U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _______
Commission file number 0-27239
GENEMAX CORP.
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(Exact name of small business issuer as specified in its charter)
NEVADA 88-0277072
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(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
435 Martin Street, Suite 2000
Blaine, Washington 98230
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(Address of Principal Executive Offices)
(360) 332-7734
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(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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Check here if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this Form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [ X ]
State the issuer's revenues for its more recent fiscal year (ending
December 31, 2002): $-0-.
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked prices of such common equity, as
of February 28, 2003: $10,405,574.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the most practicable date:
Class Outstanding as of March 31, 2003
Common Stock, $.001 par value 16,813,519
Page
ITEM 1. DESCRIPTION OF BUSINESS 1
ITEM 2. PROPERTIES 14
ITEM 3. LEGAL PROCEEDINGS 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED 15
STOCKHOLDER MATTERS
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR 19
PLAN OF OPERATION
ITEM 7. FINANCIAL STATEMENTS 26
AUDITOR'S REPORT DATED FEBRUARY 25, 2003 28
CONSOLIDATED BALANCE SHEETS 29
CONSOLIDATED STATEMENTS OF OPERATIONS 30
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 31
CONSOLIDATED STATEMENTS OF CASH FLOWS 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 37
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OF 47
ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND 47
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT
ITEM 10. EXECUTIVE COMPENSATION 49
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 56
AND MANAGEMENT
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 58
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 60
ITEM 14. CONTROLS AND PROCEDURES 60
SIGNATURES 60
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS HISTORY AND DEVELOPMENT
GeneMax Corp., formerly known as Eduverse.com, is a Nevada corporation
which currently trades on the OTC Bulletin Board under the symbol "GMXX" and is
referred to in this Form 10-KSB as the "Company". The Company is also listed for
trading on the Frankfurt Stock Exchange (FWB) under the symbol "GX1". The
Company is a product-focused biotechnology company specializing in the
application of the latest discoveries in cellular immunology and cancer biology
to the development of proprietary therapeutics aimed at the treatment and
eradication of cancer and therapies for infectious diseases, autoimmune
disorders and transplant tissue rejection. The Company's operating subsidiaries
are GeneMax Pharmaceuticals Inc., a Delaware corporation ("GeneMax
Pharmaceuticals"), and the subsidiary of GeneMax Pharmaceuticals named GeneMax
Pharmaceuticals Canada Inc., which is a corporation organized under the laws of
British Columbia.
The Company's principal place of business is located at 435 Martin Street,
Suite 2000, Blaine, Washington 98230. Its telephone number is 360.332.7734 and
its facsimile number is 360.332.1643.
SHARE EXCHANGE AGREEMENT
During fiscal year ended December 31, 2002, the Company consummated and
finalized the acquisition of GeneMax Pharmaceuticals and its subsidiary
interests. On May 9, 2002 and effective July 15, 2002, Eduverse.com (now known
as GeneMax Corp.), GeneMax Pharmaceuticals, the shareholders of GeneMax
Pharmaceuticals (the "GeneMax Shareholders"), and Investor Communications
International, Inc., a Washington corporation ("ICI") entered into a share
exchange agreement (the "Share Exchange Agreement"). In accordance with the
terms of the Share Exchange Agreement and the securities laws of Canada, a
Directors' Circular dated July 15, 2002 (the "Directors' Circular") was
distributed to certain management, insiders and directors of GeneMax
Pharmaceuticals, and other Canadian shareholders (the "Canadian GeneMax
Shareholders").
Pursuant to the terms of the Share Exchange Agreement, the Directors'
Circular and related settlements, the Company acquired from the GeneMax
Shareholders and the Canadian GeneMax Shareholders one hundred percent (100%) of
the issued and outstanding shares of common stock of GeneMax Pharmaceuticals and
its subsidiary interests. In accordance with the terms of the Share Exchange
Agreement, the Directors' Circular and related settlement agreements, the
Company issued shares of its restricted common stock as follows: (i)
approximately 6,571,304 shares of restricted common stock to the GeneMax
Shareholders in proportion to their respective holdings in GeneMax
Pharmaceuticals; (ii) approximately 4,479,001 shares of restricted common stock
to the Canadian GeneMax Shareholders pursuant to the terms of the Directors'
Circular; (iii) 181,660 shares of restricted common stock to certain creditors
of GeneMax Pharmaceuticals at $0.75 per share for settlement of an aggregate
debt in the amount of $136,245; (iv) 188,154 shares of its restricted common
stock to certain creditors of GeneMax Pharmaceuticals at $1.00 per share for
settlement of an aggregate debt in the amount of $188,154; and (v) 200,000
shares of restricted common stock to a third party.
1
The Company issued an aggregate of 11,620,119 shares of its restricted
common stock under the Share Exchange Agreement and Directors' Circular and
related settlement agreements. Certain warrant instruments were issued in
accordance with the terms and provisions of warrant agreements pursuant to which
the holder thereof has the right to convert such warrant into shares of common
stock on a one-to-one basis at either the rate of $2.50 per share, $0.75 per
share or $1.00 per share. Pursuant to the Share Exchange Agreement and
Directors' Circular and related settlement agreements, there were an aggregate
of 744,494 warrant instruments issued, of which 110,334 warrants were issued
convertible into 110,334 shares of common stock at the rate of $2.50 per share
expiring on September 1, 2002. The 110,334 warrants were not converted by the
holders thereof into shares of common stock and expired on their terms. Thus, as
of the date of this Annual Report, there are an aggregate of 634,160 warrant
instruments issued comprised of the following: (i) 277,500 warrants issued and
outstanding which may be converted into 277,500 shares of common stock at the
rate of $1.00 per share expiring December 1, 2005; (ii) 175,000 warrants issued
and outstanding which may be converted into 175,000 shares of common stock at
the rate of $1.00 per share expiring May 1, 2006; and (iii) 181,660 warrants
issued and outstanding which may be converted into 181,660 shares of common
stock at the rate of $0.75 per share expiring May 1, 2006. See "Part I. Item 5.
Market for Registrant's Common Equity and Related Stockholder Matters".
Voluntary Pooling Agreement
The Company and GeneMax Pharmaceuticals desire to provide for and maintain
an orderly trading market and stable price for the Company's shares of Common
Stock. Therefore, the Company, certain shareholders of GeneMax Pharmaceuticals
and of the Company, and Global Securities Transfer Inc., the Company's transfer
agent ("Global Securities"), entered into a voluntary pooling agreement dated
May 9, 2002 and effective July 15, 2002 (the "Pooling Agreement"). Pursuant to
the terms and provisions of the Pooling Agreement, certain shareholders of
GeneMax Pharmaceuticals and certain shareholders of the Company (the "Pooled
Shareholders") representing up to an aggregate of 9,166,980 shares of common
stock, respectively (the "Pooled Shares"), generally agreed that the Pooled
Shares are subject to a contractual restrictive holding period. The Pooled
Shareholders further agreed that that the Pooled Shares may not be traded and
currently become available for trading and released and sold in the following
manner: (i) an initial ten percent (10%) of the Pooled Shares will be released
to the Pooled Shareholders on the date which is one calendar year from the
closing date of the Share Exchange Agreement (the "First Release Date"); and
(ii) a further ten percent (10%) will be released to the Pooled Shareholders on
each of the dates which are every three (3) calendar months from the First
Release Date in accordance with each Pooled Shareholder's respective
shareholdings.
Secured and Convertible Loan Agreement
As a condition to entering into and in accordance with the Share Purchase
Agreement, the Company and ICI agreed to advance to GeneMax Pharmaceuticals the
aggregate principal sum of not less than $250,000 within five (5) business days
of ICI raising an aggregate of $700,000. As a result of the acquisition, the
Loan became an intercompany account between the Company, as parent, and GeneMax
Pharmaceuticals, as subsidiary.
CURRENT BUSINESS OPERATIONS
GENERAL
The Company is a product-focused biotechnology company specializing in the
application of the latest discoveries in cellular immunology and cancer biology
to the development of proprietary therapeutics aimed at the treatment and
eradication of cancer and therapies for infectious diseases, autoimmune
disorders and transplant tissue rejection. The Company's technologies are based
on an understanding of the function of a protein "pump" within cells that is
essential in the processing of tumor antigens, known as Transporters associated
with Antigen Processing ("TAP").
2
Cancer is a disease in which cells become abnormal and fail to respond to
the body's normal control mechanisms. As a result, the cancerous cells
proliferate in an uncontrolled manner, invade nearby tissues and often spread to
other parts of the body. Ultimately, if the cancer is not controlled, it will
result in failure of body functions and death. Cancers are characterized by
defects in the cellular antigen presentation pathway, which result in the cancer
becoming invisible to the immune system. This allows the cancer to continue to
proliferate and eventually spread.
The current standard therapies for cancer treatment include surgery,
radiation therapy and chemotherapy. However, management of the Company believes
that these treatments are not specific in targeting just cancerous cells and
often fail to remove or destroy all of the cancer, and can negatively affect
other cells and cause significantly detrimental side effects. The remaining
cancer cells then grow into new tumors, which are often resistant to further
chemotherapy or radiation, resulting in a high mortality rate. In the United
States, statistics reflect that cancer is the second leading cause of death with
an estimated 550,000 deaths from cancer annually.
Immunotherapy for Cancer
Management of the Company believes that there is a critical need for more
effective cancer therapies. Management further believes that the global market
for effective cancer treatments is large, and that immunotherapies representing
potential treatments for metastatic cancer is an unmet need in the area of
oncology.
It has been known for several years that the human immune systems has the
potential to clear cancers from the body based on clinical observations that
some tumors spontaneously regress when the immune system is activated.
Previously, it was discovered that most cancers are not very "immunogenic",
meaning that the cancers were not able to cause an immune response because they
no longer expressed key immune proteins on their cell surface (known as "MHC
Class I". In healthy cells, these proteins provide the information to the immune
system that defines whether the cell is healthy or, in the case of cancer or
viral infection, abnormal. If the MHC Class I proteins signal that the cells are
abnormal, then the immune system T-cells are activated to attack and kill the
infected or malignant cell.
Generally, the steps in the cellular antigen presentation pathway are as
follows:
1. abnormal or foreign proteins from the cytoplasm of a cell are broken
down into peptides by an enzyme complex;
2. the TAP protein then assists in transporting these antigen peptides
into the endoplasmic reticulum, which is a cellular compartment where
the MHC Class I proteins are assembled (the "ER");
3. in the ER, the antigen peptides are attached to the MHC Class I
proteins and then transferred to the cell surface where they signal
the immune system that the cell should be destroyed; and
4. the immune system then recognizes the complex and activates T cells to
attack and kill the infected or cancerous cells.
It was recently discovered that the TAP protein is often disabled in
cancers, leading to low expression of cancer antigen peptides on the cell
surface. In many solid tumors, the TAP protein does not function and, therefore,
the immune system is not stimulated to attack the cancer. Management of the
Company believes that although a number of cancer therapies have been developed
that stimulate the immune system, these approaches have generally proven
ineffective because the cancers remain invisible to the immune system due to the
lack of the TAP protein. See "Part I. Item 1. Description of Business -
Products".
3
Therapeutic Cancer Vaccines
A "cancer vaccine" is a therapy that stimulates the immune system to attack
tumors. Management of the Company believes that most cancer vaccines of other
companies under development contain either cancer-specific proteins that
directly activate the immune system or contain genetic information (DNA) that
codes for these cancer-specific proteins. There are, however, a number of key
conditions that must be met before a cancer vaccine can be effective in
generating a therapeutic immune response: (i) the cancer antigen peptide
delivered by the vaccine has to be recognized by the immune system as "foreign"
in order to generate a strong and specific T-cell response; (ii) exactly the
same cancer antigen peptide has to be displayed on the surface of the cancer
cells in association with the MHC Class I proteins; and (iii) these cancer
antigen peptides then have to be sufficiently different from normal proteins in
order to generate a strong anti-tumor response.
If these conditions are all met, then the cancer vaccine should generate a
sufficiently strong immune response to kill the cancer cells. Management of the
Company believes, however, that the identification of suitable cancer-specific
antigen proteins to use in these therapeutic vaccines has proven extremely
complex. The MHC Class I proteins are highly variable (over 100 different types
in humans) and, as a result, any one cancer antigen peptide will not produce an
immune response for all individuals. Management of the Company further believes
that cancers are "genetically unstable" and their proteins are highly variable,
so that the selected cancer antigen protein may result in the immune system only
attacking a small subset of the cancerous cells. Management of the Company
believes that the Company's TAP Cancer Vaccine overcomes many of the problems
associated with the current cancer vaccines discussed above (see "TAP Cancer
Vaccine" section below).
PRODUCTS
The Company's strategic vision is to be a product-driven biotechnology
company, focusing primarily on use of its patented TAP technology to restore the
TAP function within cancerous cells, thus making them immunogenic. As a result,
the MHC Class I proteins can signal the immune system to attack the cancer. The
Company intends to develop the TAP technology as a therapeutic cancer vaccine
that will restore the normal immune recognition. Management believes that its
cancer vaccine is the only therapeutic approach that addresses this problem of
"non-immunogenicity" of cancer. Management believes that this therapy will have
a strong competitive advantage over other cancer therapies, since restoring the
TAP protein will direct the immune system to specifically target the cancerous
cells without damaging healthy tissue.
TAP Cancer Vaccine
The Company has developed a patented therapeutic cancer vaccine to restore
the TAP protein (the "TAP Cancer Vaccine"). The TAP Cancer Vaccine is targeted
at those cancers that are deficient in the TAP protein, which include commonly
occurring breast cancer, prostate cancer, lung cancer, liver cancer, melanoma,
renal cancer and colorectal cancer.
The TAP Cancer Vaccine would deliver the TAP protein and genetic
information, thus "turning on" the defective TAP signaling system within the
cancer cells. These cancer cells would then transport cancer antigen proteins to
the cell surface using the individual's specific MHC Class I proteins. As a
result, the immune response would be targeted to the entire repertoire of cancer
antigen proteins produced by the cancer cell, rather than just to the single
cancer antigen (as delivered by usage of current cancer vaccines). The TAP
Cancer Vaccine would allow the immune response to respond to the cancer even if
the TAP protein and genetic information is only delivered to a small portion of
the cancer cells. In addition, the TAP Cancer Vaccine would generate a strong
immune response to any TAP-deficient cancer, regardless of the patient's
individual genetic variability either in the MHC Class I proteins or in the
cancer-specific proteins.
4
TAP Cancer Vaccine Development Program
The Company is currently developing the TAP Cancer Vaccine at the
University of British Columbia Biomedical Research Centre (the "BRC") under a
collaborative research agreement. See "Part I. Item 1. Description of Business -
Strategic Alliances".
Management of the Company believes that the key milestone of efficacy in
animal models of cancer has been attained and that other scientific research
teams have independently validated the experimental data from these animal
studies. The proof of principle for TAP as a cancer vaccine was established in
research conducted the last ten years in the laboratory at the BRC by Dr.
Wilfred Jefferies, a director and executive officer of the Company. The initial
studies were conducted using a small-cell lung cancer cell line that was derived
from an aggressive, metastatic cancer. These cells have multiple defects in the
"antigen presentation pathway" in that they are not detected by the immune
system. When the TAP protein was introduced into these cells, antigen
presentation was restored. In addition, a series of animal studies have
demonstrated the ability of TAP to restore an immune response. This study was
published in Nature Biotechnology (Vol. 18, pp. 515-520, May 2000). The TAP
Technology was further validated in melanoma.
Pre-Clinical Testing. As of the date of this Annual Report, the TAP Cancer
Vaccine is undergoing formal pre-clinical testing, which includes the following:
(i) evaluation of several strains of vaccinia and adenovirus vectors for their
respective ability to deliver and express the TAP protein and genetic
information in tumors; (ii) selection and licensing of the vector and
identification and contracting with a good manufacturing practice (GMP)
manufacturer for subsequent production of the TAP Cancer Vaccine; and (iii)
performance and completion of toxicology studies using the TAP Cancer Vaccine on
at least two animal species to confirm its non-toxicity.
Upon completion of the formal pre-clinical testing, the Company intends to
compile and summarize the data and submit it to two governmental agencies, the
U.S. Federal Drug Administration ("FDA") and the Canadian Health Canada ("HC"),
in the form of an investigational new drug application (the "IND"). The IND will
include data on the vaccine production, animal studies and toxicology studies,
as well as the proposed protocol for the Phase I human clinical trials.
Phase I Human Clinical Trials. Management of the Company believes that the
Phase I human clinical trials will be commenced approximately second quarter of
2004 and will be conducted at the British Columbia Cancer Agency in Vancouver,
British Columbia. As of the date of this Annual Report, the Company has
presented information on the TAP Cancer Vaccine to members of the Department of
Advanced Therapeutics. The Phase I trials will generally be designed to provide
data on the safety of the TAP Cancer Vaccine when used by humans.
As of the date of this Annual Report, management of the Company estimates
that GeneMax Pharmaceuticals previously raised approximately $2,000,000 in
funding and the Company has raised $2,538,500 in funding since the May 2002
announcement of the GeneMax Pharmaceuticals acquisition. Management of the
Company believes that an estimated $15,000,000 is required over the next three
years for payment of expenses associated with the balance of pre-clinical
development and commencement of Phase I-II clinical trials for the TAP Cancer
Vaccine and for corporate expenses, other expected development initiatives, and
acquisitions. See "Part II. Item 6. Management's Discussion and Analysis or Plan
of Operation."
5
Peptide Transfer Assay
The Company is also currently developing potential products that may
interrupt the chain of events involved in certain autoimmune diseases. As of the
date of this Annual Report, the Company is developing a peptide transfer assay,
which is a cell-based assay designed to evaluate compounds and drugs for their
ability to stimulate or suppress the immune response (the "Peptide Transfer
Assay"). The Peptide Transfer Assay's application will be to identify compounds
effective in the treatment of cancer, infectious diseases, and autoimmune
diseases. Autoimmune diseases include psoriasis, rheumatoid arthritis, multiple
sclerosis, myasthenia gravis and diabetes. T cells and antibodies in the body's
immune system normally identify and destroy foreign substances and cancerous
cells. Autoimmune diseases are generally caused by the abnormal destruction of
healthy body tissues when T cells and antibodies react against normal tissue.
Management of the Company believes that the Peptide Transfer Assay is a
novel and sophisticated cell-based assay. Management of the Company expects that
the Peptide Transfer Assay will be of significant interest to pharmaceutical
companies, companies with natural product libraries, anti-sense or gene
libraries or proprietary rights to chemical compounds (e.g. combinatorial
chemistry companies). As of the date of this Annual Report, management of the
Company believes that the Peptide Transfer Assay is ready for development for
high-throughput screening and partnering.
TARGET MARKET AND STRATEGY
The Company is currently focused primarily on the oncology market. Cancer
encompasses a large number of diseases that afflict many different parts of the
human body. The diversity of cancer types and their overall prevalence create a
large need for new and improved treatments. Management of the Company believes
that there is a significant market opportunity for a cancer treatment that
utilizes the highly specific defense mechanisms of the immune system to attack
cancers.
The Company is focused on the development and commercialization of the TAP
technology as a "cancer vaccine" that would overcome the limitations of current
immunotherapies. Management believes that proposed cancer vaccines under
development by other companies require that individualized treatments be
prepared based on the genetic differences of each patient and the genetic
make-up of each tumor. As a result, these other cancer vaccines will be
prohibitively expensive to implement as a different vaccine has to be developed
for each patient. In addition, since the TAP protein is often not operational in
cancer cells, these other vaccines may still not be able to activate the immune
system.
Management of the Company believes that the TAP Cancer Vaccine offers the
potential for highly specific destruction of cancer tumors without any adverse
side effects. The TAP protein is a normal component of all healthy cells, but
deficient in many cancer cells. The TAP Cancer Vaccine delivers the TAP protein
and genetic information thus activating this normal component of all cells.
Management further believes that the TAP Cancer Vaccine will provide a method
for generating therapeutic immune responses that are generalized to the entire
population, and potentially patient specific or cancer-specific cancer vaccines.
Management believes that, despite the limitations of the other types of
cancer vaccines being developed by other companies, the FDA will approve the
first cancer vaccine within the next several years. Based upon recent market
reports, management of the Company believes that an approximate $2 billion
market for cancer vaccines will develop by 2007, with a compounded annual growth
rate of 104%. Management anticipates that the Company's TAP Cancer Vaccine could
secure a significant portion of this large market, and that the TAP Cancer
Vaccine will not only be an effective cancer treatment but also be synergistic
and complimentary to existing cancer therapies.
6
Management of the Company believes that the competitive advantages of the
TAP Technology include (i) efficacy against secondary cancerous growths
elsewhere in the body; (ii) no restrictions on the genetics of the tumors or
individuals; (iii) non-toxicity to normal cells; and (iv) complementary to and
synergistic with other therapeutics. As of the date of this Annual Report, the
Company's TAP Technology is in the pre-clinical development stage and is
preparing for Phase I clinical trials.
STRATEGIC ALLIANCES
Collaborative Research Agreement
During May 2000, GeneMax Pharmaceuticals and the BRC Biotechnology
Laboratory at the University of British Columbia ("BRC") entered into a contract
research agreement (the "Collaborative Research Agreement"), to develop the TAP
technologies as a cancer vaccine and other commercial products. In accordance
with the terms of the Collaborative Research Agreement: (i) the Company provides
funding for three PHD scientists, as well as support technicians and students.
and BRC; (ii) BRC provides the Company with access to the laboratories and
equipment at the BRC, as well as other facilities of the University of British
Columbia; and (iii) Dr. Wilfred Jefferies, the inventor of the TAP technologies
and the Chief Scientific Officer and a director of the Company, will provide
supervision of all scientific activity.
As of the date of this Annual Report, the research under the Collaborative
Research Agreement will continue in the future to support the commercial
development of the TAP Cancer Vaccine and to develop enhanced vaccine products
and other therapeutics based on the TAP technology. See "Part I. Item 1.
Description of Business - Intellectual Property, Patents and Trademarks."
License Agreement
During March 2000, GeneMax Pharmaceuticals and the University of British
Columbia (the "UBC") entered into an exclusive worldwide license agreement (the
"License Agreement"). Pursuant to the terms of the License Agreement, the UBC
granted to GeneMax Pharmaceuticals exclusive licensing rights to certain
patented and unpatented cancer immuno-therapy technologies originally invented
and developed by Dr. Jefferies and the scientific team at the UBC including: (i)
the cell-based peptide transfer assay (the "Peptide Transfer Assay"), and (ii)
the cancer immuno-therapy based on restoration of antigen presentation through
transporters associated with antigen-processing technologies, which is the basis
for the Company's lead product (the "TAP Cancer Vaccine"). GeneMax
Pharmaceuticals obtained the exclusive licensing rights to this technology for
the consideration of $78,743 and issuance to UBC of equity, with no royalty
components or provisions. Pursuant to further terms of the License Agreement:
(i) the License Agreement will terminate after the latter of fifteen years or
the expiration of the last patent obtained relating to the licensed technology;
(ii) GeneMax Pharmaceuticals will bear the cost of obtaining any patents; and
(iii) the technology remains the property of UBC, however, it may be utilized
and improved by GeneMax Pharmaceuticals. The Company expects the approval of
multiple further patents. See "Part I. Item 5. Market for Common Equity and
Related Stockholder Matters."
On March 6, 2003, the Company announced that the terms of the License
Agreement were modified thus expanding to the Company's technology portfolio.
The added technology, developed under the Collaborative Research Agreement, is a
method to identify novel tumor associated antigens produced by cancers.
Management of the Company believes the identification of novel immune dominant
antigens will enable the development of new cancer vaccines that can be patient
specific as well as antigens generalized across differing cancer types and
patient populations.
7
Network Affiliate Agreement
On January 1, 2001, GeneMax Pharmaceuticals, UBC and the Canadian Network
for Vaccines and Immunotherapeutics of Cancer and Chronic Viral Diseases
("CANVAC") entered into a one-year network affiliate agreement (the "Network
Affiliate Agreement"). Pursuant to the terms of the Network Affiliate Agreement,
CANVAC would provide an $85,000 Canadian Dollars research grant to the UBC to
fund further research activities upon GeneMax contributing $117,3000 Canadian
Dollars towards the UBC research. During fiscal year 2001, all amounts required
under the Network Affiliate Agreement were paid by GeneMax Pharmaceuticals to
the UBC. As of the date of this Annual Report, GeneMax Pharmaceuticals and
CANVAC are negotiating a new network affiliate agreement in order to continue
funding the research activities conducted at the UBC.
TAP Cancer Vaccine Production
In March, 2003, the Company contracted production of the TAP Cancer Vaccine
to Molecular Medicine BioServices, Inc. This company specializes in production
of clinical grade vaccine vectors under GLP/GMP standards. See "Part I. Item 1.
Description of Business - Government Regulation."
INTELLECTUAL PROPERTY, PATENTS AND TRADEMARKS
Patents and other proprietary rights are vital to the business operations
of the Company. The Company's policy is to seek appropriate patent protection
both in the United States and abroad for its proprietary technologies and
products. Pursuant to the License Agreement, the Company has acquired the
exclusive world-wide license to a portfolio of intellectual property as follows:
Method of Enhancing Expression of MHC Class I Molecules Bearing Endogenous
Peptides
On March 26, 2002, the United States Patent and Trademark Office issued a
patent for the use of "TAP-1 (transporters associated with antigen processing)
as an immunotherapy against all cancers ("US Patent No. 6,361,770"). The patent
is titled "Method of Enhancing Expression of MHC Class I Molecules Bearing
Endogenous Peptides" and provides comprehensive protection and coverage to both
in vivo and ex vivo applications of TAP-1 as a therapeutic against all cancers
with a variety of delivery mechanisms. The inventors were Dr. Wilfred Jefferies,
Dr. Reinhard Gabathuler, Dr. Gerassinmoes Kolatis and Dr. Gregor S.D. Reid, who
collectively assigned the patent to the UBC. During the lengthy application
process, many proofs of the application were required by the U.S. Patent and
Trademark Office for a patent of such relevance and applicability to all cancers
to be approved, and included proofs in multiple forms of cancer tumors including
small cell lung carcinoma and melanoma cancer. Management of the Company
considers issuance of this patent as a major product development milestone for
the Company.
As of the date of this Annual Report, the Company has pending applications
filed for patent protection in France, United Kingdom, Germany, Switzerland and
Japan.
Method of Identifying MHC Class I Restricted Antigens Endogenously
Processed by a Secretory Pathway
On August 11, 1998, the United States Patent and Trademark Office issued to
UBC a patent for the use of bioengineered cell lines to measure the output of
the MHC Class I restricted antigen presentation pathway as a way to screen for
immunomodulating drugs ("US Patent No. 5,792,604"). The patent is titled "Method
of Identifying MHC Class I Restricted Antigens Endogenously Processed by a
Secretory Pathway." This patent covers the assay which can identify compounds
capable of modulating the immune system. The inventors were Dr. Wilfred
Jefferies, Dr. Reinhard Gabathuler, Dr. Gerassinmoes Kolaitis and Dr. Gregor
S.D. Reid, who collectively assigned the patent to the UBC.
8
As of the date of this Annual Report, the Company has pending applications
filed for patent protection in Canada, Japan and Europe.
Method of Enhancing Expression of MHC Class I Molecules Bearing Endogenous
Peptides
The UBC filed a patent application with the United States Patent and
Trademark Office for patent protection of extension of the TAP-1 for use in
viral vaccines as a method for increasing immune responses. As of the date of
this Annual Report, the UBC has not received an order granting a patent.
Management of the Company believes that such patent will be granted by
approximately the fourth quarter of 2003.
The Company intends to continue to work with the UBC to file additional
patent applications with respect to any novel aspects of its technology to
protect its intellectual property. The Company has not conducted in-depth
validity and infringement studies on the patents and patent applications that
the Company has in-licensed, and there is a possibility that these patents or
patent applications may be challenged or may not provide protection.
The patent positions of biotechnology and pharmaceutical companies are
generally uncertain and involve complex legal and factual issues. No assurance
can be given that any patent issued to or licensed by the Company will provide
protection that has commercial significance. The Company cannot assure that: (i)
the patents will afford protection against competitors with similar compounds or
technologies; (ii) the patent applications pending will be issued; (iii) other
companies will not obtain patents claiming aspects or technologies similar to
those covered by the issued patents; (iv) the patents of other companies will
not have an adverse effect on the Company's ability to do business; or (v) the
patents issued to or licensed by the Company will not be infringed, challenged,
invalidated or circumvented.
Moreover, management of the Company believes that obtaining foreign patents
may, in some cases, be more difficult than obtaining domestic patents because of
differences in patent laws. The Company also recognizes that the patent
protection may generally be stronger in the United States and Canada than
abroad. Conversely, the protection provided by foreign patents may be weaker
than that provided by domestic patents.
COMPETITION
The oncology industry is characterized by rapidly evolving technology and
intense competition. Many companies of all sizes, including a number of large
pharmaceutical companies as well as several specialized biotechnology companies,
are developing various immunotherapies and drugs to treat cancer. There may be
products on the market that will compete directly with the products that the
Company is seeking to develop. In addition, colleges, universities, governmental
agencies and other public and private research institutions will continue to
conduct research and are becoming more active in seeking patent protection and
licensing arrangements to collect license fees and royalties in exchange for
license rights to technologies that they have developed, some of which may
directly compete with the Company's technologies and products. These companies
and institutions may also compete with the Company in recruiting qualified
scientific personnel. Many of the Company's potential competitors have
substantially greater financial, research and development, human and other
resources than the Company does. Furthermore, large pharmaceutical companies may
have significantly more experience than the Company in pre-clinical testing,
human clinical trials, and regulatory approval procedures. Such competitors may:
(i) develop safer and more effective products; (ii) obtain patent protection or
intellectual property rights that limit the Company's ability to commercialize
products; or (iii) commercialize products earlier than the Company.
9
Management expects technology developments in the oncology industry to
continue to occur at a rapid pace. Commercial developments by any competitors
may render some or all of the Company's potential products obsolete or
non-competitive, which could materially harm the Company's business and
financial condition.
Management of the Company believes that the following companies, which are
developing various types of similar immunotherapies and therapeutic cancer
vaccines to treat cancer, could be major competitors of the Company: CellGenSys
Inc., Corixa Corp., Dendreon Corp., Genzyme Molecular Oncology, Therion
Biologics Corp. and Transgene S.A.
Management of the Company believes, however, that its TAP Cancer Vaccine
represents a conceptual leap in immunotherapeutics and has certain competitive
advantages as follows: (i) the TAP Cancer Vaccine could be an effective therapy
for all types of cancer that are deficient in TAP because knowledge of specific
tumor antigens is not required; and (ii) not all of the tumor cells have to be
transduced with the TAP protein for the TAP Cancer Vaccine to be effective.
Management believes that since defects in the TAP protein is a fundamental
underlying mechanism by which cancer avoids detection by the immune system, the
TAP Cancer Vaccine offers a superior therapeutic approach to any type of cancer
in which this system is not functioning.
GOVERNMENT REGULATION
The design, research, development, testing, manufacturing, labeling,
promotion, marketing, advertising and distribution of drug products are
extensively regulated by the FDA in the United States and similar regulatory
bodies in other countries. The regulatory process is similar for a new drug
application (the "NDA"). The steps ordinarily required before a new drug may be
marketed in the United States, which are similar to steps required in most other
countries, include: (i) pre-clinical laboratory tests, pre-clinical studies in
animals, formulation studies and the submission to the FDA of an initial NDA;
(ii) adequate and well-controlled clinical trials to establish the safety and
efficacy of the drug for each indication; (iii) the submission of the NDA to the
FDA; and (iv) FDA review and approval of the NDA.
Pre-clinical tests include laboratory evaluation of product chemistry, good
laboratory practices ("GLP"), toxicology studies, formulation development,
animal pre-clinical efficacy studies and manufacturing of current good
manufacturing practices ("GMP"). The results of pre-clinical testing are
submitted to the FDA as part of an initial NDA. A thirty-day waiting period
after the filing of each initial NDA is required prior to the commencement of
clinical testing in humans. At any time during this thirty-day period or at any
time thereafter, the FDA may halt proposed or ongoing clinical trials until the
FDA authorizes trials under specified terms. The initial NDA process may be
extremely costly and substantially delay development of products. Moreover,
positive results of pre-clinical tests will not necessarily indicate positive
results in subsequent clinical trials.
Clinical trials to support NDAs are typically conducted in three sequential
phases, although the phases may overlap. During Phase I, there is an initial
introduction of the drug into healthy human subjects or patients. The drug is
tested to assess metabolism, pharmacokinetics and pharmacological actions and
safety, including side effects associated with increasing doses. Phase II
usually involves studies in a limited patient population to: (i) assess the
clinical activity of the drug in specific targeted indications; (ii) assess
dosage tolerance and optimal dosage; and (iii) continue to identify possible
adverse effects and safety risks. If a compound is found to be potentially
effective and to have an acceptable safety profile in Phase II evaluations,
Phase III trials are undertaken to further demonstrate clinical efficacy and to
further test for safety within an expanded patient population at geographically
disperse clinical trial sites.
10
After successful completion of the required clinical trials, a NDA is
generally submitted. The FDA may request additional information before accepting
a NDA for filing, in which case the application must be resubmitted with the
additional information. Once the submission has been accepted for filing, the
FDA reviews the application and responds to the applicant. The review process if
often significantly extended by FDA requests for additional information or
clarification. The FDA may refer the NDA to an appropriate advisory committee
for review, evaluation and recommendation as to whether the application should
be approved, but the FDA is not bound by the recommendation of an advisory
committee.
If the FDA evaluations of the NDA and the manufacturing facilities are
favorable, the FDA may issue an approvable letter. An approvable letter will
usually contain a number of conditions that must be met in order to secure final
approval of the NDA and authorization of commercial marketing of the drug for
certain indications. The FDA may also refuse to approve the NDA or issue a not
approval letter, outlining the deficiencies in the submission and often
requiring additional testing or information.
The manufacturers of approved products and their manufacturing facilities
are subject to continual review and periodic inspections. Because the Company
currently intends to contract with third parties for commercial scale
manufacturing of the TAP Cancer Vaccine, the Company's ability to control
compliance with FDA requirements will be limited.
Approved drugs and manufacturing facilities are subject to ongoing
compliance requirements, and the identification of certain side effects or the
occurrence of manufacturing problems after any of the drug products are on the
market may create other restrictions. This could result in issuance of warning
letters, subsequent withdrawal of approval, reformulation of the drug product,
and additional pre-clinical studies or clinical trials.
Outside the United States and Canada, the Company's ability to market its
drug products are also contingent on receiving marketing authorization from the
appropriate regulatory authorities. The foreign regulatory approval process
includes all of the complexities associated with FDA approval described above.
The requirements governing the conduct of clinical trials and marketing
authorization vary widely from country to country. At present, foreign marketing
authorizations are applied for at a national level, although within the European
Union, or the EU, procedures are available to companies wishing to market a
product in more than one member country.
PRODUCT LIABILITY AND INSURANCE
The Company's business involves the risk of product liability claims. The
Company has not experienced any product liability claims to date. As of the date
of this Annual Report, and due to the current stage of product development, the
Company does not yet maintain product liability insurance. Management, however,
intends to maintain product liability insurance consistent with industry
standards upon commencement of the marketing and distribution of the TAP Cancer
Vaccine or as is requisite in certain product development stages. There can be
no assurance that product liability claims will not exceed such insurance
coverage limits, which could have a materially adverse effect on the Company's
business, financial condition, results of operations, share price, or that such
insurance will continue to be available on commercially reasonable terms, if at
all.
11
EMPLOYEES
As of the date of this Annual Report, the Company does not employ any
persons directly on a full-time or on a part-time basis. All management and
labor positions are obtained on a contracted basis. Management of the Company
deems that the current contracted management structure maintains the highest
levels of product development efficiency with the lowest costs of plant,
equipment, and capital cost infrastructure. The Company's President is primarily
responsible for all day-to-day operations of the Company. Other services are
provided by outsourcing and management contracts. As the need arises and funds
become available, however, management may seek employees as necessary in the
best interests of the Company. The following lists and describes certain
services performed for the Company by consultants. See "Part III. Item 10.
Executive Compensation" and "Part III. Item 12. Certain Relationships and
Related Transactions".
Consulting Services Agreement
The Company and Investor Communications International, Inc., a Washington
corporation ("ICI"), entered into a consulting services agreement dated August
12, 2002 (the "Consulting Services Agreement"). Pursuant to the terms and
provisions of the Consulting Services Agreement, ICI will provide to the Company
such finance and managerial services as may be determined by the Board of
Directors, from time to time, and in its sole and absolute discretion, in order
to develop the various business interests of the Company in the drug discovery
and development industry, involving the patented drug discovery assay for
immunomodulatory compounds and the pipeline aimed at treatment of cancer,
infectious diseases, autoimmune disorders and transplant tissue rejection.
Pursuant to further terms of the Consulting Services Agreement, the Company
shall pay ICI a monthly fee not to exceed $10,000 in accordance with the
services performed.
Mr. Grant Atkins, a director of the Company, is employed by ICI and part of
the management team provided by ICI to the Company, and derives remuneration
from ICI for such services rendered to the Company. During fiscal year ended
December 31, 2002, Mr. Atkins was paid approximately $17,325 by ICI for services
rendered to the Company.
GeneMax Pharmaceuticals Consulting Agreement
GeneMax Pharmaceuticals and 442668 B.C. Ltd. ("442668"), a corporation
whose president and member of the board of directors is Dr. Wilfred Jefferies, a
director and the Chief Scientific Officer of the Company entered into a
consulting services agreement dated February 1, 2000 (the "GeneMax
Pharmaceuticals Consulting Agreement"). Pursuant to the terms and provisions of
the GeneMax Pharmaceuticals Consulting Agreement, Dr. Jefferies agreed to
provide technical, research and technology development services to GeneMax
Pharmaceuticals for a period of five years. Pursuant to further terms and
provisions of the GeneMax Pharmaceuticals Consulting Agreement, 442668 shall be
paid a monthly fee of $10,000 Canadian Dollars and reimbursement of expenses.
As of December 31, 2002, an aggregate amount of $88,135 in accrued fees was
due and owing 442668 under the GeneMax Pharmaceuticals Consulting Agreement.
During fiscal year ended December 31, 2002, Dr. Jefferies received an aggregate
of $67,670 thru 442668, and accepted the issuance by the Company to 442668 of
20,465 shares of restricted common stock at $1.00 per share as settlement for
the remaining balance of $20,465 due and owing. See "Part III. Item 10.
Executive Compensation."
12
GeneMax Pharmaceuticals Management Agreement
GeneMax Pharmaceuticals and Ronald L. Handford, the President/Chief
Executive Officer and a director of the Company, entered into a management
services agreement dated August 1, 1999 (the "GeneMax Pharmaceuticals Management
Agreement"). Pursuant to the terms and provisions of the GeneMax Pharmaceuticals
Management Agreement, Mr. Handford agreed to provide general managerial services
to GeneMax Pharmaceuticals for a period of five years. Pursuant to further terms
and provisions of the GeneMax Pharmaceuticals Management Agreement, Mr. Handford
shall be paid a monthly fee of $11,000 U.S. Dollars and reimbursement of
expenses. Effective May 1, 2002, GeneMax Pharmaceuticals and Mr. Handford agreed
to reduce the monthly fee to $12,500 Canadian Dollars until the earlier of the
Company reaching a senior board listing or commencement of clinical trials, at
which time the fee will be reviewed in accordance with market norms.
As of December 31, 2002, an aggregate amount of $185,706 in accrued fees
was due and owing under the GeneMax Pharmaceuticals Management Agreement. During
fiscal year ended December 31, 2002, Mr. Handford received an aggregate of
$69,374, and accepted the issuance by the Company of 100,000 shares of
restricted common stock at $1.00 per share as settlement for $100,000 owed. As
of December 31, 2002, an aggregate $16,332 remains due and owing. See "Part III.
Item 10. Executive Compensation."
GeneMax Pharmaceuticals Services Agreement
GeneMax Pharmaceuticals and Alan Lindsay and Associates Ltd., a corporation
whose sole officer, director and shareholder is Alan Lindsay, a director of the
Company ("AL&A"), entered into an amended services agreement dated May 31, 2002
(the "GeneMax Pharmaceuticals Services Agreement"). Pursuant to the terms and
provisions of the GeneMax Pharmaceuticals Services Agreement, Mr. Lindsay agreed
to provide general consulting services to GeneMax Pharmaceuticals on a
month-to-month basis. Pursuant to current negotiations and further terms and
provisions of the GeneMax Pharmaceuticals Services Agreement, AL&A shall be paid
a monthly fee of $2,500 U.S. Dollars and reimbursement of expenses.
As of December 31, 2002, an aggregate amount of $60,000 in accrued fees was
due and owing under the GeneMax Pharmaceuticals Services Agreement. During
fiscal year ended December 31, 2002, Mr. Lindsay received an aggregate of
$20,000 through AL&A, and accepted the issuance by the Company to AL&A of 27,500
shares of restricted common stock at $1.00 per share as settlement for $27,500.
As of December 31, 2002, an aggregate $12,500 remains due and owing AL&A. See
"Part III. Item 10. Executive Compensation."
Davidson Agreement
GeneMax Pharmaceuticals and James D. Davidson, a director and the Chief
Financial Officer of the Company, entered into a verbal month-to-month agreement
(the "Davidson Agreement"). Pursuant to the terms of the Davidson Agreement, Mr.
Davidson agreed to perform such duties and services as required commensurate
with his position as the Chief Financial Officer of the Company and such other
duties commensurate with his position as a director on the Board of Directors.
Pursuant to further terms and provisions of the Davidson Agreement, Mr. Davidson
shall be paid a monthly fee of $2,000 and reimbursement of expenses. Effective
July 15, 2002, GeneMax Pharmaceuticals agreed to increase the monthly fee to
$5,000 upon commencement of Mr. Davidson's duties associated with his position
as Chief Financial Officer and a director of the Company after the acquisition
of GeneMax Pharmaceuticals.
As of December 31, 2002, an aggregate amount of $45,500 in accrued fees was
due and owing Mr. Davidson under the Davidson Agreement. During fiscal year
ended December 31, 2002, Mr. Davidson received an aggregate of $32,500 and
accepted the issuance by the Company of 13,000 shares of restricted Common Stock
at $1.00 per share as settlement of an amount of $13,000. See "Part III. Item
10. Executive Compensation."
13
ITEM 2. PROPERTIES
Other than as described above, the Company does not own any real estate or
other properties. The Company's registered office is located at 435 Martin
Street, Suite 2000, Blaine, Washington 98230.
ITEM 3. LEGAL PROCEEDINGS
(a) On approximately September 4, 2002, the Company initiated litigation
against Global Securities Corporation and Union Securities Corporation (the
"B.C. Defendants") by filing a Writ of Summons and Statement of Claim in the
Supreme Court of British Columbia, Registry No. S024914 (the "British Columbia
Complaint"). The claims made by the Company against the B.C. Defendants in the
British Columbia Complaint involve the alleged illegal naked short selling of
the Company's shares of common stock conducted by the B.C. Defendants to
manipulate share price for profit and gain in violation of the provisions of the
Company's bylaws, the Investment Dealers Association of Canada, the National
Association of Securities Dealers, the Criminal Code of Canada, and the
Securities Exchange Act of 1934, as amended (the "Naked Short Sales"). The
claims against the B.C. Defendants specifically allege violation of fair-trading
practices, negligence and/or fraud and share price manipulation. The Company is
seeking damages from the B.C. Defendants resulting from the alleged actions of
the B.C. Defendants that include loss of investment opportunity, injury to
reputation, and artificial issuance of shares that results in illegal
devaluation of the Company's securities, and other damages.
As of the date of this Annual Report, the B.C. Defendants have filed a
statement of defense generally denying the allegations and counterclaiming for
defamation relating to statements made by the Company about the litigation in
news releases. The parties have engaged in preliminary discovery, which includes
response to interrogatories, preliminary production of documents and formal
request for further production of documents. Management of the Company intends
to aggressively pursue and continue its legal actions and to further review its
potential legal remedies.
(b) On approximately October 3, 2002, the Company initiated litigation
against various broker-dealers, market makers and clearing agents (the U.S.
Defendants") allegedly involved in the Naked Short Sales by filing a Complaint
in the U.S. District Court for the District of Nevada, Case No.
CV-N-02-0509-ECR-VPC (the "United States Complaint"). The claims made by the
Company against the U.S. Defendants in the United States Complaint allege
unlawful "shorting" activities involving the Company's shares of common stock
including fraud, negligence, violation of U.S. securities laws, racketeering
(RICO) and conspiracy. The Company seeks an injunction against the U.S.
Defendants to enjoin the unlawful shorting activities and substantial damages,
including punitive damages.
As of the date of this Annual Report, the U.S. Defendants have either filed
answers or requests for extensions of time within which to file formal
statements of defense. Management of the Company believes that upon receipt of
trading records and other documentation, the Company may amend the United States
Complaint to name additional broker-dealers, market makers, clearing agents and
individual securities professionals as defendants. Management of the Company
intends to aggressively pursue and continue its legal actions and to further
review its potential legal remedies.
Except as disclosed above, management is not aware of any other legal
proceedings contemplated by any governmental authority or other party involving
the Company or its properties. No director, officer or affiliate of the Company
is (i) a party adverse to the Company in any legal proceedings, or (ii) has an
adverse interest to the Company in any legal proceedings. Management is not
aware of any other legal proceedings pending or that have been threatened
against the Company or its properties.
14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 9, 2002, the Board of Directors approved and authorized execution of
the Share Exchange Agreement. The Board of Directors further authorized and
directed the filing with the Securities and Exchange Commission and subsequent
distribution to ten or less shareholders of the Company who held of record as of
May 27, 2002 at least a majority of the issued and outstanding shares of Common
Stock, an Information Statement pursuant to Section 14(c) of the Securities
Exchange Act of 1934, as amended. On approximately June 14, 2002, the Definitive
Information Statement was filed with the Securities and Exchange Commission and
distributed to all shareholders of the Company.
On July 15, 2002, a Written Consent of Shareholders of the Company was
executed pursuant to which the shareholders (i) approved the Share Exchange
Agreement, related conversion of loan to equity interest by the Company in
GeneMax Pharmaceuticals, and resulting change in control of the Company; (ii)
approved an amendment to the Articles of Incorporation of the Company to
effectuate a change in the corporate name to "GeneMax Corp."; (iii) approved the
Stock Option Plan for key personnel of the Company; (iv) approved an amendment
to the Company's bylaws to change the number of directors of the Company to
consist of one (1) to fifteen (15); (v) elected three persons to serve as
directors of the Company until the next annual meeting of the Company's
shareholders or until their successor has been elected and qualified; and (vi)
ratified the election of LaBonte & Co. as independent public accountants for the
Company for fiscal year ending December 31, 2002.
The names of the shareholders of the Company who held of record as of May
27, 2002 a majority of the issued and outstanding shares of Common Stock who
signed the Written Consent and their respective equity ownership of the Company
are as follows: (i) Investor Communications International, Inc. ("ICI") holding
of record 554,470 shares of common stock (18.48%); (ii) Alexander Cox holding of
record 535,060 shares of common stock (17.84%); (iii) Calista Capital
Corporation holding of record 250,000 shares of common stock (8.33%); (iv)
Spartan Asset Group holding of record 250,000 shares of common stock (8.33%);
(v) Pacific Rim Financial Inc. holding of record 250,000 shares of common stock
(8.33%); (vi) Eastern Capital Corp. holding of record 250,000 shares of common
stock (8.33%); and (vii) Rising Sun Capital Corp. holding of record 250,000
shares of common stock (8.33%).
No other matters or business were introduced or approved by the
shareholders pursuant to the Written Consent.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock is traded on the OTC Bulletin Board under the
symbol "GMXX" and on the Frankfurt Stock Exchange (FWB) under the symbol "GX1".
The market for the Company's Common Stock is limited, volatile and sporadic. The
following table sets forth the OTCBB high and low sales prices relating to the
Company's Common Stock for the last two fiscal years. These quotations reflect
inter-dealer prices without retail mark-up, mark-down, or commissions, and may
not reflect actual transactions.
FISCAL YEARS ENDED
------------------------------------------------------------
DECEMBER 31, 2002 DECEMBER 31, 2001
------------------------------------------------------------
HIGH BID LOW BID HIGH BID LOW BID
------------------------------------------------------------
First Quarter $7.500 $1.100 $2.781 $0.410
Second Quarter $2.000 $0.350 $1.531 $0.500
Third Quarter $7.74 $3.65 $0.812 $0.420
Fourth Quarter $5.15 $2.040 $0.530 $0.090
15
HOLDERS
As of March 31, 2003, the Company had approximately 345 shareholders of
record.
DIVIDENDS
No dividends have ever been declared by the board of directors of the
Company on its Common Stock. The Company's losses do not currently indicate the
ability to pay any cash dividends, and the Company does not intend paying cash
dividends on its Common Stock in the foreseeable future.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Pursuant to the terms of the Share Exchange Agreement, the Directors'
Circular and related settlements, the Company issued certain warrant instruments
pursuant to which the holder thereof has the right to convert such warrant into
shares of Common Stock on a one-to-one basis at either the rate of $2.50 per
share, $0.75 per share or $1.00 per share. Pursuant to the Share Exchange
Agreement, Directors' Circular and related settlement agreements, there were an
aggregate of 744,494 warrant instruments issued, of which 110,334 warrants were
convertible into 110,334 shares of common stock at the rate of $2.50 per share
expiring on September 1, 2002. The 110,334 warrants were not converted into
shares of common stock by the holders thereof and expired on their terms. Thus,
as of the date of this Annual Report, there are an aggregate of 634,160 warrant
instruments issued comprised of the following: (i) 277,500 warrants issued and
outstanding which may be converted into 277,500 shares of common stock at the
rate of $1.00 per share expiring December 1, 2005; (ii) 175,000 warrants issued
and outstanding which may be converted into 175,000 shares of common stock at
the rate of $1.00 per share expiring May 1, 2006; and (iii) 181,660 warrants
issued and outstanding which may be converted into 181,660 shares of common
stock at the rate of $0.75 per share expiring May 1, 2006. As of the date of
this Annual Report, 634,160 Warrants have been granted and are outstanding
pursuant to the Share Exchange Agreement and Directors' Circular and related
settlement agreements,. As granted, the 634,160 Warrants may be converted into
634,160 shares of restricted Common Stock.
In addition, the Company has issued 212,700 Warrants to purchase 212,700
restricted Common Shares at the rate of $5.00 per share expiring November 29,
2004 in connection with private placement offerings completed in the third and
fourth quarters of 2002.
Equity Compensation Plan Information
------------------------------------------------------------------------------------------------------
Number of Securities Weighted-Average Exercise Number of Securities
To be Issued Upon Price of Outstanding Remaining Available for
Plan Category Exercise of Outstanding Options, Warrants Future Issuance Under
Options, Warrants and Rights Equity Compensation Plans
and Rights (excluding column (a))
(a) (b) (c)
------------------------------------------------------------------------------------------------------
Equity Compensation n/a n/a n/a
Plans Approved by
Security Holders
Equity Compensation 452,500 shares $1.00 -0-
Plans Not Approved by
Security Holders - 181,660 shares $0.75 -0-
Warrants
Equity Compensation 212,700 shares $5.00 -0-
Plans Not Approved by
Security Holders -
Unit Warrants
Total 846,860 shares
-----------------------------------------------------------------------------------------------------
16
RECENT SALES OF UNREGISTERED SECURITIES AND CHANGES IN CONTROL OF THE COMPANY
As of the date of this Annual Report and during fiscal year ended December
31, 2002, to provide capital, the Company sold stock in private placement
offerings, issued stock in exchange for debts of the Company or pursuant to
contractual agreements as set forth below. Pursuant to the terms of the Share
Exchange Agreement and the Directors' Circular, the Company issued 11,620,119
shares of Common Stock. Therefore, there was a change in control of the Company.
See "Part III. Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters."
(a) During the six-month period ended June 30, 2002, the Company engaged in
a private placement offering under Rule 506 of Regulation D of the Securities
Act of 1933, as amended (the "1933 Securities Act"). Pursuant to the terms of
the private placement, the Company offered 2,400,000 shares of its common stock
at $0.125 per share to raise $300,000. On approximately May 3, 2002, the Company
terminated the offering pursuant to which it sold 2,000,000 shares of common
stock at $0.125 per share for aggregate gross proceeds of $250,000.00 The per
share price of the offering was arbitrarily determined by the Board of Directors
based upon analysis of certain factors including, but not limited to, stage of
development, business risks, current earnings, assets and net worth of the
Company. The Company issued shares of common stock to seven investors, all of
which were accredited investors as that term is defined under Regulation D. The
investors executed subscription agreements and acknowledged that the securities
to be issued have not been registered under the 1933 Securities Act, that the
investors understood the economic risk of an investment in the securities, and
that the investors had the opportunity to ask questions of and receive answers
from the Company's management concerning any and all matters related to
acquisition of the securities. No underwriter was involved in the transaction,
and no commissions or other remuneration were paid in connection with the offer
and sale of the securities.
(b) During the six-month period ended June 30, 2002, the Company engaged in
a private placement offering under Rule 506 of Regulation D of the 1933
Securities Act. Pursuant to the terms of the private placement, the Company
offered 700,000 shares of its common stock at $1.00 per share to raise an
aggregate of $700,000. The shares of Common Stock were offered only to U.S.
residents who were accredited investors as that term is defined under Regulation
D and to non-U.S. residents. On June 14, 2002, the Company terminated the
offering pursuant to which it sold 700,000 shares of its common stock at $1.00
per share for aggregate gross proceeds of $700,000. The per share price of the
offering was arbitrarily determined by the Board of Directors based upon
analysis of certain factors relating to the acquisition of GeneMax
Pharmaceuticals including, but not limited to, stage of development, business
risks, current earnings, assets and net worth of the Company. The Company issued
shares of common stock to twenty-three investors, all of which were accredited
investors. The investors executed subscription agreements and acknowledged that
the securities to be issued have not been registered under the 1933 Securities
Act, that the investors understood the economic risk of an investment in the
securities, and that the investors had the opportunity to ask questions of and
receive answers from the Company's management concerning any and all matters
related to acquisition of the securities. No underwriter was involved in the
transaction, and no commissions or other remuneration were paid in connection
with the offer and sale of the securities.
(c) Pursuant to the terms of the Share Exchange Agreement, the Directors'
Circular and associated settlement agreements, the Company issued an aggregate
of 11,620,119 shares of its restricted common stock as follows: (i) 6,571,304
shares of restricted common stock to the GeneMax Shareholders in proportion to
their respective holdings in GeneMax Pharmaceuticals; (ii) 4,479,001 shares of
17
restricted common stock to the Canadian GeneMax Shareholders pursuant to the
terms of the Directors' Circular; (iii) 181,660 shares of restricted common
stock to certain creditors of GeneMax Pharmaceuticals at $0.75 per share for
settlement of an aggregate debt in the amount of $136,245; (iv) 188,154 shares
of restricted common stock to certain creditors of GeneMax Pharmaceuticals at
$1.00 per share for settlement of an aggregate debt in the amount of $188,154;
and (v) 200,000 shares of restricted common stock to a third party.
The Company also issued an aggregate of 744,494 warrant isntruments under
the Share Exchange Agreement, Directors' Circular and associated settlement
agreements pursuant to which the holder thereof has the right to convert such
warrants into shares of common stock on a one-to-one basis at either the rate of
$2.50 per share, $0.75 per share or $1.00 per share. Pursuant to the Share
Exchange Agreement and Directors' Circular and related settlement agreements,
there were an aggregate of 744,494 warrant instruments issued, of which 110,334
warrants were convertible into 110,334 shares of common stock at the rate of
$2.50 per share expiring on September 1, 2002. The 110,334 warrants were not
converted into shares of common stock by the holders thereof and expired on
their terms. Thus, as of the date of this Annual Report, there are an aggregate
of 634,160 warrant instruments issued comprised of the following: (i) 277,500
warrants issued and outstanding which may be converted into 277,500 shares of
common stock at the rate of $1.00 per share expiring December 1, 2005; (ii)
175,000 warrants issued and outstanding which may be converted into 175,000
shares of common stock at the rate of $1.00 per share expiring May 1, 2006; and
(iii) 181,660 warrants issued and outstanding which may be converted into
181,660 shares of common stock at the rate of $0.75 per share expiring May 1,
2006.
(d) During the nine-month period ended September 30, 2002, the Company
engaged in a private placement offering under Rule 506 of Regulation D and
Regulation S of the 1933 Securities Act. Pursuant to the terms of the private
placement, the Company offered 1,000,000 Units at $2.50 per Unit to raise an
aggregate of $2,500,000. The Units consist of one share of Common Stock and
one-half of one non-transferable share purchase warrant (the "Warrant"), with
each whole Warrant convertible into one share of Common Stock at $5.00 per whole
Warrant. The Units were offered primarily to U.S. residents who are accredited
investors as that term is defined under Regulation D and to non-U.S. residents.
On December 1, 2002, the Company terminated the offering pursuant to which it
sold 425,400 Units at $2.50 per Unit for aggregate gross proceeds of $1,063,500.
The per share price of the offering was arbitrarily determined by the Board of
Directors based upon analysis of certain factors relating to the acquisition of
GeneMax Pharmaceuticals including, but not limited to, stage of development,
business risks, current earnings, assets and net worth of the Company. The
Company issued 425,400 Units to approximately thirty-four investors of which
three were non-accredited. The investors executed subscription agreements and
acknowledged that the securities to be issued have not been registered under the
1933 Securities Act, that the investors understood the economic risk of an
investment in the securities, and that the investors had the opportunity to ask
questions of and receive answers from the Company's management concerning any
and all matters related to acquisition of the securities. No underwriter was
involved in the transaction, and no commissions or other remuneration were paid
in connection with the offer and sale of the securities.
(e) In accordance with the terms and provisions of the Stock Option Plan,
and as of the date of this Annual Report, the Board of Directors of the Company
has granted an aggregate of 3,270,000 Stock Options as follows: (i) 1,740,000
Stock Options and 395,000 Incentive Stock Options exercisable at $1.00 per share
to previous holders of stock options of GeneMax Pharmaceuticals to replace stock
options previously granted by GeneMax Pharmaceuticals at $0.60 per share; (ii)
1,000,000 Stock Options at $0.50 per share to ICI and/or its designates or
employees; (iii) 20,000 Stock Options at $5.50 per share; (iv) 15,000 Stock
Options at $7.50 per share; and (v) 100,000 Stock Options at $8.50 per share. Of
18
those 3,270,000 Stock Options granted, and as of the date of this Annual Report,
1,000,000 Stock Options have been exercised at $0.50 per share for aggregate
proceeds of $500,000 in accordance with the terms of the respective notice and
agreement of exercise of option. As a result, the Company has issued 1,000,000
shares of its Common Stock. Of the 3,270,000 Stock Options granted, an
additional 25,000 Stock Options have been exercised at $1.00 per share for
aggregate proceeds of $25,000 in accordance with the terms of a notice and
agreement of exercise of option. As a result, the Company has issued 25,000
shares of its Common Stock.
As a result of the issuance of shares, there was a change in control of the
Company. See "Part III. Item 11. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Statements made in this Form 10-KSB that are not historical or current
facts are "forward-looking statements" made pursuant to the safe harbor
provisions of Section 27A of the Securities Act of 1933 (the "Act") and Section
21E of the Securities Exchange Act of 1934. These statements often can be
identified by the use of terms such as "may," "will," "expect," "believe,"
"anticipate," "estimate," "approximate" or "continue," or the negative thereof.
The Company intends that such forward-looking statements be subject to the safe
harbors for such statements. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. Any forward-looking statements represent management's best
judgment as to what may occur in the future. However, forward-looking statements
are subject to risks, uncertainties and important factors beyond the control of
the Company that could cause actual results and events to differ materially from
historical results of operations and events and those presently anticipated or
projected. The Company disclaims any obligation subsequently to revise any
forward-looking statements to reflect events or circumstances after the date of
such statement or to reflect the occurrence of anticipated or unanticipated
events.
The following discussions of the results of operations and financial
position of the Company should be read in conjunction with the financial
statements and notes pertaining to them that appear elsewhere in this Form
10-KSB.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
The Company's financial statements have been prepared which incorporate
financial data and figures of GeneMax Pharmaceuticals. Thus, the comparative
results are those of GeneMax Pharmaceuticals prior to the acquisition and are
not the financial results of Eduverse.com, and the current year comparative
results include the financial data and figures of the Company only subsequent to
the acquisition of GeneMax Pharmaceuticals.
For Fiscal Year Ended December 31, 2002 compared with Fiscal Year Ended
December 31, 2001.
The Company's net losses during fiscal year ended December 31, 2002 were
approximately ($2,284,709) compared to a net loss of approximately ($671,986)
during fiscal year ended December 31, 2001 (an increase of $1,612,723).
Net revenues during fiscal years ended December 31, 2002 and 2001 were
$-0-. The lack of revenues during fiscal years ended December 31, 2002 and 2001
resulted from the Company's decision to discontinue retail sales of its software
products, the focus on research relating to prospective new business endeavors,
and the consummation of the acquisition of GeneMax Pharmaceuticals. The Company
recorded interest income during fiscal years ended December 31, 2002 and 2001 of
$125 and $1,139, respectively.
19
During fiscal year ended December 31, 2002, the Company recorded operating
expenses of $2,284,834 compared to $673,125 of operating expenses recorded
during fiscal year ended December 31, 2001 (an increase of $1,611,709). The
operating expenses incurred during fiscal year ended December 31, 2002 consisted
primarily of the following: (i) research and development of approximately
$833,589 compared to $283,987 incurred during fiscal year ended December 31,
2001; (ii) consulting fees - stock based of approximately $680,275 compared to
$-0- incurred during fiscal year ended December 31, 2001; (iii) professional
fees of approximately $350,782 compared to $47,800 incurred during fiscal year
ended December 31, 2001; (iv) management fees of approximately $168,206 compared
to $132,000 incurred during fiscal year ended December 31, 2001; (v) consulting
fees of approximately $149,036 compared to $106,578 incurred during fiscal year
ended December 31, 2001; (vi) office and general of approximately $96,830
compared to $55,574 incurred during fiscal year ended December 31, 2001; (vii)
depreciation of approximately $40,890 compared to $32,837 incurred during fiscal
year ended December 31, 2001; and (viii) travel of approximately $15,226
compared to $14,349 incurred during fiscal year ended December 31, 2001. This
increase in operating expenses was due primarily to the increased scale and
scope of overall corporate activity pertaining to the acquisition of GeneMax
Pharmaceuticals and the ongoing research and development relating to the TAP
technology and the TAP Cancer Vaccine.
Of the $2,284,834 incurred as operating expenses, an aggregate of $382,969
was incurred payable to certain directors and/or private companies controlled by
those directors of the Company pursuant to consulting, management and research
and development agreements.
During fiscal year ended December 31, 2002, an aggregate of $60,000 in fees
was incurred (after the acquisition) to Investor Communications International,
Inc. ("ICI") for services rendered by ICI to the Company on a month-to-month
basis, as needed, including, but not limited to, financial, administrative and
general management. Based upon $106,276 which was due and owing to ICI prior to
the acquisition, and a further $27,754 owing to ICI for expenses incurred on
behalf of the Company, this resulted in $194,030 due and owing ICI. During
fiscal year ended December 31, 2002, the Company paid ICI $191,876 (after the
acquisition). As of December 31, 2002, an aggregate amount of $2,154 remains due
and owing to ICI by the Company relating to fees, cash advances and interest.
During fiscal year ended December 31, 2001, the Company had incurred an
aggregate amount of $225,000 to ICI, which together with other unpaid fees and
advances of $231,896, resulted in an aggregate of $456,896 due and owing ICI.
This amount was settled pursuant to a settlement agreement dated March 14, 2001
between the Company and ICI whereby ICI agreed to accept the issuance of
15,230,000 pre-reverse stock split shares of restricted Common Stock in
settlement and release of the $456,896 due and owing. Subsequent to this
settlement, an additional $65,700 in fees was accrued to ICI. Of this amount,
$37,481 was settled pursuant to a settlement agreement dated December 12, 2001
between the Company and ICI whereby ICI agreed to accept the issuance of 249,870
shares of restricted Common Stock in settlement and release of the $37,481 due
and owing. Mr. Grant Atkins, a director of the Company, is employed by ICI and
is part of the management team provided by ICI to the Company, and derives
remuneration from ICI for such services rendered to the Company. During fiscal
year ended December 31, 2002, Mr. Atkins received $17,325 from ICI as
compensation for services rendered to the Company. See "Part III. Item 10.
Executive Compensation."
During fiscal year ended December 31, 2002, an aggregate of $81,410 in fees
was incurred to 442668 B.C. Ltd. ("442668"), a corporation whose president and
member of the board of directors is Dr. Wilfred Jefferies, a director and the
Chief Scientific Officer of the Company. The fees incurred were for services
rendered by Dr. Jefferies to the Company under the GeneMax Pharmaceuticals
Consulting Agreement including, but not limited to, technical, research and
technology development. Based upon $6,725, which was due and owing to 442668 at
20
December 31, 2001, this resulted in an aggregate amount of $88,135 due and owing
442668. During fiscal year ended December 31, 2002, the Company paid 442668
$67,670 and settled the remaining balance of $20,465 through the issuance of
20,465 shares of restricted Common Stock at $1.00 per share. As of December 31,
2002, there was no amount that remained due and owing. During fiscal year ended
December 31, 2002, Dr. Jefferies received $67,670 through 442668 as compensation
for services rendered to the Company. See "Part III. Item 10. Executive
Compensation."
During fiscal year ended December 31, 2002, an aggregate of $105,206 in
fees was incurred to Ronald Handford, a director, the President and the Chief
Executive Officer of the Company. The fees incurred were for services rendered
by Mr. Handford to the Company under the GeneMax Pharmaceuticals Management
Agreement including, but not limited to, general managerial. Based upon $80,500,
which was due and owing to Mr. Handford at December 31, 2001, this resulted in
an aggregate amount of $185,706 due and owing. During fiscal year ended December
31, 2002, the Company paid Mr. Handford $69,374 and settled an amount of
$100,000 through the issuance of 100,000 shares of restricted Common Stock at
$1.00 per share. As of December 31, 2002, an aggregate amount of $16,332 remains
due and owing to Mr. Handford by the Company. During fiscal year ended December
31, 2002, Mr. Handford received $69,374 as compensation for services rendered to
the Company. See "Part III. Item 10. Executive Compensation."
During fiscal year ended December 31, 2002, an aggregate of $42,500 in fees
was incurred to Alan Lindsay and Associates Ltd. ("AL&A"), a corporation whose
sole officer, director and shareholder is Alan Lindsay, a director of the
Company. The fees incurred were for services rendered by Mr. Lindsay to the
Company under the GeneMax Pharmaceuticals Services Agreement including, but not
limited to, general consulting. Based upon $17,500, which was due and owing to
AL&A at December 31, 2001, this resulted in an aggregate amount of $60,000 due
and owing AL&A. During fiscal year ended December 31, 2002, the Company paid
AL&A $20,000 and settled an amount of $27,500 through the issuance of 27,500
shares of restricted Common Stock at $1.00 per share. As of December 31, 2002,
an aggregate amount of $12,500 remains due and owing to AL&A by the Company.
During fiscal year ended December 31, 2002, Mr. Lindsay received $20,000 through
AL&A as compensation for services rendered to the Company. See "Part III. Item
10. Executive Compensation."
During fiscal year ended December 31, 2002, an aggregate of $40,500 in fees
was incurred to James D. Davidson, a director and the Chief Financial Officer of
the Company. The fees incurred were for services rendered by Mr. Davidson to the
Company under the Davidson Agreement including, but not limited to, such duties
and services commensurate with his position as the Chief Financial Officer and a
director of the Company. Based upon $5,000, which was due and owing to Mr.
Davidson at December 31, 2001, this resulted in an aggregate amount of $45,500
due and owing to Mr. Davidson. During fiscal year ended December 31, 2002, the
Company paid Mr. Davidson $32,500 and settled the remaining balance of $13,000
through the issuance of 13,000 shares of restricted Common Stock at $1.00 per
share. As of December 31, 2002, there is no amount that remains due and owing to
Mr. Davidson by the Company. During fiscal year ended December 31, 2002, Mr.
Davidson received $32,500 compensation for services rendered to the Company. See
"Part III. Item 10. Executive Compensation."
As discussed above, the increase in net loss during fiscal year ended
December 31, 2002 as compared to fiscal year ended December 31, 2001 is
attributable primarily to the increase in operating expenses incurred during
fiscal year ended December 31, 2002. The Company's net losses during fiscal year
ended December 31, 2002 was approximately ($2,284,709) or ($0.17) per common
share compared to a net loss of approximately ($671,986) or ($0.06) per common
share during fiscal year ended December 31, 2001. The weighted average of common
shares outstanding were 13,289,451 for fiscal year ended December 31, 2002
compared to 11,431,965 for fiscal year ended December 31, 2001.
21
Liquidity and Capital Resources
The Company's financial statements have been prepared assuming that it will
continue as a going concern and, accordingly, do not include adjustments
relating to the recoverability and realization of assets and classification of
liabilities that might be necessary should the Company be unable to continue in
operation.
As of December 31, 2002, the Company's current assets were $648,589 and its
current liabilities were $295,599, which resulted in a working capital surplus
of $352,990. As of December 31, 2002, the Company's total assets were $761,428
consisting of: (i) $648,589 in current assets comprised of $642,589 in cash and
$6,000 in prepaid expenses; and (ii) $112,839 in furniture and equipment (net of
depreciation). As of December 31, 2002, the Company's total liabilities of
$295,599 consisted primarily of: (i) $264,613 in accounts payable and accrued
liabilities; and (ii) amounts due to related parties of $30,986.
As of December 31, 2002, the Company's stockholders' equity increased to
$465,829 from a deficit of ($74,049) at December 31, 2001.
The Company has not generated positive cash flows from operating
activities. For fiscal year ended December 31, 2002, net cash flows used in
operating activities was ($1,406,739) compared to ($603,754) of net cash flows
used in operating activities for fiscal year ended December 31, 2001 (an
increase of $802,985). The increase in cash flows used in operating activities
during fiscal year ended December 31, 2002 compared to fiscal year ended
December 31, 2001 resulted from: (i) a net loss of ($2,284,709) incurred during
fiscal year ended December 31, 2002 compared to a net loss of ($671,986)
incurred during fiscal year ended December 31, 2001; (ii) an increase in
stock-based compensation to $630,275 during fiscal year ended December 31, 2002
compared to $-0- during fiscal year ended December 31, 2001; (iii) an increase
in accounts payable to $206,805 during fiscal year ended December 31, 2002
compared to $35,395 during fiscal year ended December 31, 2001; and (iv) an
increase in depreciation to $40,890 during fiscal year ended December 31, 2002
compared to $32,837 during fiscal year ended December 31, 2001.
The Company's cash flow from investing activities during fiscal year ended
December 31, 2002 was $417,553 compared to ($70,889) used in investing
activities during fiscal year ended December 31, 2001. The increase in cash flow
from investing activities during fiscal year ended December 31, 2002 compared to
fiscal year ended December 31, 2001 resulted primarily from: (i) pre-reverse
merger advances from Eduverse.com in the amount of $250,000 compared to $-0-
during fiscal year ended December 31, 2001; (ii) cash in the amount of $173,373
acquired pursuant to acquisition of GeneMax Pharmaceuticals compared to $-0-
during fiscal year ended December 31, 2001; and (iii) purchase of furniture and
equipment in the amount of $5,820 compared to $70,889 during fiscal year ended
December 31, 2001.
Net cash flows from financing activities was $1,625,859 during fiscal year
ended December 31, 2002 compared to $501,245 in net cash flows from financing
activities for fiscal year ended December 31, 2001. The increase in net cash
flows from financing activities during fiscal year ended December 31, 2002
compared to fiscal year ended December 31, 2001 resulted primarily from: (i)
proceeds on sale and subscription of Common Stock in the amount of $1,570,000
compared to $347,750 during fiscal year ended December 31, 2001; (ii) loans
payable in the amount of $68,545 compared to $67,700 in loans payable during
fiscal year ended December 31, 2001; and (iii) repayments to related parties in
the amount of $12,686 compared to advances from related parties in the amount of
$85,795 during fiscal year ended December 31, 2001.
22
PLAN OF OPERATION
Funding
During the last quarter of fiscal year ended December 31, 2002, the Company
terminated an offering of 1,000,000 Units at $2.50 per Unit. Each Unit consists
of one share of restricted common stock of the Company (the "Share") and
one-half of one non-transferable share purchase warrant (the Warrant"), with
each whole Warrant convertible into one share of common stock at $5.00 per whole
Warrant. The Company sold 425,400 Units and received $1,063,500 in gross
proceeds.
Current management of the Company anticipates an increase in operating
expenses over the next three years to pay expenses associated with the
successful completion of the balance of pre-clinical development and
commencement of Phase I-II clinical trials for the TAP Technology and corporate
expenses. Pursuant to these operational requirements, the Company must raise
additional funds. The Company may finance these expenses with further issuance
of common stock of the Company. The Company believes that anticipated private
placements of equity capital and debt financing, if successful, may be adequate
to fund the Company's operations over the next twelve months. Thereafter, the
Company expects it will need to raise additional capital to meet long-term
operating requirements. If the Company raises additional funds through the
issuance of equity or convertible debt securities other than to current
shareholders, the percentage ownership of its current shareholders would be
reduced, and such securities might have rights, preferences or privileges senior
to its Common Stock. Additional financing may not be available upon acceptable
terms, or at all. If adequate funds are not available or are not available on
acceptable terms, the Company may not be able to conduct its proposed business
operations successfully or in the time frames contemplated, which could
significantly and materially restrict or delay the Company's overall business
operations.
Management of the Company estimates that as of the date of this Annual
Report, the Company has raised approximately $2,538,500 in funding. Management
of the Company believes that an estimated $15,000,000 is required over the next
three years for payment of expenses associated with the balance of pre-clinical
development and commencement of Phase I-II clinical trials for the TAP Cancer
Vaccine. The Company must raise additional capital to execute its business plan
according to time schedules provided by management. Furthermore, the Company has
not generated sufficient cash flow in the past to fund its operations and
activities due primarily to the nature of lengthy product development cycles
that are normal to the biotech industry. Historically, the Company has relied
upon internally generated funds, funds from the sale of shares of stock and
loans from its shareholders and private investors to finance its operations and
growth. The Company's future success and viability are dependent on the
Company's ability to raise additional capital through further private offerings
of its stock or loans from private investors. There can be no assurance,
however, that the Company will be able to raise additional capital. The
Company's inability to successfully raise additional capital would have a
material and adverse affect upon the Company and its shareholders.
Material Commitments
Consulting Services Agreement. A significant and estimated material
commitment for the Company for fiscal year 2003 is the amounts due and owing
under the consulting services agreement between the Company and ICI dated August
12, 2002 (the "Consulting Services Agreement"). Pursuant to the terms and
provisions of the Consulting Services Agreement, ICI will provide to the Company
such finance and managerial services as may be determined by the Board of
Directors, from time to time, and in its sole and absolute discretion, in order
to develop the various business interests of the Company in the drug discovery
and development industry, involving the patented drug discovery assay for
immunomodulatory compounds and the pipeline aimed at treatment of cancer,
infectious diseases, autoimmune disorders and transplant tissue rejection.
Pursuant to further terms of the Consulting Services Agreement, the Company
shall pay ICI a monthly fee not to exceed $10,000 in accordance with the
services performed.
23
GeneMax Pharmaceuticals Consulting Agreement. A significant and estimated
material commitment for the Company for fiscal year 2003 is the amounts due and
owing under the consulting services agreement dated February 1, 2000 between
GeneMax Pharmaceuticals and 442668 B.C. Ltd. ("442668"), a corporation whose
sole officer, director and shareholder is Dr. Wilfred Jefferies, a director of
the Company (the "GeneMax Pharmaceuticals Consulting Agreement"). Pursuant to
the terms and provisions of the GeneMax Pharmaceuticals Consulting Agreement,
Dr. Jefferies agreed to provide technical, research and technology development
services to GeneMax Pharmaceuticals for a period of five years. Pursuant to
further terms and provisions of the GeneMax Pharmaceuticals Consulting
Agreement, 442668 shall be paid a monthly fee of $10,000 Canadian Dollars and
reimbursement of expenses.
GeneMax Pharmaceuticals Management Agreement. A significant and estimated
material commitment for the Company for fiscal year 2003 is the amounts due and
owing under the management services agreement dated August 1, 1999 between
GeneMax Pharmaceuticals and Ronald L. Handford, the President/Chief Executive
Officer and a director of the Company (the "GeneMax Pharmaceuticals Management
Agreement"). Pursuant to the terms and provisions of the GeneMax Pharmaceuticals
Management Agreement, Mr. Handford agreed to provide general managerial services
to GeneMax Pharmaceuticals for a period of five years. Pursuant to further terms
and provisions of the GeneMax Pharmaceuticals Management Agreement, Mr. Handford
shall be paid a monthly fee of $11,000 U.S. Dollars and reimbursement of
expenses. Effective May 1, 2002, GeneMax Pharmaceuticals and Mr. Handford agreed
to reduce the monthly fee to $12,500 Canadian Dollars until the earlier of the
Company reaching a senior board listing or commences clinical trials, at which
time the fee will be reviewed in accordance with market norms.
GeneMax Pharmaceuticals Services Agreement. A significant and estimated
material commitment for the Company for fiscal year 2003 is the amounts due and
owing under the services agreement dated May 31, 2002 between GeneMax
Pharmaceuticals and Alan Lindsay and Associates Ltd., a corporation whose sole
officer, director and shareholder is Alan Lindsay, a director of the Company
(the "GeneMax Pharmaceuticals Services Agreement"). Pursuant to the terms and
provisions of the GeneMax Pharmaceuticals Services Agreement, Mr. Lindsay agreed
to provide general consulting services to GeneMax Pharmaceuticals on a
month-to-month basis. Pursuant to further terms and provisions of the GeneMax
Pharmaceuticals Services Agreement, Mr. Lindsay shall be paid a monthly fee of
$2,500 U.S. Dollars and reimbursement of expenses.
Employment Agreement. A significant and estimated material commitment for
the Company for fiscal year 2003 is the amounts due and owing under a
month-to-month employment agreement between the Company and James D. Davidson, a
director and the Chief Financial Officer of the Company (the "Employment
Agreement"). Pursuant to the terms of the Employment Agreement, Mr. Davidson
agreed to perform such duties as required as the Chief Financial Officer of the
Company and such other duties commensurate with his position as a director on
the Board of Directors. Pursuant to further terms and provisions of the
Employment Agreement, Mr. Davidson shall be paid a monthly fee of $5,000 and
reimbursement of expenses.
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this Annual Report, 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. The
term "off-balance sheet arrangement" generally means any transaction, agreement
or other contractual arrangement to which an entity unconsolidated with the
Company is a party, under which the Company has (i) any obligation arising under
a guarantee contract, derivative instrument or variable interest; or (ii) a
retained or contingent interest in assets transferred to such entity or similar
arrangement that serves as credit, liquidity or market risk support for such
assets.
24
AUDIT COMMITTEE
As of the date of this Annual Report, the Company has not appointed members
to an audit committee and, therefore, the respective role of an audit committee
has been conducted by the board of directors of the Company. When established,
the audit committee's primary function will be to provide advice with respect to
the Company's financial matters and to assist the board of directors in
fulfilling its oversight responsibilities regarding finance, accounting, tax and
legal compliance. The audit committee's primary duties and responsibilities will
be to: (i) serve as an independent and objective party to monitor the Company's
financial reporting process and internal control system; (ii) review and
appraise the audit efforts of the Company's independent accountants; (iii)
evaluate the Company's quarterly financial performance as well as its compliance
with laws and regulations; (iv) oversee management's establishment and
enforcement of financial policies and business practices; and (v) provide an
open avenue of communication among the independent accountants, management and
the board of directors.
The board of directors has considered whether the regulatory provision of
non-audit services is compatible with maintaining the principal independent
accountant's independence.
Audit Fees
During the fiscal year ended December 31, 2002, the Company incurred
approximately $16,065 in fees to its principal independent accountant for
professional services rendered in connection with the audit of the Company's
financial statements, and approximately $20,000 for the review of the Company's
financial statements for the quarters ended March 31, 2002, June 30, 2002 and
September 30, 2002.
Financial Information Systems Design and Implementation Fees
During fiscal year ended December 31, 2002, the Company did not incur any
fees for professional services rendered by its principal independent accountant
for certain information technology services which may include, but is not
limited to, operating or supervising or managing the Company's information or
local area network or designing or implementing a hardware or software system
that aggregate source data underlying the financial statements.
All Other Fees
During fiscal year ended December 31, 2002, the Company did not incur any
other fees for professional services rendered by its principal independent
accountant for all other non-audit services which may include, but is not
limited to, tax-relates services, actuarial services or valuation services.
25
ITEM 7. FINANCIAL STATEMENTS
The information required under Item 310(a) of Regulation S-B is included in
this report as set forth in the "Index to Consolidated Financial Statement".
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Auditors' Report dated February 25, 2003
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statement of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
TABLE OF CONTENTS
-----------------
Page
----
Auditors' Report....................................................... 28
Consolidated Balance Sheet............................................. 29
Consolidated Statements of Operations.................................. 30
Consolidated Statement of Stockholders' Equity (Deficit)............... 31
Consolidated Statements of Cash Flows.................................. 36
Notes to Consolidated Financial Statements............................. 37
26
GENEMAX CORP.
(formerly Eduverse.com)
(a development stage company)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
AUDITORS' REPORT
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
27
LABONTE & CO. 610 - 938 Howe Street
---------------------------------------- Vancouver, BC Canada
C H A R T E R E D A C C O U N T A N T S V6Z 1N9
---------------------------------------- Telephone (604) 682-2778
Facsimile (604) 689-2778
Email: info@labonteco.com
AUDITORS' REPORT
--------------------------------------------------------------------------------
To the Stockholders and Board of Directors of GeneMax Corp. (formerly
eduverse.com)
We have audited the consolidated balance sheets of GeneMax Corp. (formerly
eduverse.com) as at December 31, 2002 and 2001 and the consolidated statements
of operations, stockholders' equity and cash flows for the years then ended and
for the period from July 27, 1999 (inception) to December 31, 2002. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with Canadian and United States generally
accepted auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2002 and 2001
and the results of its operations and its cash flows and the changes in
stockholders' equity for the years then ended and for the period from July 27,
1999 (inception) to December 31, 2002 in accordance with United States generally
accepted accounting principles.
CHARTERED ACCOUNTANTS
Vancouver, B.C.
February 25, 2003
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-UNITED STATES REPORTING
DIFFERENCES
--------------------------------------------------------------------------------
In the United States, reporting standards for auditors would require the
addition of an explanatory paragraph following the opinion paragraph when the
financial statements are affected by conditions and events that cast substantial
doubt on the Company's ability to continue as a going concern, such as those
described in Note 1. Our report to the stockholders and Board of Directors dated
February 25, 2003 is expressed in accordance with Canadian reporting standards
which do not permit a reference to such conditions and events in the auditors'
report when these are adequately disclosed in the financial statements.
CHARTERED ACCOUNTANTS
Vancouver, B.C.
February 25, 2003
28
GENEMAX CORP.
(formerly Eduverse.com)
(a development stage company)
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2002 2001
----------- -----------
(Note 1)
ASSETS
CURRENT ASSETS
Cash $ 642,589 $ 11,561
Prepaid expenses 6,000 --
----------- -----------
648,589 11,561
FURNITURE AND EQUIPMENT, (Note 5)
net of depreciation of $79,138 (2001 - $38,248) 112,839 147,909
----------- -----------
$ 761,428 $ 159,470
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 264,613 $ 43,524
Loans payable (Note 6) -- 67,700
Due to related parties (Note 7) 30,986 122,295
----------- -----------
295,599 233,519
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 1, 4 and 7)
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Capital stock (Note 8)
Common stock, $0.0001 par value, 25,000,000 shares authorized
15,847,519 shares issued and outstanding (2001 - 1,000,000) 15,847 10,863
Additional paid-in capital 3,621,665 1,607,117
Common stock subscriptions 200,000 --
Common stock purchase warrants 610,700 --
Deficit accumulated during the development stage (3,972,760) (1,688,051)
Accumulated other comprehensive income (loss) (9,623) (3,978)
----------- -----------
465,829 (74,049)
----------- -----------
$ 761,428 $ 159,470
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements
29
GENEMAX CORP.
(formerly Eduverse.com)
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
July 27, 1999
Year Ended Year Ended (inception) to
December 31 December 31 December 31,
2002 2001 2002
------------ ------------ ------------
(Note 1) (Note 1)
INTEREST INCOME $ 125 $ 1,139 $ 26,571
------------ ------------ ------------
Consulting fees 149,036 106,578 304,277
Consulting fees - stock based (Note 8) 630,275 -- 630,275
Depreciation 40,890 32,837 79,138
License fees -- -- 79,243
Management fees 168,206 132,000 487,206
Office and general 96,830 55,574 247,426
Professional fees 350,782 47,800 510,503
Research and development 833,589 283,987 1,533,040
Travel 15,226 14,349 78,223
------------ ------------ ------------
2,284,834 673,125 3,999,331
------------ ------------ ------------
NET LOSS FOR THE PERIOD $ (2,284,709) $ (671,986) $ (3,972,760)
============ ============ ============
BASIC NET LOSS PER SHARE $ (0.17) $ (0.06)
============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 13,289,451 11,431,965
============ ============
The accompanying notes are an integral part of these consolidated financial statements
30
GENEMAX CORP.
(formerly Eduverse.com)
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JULY 27, 1999 (INCEPTION) TO DECEMBER 31, 2002
Common Stock
------------------------- Additional Common
Number of Paid In Stock
shares Amount Capital Subscriptions
----------- ----------- ----------- -------------
Issued on incorporation - July 27, 1999 1 $ -- $ -- $ --
Issued for consulting services - October 1999 2,150,000 2,150 -- --
Issued for cash at $0.001 per share - October 1999 1,850,000 1,850 -- --
Common stock subscriptions -- -- -- 177,100
Net loss for the period -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 1999 4,000,001 4,000 -- 177,100
Issued for consulting services - February 2000 3,600,000 3,600 -- --
Issued for license fees - February 2000 500,000 500 -- --
Issued for cash at $0.60 per share - February 2000
- net of finders' fees of $95,570 1,408,828 1,409 748,321 (177,100)
Issued for cash at $0.60 per share - March 2000 644,000 644 385,756 --
Issued for cash at $0.60 per share- May 2000 210,000 210 125,790 --
Issued for finders' fees - May 2000 124,642 125 (125) --
Net loss for the year -- -- -- --
Currency translation adjustment -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 2000 10,487,471 10,488 1,259,742 --
Table continues on following page.
31
GENEMAX CORP.
(formerly Eduverse.com)
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JULY 27, 1999 (INCEPTION) TO DECEMBER 31, 2002 (Continued)
Deficit
Common Accumulated Accumulated
Stock During other
Purchase Development Comprehensive
Warrants Stage Income (loss) Total
----------- ----------- ------------- -----------
Issued on incorporation - July 27, 1999 $ -- $ -- $ -- $ --
Issued for consulting services - October 1999 -- -- -- 2,150
Issued for cash at $0.001 per share - October 1999 -- -- -- 1,850
Common stock subscriptions -- -- -- 177,100
Net loss for the period -- (80,733) -- (80,733)
----------- ----------- ----------- -----------
Balance, December 31, 1999 -- (80,733) -- 100,367
Issued for consulting services - February 2000 -- -- -- 3,600
Issued for license fees - February 2000 -- -- -- 500
Issued for cash at $0.60 per share - February 2000
- net of finders' fees of $95,570 -- -- -- 572,630
Issued for cash at $0.60 per share - March 2000 -- -- -- 386,400
Issued for cash at $0.60 per share- May 2000 -- -- -- 126,000
Issued for finders' fees - May 2000 -- -- -- --
Net loss for the year -- (935,332) -- (935,332)
Currency translation adjustment -- -- (1,937) (1,937)
----------- ----------- ----------- -----------
Balance, December 31, 2000 -- (1,016,065) (1,937) 252,228
The accompanying notes are an integral part of these consolidated financial statements
32
GENEMAX CORP.
(formerly Eduverse.com)
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JULY 27, 1999 (INCEPTION) TO DECEMBER 31, 2002 (Continued)
Common Stock
-------------------------- Additional Common
Number of Paid In Stock
shares Amount Capital Subscriptions
----------- ----------- ----------- -------------
Issued for cash at $0.75 per share
- April to July 2001 110,334 110 82,640 --
Issued for cash at $1.00 per share
- June to November 2001 265,000 265 264,735 --
Net loss for the year -- -- -- --
Currency translation adjustment -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 2001 10,862,805 10,863 1,607,117 --
Issued for cash at $1.00 per share- February to
May 2002 - net of finders' fees of $17,000 187,500 187 170,313 --
Issued on settlement of debts at $0.75 per share
- May 2002 181,660 182 136,063 --
----------- ----------- ----------- -----------
GPI balance, July 15, 2002 (Note 1) 11,231,965 11,232 1,913,493 --
Eduverse balance, July 15, 2002 (Note 8) 15,320,119 52,075 7,134,217 (85,000)
Reverse acquisition recapitalization adjustment (11,231,965) (47,987) (7,180,193) --
----------- ----------- ----------- -----------
Balance post reverse acquisition 15,320,119 15,320 1,867,517 (85,000)
Common stock purchase warrants expired -- -- 9,900 --
Eduverse subscription proceeds received -- -- -- 100,000
Table continues on following page.
33
GENEMAX CORP.
(formerly Eduverse.com)
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JULY 27, 1999 (INCEPTION) TO DECEMBER 31, 2002 (Continued)
Deficit
Common Accumulated Accumulated
Stock During other
Purchase Development Comprehensive
Warrants Stage Income (loss) Total
----------- ----------- ------------- -----------
Issued for cash at $0.75 per share
- April to July 2001 -- -- -- 82,750
Issued for cash at $1.00 per share
- June to November 2001 -- -- -- 265,000
Net loss for the year -- (671,986) -- (671,986)
Currency translation adjustment -- -- (2,041) (2,041)
----------- ----------- ----------- -----------
Balance, December 31, 2001 -- (1,688,051) (3,978) (74,049)
Issued for cash at $1.00 per share- February to
May 2002 - net of finders' fees of $17,000 -- -- -- 170,500
Issued on settlement of debts at $0.75 per share
- May 2002 -- -- -- 136,245
----------- ----------- ----------- -----------
GPI balance, July 15, 2002 (Note 1) -- (1,688,051) (3,978) 232,696
Eduverse balance, July 15, 2002 (Note 8) -- (6,607,580) -- 493,712
Reverse acquisition recapitalization adjustment 620,600 6,607,580 -- --
----------- ----------- ----------- -----------
Balance post reverse acquisition 620,600 (1,688,051) (3,978) 726,408
Common stock purchase warrants expired (9,900) -- -- --
Eduverse subscription proceeds received -- -- -- 100,000
The accompanying notes are an integral part of these consolidated financial statements
34
GENEMAX CORP.
(formerly Eduverse.com)
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JULY 27, 1999 (INCEPTION) TO DECEMBER 31, 2002 (Continued)
Common Stock
------------------------- Additional Common
Number of Paid In Stock
shares Amount Capital Subscriptions
----------- ----------- ----------- -------------
Issued for cash at $2.50 per share - November 2002 425,400 425 1,063,075 --
Subscription proceeds received - December 2002 -- -- -- 185,000
Exercise of stock options at $0.50 per share
- December 2002 102,000 102 50,898 --
Stock-based compensation -- -- 630,275 --
Net loss for the year -- -- -- --
Currency translation adjustment -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 2002 15,847,519 $ 15,847 $ 3,621,665 $ 200,000
=========== =========== =========== ===========
Table continues below.
Deficit
Common Accumulated Accumulated
Stock During other
Purchase Development Comprehensive
Warrants Stage Income (loss) Total
----------- ----------- ------------- -----------
Issued for cash at $2.50 per share - November 2002 -- -- -- 1,063,500
Subscription proceeds received - December 2002 -- -- -- 185,000
Exercise of stock options at $0.50 per share
- December 2002 -- -- -- 51,000
Stock-based compensation -- -- -- 630,275
Net loss for the year -- (2,284,709) -- (2,284,709)
Currency translation adjustment -- -- (5,645) (5,645)
----------- ----------- ----------- -----------
Balance, December 31, 2002 $ 610,700 $(3,972,760) $ (9,623) $ 465,829
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements
35
GENEMAX CORP.
(formerly Eduverse.com)
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
July 27, 1999
Year Ended Year Ended (inception) to
December 31 December 31 December 31,
2002 2001 2002
----------- ----------- -----------
(Note 1) (Note 1)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the year $(2,284,709) (671,986) $(3,972,760)
Adjustments to reconcile net loss to net cash from operating activities:
- depreciation 40,890 32,837 79,138
- non-cash consulting fees -- -- 5,750
- non-cash license fees -- -- 500
- stock-based compensation 630,275 630,275
- accounts payable 206,805 35,395 250,329
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,406,739) (603,754) (3,006,768)
----------- ----------- -----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Purchase of furniture and equipment (5,820) (70,889) (191,977)
Pre reverse acquisition advances from Eduverse (Note 3) 250,000 250,000
Cash acquired on reverse acquisition of Eduverse (Note 3) 173,373 173,373
----------- ----------- -----------
NET CASH FROM (USED IN) INVESTING ACTIVITIES 417,553 (70,889) 231,396
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on sale and subscriptions of common stock 1,570,000 347,750 3,181,730
Loans payable 68,545 67,700 136,245
Advances (to) from related parties (12,686) 85,795 109,609
----------- ----------- -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES 1,625,859 501,245 3,427,584
----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES (5,645) (2,041) (9,623)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH 631,028 (175,439) 642,589
CASH, BEGINNING OF YEAR 11,561 187,000 --
----------- ----------- -----------
CASH, END OF YEAR $ 642,589 $ 11,561 $ 642,589
=========== =========== ===========
Non-cash activities:
Prior to the reverse merger as described in Note 3, GPI settled loans payable totalling $136,245 through the
issuance of 181,660 shares of common stock of GPI at $0.75 per share (Refer to Notes 6 and 8).
Concurrent with the reverse merger as described in Note 3, GMC settled certain research and development, management
and consulting fees owing by GPI to related parties totalling $188,154 through the issuance of 188,154 shares of
common stock of GMC at $1.00 per share (Refer to Notes 7 and 8).
The accompanying notes are an integral part of these consolidated financial statements
36
GENEMAX CORP.
(formerly Eduverse.com)
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
--------------------------------------------------------------------------------
On May 9, 2002, GeneMax Corp. (formerly Eduverse.com) ("GMC", "Eduverse" or "the
Company"), a Nevada corporation entered into a letter of intent to acquire 100%
of the issued and outstanding common shares of GeneMax Pharmaceuticals Inc. (a
development stage company) ("GPI"), in exchange for a total of 11,431,965
restricted shares of common stock of Eduverse. In connection with this
transaction, Eduverse changed its name to GeneMax Corp. During July and August
Eduverse completed the transaction pursuant to a definitive Share Exchange
Agreement and issued 11,231,965 restricted shares of common stock to the GPI
stockholders and 200,000 shares of common stock as a finder's fee.
This acquisition has been accounted for as a reverse merger with GPI being
treated as the accounting parent and GMC, the legal parent, being treated as the
accounting subsidiary. Accordingly, the consolidated results of operations of
the Company include those of GPI for all periods shown and those of GMC since
the date of the reverse merger. The comparative balance sheet as at December 31,
2002 is that of GPI.
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 4).
The consolidated financial statements have been prepared on the basis of a going
concern which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has incurred
significant losses since inception and further losses are anticipated in the
development of its products raising substantial doubt as to the Company's
ability to continue as a going concern. The ability of the Company to continue
as a going concern is dependent on raising additional capital to fund ongoing
research and development and ultimately on generating future profitable
operations.
Subsequent to December 31, 2002 the Company received proceeds of $440,000 in
connection with the exercise of stock options and $30,000 in connection with the
Company's ongoing private placement financing (refer to Note 10).
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 Notes 1 and 3. The
consolidated financial statements also include the accounts of the Company's
inactive wholly-owned subsidiary, M&M Information and Marketing Services Inc.
(incorporated in Nevada, USA). All significant intercompany balances and
transactions are eliminated on consolidation.
37
GENEMAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(formerly Eduverse.com)
(a development stage company)
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
NOTE 2: - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
--------------------------------------------------------------------------------
Use of Estimates and Assumptions
Preparation of the Company's financial statements in conformity with United
States generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Furniture and Equipment
Furniture and equipment are stated at cost. Depreciation is computed at the
following rates over the estimated useful lives of the assets:
Office furniture and equipment 36 months straight-line
Laboratory equipment 60 months straight-line
Research and development costs
The Company has acquired exclusive development and marketing rights to certain
technologies through a License Agreement and a Collaborative Research Agreement
with UBC. The rights and license acquired are considered rights to unproven
technology which may not have alternate future uses and therefore, have been
expensed as incurred as research and development costs. Also, ongoing costs
incurred in connection with the Collaborative Research Agreement are considered
costs incurred in the development of unproven technology which may not have
alternate future uses and therefore, have been expensed as incurred as research
and development costs.
Fair Value of Financial Instruments
In accordance with the requirements of SFAS No. 107, the Company has determined
the estimated fair value of financial instruments using available market
information and appropriate valuation methodologies. The fair value of financial
instruments classified as current assets or liabilities including cash, prepaid
expense, loans and accounts payable and due to related parties approximate
carrying value due to the short-term maturity of the instruments.
Foreign Currency Translation
The financial statements are presented in United States dollars. In accordance
with Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation", foreign denominated monetary assets and liabilities are translated
to their United States dollar equivalents using foreign exchange rates which
prevailed at the balance sheet date. Revenue and expenses are translated at
average rates of exchange during the year. Related translation adjustments are
reported as a separate component of stockholders' equity, whereas gains or
losses resulting from foreign currency transactions are included in results of
operations.
Net Loss per Common Share
Basic earnings (loss) per share includes no dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Dilutive earnings (loss) per share reflect
the potential dilution of securities that could share in the earnings of the
Company. The accompanying presentation is only of basic loss per share as the
potentially dilutive factors are anti-dilutive to basic loss per share.
Stock-Based Compensation
In December 2002, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure" ("SFAS No. 148"), an amendment of Financial
Accounting Standard No. 123 "Accounting for Stock-Based Compensation" ("SFAS No.
123"). The purpose of SFAS No. 148 is to: (1) provide alternative methods of
transition for an entity that voluntarily changes to the fair value based method
of accounting for stock-based employee compensation, (2) amend the disclosure
provisions to require prominent disclosure about the effects on reported net
income of an entity's accounting policy decisions with respect to stock-based
employee compensation, and (3) to require disclosure of those effects in interim
financial information. The disclosure provisions of SFAS No. 148 were effective
for the Company for the year ended December 31, 2002.
38
GENEMAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(formerly Eduverse.com)
(a development stage company)
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
--------------------------------------------------------------------------------
The Company has elected to continue to account for stock options granted to
employees and officers using the intrinsic value based method 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. Under
APB No. 25, compensation expense is recognized based on the difference, if any,
on the date of grant between the estimated fair value of the Company's stock and
the amount an employee must pay to acquire the stock. Compensation expense is
recognized immediately for past services and pro-rata for future services over
the option-vesting period. In addition, with respect to stock options granted to
employees, the Company provides pro-forma information as required by SFAS No.
123 showing the results of applying the fair value method using the
Black-Scholes option pricing model.
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. 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
earliest of a performance commitment or completion of performance by the
provider of goods or services as defined by EITF 96-18.
The Company has also adopted the provisions of the Financial Accounting
Standards Board Interpretation No.44, Accounting for Certain Transactions
Involving Stock Compensation - An Interpretation of APB Opinion No. 25 ("FIN
44"), which provides guidance as to certain applications of APB 25. FIN 44 is
generally effective July 1, 2000 with the exception of certain events occurring
after December 15, 1998.
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 December 31, 2002 a full deferred tax asset valuation
allowance has been provided and no deferred tax asset benefit has been recorded.
Comprehensive income (loss)
Comprehensive income (loss) is defined as the change in equity from
transactions, events and circumstances, other than those resulting from
investments by owners and distributions to owners. Comprehensive income (loss)
to date consists only of the net gains and losses resulting from translation of
the foreign currency financial statements of the Company's wholly-owned
subsidiary, GPC.
Recent accounting pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations",
which eliminates the pooling method of accounting for business combinations
initiated after June 30, 2001. In addition, SFAS 141 addresses the accounting
for intangible assets and goodwill acquired in a business combination. This
portion of SFAS 141 is effective for business combinations completed after June
30, 2001. The adoption of SFAS 141 has not had a material impact on the
Company's financial position or results of operations.
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142 ("SFAS 142"), "Goodwill and Intangible Assets", which revises the accounting
for purchased goodwill and intangible assets. Under SFAS 142, goodwill and
intangible assets with indefinite lives will no longer be amortized and will be
tested for impairment annually. SFAS 142 is effective for fiscal years beginning
after December 15, 2001, with earlier adoption permitted. The adoption of SFAS
has not had a material impact on the Company's financial position or results of
operations.
39
GENEMAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(formerly Eduverse.com)
(a development stage company)
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
NOTE 3 - EDUVERSE ACQUISITION
--------------------------------------------------------------------------------
Effective May 9, 2002 the Company entered into a letter of intent to acquire
100% of the issued shares in the capital of GPI in exchange for 11,231,965
restricted shares of common stock plus 200,000 restricted shares of common stock
for a finder's fee. The Company also agreed to issue an additional 188,154
restricted shares of common stock in settlement of $188,154 of accrued GPI
management, consulting and research and development fees. Effective July 15,
2002, pursuant to a definitive Share Exchange Agreement, the Company commenced
the closing and acquired 5,880,304 shares of GPI from non-British Columbia
shareholders of GPI in exchange for the issuance of 5,880,304 restricted shares
of common stock. The Company also issued a take-over bid circular to British
Columbia GPI shareholders and acquired a further 4,487,001 shares of GPI in
exchange for 4,487,001 restricted shares of common stock effective August 13,
2002. Also during 2002, the Company completed the acquisition by acquiring the
remaining 864,660 shares of GPI in exchange for 864,660 restricted shares of
common stock. Also, 744,494 outstanding GPI common stock purchase warrants were
exchanged on a one for one basis for the Company's common stock purchase
warrants with identical terms and conditions and the Company issued 2,135,000
stock options to holders of GPI stock options (refer to Note 8). All GPI stock
options and common stock purchase warrants were then cancelled. As a result of
this transaction, the former stockholders of GPI owned 75% of the 15,320,119
total issued and outstanding shares of the Company as at July 15, 2002. In
connection with this transaction, Eduverse changed its name to GeneMax Corp
("GMC").
This acquisition has been accounted for as a recapitalization using accounting
principles applicable to reverse acquisitions with GPI being treated as the
accounting parent (acquirer) and GMC being treated as the accounting subsidiary
(acquiree). The value assigned to the capital stock of consolidated GMC on
acquisition of GPI is equal to the book value of the capital stock of GPI plus
the book value of the net assets of GMC as at the date of the acquisition.
The book value of GMC's capital stock subsequent to the reverse acquisition is
calculated and allocated as follows:
GPI capital stock $ 1,924,725
GMC net assets 493,712
-----------
$ 2,418,437
===========
Capital stock $ 15,320
Additional paid-in capital 620,600
Share purchase warrants 1,867,517
-----------
2,503,437
GMC subscriptions receivable pre reverse acquisition (100,000)
GMC subscriptions received pre reverse acquisition 15,000
-----------
Consolidated Capital accounts post reverse acquisition $ 2,418,437
===========
These consolidated financial statements include the results of operations of GPI
since July 27, 1999 (inception) and the results of operations of GMC since the
date of the reverse merger effective July 15, 2002. GMC'S results of operations
for the period from January 1, 2002 to June 30, 2002 have been reported in the
Company's June 30, 2002 filing on Form 10-QSB. GMC had no material operations
for the period from July 1, 2002 to July 14, 2002.
For the period from October 13, 1999 (inception) to July 14, 2002 the weighted
average number of common shares outstanding is deemed to be 11,431,965 being the
number of shares issued by GMC (including 200,000 common shares issued as
finders' fees) to effect the reverse acquisition of GPI.
40
GENEMAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(formerly Eduverse.com)
(a development stage company)
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
NOTE 4 - RESEARCH AGREEMENTS
--------------------------------------------------------------------------------
University of British Columbia ("UBC")
Effective September 14, 1999 GPI entered into an Option Agreement ("Option")
whereby UBC granted GPI an option to obtain a world-wide license from UBC
providing GPI the exclusive license rights to certain patented and unpatented
cancer immuno-therapy technologies originally invented and developed by UBC. The
Option was for a term of 180 days and was considered exercised upon execution of
the License Agreement with UBC as described below. Prior to being eligible to
exercise the Option, GPI was to make a reasonable commercial effort to raise
equity funding in an amount not less than CAN$1,000,000 to fund ongoing research
and issue 500,000 common shares to UBC and an additional 3,600,000 common shares
to certain principals involved in the UBC research.
Effective March 6, 2000, having satisfied the conditions of the Option, GPI
obtained from UBC, the exclusive license rights as described above for
consideration of $78,743. The License will terminate after 15 years or upon the
expiration of the last patent obtained relating to the licensed technology. The
cost of obtaining any patents will be the responsibility of GPI. The technology
remains the property of UBC, however, it may be utilized and improved by GPI.
Concurrent with the execution of the license the head researcher at UBC became a
director of GPI.
GPI and UBC entered into a Collaborative Research Agreement ("CRA") dated
September 1, 2000 appointing UBC to carry out further development of the
licensed technology and providing GPI the option to acquire the rights to
commercialize any additional technologies developed within the CRA in
consideration for certain funding commitments totalling CAN$498,980 to be paid
in four equal instalments of CAN$124,725 due upon execution of the CRA,
September 30, 2000, January 1, 2001 and March 31, 2001 of which $374,215 was
paid. Through a series of amendments between November 28, 2000 and September 9,
2002, the funding commitment was increased to a total of CAN$ 2,973,049 of which
CAN$991,515 was to be paid for the year ended December 31, 2002, CAN$1,135,801
to be paid in 2003 and CAN$471,518 to be paid in 2004. As at December 31, 2002
CAN$115,303 is payable in connection with the CRA. In addition, as required by
the CRA, GPI has purchased certain laboratory equipment in connection with the
ongoing research.
Canadian Network for Vaccines and Immunotherapeutics of Cancer and Chronic Viral
Diseases ("CANVAC")
Effective January 1, 2001 GPI and UBC entered into a one year Network Affiliate
Agreement with CANVAC (the "CANVAC Agreement") whereby CANVAC would provide a
grant to GPI and UBC to further fund the research activities in connection with
the CRA. Under the terms of the CANVAC Agreement, CANVAC would provide a
CAN$85,000 research grant to UBC upon GPI contributing CAN$117,300 towards the
UBC research. The amounts paid by GPI do not qualify as amounts paid under the
CRA funding schedule outlined above. During 2001, all amounts required under the
CANVAC agreement were paid to UBC by GPI. GPI and CANVAC are currently
negotiating a new Network Affiliate Agreement in order to continue funding the
research activities in connection with the CRA.
NOTE 5 - FURNITURE AND EQUIPMENT
--------------------------------------------------------------------------------
December 31, December 31,
2002 2001
--------- ---------
Office furniture and equipment $ 32,033 $ 26,213
Laboratory equipment 159,944 159,944
--------- ---------
191,977 186,157
Less: accumulated depreciation (79,138) (38,248)
--------- ---------
$ 112,839 $ 147,909
========= =========
NOTE 6 - LOANS PAYABLE
--------------------------------------------------------------------------------
GPI has received loans to satisfy working capital requirements from certain
directors and a relative of a director of GPI. Of the amount outstanding at
December 31, 2001, $10,000 was payable on demand and bore interest at 5% per
annum. The remaining loans payable were unsecured, non-interest bearing and had
no specific terms of repayments. During 2002, GPI received additional loans of
$68,545 and the total balance outstanding of $136,245 was settled through the
issuance of 181,660 shares of common stock of GPI at $0.75 per share (refer to
note 8).
41
GENEMAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(formerly Eduverse.com)
(a development stage company)
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
NOTE 7 -RELATED PARTY TRANSACTIONS
--------------------------------------------------------------------------------
During 1999 and 2000 GPI entered into consulting, management and research and
development agreements with certain directors and private companies controlled
by directors of the Company. These agreements have terms ranging from month to
month to five years. In addition, in connection with the reverse merger, the
Company entered into a management services agreement with Investor
Communications, Inc. ("ICI"), a significant shareholder, whereby ICI will
provide various corporate services on a month-by-month basis for a fee of
$10,000 per month plus expenses. The following amounts have been incurred to
these related parties:
For the years ended
December 31, December 31,
2002 2001
-------- --------
Consulting fees $ 80,500 $ 84,000
Management fees 165,206 132,000
Research and development 137,263 148,400
-------- --------
$382,969 $364,400
======== ========
The Company has total commitments relating to the above agreements for the years
ended December 31, 2003 through 2005 of $172,000, $132,200 and $6,400
respectively.
A director of the Company has been contracted by ICI and is part of the
management team provided to the Company and was paid $17,325 during the year
ended December 31, 2002.
During the year ended December 31, 2002 GPI and the Company incurred $382,969 in
fees and $27,839 in expense reimbursements to these related parties, made net
repayments of $423,494, settled debts of $188,154 as described in notes 3 and 8
and acquired $109,531 owing to related parties in connection with the reverse
acquisition leaving $30,986 owing as at December 31, 2002 (2001 - $122,295).
Amounts due to related parties are unsecured, non-interest bearing and have no
specific terms of repayment.
Refer to Notes 3, 4 and 8.
NOTE 8 - CAPITAL STOCK
--------------------------------------------------------------------------------
The authorized capital of the Company consists of 50,000,000 voting common
shares with $0.001 par value and 5,000,000 non-voting preferred shares with
$.001 par value.
GMC capital stock transactions during the year ended December 31, 2002:
During the year the company issued 11,231,965 shares of common stock on reverse
acquisition of GPI, issued 200,000 shares of common stock shares as a finders'
fee in connection with the acquisition, issued 188,154 shares of common stock on
settlement of debts of GPI at $1.00 per share, assumed 744,494 GPI share
purchase warrants and granted 2,135,000 stock options to former stock option
holders of GPI. (Refer to Note 3).
42
GENEMAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(formerly Eduverse.com)
(a development stage company)
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
NOTE 8 - CAPITAL STOCK (cont'd)
--------------------------------------------------------------------------------
During the year the Company completed a private placement of 2,000,000
restricted shares of common stock at $0.125 per share for proceeds of $250,000.
During the year the Company completed a private placement of 700,000 restricted
shares of common stock at $1.00 per share for proceeds of $700,000 of which
$600,000 were received prior to the reverse acquisition and $100,000 were
received subsequent to the reverse acquisition.
Subsequent to the reverse acquisition, the Company completed a private placement
of 425,400 units at $2.50 per unit for total proceeds of $1,063,500. Each unit
consists of one common share and one half share purchase warrant. Each whole
share purchase warrant entitles the holder to purchase an additional common
share of the Company at a price of $5.00 per share for a period of two years.
Also during the year the Company commenced a private placement of up to
1,000,000 units and received proceeds of $185,000 towards the purchase of 37,000
units at $5.00 per unit. Each unit consists of one common share and one half
share purchase warrant. Each whole share purchase warrant will entitle the
holder to purchase an additional common share of the Company at a price of $7.50
per share for a period of one year. Subsequent to December 31, 2002 the Company
received additional proceeds of $30,000 towards the purchase of a further 6,000
units of this private placement.
Eduverse's changes in capital stock prior to and in connection with the reverse
acquisition were as follows:
Subscriptions
Common Stock Additional received
Number Amount Paid-in Capital (receivable) Deficit Total
----------- ----------- --------------- ------------ ----------- -----------
Balance December 31, 2001,
As previously reported by Eduverse 1,000,000 $ 37,755 $ 2,994,633 $ 15,000 $(3,220,414) $ (173,026)
Issued for cash at $0.125 per share 2,000,000 2,000 248,000 -- -- 250,000
Issued for cash at $1.00 per share 700,000 700 699,300 (100,000) -- 600,000
Stock-based compensation -- -- 930,000 -- -- 930,000
Issued on settlement of GPI debts 188,154 188 187,966 -- -- 188,154
Eduverse net loss for the period from
January 1, 2002 to July 15, 2002 -- -- -- -- (1,301,416) (1,301,416)
Issued as a finder's fee 200,000 200 199,800 -- (200,000) --
Fair value of stock options granted
concurrent with reverse acquisition -- -- 1,885,750 -- (1,885,750) --
Issued to effect reverse acquisition 11,231,965 11,232 (11,232) -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Eduverse balance, July 15, 2002 15,320,119 $ 52,075 $ 7,134,217 $ (85,000) $(6,607,580) $ 493,712
=========== =========== =========== =========== =========== ===========
GPI capital stock transactions during the year ended December 31, 2002:
Between February 13, 2002 and May 7, 2002 GPI completed private placements of
187,500 units at $1.00 per unit for total proceeds of $170,500, net of finder's
fees of $17,000. Each unit consists of one common share of the Company and one
share purchase warrant entitling the holder to purchase one additional common
share of the Company at a price of $1.00 per share with 12,500 of the warrants
expiring December 1, 2005 and 175,000 of the warrants expiring May 1, 2006.
43
GENEMAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(formerly Eduverse.com)
(a development stage company)
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
NOTE 8 - CAPITAL STOCK (cont'd)
--------------------------------------------------------------------------------
Effective May 22, 2002 GPI settled loans payable totalling $136,245 through the
issuance of 181,660 units at a price of $0.75 per unit. Each unit consists of
one common share of the Company and one share purchase warrant entitling the
holder to purchase one additional common share of the Company at a price of
$0.75 per share to May 1, 2006.
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
2002 Stock Option Plan
On May 15, 2002 the Board of Directors of Eduverse unanimously approved and
adopted a 2002 stock option plan which was approved by shareholders on July 15,
2002 (the "2002 Stock Option Plan"). Pursuant to the provisions of the 2002
Stock Option Plan, stock options may be granted only to key personnel of the
Company; generally defined as a person designated by the Board of Directors upon
whose judgement, initiative and efforts the Company may rely including any
Director, Officer, employee or consultant of the Company or its subsidiaries. At
the time a Stock Option is granted under the 2002 Stock Option Plan, the Board
of Directors shall fix and determine the exercise price at which shares of
common stock of the Company may be acquired; provided, however, that any such
exercise price shall not be less than that permitted under the rules and
policies of any stock exchange or over-the-counter market which may be
applicable to the Company at that time.
The 2002 Stock Option 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.
The 2002 Plan incorporates the previous grant of an option to ICI and or its
consultants or employees on April 5, 2002 for 1,000,000 common shares
exercisable at $0.50 per share for a period of two years. The fair value of this
non-employee stock option at the date of grant of $930,000 was estimated using
the Black-Scholes option pricing model with an expected life of two years, a
risk-free interest rate of 4% and an expected volatility of 226%.
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.
The Plan incorporates the previous grant of 1,000,000 options to ICI and or its
designates or employees. During the year 102,000 of these options were exercised
at $0.50 per share for proceeds of $51,000 and subsequent to December 31, 2002 a
further 830,000 of these options were exercised at $0.50 per share for further
proceeds of $415,000.
In connection with the reverse acquisition as described in Note 3, the Company
granted 1,740,000 options and 245,000 incentive stock options at $1.00 per share
to previous holders of stock options of GPI to replace options previously
granted by GPI at $0.60 per share. In accordance with accounting principles
applicable to accounting for business combinations, the fair value of the stock
options granted in connection with a business combination is included in the
determination of the purchase price. The fair value of these options at the date
of grant of $1,885,750 was estimated using the Black-Scholes option pricing
model with an expected life of three years, a risk-free interest rate of 4% and
an expected volatility of 226%
44
GENEMAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(formerly Eduverse.com)
(a development stage company)
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
NOTE 8 - CAPITAL STOCK (cont'd)
--------------------------------------------------------------------------------
In addition, also in connection with the reverse acquisition as described in
Note 3, the Company granted 150,000 incentive stock options to previous holders
of stock options of GPI with terms and conditions consistent with their original
GPI stock options subject to straight line vesting for a period of 36 months
commencing October 1, 2002. The fair value of these incentive stock options will
be recorded as compensation expense over the vesting period. The fair value of
these options at the date of grant of $142,500 was estimated using the
Black-Scholes option pricing model with an expected life of three years, a
risk-free interest rate of 4% and an expected volatility of 226%. As at December
31, 2002 $11,875 has been recorded as consulting fees in connection with these
options.
Subsequent to the reverse acquisition the Company granted a further 135,000
incentive stock options at prices ranging from $5.50 per share to $8.50 per
share subject to immediate vesting. The fair value of these options at the date
of grant of $618,400 was estimated using the Black-Scholes option pricing model
with an expected life of three years, a risk-free interest rate of 4% and an
expected volatility of 229%. As at December 31, 2002 the $618,400 was recorded
as consulting fees in connection with these 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, 2000 and 2001,
as previously reported by Eduverse - $ - -
Granted prior to reverse acquisition 1,000,000 0.50
Granted in connection with reverse acquisition 2,135,000 1.00
Granted subsequent to reverse acquisition 135,000 7.94
Exercised during the year (102,000) 0.50
---------- ------- ----------------
Balance, December 31, 2002 3,168,000 $ 1.15 2.33 years
========== ======= ================
Share Purchase Warrants
In connection with the reverse acquisition of GPI, the Company assumed 744,494
share purchase warrants previously outstanding in GPI. In accordance with
accounting principles applicable to accounting for business combinations, the
fair value of the share purchase warrants assumed in connection with a business
combination is included in the determination of the purchase price. The fair
value of these share purchase warrants as at the date of the reverse acquisition
of $620,600 was estimated using the Black-Scholes option pricing model with an
expected life of 2.95 years, a risk-free interest rate of 4% and an expected
volatility of 236%.
The Company's share purchase warrant activity is as follows:
Weighted Average
Number of Weighted Average Remaining
warrants Exercise Price Contractual Life
--------- ---------------- ----------------
Balance, December 31, 2000 and 2001,
as previously reported by Eduverse - $ - -
GPI warrants assumed 744,494 1.16
Issued during the year 212,700 5.00
Exercised during the year - -
Expired during the year (110,334) 2.50
--------- -------- ----------------
Balance, December 31, 2002 846,860 $ 1.95 2.71 years
========= ======== ================
NOTE 9 - 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 $3,340,000 at December 31, 2002 (2001 -
$1,688,000; 2000 - $1,016,000; 1999 - $81,000) 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.
45
GENEMAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(formerly Eduverse.com)
(a development stage company)
DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
NOTE 10 - SUBSEQUENT EVENTS
--------------------------------------------------------------------------------
Subsequent to December 31, 2002 the Company received proceeds of $440,000 upon
the exercise of 830,000 options at $0.50 and 25,000 options at $1.00.
Subsequent to December 31, 2002 the Company received additional proceeds of
$30,000 towards the purchase of a further 6,000 units of its ongoing private
placement.
46
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OF ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company's principal independent accountant from November 9, 2000 to the
current date is LaBonte & Co., 610 - 938 Howe Street, Vancouver, British
Columbia, Canada V6Z 1N9.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
As of the date of this Annual Report, the directors and executive officers
of the Company are as follows:
Name Age Position with the Company
---- --- -------------------------
Ronald L. Handford 50 Director and President/
Chief Executive Officer
Dr. Wilfred Jefferies 45 Director/Chairman of the
Board and Chief Scientific Officer
James D. Davidson 55 Director and Chief Financial
Officer/Secretary
Alan P. Lindsay 52 Director
Grant Atkins 42 Director
Dr. Karl E. Hellstrom 68 Director
Biographies of Directors and Officers
RONALD L. HANDFORD, B.A.Sc., M.B.A. is the President/Chief Executive
Officer and a director of the Company and of GeneMax Pharmaceuticals, Inc. Mr.
Handford has over 29 years of international experience in business, finance and
leading public and private companies. He has conducted due diligence review of
the GeneMax technology acquisition, negotiated the key license as well as
operating and management contracts, prepared the business plan, and arranged the
private seed capital with the assistance of the other members of the business
team. Mr. Handford is an engineering graduate from the University of British
Columbia with an MBA from the University of Western Ontario. From 1993-1996, he
was investment officer at the International Finance Corporation, the private
sector arm of the World Bank, in Washington D.C. Before that he was a vice
president with Barclays Bank in Toronto, responsible for their structured
finance activities in Canada. He is experienced in capital raising, as well as
in building and administering public and private companies.
DR. WILDRED JEFFERIES, D.Phil. (Oxon) is the Chief Scientist Officer, a
director and the chairman of the board of directors of the Company and of
GeneMax Pharmaceuticals, Inc. Dr. Jefferies is a Professor of Medical Genetics,
Microbiology and Immunology, and a member of the Biomedical Research Centre and
the Biotechnology Laboratory at the University of British Columbia
(http//www.brc.ubc.ca/facult/wilf/wilf.htm). He is the lead researcher on the
47
scientific discoveries that form the bases of GeneMax Pharmaceuticals, Inc. Dr.
Jefferies received his D.Phil. from Oxford and was a post-doctoral research
fellow at the Karolinska Institute in Sweden and the Swiss Cancer Institute in
Lausanne. His current research foci at UBC are iron transport/metabolism and
antigen processing. Dr. Jefferies was the founder of Synapse Technologies Inc.,
which was acquired in 2002 by BioMarin Pharmaceutical. He oversees and directs
the scientific development of the Company.
JAMES D. DAVIDSON, B.A., M.A., M. Litt. (Oxon), is the Chief Financial
Officer/Secretary and a director of the Company and of GeneMax Pharmaceuticals,
Inc. Mr. Davidson is a private investor and analyst. He founded Agora, Inc., a
worldwide publishing group with offices in Baltimore, London, Dublin, Paris,
Johannesburg, Melbourne and other cities, and The Hulbert Financial Digest and
Strategic Investment. In conjunction with Lord Rees-Mogg, co-editor of Strategic
Investment and former editor of the Times of London, Mr. Davidson co-authored a
series of books on financial markets. Mr. Davidson is also a current or recent
director of a number of companies, many of which he co-founded. They include in
addition to GeneMax, MIV Therapeutics, BEVsystems, New Paradigm Capital
(Bermuda), Anatolia Minerals Development Corporation, and Wharekauhau Holdings
(New Zealand). In addition, Mr. Davidson is a director of Plasmar, S.A. (La Paz,
Bolivia), Martinborough Winery Ltd. (New Zealand) and New World Premium Brands
Ltd. (New Zealand). He is the editor of Vantage Point Investment Advisory, a
private financial newsletter with a worldwide circulation.
DR. KARL E. HELLSTROM is a director of the Company and of GeneMax
Pharmaceuticals, Inc. Dr. Karl Hellstrom received his M.D. and Ph.D. degrees
from the Karolinska Institute in Stockholm, Sweden, initially working in the
area of tumor biology with an emphasis on immunogenetics. Subsequently, Dr.
Hellstrom became a professor in pathology and an adjunct professor in
microbiology/immunology at the University of Washington Medical School. During
1975, Dr. Hellstrom moved to the newly established Fred Hutchinson Cancer
Research Center in Seattle, Washington, as a director of its Tumor Immunology
Program. In 1983, he joined the biotechnology company Oncogen which, in 1990,
was integrated into the Pharmaceutical Research Institute of Brisol-Myers Squibb
Company. Dr. Hellstrom then became vice president of Oncology Discovery and,
since 1995, of Immunotherapeutics. During 1997, Dr. Hellstrom moved from
Bristol-Myers Squibb to Pacific Northwest Research Institute, where he is
currently leading a group in Tumor Immunology as a principal investigator. Dr.
Hellstrom also currently retains an affiliate professorship at the University of
Washington Medical School. He has been a past member of two NIH Study Sections
(Immunobiology and Experimental Immunology), and a member of the Scientific
Advisory Board of Memorial Sloan Kettering Institute for Cancer Research as well
as of the Scientific Advisory Board of Hybritech Inc. Dr. Hellstrom has received
many awards, including the Parke-Davis award in experimental pathology, Alpha
Omega Alpha, the Lucy Wortham James award of the Ewing Society, the Pap Award
for outstanding contribution to cancer research, the Humboldt Award to a senior
U.S. scientist, and the yearly American Cancer Society National Award. He has
also been honored as Knight of the Northern Star, First Class, Swedish Order of
Merit.
ALAN P. LINDSAY is a director of the Company and of GeneMax
Pharmaceuticals, Inc. Mr. Lindsay has an extensive backgrounds in business
management, marketing and finance. He is currently chairman and chief executive
officer of MIV Therapeutics, Inc., an OTCBB medical devices company developing a
laser-cut stent with drug delivery capability. In addition, Mr. Lindsay headed
up and built a significant business and marketing organization for a major
international financial institution in Vancouver, British Columbia. Mr. Lindsay
has raised over $100 million of equity financing for private and public
companies over the last five years. Mr. Lindsay is a graduate of the M.L.I.
management development program.
48
GRANT ATKINS, B.Comm. Mr. Atkins was formerly president, and secretary of
the Company through restructuring phases and has served as a director since
March 1, 2001. For the past ten years, Mr. Atkins has provided services as a
financial and project coordination consultant to clients in government and
private industry. He has extensive multi-industry experience in the fields of
finance, administration and business development. Mr. Atkins has a Commerce
degree from the University of British Columbia specializing in Finance. He has
many years experience in both director and officer designations of public
companies. Mr. Atkins forms part of the management team that provides a wide
range of services to the Company through Investor Communications International,
Inc.
Involvement in Certain Legal Proceedings
As of the date of this Annual Report, no director or executive officer of
the Company is or has been involved in any legal proceeding concerning (i) any
bankruptcy petition filed by or against any business of which such person was a
general partner or executive officer either at the time of the bankruptcy or
within two years prior to that time; (ii) any conviction in a criminal
proceeding or being subject to a pending criminal proceeding (excluding traffic
violations and other minor offenses) within the past five years; (iii) being
subject to any order, judgment or decree permanently or temporarily enjoining,
barring, suspending or otherwise limiting involvement in any type of business,
securities or banking activity; or (iv) being found by a court, the Securities
and Exchange Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law (and the judgment has
not been reversed, suspended or vacated).
AUDIT COMMITTEE FINANCIAL EXPERT
As of the date of this Annual Report, the Board of Directors of the Company
has determined that the Company does not have an audit committee financial
expert nor does the Company have an audit committee.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
officers, and the persons who beneficially own more than ten percent of the
common stock of the Company, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Copies of all filed
reports are required to be furnished to the Company pursuant to Rule 16a-3
promulgated under the Exchange Act. Based solely on the reports received by the
Company and on the representations of the reporting persons, the Company
believes that these persons have complied with all applicable filing
requirements during the fiscal year ended December 31, 2002.
ITEM 10. EXECUTIVE COMPENSATION
COMPENSATION OF OFFICERS AND DIRECTORS
As of the date of this Annual Report, none of the directors or executive
officers of the Company are compensated for their roles as directors or
executive officers. However, as of the date of this Annual Report, Messrs.
Handford, Atkins, Lindsay, Davidson, and Dr. Jefferies derive remuneration from
the Company as compensation for consulting and/or managerial services rendered.
See "Summary Compensation Table". Officers and directors of the Company are also
reimbursed for any out-of-pocket expenses incurred by them on behalf of the
Company. Any executive compensation is subject to change concurrent with Company
requirements. The Company presently has no pension, health, annuity, insurance,
profit sharing or similar benefit plans.
49
Consulting Services Agreement
Effective May 9, 2002 and fully executed July 15, 2002, the Company and ICI
entered into a consulting services agreement (the "Consulting Services
Agreement"). Pursuant to the terms and provisions of the Consulting Services
Agreement, ICI provides to the Company such finance and managerial services as
may be determined by the Board of Directors, from time to time, and in its sole
and absolute discretion, in order to develop the various business interests of
the Company in the drug discovery and development industry, involving the
patented drug discovery assay for immunomodulatory compounds and the pipeline
aimed at treatment of cancer, infectious diseases, autoimmune disorders and
transplant tissue rejection.
Mr. Grant Atkins, a director of the Company, is employed by ICI and part of
the management team provided by ICI to the Company, and derives remuneration
from ICI for such services rendered to the Company. During fiscal year ended
December 31, 2002, Mr. Atkins was paid approximately $17,325 for services
rendered to the Company.
GeneMax Pharmaceuticals Consulting Agreement
On February 1, 2000, GeneMax Pharmaceuticals and 442668 B.C. Ltd.
("442668"), a corporation whose president and member of the board of directors
is Dr. Wilfred Jefferies, a director of the Company entered into a consulting
services agreement (the "GeneMax Pharmaceuticals Consulting Agreement") for a
period of five years. Pursuant to the terms and provisions of the GeneMax
Pharmaceuticals Consulting Agreement, Dr. Jefferies agreed to provide technical,
research and technology development services to GeneMax Pharmaceuticals for a
period of five years. Pursuant to further terms and provisions of the GeneMax
Pharmaceuticals Consulting Agreement, 442668 shall be paid a monthly fee of
$10,000 Canadian Dollars and reimbursement of expenses.
As of the date of this Annual Report, 442668 invoices the Company $10,000
per month (plus expenses). During the year ended December 31, 2002, an aggregate
of $81,410 in fees was incurred to 442668. Based upon $6,725, which was due and
owing at December 31, 2001, this resulted in an aggregate amount of $88,135 due
and owing 442668. During fiscal year ended December 31, 2002, the Company paid
442668 $67,670 and settled the remaining balance of $20,465 through the issuance
to 442668 of 20,465 shares of restricted common stock at $1.00 per share. As of
December 31, 2002, there was no amount that remained due and owing. During the
year ended December 31, 2002, Dr. Jefferies received approximately $67,670
through 442668 See "Part III. Item 12. Certain Relationships and Related
Transactions".
GeneMax Pharmaceuticals Management Agreement
On August 1, 1999, GeneMax Pharmaceuticals and Ronald L. Handford, the
President/Chief Executive Officer and a director of the Company, entered into a
management services agreement (the "GeneMax Pharmaceuticals Management
Agreement"). Pursuant to the terms and provisions of the GeneMax Pharmaceuticals
Management Agreement, Mr. Handford agreed to provide general managerial services
to GeneMax Pharmaceuticals for a period of five years. Pursuant to further terms
and provisions of the GeneMax Pharmaceuticals Management Agreement, Mr. Handford
shall be paid a monthly fee of $11,000 U.S. Dollars and reimbursement of
expenses. Effective May 1, 2002, GeneMax Pharmaceuticals and Mr. Handford agreed
to reduce the monthly fee to $12,500 Canadian Dollars until the earlier of the
Company reaching a senior board listing or commences clinical trials, at which
time the fee will be reviewed in accordance with market norms.
50
As of the date of this Annual Report, Mr. Handford invoices the Company
$12,500 Canadian Dollars per month (plus expenses). During the year ended
December 31, 2002, an aggregate of $105,206 in fees was incurred to Handford
Management. Based upon $80,500, which was due and owing to Mr. Handford at
December 31, 2001, this resulted in an aggregate amount of $185,706 due and
owing Mr. Handford. During fiscal year ended December 31, 2002, the Company paid
Mr. Handford $69,374 and settled an amount of $100,000 through the issuance to
Mr. Handford of 100,000 shares of restricted common stock at $1.00 per share. As
of December 31, 2002, an aggregate amount of $16,332 remains due and owing to
Mr. Handford. During the year ended December 31, 2002, Mr. Handford received
approximately $69,374. See "Part III. Item 12. Certain Relationships and Related
Transactions".
GeneMax Pharmaceuticals Services Agreement
On May 31, 2002, GeneMax Pharmaceuticals and Alan Lindsay and Associates
Ltd. ("AL&A"), a corporation whose sole officer, director and shareholder is
Alan Lindsay, a director of the Company entered into a services agreement (the
"GeneMax Pharmaceuticals Services Agreement"). Pursuant to the terms and
provisions of the GeneMax Pharmaceuticals Services Agreement, Mr. Lindsay agreed
to provide general consulting services to GeneMax Pharmaceuticals on a
month-to-month basis. Pursuant to further terms and provisions of the GeneMax
Pharmaceuticals Services Agreement, AL&A shall be paid a monthly fee of $2,500
U.S. Dollars and reimbursement of expenses.
As of the date of this Annual Report, Mr. Lindsay invoices the Company
through AL&A $2,500 U.S. Dollars per month (plus expenses). During the year
ended December 31, 2002, an aggregate of $42,500 in fees was incurred to AL&A.
Based upon $17,500, which was due and owing to AL&A at December 31, 2001, this
resulted in an aggregate amount of $60,000 due and owing AL&A. During fiscal
year ended December 31, 2002, the Company paid AL&A $20,000 and settled an
amount of $27,500 through the issuance to AL&A of 27,500 shares of restricted
Common Stock at $1.00 per share. As of December 31, 2002, an aggregate amount of
$12,500 remains due and owing to AL&A by the Company. During fiscal year ended
December 31, 2002, Mr. Lindsay received $20,000 through AL&A as compensation for
services rendered to the Company. See "Part III. Item 12. Certain Relationships
and Related Transactions."
Davidson Agreement
GeneMax Pharmaceuticals and James D. Davidson, a director and the Chief
Financial Officer of the Company, entered into a verbal month-to-month agreement
(the "Davidson Agreement"). Pursuant to the terms of the Davidson Agreement, Mr.
Davidson agreed to perform such duties and services as required commensurate
with his position as the Chief Financial Officer of the Company and such other
duties commensurate with his position as a director on the Board of Directors.
Pursuant to further terms of the Davidson Agreement, Mr. Davidson shall be paid
a monthly fee of $2,000 and reimbursement of expenses. Effective July 15, 2002,
GeneMax Pharmaceuticals agreed to increase the monthly fee to $5,000 upon
commencement of Mr. Davidson's duties associated with his position as Chief
Financial Officer and a director of the Company after the acquisition of GeneMax
Pharmaceuticals.
As of the date of this Annual Report, Mr. Davidson invoices the Company
$5,000 per month (plus expenses). During fiscal year ended December 31, 2002, an
aggregate of $40,500 in fees was incurred to Mr. Davidson. Based upon $5,000,
which was due and owing to Mr. Davidson at December 31, 2001, this resulted in
an aggregate amount of $45,500 due and owing. During fiscal year ended December
31, 2002, the Company paid Mr. Davidson $32,500 and settled the remaining
balance of $13,000 through the issuance of 13,000 shares of restricted common
stock at $1.00 per share. As of December 31, 2002, there is no amount that
remains due and owing to Mr. Davidson by the Company. See "Part III. Item 12.
Certain Relationships and Related Transactions."
51
The Summary Compensation Table below reflects those amounts received as
compensation by the executive officers and directors of the Company during
fiscal year ended December 31, 2002 from the Company subsequent to consummation
of the Share Exchange Agreement and from or GeneMax Pharmaceuticals prior to
consummation of the Share Exchange Agreement.
Summary Compensation Table
Annual Compensation Awards Payouts
--------------------- ------------- -------
$ $ $ $ # $
Name and Position Year Salary Bonus Other RSA Options LTIP Other
------------- ---- ------ ----- ----- --- ------- ---- -----
(1)
Ronald L. Handford 2002 $ 0 0 69,374 0 350,000 0 0
Pres./CEO and
Director
(2)
Dr. W. Jefferies 2002 $ 0 0 67,670 0 500,000 0 0
Chief Scientific
Officer and Chair
of the Board
(3)
James D. Davidson 2002 $ 0 0 32,500 0 150,000 0 0
CFO/Secretary
and Director
(4)
Alan P. Lindsay 2002 $ 0 0 $20,000 0 150,000 0 0
Director
(5)
Grant Atkins 2000 $ 0 0 0 0 0 0 0
Director 2001 0 0 0 0 0 0 0
2002 0 0 $17,325 0 0 0 0
Dr. Karl Hellstrom 2002 $ 0 0 0 0 100,000 0 0
Director
--------------------------------------
(1) During fiscal year ended December 31, 2002, an aggregate of $105,206 in
fees was incurred to Ronald Handford. The fees incurred were for services
rendered by Mr. Handford to the Company under the GeneMax Pharmaceuticals
Management Agreement. Based upon $80,500, which was due and owing to Mr.
Handford at December 31, 2001, this resulted in an aggregate amount of
$185,706 due and owing. During fiscal year ended December 31, 2002, the
Company paid Mr. Handford $69,374 and settled an amount of $100,000 through
the issuance of 100,000 shares of restricted Common Stock at $1.00 per
share. As of December 31, 2002, an aggregate amount of $16,332 remains due
and owing to Mr. Handford by the Company. During fiscal year ended December
31, 2002, Mr. Handford received $69,374 as compensation for services
rendered to the Company.
(2) During fiscal year ended December 31, 2002, an aggregate of $81,410 in fees
was incurred to 442668, a corporation whose president and member of the
board of directors is Dr. Wilfred Jefferies, a director and the Chief
Scientific Officer of the Company. The fees incurred were for services
rendered by Dr. Jefferies to the Company under the GeneMax Pharmaceuticals
Consulting Agreement. Based upon $6,725, which was due and owing to 442668
at December 31, 2001, this resulted in an aggregate amount of $88,135 due
and owing 442668. During fiscal year ended December 31, 2002, the Company
paid 442668 $67,670 and settled the remaining balance of $20,465 through
the issuance of 20,465 shares of restricted Common Stock at $1.00 per
share. As of December 31, 2002, there was no amount that remained due and
owing. During fiscal year ended December 31, 2002, Dr. Jefferies received
$67,670 through 442668 as compensation for services rendered to the
Company.
52
(3) During fiscal year ended December 31, 2002, an aggregate of $40,500 in fees
was incurred to James D. Davidson, a director and the Chief Financial
Officer of the Company. The fees incurred were for services rendered by Mr.
Davidson to the Company under the Davidson Agreement. Based upon $5,000,
which was due and owing to Mr. Davidson at December 31, 2001, this resulted
in an aggregate amount of $45,500 due and owing to Mr. Davidson. During
fiscal year ended December 31, 2002, the Company paid Mr. Davidson $32,500
and settled the remaining balance of $13,000 through the issuance of 13,000
shares of restricted Common Stock at $1.00 per share. As of December 31,
2002, there is no amount that remains due and owing to Mr. Davidson by the
Company. During fiscal year ended December 31, 2002, Mr. Davidson received
$32,500 compensation for services rendered to the Company.
(4) During fiscal year ended December 31, 2002, an aggregate of $42,500 in fees
was incurred to AL&A, a corporation whose sole officer, director and
shareholder is Alan Lindsay, a director of the Company. The fees incurred
were for services rendered by Mr. Lindsay to the Company under the GeneMax
Pharmaceuticals Services Agreement. Based upon $17,500, which was due and
owing to AL&A at December 31, 2001, this resulted in an aggregate amount of
$60,000 due and owing AL&A. During fiscal year ended December 31, 2002, the
Company paid AL&A $20,000 and settled an amount of $27,500 through the
issuance of 27,500 shares of restricted Common Stock at $1.00 per share. As
of December 31, 2002, an aggregate amount of $12,500 remains due and owing
to AL&A by the Company. During fiscal year ended December 31, 2002, Mr.
Lindsay received $20,000 through AL&A as compensation for services rendered
to the Company.
(5) Grant Atkins, a director of the Company, indirectly receives compensation
for services provided to the Company through ICI pursuant to the
contractual relationship between the Company and ICI.
STOCK OPTIONS AND PURCHASE PLANS
Stock Option Plan
On May 15, 2002, the Board of Directors of the Company unanimously approved
and adopted a stock option plan and on September 30, 2002, the Board of
Directors approved the adoption of a new stock option plan (the "Stock Option
Plan"). See "Part II. Item 5. Market for Common Equity and Related Stockholder
Matters."
The purpose of the Stock Option Plan is to advance the interests of the
Company and its shareholders by affording key personnel of the Company an
opportunity for investment in the Company and the incentive advantages inherent
in stock ownership in the Company. Pursuant to the provisions of the Stock
Option Plan, stock options (the "Stock Options") will be granted only to key
personnel of the Company, generally defined as a person designated by the Board
of Directors upon whose judgment, initiative and efforts the Company may rely
including any director, officer, employee or consultant of the Company.
The Stock Option Plan is to be administered by the Board of Directors of
the Company, which shall determine (i) the persons to be granted Stock Options
under the Stock Option Plan; (ii) the number of shares subject to each Stock
Option, however, in no event may the maximum number of shares reserved for any
one individual exceed 15% of the total issued and outstanding shares of the
Company; (iii) the time at which each Stock Option is to be granted; (iv) the
purchase price for the shares under the Stock Option; (v) the option period; and
(vi) the manner in which the Stock Option becomes exercisable or terminated. The
Stock Option Plan provides authorization to the Board of Directors to grant up
to 3,500,000 Stock Options to directors, officers, employees and consultants of
the Company and its subsidiaries.
53
In the event an optionee who is a director or officer of the Company ceases
to serve in that position, any Stock Option held by such optionee generally may
be exercisable within up to ninety (90) days after the effective date that his
position ceases, and after such ninety-day period any unexercised Stock Option
shall expire. In the event an optionee who is an employee or consultant of the
Company ceases to be employed by the Company, any Stock Option held by such
optionee generally may be exercisable within up to ninety (90) days (or up to
thirty (30) days where the optionee provided only investor relations services to
the Company) after the effective date that his employment ceases, and after such
ninety- or thirty-day period any unexercised Stock Option shall expire.
No Stock Options granted under the Stock Option Plan will be transferable
by the optionee, and each Stock Option will be exercisable during the lifetime
of the optionee subject to the option period of ten (10) years or limitations
described above. Any Stock Option held by an optionee at the time of his death
may be exercised by his estate within one (1) year of his death or such longer
period as the Board of Directors may determine.
The exercise price of a Stock Option granted pursuant to the Stock Option
Plan shall be paid in cash or certified funds upon exercise of the option.
Incentive Stock Options. The Stock Option Plan further provides that,
subject to the provisions of the Stock Option Plan, the Board of Directors may
grant to any key personnel of the Company who is an employee eligible to receive
options one or more incentive stock options to purchase the number of shares of
common stock allotted by the Board of Directors (the "Incentive Stock Options").
The option price per share of common stock deliverable upon the exercise of an
Incentive Stock Option shall be no less than fair market value of a share of
common stock on the date of grant of the Incentive Stock Option. In accordance
with the terms of the Stock Option Plan, "fair market value" of the Incentive
Stock Option as of any date shall not be less than the closing price for the
shares of common stock on the last trading day preceding the date of grant. The
option term of each Incentive Stock Option shall be determined by the Board of
Directors, which shall not commence sooner than from the date of grant and shall
terminate no later than ten (10) years from the date of grant of the Incentive
Stock Option, subject to possible early termination as described above.
As of the date of this Annual Report, an aggregate of 3,270,000 Stock
Options have been granted as follows: (i) 1,740,000 Stock Options and 395,000
Incentive Stock Options exercisable at $1.00 per share to previous holders of
stock options of GeneMax Pharmaceuticals to replace stock options previously
granted by GeneMax Pharmaceuticals at $0.60 per share; (ii) 1,000,000 Stock
Options exercisable at $0.50 per share to ICI and/or its designates or
employees; (iii) 20,000 Stock Options at $5.50 per share; (iv) 15,000 Stock
Options at $7.50 per share; and (v) 100,000 Stock Options at $8.50 per share. Of
the 3,270,000 Stock Options granted, 1,000,000 Stock Options have been exercised
at $0.50 per share resulting in $500,000, and a further 25,000 Stock Options
have been exercised at $1.00 per share resulting in $25,000. The table below
reflects the Stock Options originally granted to directors, executive officers,
affiliates or shareholders holding greater than 5% of the equity in the Company,
without taking into consideration any exercise of Stock Options or expiration of
Stock Options.
54
Options/SAR Grants Table
--------------------------------------------------------------------------------
Name Number of Percent of Total Exercise Expiration
Securities Options Granted Price Date
Underlying Options
--------------------------------------------------------------------------------
(1)
Investor 1,000,000 30.58% $0.50 04/04/04
Communications
International
Inc.
Dr. W. Jefferies 500,000 15.29% $1.00 09/29/05
Ronald Handford 350,000 10.70% $1.00 09/29/05
(2)
Dr. Julia Levy 250,000 7.65% $1.00 09/29/05
Alan P. Lindsay 150,000 4.59% $1.00 09/29/05
(3)
Dr. Calvin R. Stiller 100,000 3.06% $1.00 09/29/05
James D. Davidson 150,000 4.59% $1.00 09/29/05
(4)
Dr. Erik Hellstrom 100,000 3.06% $8.50 12/05/05
Total 2,600,000 79.51%
--------------------------------------------------------------------------------
(1) Pursuant to certain Notice and Agreements of Option, certain contractors to
ICI have exercised 1,000,000 Stock Options at the exercise price of $0.50
per option to acquire 1,000,000 shares of the Common Stock of the Company.
Pursuant to the terms and provisions of the Consulting Services Agreement,
the Company previously granted to ICI 1,000,000 Stock Options (which were
subject to an S-8 registration statement filed with the Securities and
Exchange Commission). In connection with the exercise of the Stock Options,
the shares of Common Stock of the Company were issued to certain
contractors of ICI who have provided bona fide services to the Company
under the Consulting Services Agreement.
(2) Dr. Levy resigned from the Board of Directors effective December 6, 2002
and was simultaneously appointed Chair of the Scientific Advisory Board.
The 250,000 Stock Options granted to Dr. Levy have been continued under the
existing terms, subject to approval by the Board of Directors.
(3) Due to Dr. Stiller's resignation from the Board of Directors effective
October 7, 2002, the 100,000 Stock Options previously granted would have
expired on January 5, 2003 pursuant to the terms of the Stock Option Plan.
However, the Board of Directors authorized and approved the retention by
Dr. Stiller of an aggregate of 50,000 Stock Options at an exercise price of
$1.00 as follows: (i) 35,000 Stock Options currently vested; and (ii) 5,000
Stock Options vest annually commencing September 30, 2003 for a period of
three years. The remaining 50,000 Stock Options expired and will not be
exercisable.
(4) Contractual arrangements provide for the immediate vesting of 50,000 stock
options and the remaining balance vesting over the next twenty-four months.
55
Aggregated Options/SAR Exercises
--------------------------------------------------------------------------------
Name Shares Value Number of Securities Value of
Acquired Realized Underlying Unexercised Unexercised in-
On Exercise Options the-money Options
--------------------------------------------------------------------------------
Investor 1,000,000* 9,270,000 nil 0
Communications
International,
Inc.
--------------------------------------------------------------------------------
*Pursuant to certain Notice and Agreements of Option, certain contractors to ICI
have exercised 1,000,000 Stock Options at the exercise price of $0.50 per option
to acquire 1,000,000 shares of the Common Stock of the Company. Pursuant to the
terms and provisions of the Consulting Services Agreement, the Company
previously granted to ICI 1,000,000 Stock Options (which were subject to an S-8
registration statement filed with the Securities and Exchange Commission). In
connection with the exercise of the Stock Options, the shares of Common Stock of
the Company were issued to certain contractors of ICI who have provided bona
fide services to the Company under the Consulting Services Agreement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the name and address, as of the date of this
Annual Report, and the approximate number of shares of common stock of the
Company owned of record or beneficially by each person who owned of record, or
was known by the Company to own beneficially, more than five percent (5%) of the
Company's common stock, and the name and shareholdings of each officer and
director, and all officers and directors as a group as of the date of this
Annual Report.
As of the date of this Annual Report, there are 16,813,519 shares of Common
Stock issued and outstanding.
--------------------------------------------------------------------------------
Title of Class Name and Address of Amount and Nature Percent of
Beneficial Owner of Class Class
--------------------------------------------------------------------------------
(1)(2)
Common Stock James D. Davidson 1,466,666 8.63%
321 S. St. Asaph Street
Alexandria, Virginia 22314
(1)(3)
Common Stock Ronald L. Handford 1,266,000 7.38%
3432 West 13th Avenue
Vancouver, British Columbia
Canada V5Y 1W1
(1)(4)
Common Stock 442668 B.C. Ltd. 3,270,465 21.73%
12596 23rd Avenue
Surrey, British Columbia
Canada V4A 2C2
(5)
Common Stock Alan P. Lindsay 150,000 .08%
2701 Hornby Street
Vancouver, British Columbia
Canada V62 2R1
(6)
Common Stock Dr. Karl Hellstrom 100,000 .06%
720 Broadway
Seattle, Washington 98122
(7)
Common Stock Investor Communications 554,470 3.69%
International, Inc.
435 Martin Street, Suite 2000
Blaine, Washington 98230
Common Stock Grant R. Atkins 0 0%
435 Martin Street, Suite 2000
Blaine, Washington 98230
(8)
Common Stock All current officers 6,253,131 37.12%
and directors as a group
(6 persons)
--------------------------------------------------------------------------------
56
(1) These are restricted shares of common stock.
(2) Mr. James Davidson is an initial founding shareholder of GeneMax
Pharmaceuticals. This figure includes (a) 788,333 shares of common stock
held of record by Mr. Davidson; (b) an aggregate of 500,000 shares of
common stock held of record by Mr. Davidson's two minor children,
respectively, over which Mr. Davidson has sole voting and disposition
rights; (c) an assumption of the exercise of an aggregate of 13,333
warrants exercisable into 13,333 shares of common stock at the rate of
$0.75 per share expiring on May 1, 2006; (d) an assumption of the exercise
by Mr. Davidson of an aggregate of 15,000 warrants exercisable by Mr.
Davidson into 15,000 shares of common stock at the rate of $1.00 per share
expiring December 1, 2005; and (e) an assumption of the exercise by Mr.
Davidson of an aggregate of 150,000 Stock Options to acquire 150,000 shares
of common stock at $1.00 per share. As of the date of this Annual Report,
no warrants nor Stock Options have been exercised.
(3) Mr. Ronald Handford is an initial founding shareholder of GeneMax
Pharmaceuticals. This figure includes (a) 158,000 shares of common stock
held of record by Mr. Handford; (b) 325,000 shares of common stock held of
record by Aberdeen Holdings Limited over which Mr. Handford has sole
disposition rights; (c) 325,000 shares of common stock held of record by
Latitude 32 Holdings Ltd. over which Mr. Handford has sole disposition
rights; (d) 100,000 shares of common stock held of record by Handford
Management Inc. over which Mr. Handford has sole voting and disposition
rights; (e) an assumption of the exercise by Mr. Handford of an aggregate
of 8,000 warrants into 8,000 shares of common stock at $0.75 per share
expiring December 1, 2005; and (f) an assumption of the exercise by Mr.
Handford of an aggregate of 350,000 Stock Options to acquire 350,000 shares
of common stock at $1.00 per share. As of the date of this Annual Report,
no warrants nor Stock Options have been exercised.
(4) Dr. Wilfred Jefferies is an initial founding shareholder of GeneMax
Pharmaceuticals. Dr. Jefferies has sole voting and disposition rights over
the 2,770,465 shares of common stock held of record by 442668 B.C. Ltd.
This figure also includes an assumption of the exercise by Dr. Jefferies of
an aggregate of 500,000 Stock Options to acquire 500,000 shares of common
stock at $1.00 per share. As of the date of this Annual Report, no Stock
Options have been exercised.
(5) This figure includes the assumption of the exercise by Mr. Lindsay of an
aggregate of 150,000 Stock Options to acquire 150,000 shares of common
stock at $1.00 per share. As of the date of this Annual Report, no Stock
Options have been exercised.
(6) This figure includes the assumption of the exercise by Mr. Hellstrom of an
aggregate of 100,000 Stock Options to acquire 100,000 shares of common
stock at $8.50 per share. As of the date of this Annual Report, 50,000
stock options have vested and the remaining stock options will vest over
the next twenty-four months. As of the date of this Annual Report, no Stock
Options have been exercised.
(7) This figure includes 554,470 shares of common stock held of record by
Investor Communications International, Inc., 304,600 of which are free
trading, while the balance of 249,870 are available for sale under Rule
144. Pursuant to certain Notice and Agreements of Option, certain
contractors of ICI exercised 1,000,000 Stock Options at the exercise price
of $0.50 per option to acquire 1,000,000 shares of the Common Stock of the
Company. Pursuant to the terms and provisions of the Consulting Services
Agreement, the Company previously granted to ICI 1,000,000 Stock Options
(which were subject to an S-8 registration statement filed with the
Securities and Exchange Commission). In connection with the exercise of the
Stock Options, the shares of Common Stock of the Company were issued to
certain contractors of ICI who have provided bona fide services to the
Company under the Consulting Services Agreement.
57
(8) This figure includes the assumption of the exercise of an aggregate of
129,827 warrants into 129,827 shares of common stock and the assumption of
the exercise of 1,250,000 Stock Options into 1,250,000 shares of common
stock.
Notwithstanding the Pooling Agreement, there are no arrangements or
understanding among the entities and individuals referenced above or their
respective associates concerning election of directors or any other matters
which may require shareholder approval.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The officers/directors of the Company are engaged in other businesses,
either individually or through partnerships and corporations in which they may
have an interest, hold an office or serve on the boards of directors. Certain
conflicts of interest, therefore, may arise between the Company and the
respective officer/director. Such conflicts can be resolved through the exercise
by such officer/director of judgment consistent with his fiduciary duties to the
Company. The officers/directors of the Company intend to resolve such conflicts
in the best interests of the Company. Moreover, the officers/directors will
devote their time to the affairs of the Company as they deem necessary.
Consulting Services Agreement
Effective May 9, 2002 and fully executed July 15, 2002, the Company and ICI
entered into the Consulting Services Agreement. Pursuant to the terms and
provisions of the Consulting Services Agreement, ICI will provide to the Company
such finance and managerial services as may be determined by the Board of
Directors, from time to time, and in its sole and absolute discretion, in order
to develop the various business interests of the Company in the drug discovery
and development industry, involving the patented drug discovery assay for
immunomodulatory compounds and the pipeline aimed at treatment of cancer,
infectious diseases, autoimmune disorders and transplant tissue rejection.
Pursuant to further terms and provisions of the Consulting Services Agreement,
ICI shall be paid a monthly fee of $10,000 for its services.
Pursuant to the terms of the Consulting Services Agreement, the Stock
Option Plan incorporates the previous grant of 1,000,000 Stock Options at $0.50
per share to ICI and/or its consultants or employees who performed services
directly to the Company under the Consulting Services Agreement. In connection
Mr. Grant Atkins, a director of the Company, is employed by ICI and part of the
management team provided by ICI to the Company, and derives remuneration from
ICI for such services rendered to the Company. During fiscal year ended December
31, 2002, ICI paid Mr. Atkins approximately $17,325 by ICI and was reimbursed
for various expenses paid on behalf of the Company.
GeneMax Pharmaceuticals Consulting Agreement
On February 1, 2000, GeneMax Pharmaceuticals and 442668 B.C. Ltd. entered
into the GeneMax Pharmaceuticals Consulting Agreement for a period of five
years. Pursuant to the terms and provisions of the GeneMax Pharmaceuticals
Consulting Agreement, Dr. Jefferies agreed to provide technical, research and
technology development services to GeneMax Pharmaceuticals which include, but
are not limited to: (i) initiation, creation, development, coordination and
management of all aspects of any development and maintenance programs in
connection with the research and development of technology interests and each of
their proposed commercial applications; (ii) assistance in the negotiation of
proposed joint venture arrangements; (iii) assistance in the organization,
preparation and dissemination of any and all business plans, technical reports,
news releases or investment reports; (iv) assistance in liaison with corporate
alliances and regulatory associations; and (v) assistance in all other
technical, research, technology development, maintenance and regulatory services
as may be directed by the board of directors. Pursuant to further terms and
provisions of the GeneMax Pharmaceuticals Consulting Agreement, 442668 B.C. Ltd.
shall be paid a monthly fee of $10,000 Canadian Dollars and reimbursement of
expenses.
58
GeneMax Pharmaceuticals Management Agreement
On August 1, 1999, GeneMax Pharmaceuticals and Ronald L. Handford entered
into the GeneMax Pharmaceuticals Management Agreement for a period of five
years. Pursuant to the terms and provisions of the GeneMax Pharmaceuticals
Management Agreement, Mr. Handford agreed to provide general managerial services
to GeneMax Pharmaceuticals which include, but are not limited to, the following:
(i) overseeing all operational aspects; (ii) management of the day-to-day
operations; (iii) development and management of all aspects of any program in
connection with the development and management of the technology interests; (iv)
initiation, creation, development and administration of any and all other
development and management programs in respect of the technology and business
interests and proposed commercial applications; (v) negotiation of proposed
joint venture arrangements; (vi) setting up of all corporate alliances with
potential customers and strategic business and financial partners; and (vii)
assistance in all other development and management services as may be directed
by the Board of Directors. Pursuant to further terms and provisions of the
GeneMax Pharmaceuticals Management Agreement, Mr. Handford would be paid a
monthly fee of $11,000 U.S. Dollars and reimbursement of expenses. Effective May
1, 2002, GeneMax Pharmaceuticals and Mr. Handford agreed to reduce the monthly
fee to $12,500 Canadian Dollars until the earlier of the Company reaching a
senior board listing or commencing clinical trials, at which time the fee will
be reviewed in accordance with market norms.
GeneMax Pharmaceuticals Services Agreement
On May 31, 2002, GeneMax Pharmaceuticals and Alan Lindsay and Associates
Ltd. entered into the GeneMax Pharmaceuticals Services Agreement on a
month-to-month basis. Pursuant to the terms and provisions of the GeneMax
Pharmaceuticals Services Agreement, Mr. Lindsay agreed to provide general
corporate finance consulting services to GeneMax Pharmaceuticals as may be
determined by the Board of Directors in connection with and in order to develop
the various technology and business interests. Pursuant to further terms and
provisions of the GeneMax Pharmaceuticals Services Agreement, Mr. Lindsay shall
be paid a monthly fee of $2,500 U.S. Dollars and reimbursement of expenses.
Davidson Agreement
GeneMax Pharmaceuticals and James D. Davidson, a director and the Chief
Financial Officer of the Company, entered into the Davidson Agreement. Pursuant
to the terms and provisions of the Davidson Agreement, Mr. Davidson agreed to
perform such duties and services as required commensurate with his position as
the Chief Financial Officer of the Company and such other duties commensurate
with his position as a director on the Board of Directors. Pursuant to further
terms and provisions of the Davidson Agreement, Mr. Davidson shall be paid a
monthly fee of $2,000 and reimbursement of expenses. Effective July 15, 2002,
GeneMax Pharmaceuticals agreed to increase the monthly fee to $5,000 upon
commencement of Mr. Davidson's duties associated with his position as Chief
Financial Officer and a director of the Company after the acquisition of GeneMax
Pharmaceuticals.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed as part of this Annual Report:
10.18 Consulting Services Agreement between GeneMax Pharmaceuticals
Inc. and 442668 B.C. Ltd. dated February 1, 2000.
10.19 Management Services Agreement between GeneMax Pharmaceuticals
Inc. and Ronald L. Handford dated August 1, 1999.
59
10.20 Amended Services Agreement between GeneMax Pharmaceuticals
Inc. and Alan Lindsay and Associates Ltd. dated May 31, 2002.
10.21 Stock Option Plan dated effective September 30, 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act.
(b) Reports on Form 8-K.
(i) Form 8-K filed on December 10, 2002.
(ii) Form 8-K filed on September 27, 2002.
(iii) Form 8-K filed on September 26, 2002.
ITEM 14. CONTROLS AND PROCEDURES
There were no significant changes in the Company's internal control or in
other factors that could significantly affect the Company's internal controls
subsequent to the evaluation date.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GENEMAX CORP.
Dated: April 14, 2003 By: /s/ RONALD L. HANDFORD
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Ronald L. Handford, President and
Chief Executive Officer
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