
(Title of Class)

     Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [   ]

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

     The number of shares outstanding of the Registrant’s Common Stock, $0.001 par value, was 34,860,167 as of March 20, 2002. The aggregate market value of the voting stock (which consists solely of shares of Common Stock) held by non-affiliates of the Company as of March 20, 2002 was approximately $18,520,491 based on $0.54, the closing price on that date of Common Stock on the American Stock Exchange. *

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DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant’s definitive Proxy Statement issued in connection with the Annual Meeting of Stockholders of the Registrant to be held on or about April 29, 2002, are incorporated herein by sequence into Part III. Certain exhibits filed with the Registrant’s prior filings with the SEC are incorporated herein by reference into Part IV of this report.

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     THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, STATEMENTS CONTAINING THE WORDS “BELIEVES,” “ANTICIPATES,” “EXPECTS,” “ESTIMATES” AND WORDS OF SIMILAR MEANING. THE COMPANY’S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM ANY FORWARD-LOOKING STATEMENTS, WHICH REFLECT MANAGEMENT’S OPINIONS ONLY AS OF THE DATE OF THIS REPORT, AS A RESULT OF SUCH RISKS AND UNCERTAINTIES. THE COMPANY UNDERTAKES NO OBLIGATION TO REVISE OR PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE FOUND IN THIS ANNUAL REPORT ON FORM 10-K IN PART I, ITEM 1 UNDER THE CAPTION “CERTAIN RISK FACTORS RELATED TO THE COMPANY’S BUSINESS,” IN PART II, ITEM 7 UNDER THE CAPTION “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” AND ADDITIONAL FACTORS DISCUSSED ELSEWHERE IN THIS ANNUAL REPORT AND IN OTHER DOCUMENTS THE COMPANY FILES FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING ITS QUARTERLY REPORTS ON FORM 10-Q. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON ANY FORWARD-LOOKING STATEMENTS.

     PLEASE NOTE THAT UNLESS OTHERWISE INDICATED, ALL REFERENCE TO MONEY IS STATED IN UNITED STATES DOLLARS.

     On March 20, 2002, the Interbank rate of exchange for converting Canadian dollars into United States dollars equalled 1.5848 Canadian dollars for one (1) United States dollar. The following table presents a history of the exchange rates of Canadian dollars into one (1) United States dollar for the five most recent fiscal years of our company.

PART I

ITEM 1. BUSINESS

OVERVIEW

     We are a San Diego-based biotechnology company developing drug and gene delivery systems that uses Electroporation Therapy (EPT) to deliver drugs and genes into cells. EPT is the application of brief, pulsed electric fields to cells, which causes tiny pores to temporarily open in the cell membrane. Immediately after EPT, the cell membrane is more permeable to drugs and genes. One of the major difficulties in many forms of drug or gene therapy is that the drug or gene is often not able to penetrate the relatively impermeable walls of cells. The pores produced by EPT permit entry of such agents into cells to a much greater extent than if the drug or gene was administered without EPT. We operate through two divisions: (i) the Drug and Gene Delivery Division and (ii) the BTX Instrument Division. Through the BTX Instrument Division, the Company develops, manufactures, and markets electroporation instrumentation and accessories used by scientists and researchers to perform genetic engineering techniques, such as cell fusion, gene transfer, cell membrane research and genetic mapping in research laboratories worldwide. Through the Drug and Gene Delivery Division, the Company is developing drug delivery systems that are designed to use EPT to enhance drug or gene delivery in the areas of oncology and gene therapy. The Company sells the majority of its BTX products to customers in the United States, Europe, and East Asia.

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     On June 15, 2001, the Company completed a change in its jurisdiction of incorporation from British Columbia, Canada into the state of Delaware. The change was accomplished through a continuation of Genetronics Biomedical Ltd., a British Columbia Corporation, into Genetronics Biomedical Corporation, a Delaware corporation. The Company also changed its fiscal year end from March 31 to December 31.

RECENT DEVELOPMENT OF THE BUSINESS OF THE COMPANY

     Over the last three years, our Drug and Gene Delivery Division has focused its efforts on applying EPT in the areas of oncology and gene therapy.

     In January 2001, we completed a clinical data review, which confirmed the results of our Phase II North American trials. See “Business — Drug and Gene Delivery Division — Clinical Studies”. We have continued to carry out clinical studies in Europe using the MedPulser® System to deliver bleomycin in the treatment of cancer. The results from these clinical studies allowed us to obtain CE Mark certification qualifying the MedPulser® System for sale in Europe. We are continuing to carry out clinical trials in Europe using the MedPulser® System to deliver bleomycin in the treatment of both early and late stage head and neck cancer patients. During our current fiscal year we plan to initiate Phase III clinical trials in the United States using the MedPulser® System to deliver bleomycin for the treatment of late stage head and neck cancer. We also intend to initiate clinical trials using the MedPulser® System to deliver bleomycin for the treatment of at least two other cancers. See “Business — Business Objectives and Milestones”.

     Over the last three years, our focus in gene therapy has resulted in our entering into an aggregate of 22 CRADAs with, amongst others, Boehringer Ingelheim International GmbH, Chiron, Valentis, Johnson & Johnson Research Pty Ltd, and two United States Naval Medical Centers to assess the viability of using our MedPulser® System for various gene therapy applications. See “Gene Therapy — Partners and Collaborations”.

     In November 2001, we entered into a non-exclusive license and supply agreement with Valentis regarding the use of our MedPulser® System for in vivo delivery of certain Genemedicine™ products. Under the license, Valentis is developing the use of its GeneSwitch™ gene regulation technology with our MedPulser® System for the delivery and regulation of up to four genes, including the EPO gene for the stimulation of red blood cell production in the treatment of anemia. See “Business — Gene Therapy— Partnerships and Collaborations” and “Risk Factors”. In our current fiscal year, we plan to enter into at least two agreements with respect to the licensing of our MedPulser® System for use in the delivery of specific genes and to initiate our own clinical trials with respect to the use of our MedPulser® System in the delivery of a gene in the public domain or which we have in-licensed. See “Business — Business Objectives and Milestones” and “Business — Gene Therapy— Partnerships and Collaborations”.

     Over the last three years, the BTX Instrument Division (BTX) has focused its efforts on product development and promotion of a new line of products for developing sophisticated applications. In August 1999 we introduced the ECM 630, an exponential decay wave EPT system that utilizes a precision pulse technology, the new BTX Platform technology, and an all-new digital user interface. During 2000 and 2001, publications outlined the utilization of BTX equipment in newly developing animal in vivo gene delivery research. In the support of this research, we expanded our in vivo electrode offering and continue to emphasize the development of novel applicators.

     In October, 2001, we reorganized our workforce to more effectively manage existing resources and to accommodate our stronger focus on oncology and gene therapy. As a result, we reduced our workforce by 16 employees at an estimated cost of approximately $211,000.

BUSINESS OBJECTIVES AND MILESTONES

     We intend to accomplish the following business objectives and milestones over the next two years:

	(1)		initiate Phase III clinical trials in the United States using the MedPulser® System to deliver bleomycin for the treatment of late stage head and neck cancer, as soon as approval to initiate treatment is received from the FDA. See “Business— Oncology —Overview”;
	(2)		continue clinical trials in Europe using the MedPulser® System to deliver bleomycin for the treatment of both early and late stage head and neck cancer. See “Business — Oncology —Overview”;

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	(3)		initiate clinical trials using the MedPulser® System to deliver bleomycin for the treatment of at least two other cancers on or before December 31, 2002. See “Business — Oncology — Overview”;
	(4)		enter into at least two agreements with respect to the licensing of our EPT technology for use in the delivery of specific genes on or before December 31, 2002. See “Business — Gene Therapy — Overview “; and
	(5)		initiate clinical trials with respect to the use of our EPT technology in the delivery of a gene in the public domain or which we have in-licensed on or before June 30, 2002. See “Business — Gene Therapy — Research and Development”.

DRUG AND GENE DELIVERY DIVISION

     The Drug and Gene Delivery Division develops equipment that is designed to allow physicians to use EPT to achieve more efficient and cost-effective delivery of drugs or genes to patients with a variety of illnesses. Although there are many diseases where improved drug or gene delivery is important, we believe that our greatest opportunities lie in applying EPT in the areas of oncology and gene therapy and we are focusing our efforts on these applications.

ONCOLOGY

OVERVIEW

     In oncology, we have completed Phase II clinical trials in the United States using the MedPulser® System to deliver bleomycin in the treatment of late stage head and neck cancer. Bleomycin is a very effective generic chemotherapeutic agent that induces single and double strand DNA breaks in cancer cells; however, because of its size it is difficult to deliver across the cell membrane. We have chosen bleomycin as the chemotherapeutic agent that we deliver in the treatment of cancer because of its aggressive effect as a chemotherapeutic agent and because EPT appears to address its delivery challenges. Bleomycin has been approved by the FDA in the United States and the Health Protection Branch in Canada, and has been used as a chemotherapeutic agent in North America for the treatment of cancer for more than 25 years.

     We expect to initiate Phase III clinical trials in the United States using the MedPulser® System to deliver bleomycin in the treatment of late stage head and neck cancer patients, upon receiving the approval of the FDA to initiate treatment. Late stage head and neck cancer patients are patients who have failed conventional therapies such as surgery or chemotherapy.

     We have completed a number of other clinical studies in Europe, Canada and Australia using the MedPulser® System to deliver bleomycin in the treatment of liver, pancreatic, basal cell and Kaposi’s sarcoma cancers. The results from the clinical studies that we carried out in Europe have allowed us to obtain a CE Mark certification qualifying the MedPulser® System for sale in Europe. We are continuing to carry out clinical studies in Europe using the MedPulser® System to deliver bleomycin in the treatment of both early and late stage head cancer

     In addition to our work in head and neck cancer, we plan to use the MedPulser® System to deliver bleomycin in the treatment of other cancers. We are currently reviewing a number of other cancers in order to assess our competitive advantage in the treatment of the cancers and the size of the market that we might serve. Once we have completed our review, we intend to select two or more cancers and to initiate clinical trials using the MedPulser® System and bleomycin in the treatment of two or more of such cancers.

PARTNERSHIPS AND COLLABORATIONS

     On September 20, 2000, the University of South Florida Research, Inc. (“USF”) granted us an exclusive, worldwide license to its rights in certain patents and patent applications generally related to needle electrodes. The agreement is effective as of May 9, 1995. Genetronics and USF jointly developed these electrodes. The terms of the exclusive license include a royalty to be paid to USF based on net sales of products under the license. As of September 30, 2001, no royalty had accrued as we had not yet generated any sales from this product. In addition, we issued a total of 150,000 Common Shares and a total of 600,000 Warrants (some of which will vest subject to the occurrence of specified milestones) to USF and its designees, Drs. Heller, Jaroszeski, and Gilbert.

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     On October 6, 1998, we entered into a License and Development Agreement and a Supply Agreement with Ethicon, Inc., a Johnson & Johnson company, involving the use of our MedPulser® System for EPT Therapy in the treatment of solid tumor cancer. In addition, Johnson & Johnson Development Corporation purchased $6 million of our Common Shares at a price of $2.68 per share, pursuant to a Stock Purchase Agreement. On August 5, 1999, we announced that Ethicon, Inc. had assigned the License and Development Agreement and Supply Agreement to Ethicon Endo-Surgery, Inc., another Johnson & Johnson company. On July 26, 2000, we received written notice from Ethicon Endo-Surgery, Inc. that it had elected to exercise its discretionary right to terminate, without cause, the License and Development Agreement and the Supply Agreement. As a result, all rights for the development and distribution of Genetronics proprietary EPT drug delivery system for the treatment of cancer were returned to us on January 22, 2001.

     On October 31, 1997, we entered into a supply agreement with Abbott Laboratories (“Abbott”) to purchase the approved anti-cancer drug bleomycin for use in the United States with our MedPulser® System after regulatory approval had been granted for its use in the treatment of patients with solid tumor cancers. Under a separate agreement, we entered into a supply agreement with Faulding, Inc. to purchase bleomycin for use in Canada after regulatory approval had been granted for its use. Both agreements provide that we may purchase bleomycin from time to time in accordance with the terms of the respective agreements. Both agreements continue from year to year until terminated by either party.

MARKET

     Our Drug and Gene Delivery Division hopes to market our MedPulser® System to deliver chemotherapeutic agents, such as bleomycin, in the treatment of cancer. The World Health Organization reports that cancer will remain one of the leading causes of death worldwide for years to come. In the United States, approximately 13 million new cases of cancer were diagnosed between 1990 and 1999. In the United States the costs of cancer, including mortality, morbidity and direct medical costs, exceed $107 billion per year: approximately $37 billion for direct medical costs (total of all health expenditures); at least $11 billion for indirect morbidity costs (cost of lost productivity due to illness); and over $59 billion for indirect mortality costs. In the United States, the cumulative dollar value of treatments and technologies commonly used in the curative and palliative management of cancer exceeded $8 billion in 1999 and is expected to continue to grow at a rate of approximately 12% annually.

     There is still very much that scientists do not know about cancer; consequently, there are significant unmet needs in its treatment. The oncology business unit within the Drug and Gene Delivery Division has initially targeted those indications, such as late stage head and neck cancer, for which current treatments result in a poor quality of life and very high mortality rates.

TREATMENT OF TUMORS

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

     In most of the clinical protocols using EPT, the site of the tumor is anesthetized and bleomycin is injected directly into the tumor. Bleomycin is allowed to diffuse throughout the tumor, which can take one to several minutes depending on the size, type and location of the tumor. Once bleomycin is distributed in the tumor, the electrical field is applied by the MedPulser® System so as to create a greater permeability in the cells walls to allow bleomycin to enter the cells.

     The entire procedure can be completed in 20 minutes or less and typically needs to be done only once. The dosage of drug used in the published results is based on tumor volume, and is typically a small fraction (1/3 to as little as 1/50th) of the dosage that would be used if injected into the patient’s blood, as is usually done in chemotherapy. As a result of the lower dosage administered locally, side effects have been minimal. No episodes of injury to normal (non-tumor) tissue adjacent to the tumors have been observed in the patients treated to date.

CLINICAL TRIALS

North America Trials

     In late 1997 the FDA granted us clearance to initiate multi-center Phase II clinical trials in the United States utilizing the MedPulser® System in combination with bleomycin to treat squamous cell carcinoma of the head and neck in late stage patients who had failed conventional therapies such as surgery or chemotherapy. We obtained IND clearance from the Canadian Health Protection

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Branch to initiate similar clinical trials in Canada. Two Phase II protocols were initiated. The first Phase II protocol was a cross-over-controlled study evaluating the effectiveness of using the MedPulser® System to deliver bleomycin to treat tumors that failed an initial bleomycin-alone treatment. The second Phase II protocol was a single arm study that evaluated the effect of bleomycin as an initial treatment of the tumors.

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

     The two Phase II protocols involved a total of 51 tumors treated with bleomycin and EPT. Tumors treated in the trial include squamous cell carcinoma of the face, oral cavity, pharynx, larynx and sinus. The size of tumors treated ranged from less than one cubic centimeter to more than 132 cubic centimeters. In the crossover controlled Phase II study, patients initially received only bleomycin. Patients who did not respond to bleomycin alone were then treated with the complete system of bleomycin and EPT. Of the 37 tumors on 25 patients treated only with bleomycin, only one demonstrated a partial clinical response. Seventeen of these patients, having 20 lesions, were subsequently treated with bleomycin and EPT and 55% achieved an overall (complete + partial) clinical response. In the open-label Phase II (single arm) study, all patients received full bleomycin and EPT as their initial treatment. Among the 25 patients (31 tumors) so treated, 58% achieved an overall clinical response of 50% or greater reduction of tumor size.

International Trials

     In late 1997 and early 1998, we received ethics committee approval from multiple Consulting Committees for the Protection of Humans in Biomedical Research to initiate clinical trials in France in patients with pancreatic cancer, metastatic cancer in the liver, head and neck cancer, melanoma and Kaposi’s sarcoma. These trials were initiated to demonstrate the MedPulser® System device’s safety and performance in treating a variety of solid tumors in support of CE Mark certification in accordance with the essential requirements of Medical Device Directive 93/42/EEC. Results from the patients with head and neck cancer are reported under the European Study under Clinical Trials above. We received CE Mark certification in March 1999. This certification allows us to market our MedPulser® System within the countries of the members of the European Union.

RESEARCH AND DEVELOPMENT

     Our Drug and Gene Delivery Division has, in the past, directed its research and development activities to the areas of oncology, gene therapy, vascular therapy, transdermal delivery and dermatology. At present, our areas of focus are oncology and gene therapy.

     The following table summarizes the programs of the Drug and Gene Delivery Division in the area of oncology, the primary indications for each product and the current status of development. “Pre-clinical data” means the program is at the stage where results from animal studies have been obtained. “Clinical Trials” means that human data is available.

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Oncology Summary Table

				Stage of Approval
		Development		United States &
Programs		Status		Canada		Europe
Head and Neck Cancer      Melanoma      Metastatic Liver Cancer		Clinical Trials   Clinical Trials   Clinical Trials		Phase II Clinical Trials   N/A   N/A		CE Mark and ISO 9001 Received CE Mark and ISO 9001 Received CE Mark and ISO 9001 Received
Basal Cell Carcinoma		Clinical Trials		N/A		CE Mark and ISO 9001 Received
Kaposi Sarcoma        Peripheral Sarcoma        Breast Cancer        Prostate Cancer        Glioma		Clinical Trials   Pre-clinical data   Pre-clinical data   Pre-clinical data   Pre-clinical data		N/A   N/A   N/A   N/A   N/A		CE Mark and ISO 9001 Received CE Mark and ISO 9001 Received CE Mark and ISO 9001 Received CE Mark and ISO 9001 Received CE Mark and ISO 9001 Received
Pancreatic Cancer		Pre-clinical data		N/A		CE Mark and ISO 9001 Received
Effectiveness of Different Drugs in EPT		Pre-clinical data		N/A		CE Mark and ISO 9001 Received
Mechanisms of Action of Bleomycin/EPT		Pre-clinical data		N/A		CE Mark and ISO 9001 Received

     Our research and development efforts in the field of oncology will focus on preparing for a strategic alliance with a major partner in oncology, expanding applications of the MedPulser® System, and designing the next generation of EPT devices. Preparations for forging a strategic alliance include the organization and summarizing of pre-clinical and engineering data and records to be able to convey information to strategic partners in the most effective manner. The expansion of the MedPulser® System to additional applications is intended to involve pre-clinical and engineering work regarding the delivery of drugs other than bleomycin, treatment of additional types of cancers, and the design and manufacture of new types of electrode applicators, such as an applicator for treating laryngeal cancer. Our research into the development of second generation EPT devices for cancer treatment will include an analysis of the efficacy of different frequencies of electroporation and the possible development of a device specifically targeted for treating deep-seated tumors, such as prostate tumors. Finally, we will continue to strengthen our intellectual property position in the oncology area by pursuing patent protection of new inventions.

COMPETITION

     We develop and manufacture clinical EPT systems. To our knowledge, our only competitor in this arena in the field of oncology is Ichor Medical Systems (“Ichor”) which announced on October 10, 2001 that it had entered into an exclusive agreement with Vical Incorporated to develop products based on Vical’s naked DNA technology and delivered by Ichor’s proprietary electroporation systems. Ichor has announced that it is conducting a Phase I clinical trial for non-resectable pancreatic cancer using EPT and an undisclosed chemotherapeutic agent. Additional competition to the oncology unit of the Drug and Gene Delivery Division will likely come from other drug delivery companies such as Alza Corporation; Elan Corporation; and Inex Pharmaceuticals Corporation; and from biotechnology companies such as ImClone Systems Incorporated, OSI Pharmaceuticals, Inc.; QLT, Inc.; Targeted Genetics Corporation and Matrix Pharmaceuticals, Inc.

     We also face competition from existing therapies, some of which have been widely practiced for many years. The currently approved methods of treatment used in oncology include surgery, chemotherapy, radiation and stimulation of the immune system. There are a number of other methods of treatment being developed for use in oncology.

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GENE THERAPY

BACKGROUND

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

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

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

     Genes can also be applied topically or by injection to skin and then transferred into the cells of the skin by EPT. We are currently investigating skin gene delivery by EPT. The skin is also an attractive target for DNA vaccination. “Vaccinating” skin with DNA that encodes a specific antigen present in infectious agents or in tumor cells can produce beneficial immunological responses. Genes can also be used to directly fight cancer.

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

OVERVIEW

     In gene therapy, we have adopted the strategy of co-developing or licensing our gene delivery technology for specific genes or specific medical indications. In most cases, we contribute our MedPulser® System and our proprietary expertise to optimize the delivery of genes for particular applications, and a partner company provides its proprietary gene or gene regulation technology. Our collaboration with partners allows pre-clinical research and clinical trials to be undertaken which may lead to the introduction of a new treatment and/or products in the marketplace. We intend to enter into at least two agreements with respect to the licensing of our EPT technology for use in the delivery of specific genes on or before December 31, 2002. See “Business — Business Objectives and Milestones”.

     On June 9, 2000, we announced that research studies using our EPT systems were presented at a major international gene therapy conference. Additionally, pursuant to collaborations with Chiron and Valentis, our technology has shown to effectively deliver a variety of genes and DNA vaccines to skin and muscle of animals, including non-human primates. Between October 2000 and May 2001, we entered into five CRADAs with two Naval Medical Centers to assess the feasibility of using EPT for in vivo gene

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delivery. These collaborations will continue to assess the viability of using EPT for in vivo gene delivery. See “— Gene Therapy Partnerships and Collaborations”.

PARTNERSHIPS AND COLLABORATIONS

     In November 2001, we entered into a non-exclusive license and supply agreement with Valentis to use our MedPulser® System in the development of its Genemedicine™ products. When combined with Valentis’ GeneSwitch™ gene regulation system, EPT allows researchers to control the level and duration of gene expression in cells for up to several months. Valentis is currently developing the use of its GeneSwitch™ gene regulation system with our MedPulser® System for the delivery and regulation of up to four genes, including the EPO gene for the stimulation of red blood cell production in the treatment of anemia. On April 26, 2001, we entered into a Material Transfer and Evaluation Agreement with Boehringer Ingleheim Pharma KG to evaluate the effectiveness of EPT in the delivery of genes for the treatment of cardiovascular disease.

     On October 18, 2000, we entered into a CRADA with the Maryland Naval Medical Research Center, to evaluate the effectiveness of EPT in the delivery of an improved DNA vaccine in the treatment of malaria. On January 31, 2001, we entered into two CRADAs with the San Diego Naval Medical Center to evaluate the effectiveness of EPT with regard to in vivo gene delivery. On March 15, 2001 and May 4, 2001, we entered into two further CRADAs with the San Diego Naval Medical Center to evaluate the use of EPT with regard to in vivo gene delivery.

     The research carried out under the above agreements may result in our entering into license agreements with the other parties and will provide us with additional data that will assist us in assessing the efficacy of using our MedPulser® System for gene delivery and delivery of DNA vaccines and will further assist us in our other licensing and commercialization efforts.

     We have entered into two evaluation agreements with Chiron to evaluate the delivery of one or more of Chiron’s DNA vaccines using our EPT for the treatment of infectious diseases. In accordance with these agreements, we have granted an option to Chiron, during the terms of the agreements and for three months thereafter, to license our EPT technology for use in the field of certain DNA vaccines. The First Agreement expired on March 1, 2002, but is in the process of being extended by the parties. The Second Agreement expires on November 11, 2003, unless extended by the parties.

     In addition to the above collaboration and licensing arrangements, we intend to develop our own gene therapeutic. Currently we are performing an extensive assessment of candidate genes with respect to their availability, their probable effectiveness with respect to a particular disease, our competitive advantage regarding the delivery of the gene, and the size of the market we might serve. Once we have completed our review, we will negotiate a license for the gene if it is not in the public domain and plan to initiate pre-clinical studies with respect to its safety and efficacy when using EPT to deliver the gene into the cells of animals. If our pre-clinical data is positive, we intend to proceed to file an IND with the FDA with respect to the use of EPT to deliver the gene in humans in the treatment of the chosen disease.

MARKET

     The gene therapy market includes treatment of single gene defects as well as complex polygenics diseases such as cancer and vascular diseases. Examples of markets for single gene defects include hemophilia, sickle cell anemia, and EPO deficiency. Hemophilia A and B are presently treated with recombinant proteins with a combined market approaching $2 billion in the United States.. For sickle cell anemia, one of the most prevalent genetic diseases, there is presently no effective and sustainable treatment available; however, approximately 50,000 people in the United States suffer from this genetic defect. (Sources: The Sickle Cell Information Centre). The number of patients outside the United States is many times higher. EPO deficiency affects cancer patients undergoing chemotherapy, patients with chronic kidney failure, and others. Presently, the market for recombinant EPO protein is approximately $4 billion worldwide.

     In addition to the many diseases caused by single gene defects, the two major polygenic disease groups, vascular disease and cancer, are prime targets for gene therapy. For the market in cancer, see “Business— Drug and Gene Delivery Division — Market — Oncology”. The overall market for vascular diseases exceeds the market for cancer by at least 20%.

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RESEARCH AND DEVELOPMENT

     The following table summarizes the programs of the Drug and Gene Delivery Division in the area of gene therapy, the primary indications for each product and the current status of development. “Pre-clinical data” means the program is at the stage where results from animal studies have been obtained. “Clinical Trials” means that human data is available.

     We intend to proceed with the joint projects that we are currently working on with our partners as set out above. We also intend to expand ongoing collaborations and to forge new alliances and research collaborations with the goal of having these relationships mature into licensing agreements.

     In addition, we plan to complete pre-clinical research of other gene therapy projects that we intend to carry out ourselves. We intend to continue with these projects through clinical trials and development into products, provided that milestones of safety, efficacy, and commercial viability are successfully reached along the path to development. One of these projects targets the treatment of sarcomas, a form of cancer that can involve muscle, connective and/or bone tissue. Other projects presently under evaluation include the treatment of hemophilia, a therapeutic vaccine for a major infectious disease, prevention of organ transplant rejection, and immunotherapy of cancer. From this group, the one or two most promising projects will be picked with the intention to pursue these projects through the pre-clinical and clinical phases toward regulatory clearance. Other research and development activities will target improvements in DNA delivery, both in vivo and ex vivo, and the strengthening of our intellectual property position in the fields of DNA delivery, gene therapy, and DNA vaccines.

COMPETITION

     The main competitive technologies to our technology in the area of gene therapy are the following :

	•		viral DNA delivery;
	•		lipid DNA delivery;
	•		biolistic delivery of DNA; and
	•		the injection of “naked” DNA.

     To our knowledge, we are presently the only company that has the capability to manufacture electroporation equipment under GMP. Our competitors include several companies who either have rights to intellectual property related to electroporation devices, to electroporation methods, or to applications of electroporation. These competitors include Aventis Pharmaceuticals; Ichor Medical Systems Inc.; Inovio AS; Cytopulse Science Inc.; Rhone Poulenc Rohrer and others.

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MEDPULSER® SYSTEM

OVERVIEW

     The MedPulser® System is designed for the clinical application of EPT. In the field of oncology, the MedPulser® System is used to treat tumors by locally applying a controlled electric field to targeted tumor tissues previously injected with a chemotherapeutic agent, usually bleomycin. The controlled short duration electric field pulses temporarily increase the cellular membrane permeability of the tumor allowing the chemotherapeutic agent to more easily enter the tumor cells and kill them.

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

     The instrument was designed for ease of use, such that minimal user input is needed to apply the therapy. Based on the size and anatomical location of the tumor to be treated, a physician selects the most appropriate electrode applicator. The chosen applicator is then connected to the MedPulser® System instrument, and it is the connection of applicator to instrument that automatically configures the therapy parameters for that particular applicator size and shape. Currently, several different electrode applicator configurations are available. The applicators vary in needle length, needle gauge, electrode needle spacing, tip angle and handle configuration so as to allow the physician to access a greater range of tumors.

     New models of electrode applicators will be considered in the future to address customer needs. The system is designed such that the installed base of the MedPulser® System generator instruments allows for a wide variety of new electrode applicator configurations. Also, the system incorporates other features to minimize the possibility of applicator reuse as well as prevent the use of competitive applicators with the MedPulser® System instrument. The commercial version of the MedPulser® System has been certified by an independent test laboratory as meeting strict international product standards.

     In the United States, EPT utilizing the MedPulser® System and bleomycin, are currently regulated as a combination drug-device system. As a result, we will be required to obtain both drug labeling and device approvals from the FDA. For drug labeling approvals, we must file an IND, successfully complete Phase I, II and III clinical trials, and subsequently submit a United States New Drug Application. We will also have to submit a device Pre-Market Approval or 510(k) for FDA approval as a device. We are unable, due to the complexities of completing Phases I, II and III clinical trials, to estimate the length of time or cost involved in obtaining approvals from the FDA. The costs associated with such an approval cannot be reasonably determined due to the vagaries of the approval process.

     In most of the rest of the world, we anticipate that the MedPulser® System will be regulated as a device. In Europe, the MedPulser® System comes under Medical Device Directive 93/42/EEC (“MDD”) which means that prior to marketing the MedPulser® System, we are required to obtain a CE Mark certification of conformity to the quality system, production and clinical investigation essential requirements of the directive. We have obtained CE Mark certification for EPT devices, which allows us to market the MedPulser® System in Europe. The most expeditious manner for receiving regulatory approval for use of the MedPulser® System with bleomycin is a filing with the European Medicines Evaluation Agency which could approve the use of the drug/device combination throughout the Europe Union. This process could take up to a year for decision. The costs associated with such an approval cannot be reasonably determined due to the vagaries of the approval process.

MEDICAL DEVICE MANUFACTURING

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

     We employ modern manufacturing practices, which include outsourcing of significant custom assemblies used in the manufacture of the MedPulser® System instrument. The instrument final assembly, testing and quality control functions are

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performed in a physically distinct area of our offices where the appropriate controls are employed. We outsource the manufacture of the disposable electrode applicators to a GMP/ISO9002 compliant contract manufacturer.

DEVELOPMENT OF THE MEDPULSER® SYSTEM

     We intend to expand the MedPulser® System for additional applications in drug delivery for oncology, as well as for DNA delivery in gene therapy and DNA vaccination.

     A specialized electrode applicator for the treatment of laryngeal cancer, which is considered a head and neck cancer, will be made available by July 2002 and a second generation of this product is scheduled for development in late 2002 after receiving user feedback on the performance of the first generation product. This applicator will be developed by us and produced by a contract manufacturer.

     We are adapting the MedPulser® System instrument platform for DNA delivery in gene therapy applications. Our goal is to have advanced prototypes of the MedPulser® System for these applications in late 2002 and to file a Device Master File with the FDA at that time. The resulting modified MedPulser® System is intended to be used in pre-clinical and clinical studies in the area of gene therapy by us and our partners.

BTX INSTRUMENT DIVISION

OVERVIEW

     Our BTX Instrument Division began developing and manufacturing EPT equipment for the research laboratory market in 1983 and sold our first product in 1985. BTX was founded to develop and manufacture high quality scientific instrumentation to be used by research scientists to perform various types of EPT and electrofusion experiments. EPT in research is commonly used for transformation and transfection of all cell types, as well as for general molecular delivery at the cellular level. Electrofusion is the fusing together of two or more cells to form hybrid cells. Transformation is a process by which the genetic material carried by an individual cell is altered by incorporation of exogenous DNA into its genome. Transfection is the uptake, incorporation, and expression of exogenous DNA by eukaryotic cells.

     We develop and market EPT instruments, supply more than 2,000 customers in universities, companies, and research institutions worldwide, and sell our EPT/electro cell fusion instrumentation and accessories to customers located in all states and territories of the United States and in over 47 foreign countries. The majority of our products are sold to customers in the United States, Europe and East Asia. The BTX Instrument Division currently produces an extensive line of EPT instruments and accessories, including EPT and electro cell fusion instruments, a monitoring device, and an assortment of electrodes and accessories.

PRODUCTS

     BTX developed the square wave generator and graphic pulse analyzer for in vivo gene delivery and nuclear transfer research, fields that are rapidly increasing in scientific and medical interest. BTX also has developed the most versatile electro cell fusion system on the market, the only commercial large volume flow-through EPT system, and offers high throughput screening EPT applicators.

     BTX focused its efforts in recent years on product development and promotion of a new line of products for developing sophisticated applications. In August 1999 we introduced the ECM 630, an exponential decay wave EPT system that utilizes a precision pulse technology, the new BTX Platform technology, and an all-new digital user interface. During 2000 and 2001, publications outlined the utilization of BTX equipment in newly developing animal in vivo gene delivery research. In the support of this research, we expanded our in vivo electrode offering and continue to emphasize the development of novel applicators.

     Our BTX Instrument Division’s product line includes two exponential decay wave generators, one square wave generator, one electro cell fusion instrument and a graphic wave display monitor. In addition, BTX markets over 30 different types of electrodes and related accessories, as well as the standard disposable EPT cuvettes, containers for holding liquid samples. Our BTX Instrument Division’s product line includes the following products:

     The ECM® 399 is an exponential decay wave generator designed to produce the precise field strengths and pulse lengths required for the transformation of bacteria cells and transfection of mammalian cells.

     The ECM® 630 is an advanced exponential decay wave generator. This product provides instant feedback, digital user interface, programming options, and on-line menu features.

     The ECM® 830 is a square wave EPT system designed for in vitro, in vivo, and in ovo EPT applications. This system can be used for transformation of bacteria and yeast, and for the transfection of mammalian cells. It is used for embryo manipulation techniques, gene therapy EPT, in vitro embryo gene delivery, and plant protoplast transformation.

     The ECM® 2001 is an electro cell manipulation instrument. It generates a proprietary AC wave form for alignment of cells. Electrofusion applications for the ECM® 2001 include embryo manipulation techniques, hybridoma and quadroma production and plant protoplast fusion for transgenic plant generations.

     The Enhancer™ 400 is an EPT graphic wave monitor and display instrument. It enables researchers to confirm and track key EPT and electrofusion parameters. These parameters are critical to protocol optimization strategies as well as in troubleshooting experimental results.

     Our BTX Instrument Division meets regulatory requirements necessary to provide instrumentation to the research market for in vivo and in vitro animal experimentation. All of our BTX Instrument Division instruments sold to the research market carry the label “not for human use.” The BTX Instrument Division does not market equipment for use in humans, and, therefore, is not required to receive marketing approval from the FDA. We are not aware of any regulations or industry guidelines that limit the use of our instrumentation in the animal research market. Our BTX Instrument Division sells devices used by others for non-human embryo cloning, we do not ourselves conduct embryo cloning. We comply with all National Institutes of Health guidelines on cloning and gene therapy. We also comply with all Federal and State regulations regarding the restrictions on research imposed on federally funded grants.

     Our BTX Instrument Division supplies three cuvette models, as do our competitors, plus some 30 additional specialized chambers electrodes, and accessories for EPT. The electrodes that we currently market position us to expand the EPT market for adherent cell transfection applications, while high throughput screening electrodes and large volume production systems, respectively, provide us with an entry into the large volume and multi-sample processing arenas used by the major pharmaceutical and biotech companies conducting drug research.

OPERATIONS

     Our BTX Instrument Division product line includes generators and electrodes. The raw materials and components for our products are purchased from various suppliers. Certain items are purchased from a single source; however, we generally maintain sufficient quantities as protection against supply interruption and these components may be purchased from other suppliers.

     We assemble and test all products at our head office in San Diego. No specialized assembly practices are required and all raw material fabrication is subcontracted to local businesses.

     Our products have a two-year warranty. We maintain customer support for our products through our extensive protocols for electroporation and electrofusion.

DISTRIBUTION

     The main distributors of our BTX Instrument Division products in North America are VWR Scientific Products Corporation and Fisher Scientific Company LLC , the two largest laboratory products suppliers in the United States. Both VWR and Fisher have over 250 representatives dedicated to biological sciences in North America. Both VWR and Fisher have dedicated Life Science Programs in which our BTX Instrument Division participates. In addition, the BTX Instrument Division distributes instruments and supplies through Intermountain Scientific Corporation, which has 22 field sales specialists in the United States. Our BTX Instrument Division has over 35 international distributors in 47 countries, of which Merck Eurolab Holding GmbH is the biggest distributor in Europe. VWR Scientific and Merck Eurolab, are both members of the Merck Group. The BTX Instrument Division supports its distributors with advertising, exhibit exposure and lead generation.

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MARKETING

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

COMPETITION

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

     In September 2000, we commissioned a report prepared by the Strategy Factory to assess our position within the electroporation technology market. The report confirmed that we are the world’s second largest supplier of products in the electroporation technology market, by sales. We update this report regularly based upon information obtained from distributors and suppliers.

SALES AND REVENUE

     The following table provides the amount of net product sales, interest income, and revenue from grant funding and research and development agreements generated by us for the past three fiscal years. Segmented financial information is contained in Note 16 of the Consolidated Financial Statements that begin on Page F-1. The following table sets forth our selected consolidated financial data for the periods indicated, derived from consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States which conform to accounting principles generally accepted in Canada, except as described in Note 20 to the consolidated financial statements.

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101”) issued by the U.S. Securities and Exchange Commission. Accordingly, we recorded a -cumulative adjustment of $3,647,059 during the nine month financial year ended December 31, 2001.

     We, like many biomedical companies, devote a substantial portion of our annual budget to research and development. For the year ended March 31, 2000, research and development expenses totaled $6,402,962 and for the year ended March 31, 2001, they totaled $5,771,774; and for the nine month year ended December 31, 2001, they totaled $2,325,045. These amounts far exceed revenues from research arrangements and contribute substantially to our losses.

INTELLECTUAL PROPERTY

     As of March 20, 2002, we had 40 issued United States patents, 52 issued and granted non-United States patents, two allowed United States patent applications, eight allowed non-United States patent applications, an additional 19 pending United States applications, and an additional 85 pending non-United States patent applications.

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

EMPLOYEES

     As of March 20, 2002, we employed 27 people on a full-time basis in the Drug and Gene Delivery Division. Of the total, 13 were in product research, 4 in engineering, and 10 in finance and administration. As of March 20, 2002, we employed 23 people on a full-time basis in our BTX Instrument Division. Our success is dependent on our ability to attract and retain qualified employees. Competition for employees is intense in the biomedical industry. None of our employees is subject to collective bargaining agreements. In October, 2001, we reduced our workforce by 16 employees to more effectively manage our existing resources and to accommodate our focus on oncology and gene therapy. The estimated cost to us of this reorganization was approximately $211,000.

CERTAIN RISK FACTORS RELATED TO THE COMPANY’S BUSINESS

WE HAVE OPERATED AT A LOSS AND WE EXPECT TO CONTINUE TO ACCUMULATE A DEFICIT; OUR AUDITORS HAVE INCLUDED IN THEIR REPORT AN EXPLANATORY PARAGRAPH DESCRIBING CONDITIONS THAT RAISE SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A “GOING CONCERN”.

     As of December 31, 2001, we had a deficit of $47,361,720. We have operated at a loss since 1994, and we expect this to continue for some time. The amount of our accumulated deficit will continue to grow, as it will be expensive to continue our clinical, research, and development efforts. If these activities are successful, and if we receive approval from the FDA to market human-use equipment, then even more money will be required to market and sell the equipment.

     Most of the cash we have received during the fiscal year beginning April 1, 2001 came from the sale and distribution of special warrants in November of 2001 and sales of BTX research-use equipment. Other funds came from collaborative research arrangements, interest income on our investments and the exercise of stock options. We do not expect to receive enough money from these sources to completely pay for future activities. There is substantial doubt about our ability to continue as a going concern due to our historical negative cash flow and because we do not have access to sufficient committed capital to meet our projected operating needs for at least the next twelve months. Our auditor has included in their report on the financial statements for the nine months ended December 31, 2001, an explanatory paragraph describing conditions that raise substantial doubt about our ability to continue as a going concern.

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

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

	•		The progress and breadth of preclinical testing and the size of our drug delivery programs, all of which directly influence cost;
	•		The costs involved in complying with the regulatory process to get our human-use products approved, including the number, size, and timing of necessary clinical trials and costs associated with the current assembly and review of existing clinical and pre-clinical information;
	•		The costs involved in patenting our technologies and defending them;
	•		Changes in our existing research and development relationships and our ability to enter into new agreements;
	•		The cost of manufacturing our human-use and research-use equipment; and
	•		Competition for our products and our ability, and that of our partners, to commercialize our products.

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

     In the past, we have raised funds by public and private sale of our stock, and we may do this in the future to raise needed funds. Sale of our stock to new private or public investors usually results in existing stockholders becoming “diluted”. The greater the number of shares sold, the greater the dilution. A high degree of dilution can make it difficult for the price of our stock to rise rapidly, among other things. Dilution also lessens a stockholder’s voting power.

     We cannot assure you that we will be able to raise money needed to fund operations, or that we will be able to raise money under terms that are favorable to us.

IF WE DO NOT HAVE ENOUGH MONEY TO FUND OPERATIONS, THEN WE WILL HAVE TO CUT COSTS.

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

	•		Delay, scale back or discontinue one or more of our drug or gene delivery programs or other aspects of operations, including laying off some personnel or stopping or delaying clinical trials;
	•		Sell or license some of our technologies that we would not otherwise give up if we were in a better financial position;
	•		Sell or license some of our technologies under terms that are a lot less favorable than they otherwise might have been if we were in a better financial position; and
	•		Consider merging with another company or positioning ourselves to be acquired by another company.

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

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IF WE ARE NOT SUCCESSFUL DEVELOPING OUR CURRENT PRODUCTS, OUR BUSINESS MODEL MAY CHANGE AS OUR PRIORITIES AND OPPORTUNITIES CHANGE; AND OUR BUSINESS MAY NEVER DEVELOP TO BE PROFITABLE OR SUSTAINABLE.

     There are many products and programs that to us seem promising and that we could pursue. However, with limited resources, we may decide to change priorities and shift programs away from those that we had been pursuing, for the purpose of exploiting our core technology of electroporation. The choices we may make will be dependent upon numerous factors, which we cannot predict. We cannot assure you that our business model, as it currently exists or as it may evolve, will enable us to become profitable or to sustain operations. For example, we recently had to make a decision to forego commercial marketing opportunities in Europe given our financial condition.

IF WE DO NOT SUCCESSFULLY COMMERCIALIZE PRODUCTS FROM OUR DRUG AND GENE DELIVERY DIVISION, THEN OUR BUSINESS WILL SUFFER.

     Our Drug and Gene Delivery Division is in the early development stage and our success depend