U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ________
Commission File Number 000-27353
SELECT THERAPEUTICS, INC.
(Exact name of small business issuer as specified in its
charter)
Delaware 98-0169105
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
124 Mt. Auburn St., Suite 200 North, Cambridge, MA 02138
(Address of principal executive offices) Zip Code)
(617) 520-6693
(Issuer's telephone number, including area code)
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
--- ---
The aggregate number of shares outstanding of the Issuer's Common Stock, its
sole class of common equity, was 11,991,308 as of November 3, 2000.
Transitional Small Business Issuer Disclosure Format: Yes No X
- -
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Select Therapeutics Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Balance Sheets
(Stated in U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
(Audited)
------------- ------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 6,651,490 $ 7,901,288
Accounts receivable -- 17,042
Inventory 26,730 29,938
Prepaid expenses and other assets 11,516 56,516
Property, plant and equipment 102,584 108,940
------------ ------------
$ 6,792,320 $ 8,113,724
============ ============
Liabilities and Shareholders' Equity
Liabilities:
Accounts payable $ 61,505 $ 314,173
Accrued liabilities 726,492 496,961
------------ ------------
787,997 811,134
Shareholders' equity:
Capital stock:
Authorized:
1,000,000 preferred shares, $0.001 par value
50,000,000 common shares,
$0.001 par value
Issued:
Nil preferred shares -- --
11,979,308 (June 30, 2000 - 11,862,308) common shares 1,233 1,186
1,735,902 warrants 3,805,302 3,805,302
Contributed surplus 11,947,706 11,522,852
Stock options 1,326,250 1,281,250
Deficit accumulated during the development stage (11,076,167) (9,308,000)
------------ ------------
6,004,323 7,302,590
------------ ------------
$ 6,792,320 $ 8,113,724
------------ ------------
</TABLE>
See accompanying note to consolidated financial statements.
F-1
<PAGE>
Select Therapeutics Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statements of Operations
(Stated in U.S. dollars)
Three months ended September 30, 2000 and 1999
(Unaudited)
2000 1999
------------ ------------
Revenue $ -- $ 93,125
Cost of revenue -- 13,711
------------ ------------
-- 79,414
Interest income 83,663 506
Research and development 1,196,592 121,669
Selling, general and administration 648,882 415,820
Depreciation 6,356 9,958
Amortization -- 64,937
------------ ------------
1,851,830 612,384
------------ ------------
Loss for the period $ (1,768,167) $ (532,464)
============ ============
Loss per share $ (0.15) $ (0.09)
Weighted average number of shares 11,891,687 5,819,354
============ ============
See accompanying note to consolidated financial statements.
F-2
<PAGE>
Select Therapeutics Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statements of Changes in Shareholders' Equity
(Stated in U.S. dollars)
<TABLE>
<CAPTION>
Common shares Warrants
Number Amount Number Amount
--------- ------------ --------- ----------
<S> <C> <C> <C> <C>
Balance, June 30,1999 5,634,094 $ 563 -- $ --
Issue of common shares 6,228,214 623 -- --
Issue of warrants -- -- 1,735,902 3,805,302
Loss for the year -- -- -- --
Issue of stock options -- -- -- --
---------- ---------- ---------- ------------
Balance, June 30, 2000 11,862,308 1,186 1,735,902 3,805,302
Loss for the period -- -- -- --
Issue of stock options -- -- -- --
Issue of common shares 117,000 47
Share issue costs -- -- -- --
---------- ---------- ---------- ------------
Balance, September 30, 2000 11,979,308 $ 1,233 1,735,902 $ 3,805,302
========== ========== ========== ============
<CAPTION>
Deficit
Accumulated
during the
Contributed development Stock
surplus stage options Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, June 30,1999 $ 5,145,191 $ (4,585,602) $ -- $ 560,152
Issue of common shares 6,377,661 -- -- 6,378,284
Issue of warrants -- -- -- 3,805,302
Loss for the year -- (4,722,398) -- (4,722,398)
Issue of stock options -- -- 1,281,250 1,281,250
------------ ------------ ------------ ------------
Balance, June 30, 2000 11,522,852 (9,308,000) 1,281,250 7,302,590
Loss for the period -- (1,768,167) -- (1,768,167)
Issue of stock options -- -- 45,000 45,000
Issue of common shares 468,853 -- -- 468,900
Share issue costs (44,000) -- -- (44,000)
------------ ------------ ------------ ------------
Balance, September 30, 2000 $ 11,947,706 $(11,076,167) $ 1,326,250 $ 6,004,323
============ ============ ============ ============
</TABLE>
See accompanying note to consolidated financial statements.
F-3
<PAGE>
Select Therapeutics Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statements of Cash Flows
(Stated in U.S. dollars)
Three months ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash provided by (used in):
Operating activities:
Loss for the period $(1,768,167) $ (532,464)
Items not involving cash:
Depreciation 6,356 9,958
Amortization -- 64,937
Issue of common shares for services and license fees 468,900 90,000
Issue of stock options 45,000 --
Changes in non-cash operating working capital:
Accounts receivable 17,042 7,380
Inventory 3,208 (35,974)
Prepaid expenses and other assets 45,000 3,360
Accounts payable (252,668) 197,368
Accrued liabilities 229,531 28,487
----------- -----------
(1,205,798) (166,948)
Financing activities:
Proceeds from issuance of common shares -- 125,000
Share issue cost (44,000)
----------- -----------
(44,000) 125,000
Investing activities:
Additions to property, plant and equipment -- (33,953)
=========== ===========
-- (33,953)
Decrease in cash (1,249,798) (75,901)
Cash and cash equivalents, beginning of period 7,901,288 120,881
----------- -----------
Cash and cash equivalents, end of period $ 6,651,490 $ 44,980
=========== ===========
</TABLE>
See accompanying note to consolidated financial statements.
F-4
<PAGE>
Select Therapeutics Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (continued)
(Stated in U.S. dollars)
Three months ended September 30, 2000 and 1999
(Unaudited)
--------------------------------------------------------------------------------
1. Basis of presentation
In the opinion of management, the unaudited consolidated financial statements of
Select Therapeutics Inc. (the "Company") included herein have been prepared on a
consistent basis with the June 30, 2000 audited consolidated financial
statements and include all material adjustments, consisting of normal recurring
adjustments, necessary to fairly present the information set forth therein.
These interim financial statements should be read in conjunction with the June
30, 2000 audited consolidated financial statements and notes thereto. The
Company's results of operations for the first quarter of 2001 are not
necessarily indicative of future operating results.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual results could
differ materially from those estimates.
2. Cash and cash equivalents
Cash and cash equivalents includes cash and US Treasury-bills with maturity
dates of less than 90 days.
3. Capital Stock
(a) During the period ended September 30, 2000, the Company issued 117,000
shares of common stock as consideration for consulting services and license
fees.
(b) In September 2000, as part of a termination agreement, the Company granted
an option to a former consultant to purchase shares of the Company's common
stock at an exercise price of $4.00 per share, which is equal to fair
market value at the date of grant. The option vested immediately and
expires on September 10, 2002. The value of the option as determined by the
Black Scholes model, amounting to $45,000, has been expensed in the current
period.
4. Subsequent events
(a) On November 3, 2000, the Company completed the sale of its subsidiary,
Sierra Diagnostics Inc. ("Sierra"), to a group of private investors and
management of Sierra in exchange for a promissory note in the amount of
$1.394 million bearing interest at 9.5% and secured by certain Sierra
patent rights and a six percent royalty on future sales of Sierra's current
products.
(b) The Company is proceeding with its strategic alliance with Cytomatrix not
through an acquisition but rather by a joint venture, and the Company is
currently in the process of negotiating a joint venture agreement with
Cytomatrix.
5. Loss per share
The basic and diluted loss per share has been calculated using the weighted
average number of common shares outstanding during the period.
F-5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
THIS ITEM CONTAINS STATEMENTS WHICH ARE NOT HISTORICAL FACTS AND ARE
FORWARD-LOOKING STATEMENTS WHICH REFLECT MANAGEMENT'S EXPECTATIONS, ESTIMATES
AND ASSUMPTIONS. SUCH STATEMENTS ARE BASED ON INFORMATION AVAILABLE AT THE TIME
THIS FORM 10Q-SB WAS PREPARED AND INVOLVE RISKS AND UNCERTAINTIES THAT COULD
CAUSE FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO DIFFER
SIGNIFICANTLY FROM PROJECTED RESULTS. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY INCLUDE, WITHOUT LIMITATION, THE HIGH COST AND UNCERTAINTY OF
THE RESEARCH AND DEVELOPMENT OF PHARMACEUTICAL PRODUCTS, THE UNPREDICTABILITY OF
THE DURATION AND RESULTS OF THE U.S. FOOD AND DRUG ADMINISTRATION'S REVIEW OF
NEW DRUG APPLICATIONS, THE COMPANY'S NEED FOR AND ABILITY TO OBTAIN ADDITIONAL
CAPITAL, THE POSSIBLE IMPAIRMENT OF, OR INABILITY TO OBTAIN, INTELLECTUAL
PROPERTY RIGHTS AND THE COST OF OBTAINING SUCH RIGHTS FROM THIRD PARTIES AND THE
COMPANY'S DEPENDENCE ON THIRD PARTIES TO RESEARCH, DEVELOP, MANUFACTURE AND SELL
ITS PRODUCTS, IF ANY.
Overview
We are a development stage biopharmaceutical company and have established a
website (www.selecttherapeutics.com) to provide shareholders and interested
parties with information about us and our activities. Our focus is on
identification of therapeutic opportunities which combine relatively low cost of
development with a strong proprietary position and potentially short time to
market. Our development programs involve ex-vivo treatments, i.e. treatments in
which patients' tissues are manipulated outside the body. Such treatments are
believed to be less costly to investigate and develop than in-vivo agents. We
have a portfolio of therapeutic product opportunities focused on cancer and an
intellectual property position which we believe both allows us to practice and
defend our technologies.
We recently have concentrated on initiating a strategic alliance with
Cytomatrix, LLC, another development stage company. Our Verotoxin-based
technologies for stem cell purging and for antigen delivery to dendritic cells
integrate well with Cytomatrix' stem cell expansion and T-cell programs to
deliver a set of related product development programs, and Cytomatrix' stem cell
expansion programs are at the point of entering clinical trials at several
sites. We expect to enter into a definitive joint venture
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<PAGE>
agreement with Cytomatrix by December 31, 2000. The venture would include all of
Cytomatrix' technologies, intellectual property, research and administrative
personnel and financial resources, as well as its facility in Woburn,
Massachusetts, and we would contribute cash plus our Verotoxin-based stem cell
purging and dendritic cell development programs. (We would maintain a corporate
existence separately from the joint venture and would independently continue
some other programs.) As our product development programs have progressed, our
highly "virtual" structure has been tested to the limits of this business model,
and the joint venture with Cytomatrix would give our therapeutic programs the
benefits of an established and staffed business structure for product
development as well as technology synergy. We would continue to make extensive
use of subcontractors and external resources in order to retain flexibility and
maintain what we believe to be a cost efficient operating style. We believe that
through the joint venture we would be creating a significant entity in the
emerging field of cell-based therapy for cancer and other diseases.
In accord with our increased focus on therapeutic opportunities and
cell-based therapies in particular, in November 2000 we concluded the sale of
our diagnostics subsidiary to its management. We have retained a 6% royalty
interest in the success of Sierra's current products and, more importantly, the
sale enables us to focus our management and financial resources on therapeutic
opportunities.
A key activity has been and continues to be the acquisition, development
and maintenance of intellectual property positions in support of product
development opportunities. We continue to expend significant funds and efforts
on licenses and patent prosecution. In addition, we are continually examining
our intellectual property positions in relation to competitive activities and
our ability to operate and defend our positions in relation to products. We
believe that this is a key value element for our development.
Program Review
During the quarter ended September 30, 2000, our stem cell purging program
progressed towards its first clinical tests. Material qualified for patient
administration was successfully produced by our contract manufacturer, and final
preparations at the clinical site was undertaken. In October 2000 we submitted
to the Therapeutic Products Branch of Health Canada our
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<PAGE>
Investigational New Drug application ("IND") seeking approval to begin our first
clinical investigations of our Verotoxin formulation (Veropulse(TM)) for ex vivo
purging of tumor cells form autologous stem cells in patients with a type of
cancer known as multiple myeloma. We expect the actual trials to begin in the
first calendar quarter of 2001 pending approval of our IND.
Preclinical investigations of our Activate(TM) system for presenting
antigens to dendritic cells continued via our collaborations at the Institute
Curie and the Arizona Cancer Center. We are planing to have clinically qualified
materials produced in 2001 with view to starting clinical investigations late in
calendar 2001 on therapeutic vaccines for cancers.
During the quarter, we obtained two significant new licenses for
intellectual property in the area of stem cells.
Three months ended September 30, 2000 and 1999
Results of Operations
During the quarter ended September 30, 2000 we had no revenues and interest
income of $83,663; during the corresponding period in 1999, we had interest
income of $506 and revenues of $93,125 from sales of products of Sierra
Diagnostics which we sold on November 3, 2000. We have no other product or
license revenues.
We have been unprofitable from our formation and have an accumulated
deficit of $11,076,167 through September 30, 2000. For the quarter ended
September 30, 2000, we incurred a net loss of $1,768,167 compared with a loss of
$532,464 for the quarter ended September 30, 1999. Operating expenses for the
quarter ended September 30,2000 were $1,851,830 compared to $612,384 in the
comparable period in 1999, reflecting the continual costs of progressing our
development projects. The large increase in our expenses and loss resulted from
our improved cash position, which allowed us to spend the money needed to move
development programs forward. The net loss is a result of our routine operations
in our development stage. We expect losses to continue and increase for the next
several years as we pursue development and commercialization of our intellectual
property resources.
Personnel costs, including retained consultants, and external contractors
are the largest ongoing cost of operations. Locating and retaining appropriate
personnel resources is a priority, and
4
<PAGE>
anticipate that these costs will increase as our development programs move
forward and clinical trials are initiated. All research and development
activities are expensed as incurred. Patent costs are expensed due to the
uncertainties involved in realizing value from specific patents. There were no
significant capital expenditures during the last three months.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations since inception primarily through private
placements of Common Stock. At September 30, 2000, our cash and cash equivalents
were $6,651,490 compared to $7,901,288 at June 30, 2000. Our cash and cash
equivalents principally resulted from a $9.5 million equity private placement
completed in March 2000. We believe our cash and cash equivalents are sufficient
to continue operations for the next 18 months. Funds are kept in U.S. Treasury
Bills or equivalent securities.
The process of developing therapeutic products requires significant
additional research as well as preclinical and clinical testing required for
regulatory approvals. These activities are expected to result in continuing cash
outflows and operating losses. We will not receive revenue from therapeutic
products unless we complete clinical trials and successfully commercialize such
products, as to which no success can be assured. We have on hand sufficient cash
to cover our current levels of operating expenses for the next 18 months.
However, as we are entering clinical investigations of products and also,
through the proposed Cytomatrix joint venture, expect to have an increased
portfolio of opportunities, we are seeking additional equity funding in order to
advance product development. To this end, we have entered into an investment
banking relationship with Gerard Klauer Mattison ("GKM"). There can be no
assurance that GKM additional funding will be available when needed or on
commercially reasonable terms if at all, or that we will be able to develop any
viable product.
We will require substantial additional funding in order to complete our
research and development activities and sublicense any potential products. Our
future capital requirements will depend on many factors, including scientific
progress in research and development programs, the size and complexity of such
programs, the scope and results of preclinical studies and clinical trials, our
ability to establish and maintain corporate partnerships, the time and costs
involved in obtaining regulatory approvals, the costs involved in filing,
prosecuting and enforcing patent claims, competing technological and market
developments, the cost of
5
<PAGE>
manufacturing preclinical and clinical material and other factors not within our
control. We retained GKM as our investment banker regarding additional financing
required to develop our products. There can be no assurance that the additional
financing necessary to meet our short and long-term capital requirements will be
available on acceptable terms or at all.
Insufficient funds may require us to delay, scale back or eliminate some or
all of our research and development programs, to lose rights under existing
licenses or to relinquish greater or all rights to product candidates at an
earlier stage of development or on less favorable terms than we would otherwise
choose or may adversely affect our ability to operate as a going concern. If
additional funds are raised by issuing equity securities, substantial dilution
to existing stockholders may result.
PART II - OTHER INFORMATION
Item 2. Changes in Securities.
In September 2000, as part of a termination agreement, the Company granted
to a former consultant an option to purchase 15,000 shares of the Company's
Common Stock at an exercise price of $4.00 per share, which was equal to the
fair market value at the date of the grant. The option vested immediately and is
exercisable until September 10, 2002.
In September 2000, the Company issued 30,000 shares of its Common Stock to
Thomas Jefferson University and 65,000 shares of its Common Stock to
Philadelphia Health and Education Corporation d/b/a MCP Hahnemann University, in
each case as payment for license fees pursuant to certain license agreements. In
September 2000, the Company also issued an aggregate of 22,000 shares of its
Common Stock to two consultants for services rendered. All of these issuances
were made in reliance on the exemption from registration provided by Section
4(2) of the Securities Act of 1933, as amended.
Item 5. Other Information.
On November 3, 2000, the Company completed the sale of the stock of its
wholly-owned diagnostic subsidiary, Sierra Diagnostics, Inc., to a group of
private investors and management of Sierra in exchange for a promissory note in
the principal amount of $1,394,000 secured by certain Sierra patent rights and a
six percent royalty on future sales of Sierra's current products. The Company
will file a report on Form 8-K reporting this sale.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
6
<PAGE>
The following exhibits are filed with this report:
Page
----
4. Stock Option Agreement with Bonni Dutcher, dated
September 11, 2000, to purchase 15,000 shares of the
Company's Common Stock at a price of $4.00 per share. 9
27. Financial Data Schedule 21
7
<PAGE>
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.
Dated: November 14, 2000 SELECT THERAPEUTICS, INC.
By: /s/ Robert Bender
-----------------------------
Name: Robert Bender
Title: Chairman of the Board
8
