UNITED STATES
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 [NO FEE REQUIRED]
For the fiscal year ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to _________
Commission file number 000-27353
SELECT THERAPEUTICS INC
(Exact name of registrant 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 Street, Suite 200 North,
Cambridge, Massachusetts 02138
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (617) 520-6693
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange on
Title of each class which registered
N/A N/A
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
(Title of class)
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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 ____
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not 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. [ ]
State issuer's revenues for its most recent fiscal year. $187,632.
State the aggregate market value of the voting stock held by nonaffiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. (See definition of an affiliate in Rule 12b-2 of the Exchange Act.)
$47,167,755.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. 11,874,308 shares of common stock,
$.0001 par value, outstanding as of September 22, 2000.
DOCUMENTS INCORPORATED BY REFERENCE - None
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PART I
Item 1. Description of Business.
For simplicity, we use the terms "Select", "us", "we" or "our" to refer to
Select Therapeutics Inc., collectively with our subsidiaries unless the context
requires otherwise.
Overview
We were incorporated in Delaware in January 1997, under the name VT
Development, Inc. In July 1997, we changed our name to Select Therapeutics Inc.
We currently are conducting our business directly and through Select
Therapeutics (Canada) Inc., our wholly-owned Canadian subsidiary which was
organized in December 1996, and Sierra Diagnostics, Inc., a California
corporation which we acquired in November 1998. We recently accepted in
principle a management buy-back of Sierra pursuant to which we would receive a
royalty on net sales of certain Sierra products. Although we can give no
assurance, we expect the transaction to be concluded before December 31, 2000.
As more fully described below, we are a development stage biopharmaceutical
company.
Our principal focus is on the development of therapeutic interventions for
cancers and, in particular, on the application of the binding behavior of a
bacterial toxin, called verotoxin or VT, and nontoxic fragments of VT, to the
development of therapeutic agents. VT binds specifically to molecules found on
the surface of certain cells which include a number of cancer types. This
specific binding behavior is the basis for direct applications of the toxin as a
chemotherapeutic agent. In addition, a non-toxic fragment of the toxin has been
found to be an effective carrier for presenting antigens to the immune system
and thereby generating an immune response to agents such as cancer cells which
can otherwise escape immune surveillance. These applications of VT and non-toxic
VT fragments are the key elements of our program for development of
therapeutics, the first leading to direct chemotherapy agents and the second to
therapeutic vaccines.
Our principal place of business is located at 124 Mt. Auburn Street, Suite
200 North, Cambridge, Massachusetts 02138 and our telephone number is (617)
520-6693.
Our common stock is listed on NASDAQ's over-the-counter bulletin board
under the symbol "SLPU.OB".
Description of business
Our business development strategy is to acquire the rights to selected
early stage technologies which have potential use as therapeutic
pharmaceuticals. Our business model is to obtain by license the right to
develop, manufacture and market potentially useful early stage products, such as
those compounds which have undergone little, if any, preclinical testing and
which are the subject of pending United States composition of matter or use
patent applications which have been filed or which we intend to file. We
typically bear the expense of patent
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prosecution and may sponsor and direct some preclinical and clinical testing.
However, to avoid the substantial costs and huge risks associated with
commercialization, we may sublicense the manufacturing and marketing rights to
portfolio pharmaceutical products to one or more corporate partners in exchange
for license fees, milestone payments and royalty payments. Depending upon our
financial capability, we may retain rights to our portfolio pharmaceutical
products and develop the products ourself. We or our sublicensee would submit to
the FDA a new drug application ("NDA") in order to obtain the FDA's clearance to
market the drug. Our business model provides the opportunity to maximize return
on investment while controlling costs and risks. However, we can't assure you
that we will be able to successfully develop any pharmaceutical products
directly or indirectly through sublicensees, or even that we will be able to
obtain sublicensees. Our portfolio consists of compounds in the research and
development stage which may ultimately prove useful in the treatment of certain
types of cancer and infectious diseases.
Technology licenses
1. Verotoxin/Neoplasia
Licensed technology. In December 1996, we obtained from the University of
Toronto Innovations Foundation the exclusive, worldwide license, with the right
to grant sublicenses, to make, use and sell any verotoxin pharmaceutical
composition for the treatment of neoplasia, as described in the inventions
claimed in certain Canadian and United States patent applications and any
improvements. We are responsible for all expenses of filing, prosecuting and
maintaining any patents or patent applications issued or filed under the
license, and we have a right of first refusal on any improvements made by the
University. If we choose to exercise such right, we will be obligated to pay all
expenses associated with the filing and prosecution of patent applications,
selection of counsel, countries of filing and the like. In the event that we
have not achieved commercial sales by December 31, 2005, the University has the
option of converting the exclusive license to a non-exclusive license or, if we
cannot demonstrate reasonable due diligence towards commercial exploitation, the
University can terminate the license.
Verotoxin is a naturally occurring protein produced by certain strains of
bacteria which binds to specific receptor sites found on the exterior surfaces
of certain living cells, including certain types of malignant tumor cells,
epithelial intestinal cells of humans, certain dividing endothelial cells and
certain lymphocytes. The verotoxin molecule, after binding itself to a receptive
cell, penetrates the cell and kills it. Preliminary, pre-clinical studies
suggest that the receptor to which verotoxin binds can be found on the exterior
surfaces of cells which constitute ovarian, testicular, cervical, and breast
cancers and certain brain tumors such as astrocytomas. Preliminary, pre-clinical
testing of the effects of verotoxin on astrocytoma tumors implanted in live mice
has suggested that the direct intratumoral administration of the toxin molecule
may inhibit the growth of such tumors and cause them to regress, in some cases
completely.
Preliminary research suggests that the receptor to which verotoxin binds is
not found on the surface of most healthy, non-malignant cells. Should this be
confirmed by further
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testing, it would indicate that verotoxin, if used as a cancer chemotherapy
agent, would have selective toxicity for tumor cells, with acceptable side
effects due to any interactions with normal tissue. Therefore, we believe that
development and commercial exploitation of the subject molecule, as to the
success of which no assurance can be given, may lead to a drug formulation which
will treat certain malignant tumors while producing acceptable side effects
comparable to or less than those caused by many chemotherapies currently
administered.
Licensing fee. We paid a non-refundable licensing fee of $210,000,
Canadian, in cash and shares of our common stock. (Throughout this report, all
amounts are stated in U.S. dollars unless otherwise indicated.)
Milestones. The verotoxin license agreement requires us to achieve certain
results and to expend minimum amounts of money in developing a commercially
marketable formulation of the licensed verotoxin technology. In the event that
one or more milestones are not timely attained in any given calendar year, we
must pay an annual penalty of $50,000, Canadian, in calendar years 2003, 2004
and 2005, which would be credited to future royalties in excess of annual
minimum royalties, subject to a minimum annual royalty which has not yet been
fixed. A minimum annual royalty is the amount payable if the royalties earned on
actual sales of this product are less than a specified minimum. Our management
believes that we are in compliance with the milestone requirements of the
agreement.
Royalties. We will pay to the University a royalty equal to 4% of our net
sales of all verotoxin products used in the treatment of human tumors. However,
in the event that we license another royalty bearing product for inclusion in
our verotoxin products and the aggregate royalties payable by us on the final
product are greater than 6%, then the royalty due to the University shall be
reduced to 3%. Prior to the date of the first commercial sale of a
pharmaceutical product containing the licensed verotoxin technology, the parties
will negotiate annual minimum royalties to be paid by us, taking into account
market size, competitive position and patent issues, in order to provide the
University with continuing assurance of our diligence toward exploitation.
Sublicensing fees. We shall pay to the University 30% to 40% of any
sublicense fees we receive from an unaffiliated sublicensee.
2. Intracellular Transport Technology/Cancer and other vaccines
Optioned technology and terms. We obtained from the Institut Curie and the
Centre National de la Recherche Scientifique an option, exercisable until
December 31, 2000 to enter into an exclusive, worldwide license, with the right
to grant sublicenses, to make, use and sell any human or animal healthcare
product incorporating T-cell response modifier technology claimed in the subject
Canadian and U.S. patent applications and any improvements. The underlying
technology is based on the expression of the verotoxin receptor by human
dendritic cells which initiate and control the body's immune responses.
Dendritic cells play a pivotal role in initiating immune responses by taking up
and processing foreign antigens and "presenting" on their surface in a chemical
form which can activate other cells of the immune system.
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On December 2, 1999, we announced that a plan for clinical investigation of
the technology was being developed in collaboration with Dr. Evan Hersh of the
Arizona Cancer Center. Based on preliminary in-vitro research, we and the
Institut Curie and the Centre National de la Recherche Scientifique believe it
may be possible to use the dendritic cell antigen processing pathway involving
the verotoxin receptor to develop vaccines against cancer and other diseases.
The option agreement contemplates an initial research stage, expected to
last for one year, to validate in vitro the concept of the technology, and we
are obligated to provide $100,000, or 40% of the funding, for the initial
research stage. The second research stage, which is expected to last two to
three years from the end of the first stage, will validate in vivo the effect of
the product in animal models, including phase one clinical trials. If and when
we exercise our option, the parties shall establish funding requirements for
additional research stages, the funding of which will be our sole
responsibility.
In order for us to exercise the option, two requirements must be met: (i) a
business plan for the development and commercialization of the licensed
intracellular transport technology must be completed, and (ii) the funding of
the second and third stages of the research program must be insured. In the
event that we have not proposed a long term development and commercialization
plan by December 31, 2000, the other parties have the option of terminating the
agreement.
We are responsible for all expenses of filing, prosecuting and maintaining
any patents or patent applications issued or filed during the option period, and
have a right of first refusal on any improvements made by the Institut Curie and
the Centre National de la Recherche Scientifique. The cost of filing any patent
applications for improvements will be borne by the party making the improvement.
Licensing fee. In the event that we acquire a license, we must pay a
non-refundable licensing fee equal to $200,000, of which $100,000 is due within
30 days of execution of the license and balance is due six months thereafter. We
also must pay an additional non-refundable license fee of $50,000 upon
completion of each of the second and third stages of the research program.
Milestones. Additional development milestones will be set by the parties
within two years following the execution of the license agreement. If we have
not achieved commercial sales by the year 2008, we will be required to pay a
penalty of $200,000, or, if we cannot demonstrate reasonable due diligence
towards exploitation, the Institut Curie and the Centre National de la Recherche
Scientifique have the option of terminating the license.
Royalties. We will pay to the Institut Curie and the Centre National de la
Recherche Scientifique a royalty based on our net sales of pharmaceutical
products containing the licensed intracellular transport technology. Prior to
the date of first commercial sale, the parties will negotiate annual minimum
royalties to be paid by us, taking into account market size, competitive
position and patent issues, in order to provide the Institut Curie and the
Centre
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National de la Recherche Scientifique with continuing assurance of our diligence
toward exploitation.
Sublicensing fees. We shall pay to the Institut Curie 30% to 50% of any
sublicense fees we receive from an unaffiliated sublicensee.
3. Bone Marrow Purging
Licensed technology. In February 1998, we entered into a license agreement
with the University of Toronto Innovations Foundation and the Ontario Cancer
Institute whereby we obtained an exclusive, worldwide license, known as the CD77
License, with the right to grant sublicenses, to make, have made, use and sell
any product using any method of selectively purging CD77 positive cells from
bone marrow described in patent applications, and to use, have used, make and
have made the method for treatment of non-hodgkin's lymphomas described in such
applications, for the purpose of producing products using the CD77 technology.
On September 1, 1998, U.S. Patent No. 5,801,145 was issued, which covers the
licensed CD77 technology. We are responsible for the expenses of filing,
prosecution and maintenance of patent applications for filing. If we choose not
to file a patent application, the Ontario Cancer Institute may do so at its own
expense. We have a right of first refusal for any improvements made by the
Ontario Cancer Institute. In the event that we have not achieved commercial
sales by December 31, 2002, the University has the option of converting the
exclusive CD77 license to a non-exclusive license or, if we cannot demonstrate
reasonable due diligence towards commercial exploitation, terminating such
license. The CD77 license will remain in effect so long as there is at least one
patent in force or patent application pending.
The licensed CD77 technology is under evaluation for use in improved
interventions for cancer patients whose therapeutic options include autologous
stem cell transplantation. Preliminary research indicates that blood cells may
be removed from patients undergoing high dose radiation or chemotherapy which
may destroy blood forming cells, treated using the licensed CD77 technology to
remove contaminating tumor cells and then transplanted back into the patient
after therapy. Under the licensed technology, verotoxin, a bacterial toxin, is
used to selectively kill cancer cells which may contaminate the blood cells
harvested for transplantation back into the patient after high dose chemotherapy
to re-establish the patient's bone marrow. Early studies suggest that treatment
of the harvested blood cells with verotoxin ex-vivo does not harm the essential
blood cells which allow regeneration of new blood cells. Although further
research is necessary, elimination of cancer cells in the marrow using the
licensed CD77 technology may result in improved clinical outcomes for such
patients.
Licensing fee. We paid $97,902 in cash and shares of our common stock.
Milestones. The CD77 license requires us to achieve certain results and to
expend minimum amounts of money in developing a commercially marketable
formulation of the licensed CD77 technology, as to the success of which no
assurance can be given. Development milestones for the years 2000 to 2005 will
be set by us in the first two years of development. We believe we are in
compliance with the milestone requirements of the CD77 license.
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Royalties. We are required to pay to the University a royalty equal to 4%
of net sales of all licensed CD77 products. However, in the event that we
license another royalty bearing product for inclusion in the licensed CD77
products and the aggregate royalties payable by us on the final product are
greater than 6%, then the royalty fee due to the University shall be reduced to
3%. Prior to the date of the first commercial sale of a licensed CD77 product,
the parties will negotiate annual minimum royalties to be paid by us, taking
into account market size, competitive position and patent issues, in order to
provide with continuing assurance of our diligence toward exploitation. The
amount of our minimum annual royalty has not yet been determined.
Sublicensing fees. We are required to pay the University 30% to 50% of any
sublicense fees we receive from an unaffiliated sublicensee.
4. Clinical Monitoring of Malignant Lymphomas
Licensed technology. On March 1, 1999, we obtained from the University of
Alberta an exclusive worldwide license, with the right to grant sublicenses, to
use a method of clinical monitoring of malignant lymphocytes claimed in pending
patent applications, and to manufacture, distribute, and sell goods in
connection with the use of all or some of the University of Alberta technology.
Licensing fee. We paid the University an initial license fee of $18,000.
Royalties. We shall pay a 3% royalty on our net revenue from our sales of
products incorporating the University of Alberta's technology.
Sublicensing fees. We shall pay 40% of the sublicensing fees, net of the
research and development costs incurred by us, but not less than 20% of the
sublicense fee we receive.
5. Gonostat Test Kit*
Licensed technology. Through Sierra Diagnostics, Inc. we develop
manufacture and sell an in-vitro diagnostic kit, known under the trade name
Gonostat which detects the presence of gonococchal DNA by using genetic
transformation technology and a mutant strain of Neisseria gonorrhea. The kit
incorporates test methodology for the laboratory diagnosis and test strain of
neisseria gonorrhoeae, covered by U.S. Patent No. 4,446,230, to which Temple
University in January 1994 granted Sierra an exclusive worldwide license with
the right to sublicense, to make in the United States any product, process, or
use covered by the licensed patent.
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* We recently accepted in principle a management buy-back of Sierra pursuant
to which we would receive a royalty on net sales of certain Sierra
products. Although we can give no assurance, we expect the transaction to
be concluded before December 31, 2000.
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Royalties. Subject to a $10,000 annual minimum royalty, on licensed
products manufactured or sold in the United States, we pay Temple University a
royalty of 4% of annual net sales up to and including $2,000,000, plus 3% of
annual net sales greater than $2,000,000, but not more than $4,000,000, plus 2%
of annual net sales in excess of $4,000,000. Royalties on foreign sales are all
reduced by 1%.
Sublicensing fees. We must pay Temple University 25% of all sums of money,
other than royalties on account of net sales of the licensed product, which we
receive from sublicensees, including, but not limited to all sublicense fees and
minimum royalties paid to us by sublicensees.
Development programs
1. Dendritic cell activation by verotoxin conjugates. We have an option
from the Institut Curie to license the rights to a patented technology which
utilizes the binding unit of verotoxin as a carrier to deliver specific antigens
to dendritic cells.
Overview: Dendritic cells are specialized cells of the immune system which
have the capacity to take up foreign antigens, process them internally, and then
display antigen fragments on their surfaces in a chemical form recognizable by
other immune cells. It is now believed that antigen "presentation" by dendritic
cells is essential to the activation of an antibody response or of a cellular
immune response to tumor cells or microbes. Activation of an individual's immune
system via stimulation of dendritic cells to identify, target and destroy cancer
cells is a new approach to cancer therapy which has shown very promising results
in a number of laboratory and clinical trials conducted by third parties.
Dendritic cells have specific receptors which bind the B fragment of
verotoxin. The B fragment is nontoxic to the cells. If a tumor antigen is bound
to the B fragment of verotoxin, the entire complex binds to these specific
receptors on the dendritic cell surface. After binding, the complex is
internalized into the dendritic cells' antigen-processing pathway and is
presented on the surface as an effective activator of the immune system. This
technology has been developed and tested in animal models at the Institut Curie,
in a program partially sponsored by us.
Clinical development: We intend to pursue two therapeutic approaches to the
utilization of the technology:
o adoptive immunotherapy (Activate(TM)), a procedure in which dendritic
cells are removed from the patients' blood, activated ex vivo with our
B fragment verotoxin tumor antigen complex, and then reinfused to
activate the immune system to kill the tumor cells; and
o vaccination employing direct parenteral injection of our B fragment
tumor antigen complex (VeroVax(TM)) to stimulate an in vivo immune
response against tumors.
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We believe that there is significant overlap of the resources required for
the development programs for each of these two products, leading to operating
efficiencies for us. Due to regulatory requirements there is a progression in
product development and market opportunity which can be realized.
Application: Adoptive immune therapy, or Activate(TM) products
Overview: In adoptive immune therapy, dendritic cells are exposed to
antigens in an ex-vivo setting which allows for stimulation and expansion of the
dendritic cell population. This may be important in patients with compromised
immune systems. Because the cells are manipulated ex vivo, the process can be
monitored and quality controlled rigorously, which we believe allows both a
shorter regulatory pathway to patient trials and a more flexible environment for
development than in vivo strategies employing direct vaccination of patients.
The key goal in adoptive immunotherapy is the demonstration that dendritic cells
can be stimulated by antigens to which they do not normally respond and that
they then can activate lymphocytes to kill tumor cells.
Clinical development: Research conducted by our collaborators at the
Institut Curie has shown that molecular constructs based on the binding subunit
of VT ("VT-B") are capable of stimulating dendritic cells to process attached
tumor antigens so as to induce cytotoxic lymphocytes to kill tumors bearing that
antigen in an animal model. Patent protection has been sought on the basic
construct and subsequent work.
The next stage of product development involves replication of the results
in patient derived dendritic cells and ex-vivo characterization of the cellular
response. This can be carried out with laboratory grade materials. However,
clinical validation will require preparation of VT- B constructs in compliance
with current pharmaceutical good manufacturing practices. We have retained a
manufacturer to produce clinical trial materials.
Economics: A course of adoptive immunotherapy requires special handling of
patient material, laboratory processing, cellular quality control and
readministration to patients. If successfully introduced into clinical practice,
VT-B antigen constructs for use ex-vivo will likely be priced as an enabling
reagent on a per-patient treatment basis.
Application: Parenteral therapeutic vaccines, or VeroVax(TM)
Overview: Vaccines are generally composed of foreign antigens, prepared in
a vehicle which is designed to stimulate an immune response after direct patient
injection. Such therapeutic vaccines for cancer are superficially similar to
conventional vaccines such as tetanus toxoid to prevent tetanus. They are
designed to be capable of stimulating the immune system to respond to specific
tumor-associated antigens. VeroVax(TM) vaccines are intended to be conjugates of
VT-B with specific tumor-associated antigens for direct administration to the
patient by injection. In practice, a therapeutic anti-cancer vaccine is likely
to be a mixture of several antigen VT-B constructs tailored to specific tumor
types.
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Status: VeroVax(TM) products could represent a significant advance over
current practice and could have the potential to achieve market dominance in the
emerging sector of therapeutic cancer vaccines since they do not require
cumbersome ex-vivo procedures. Proof of concept experiments have been carried
out in animals and a development program targeted at clinical trials is being
developed.
Economics: VeroVax would add significant value by avoiding the need for
patient specific ex-vivo manipulations and procedures.
2. Therapeutic utilization of verotoxin or VT-1 (VeroPulse(TM))
We have engaged a third party to manufacture pharmaceutical grade verotoxin
(Veropulse(TM)) in accordance with current good manufacturing practices required
by the FDA.
We anticipate that the product will be formulated for trials in stem cell
purging and treatments of certain brain cancers.
A. Purging of tumor cells as an adjunct to autologous stem cell
transplantation and marrow transplantation.
Overview: High dose chemotherapy is currently being used to attempt to
eradicate tumors. Stem cells in the marrow which are needed to continuously
produce white and red blood cells succumb to these treatments. To avoid
destroying the patient's capacity to make new blood cells as needed, blood stem
cells or bone marrow containing such stem cells is removed prior to
administration of the chemotherapy. The blood stem cells are then transplanted
back into the patient after the potentially toxic treatment. These blood stem
cell or bone marrow transplants may contain tumor cells and can result in
reestablishment of the cancer. Purging the transplant tissue of tumor cells
ex-vivo can eliminate contaminating tumor cells and potentially lead to improved
outcomes.
Clinical development: The first clinical population intended to be
investigated is patients with multiple myeloma, a cancer of the white blood
cells. Multiple myeloma is a rare but significant cancer with an occurrence rate
of approximately 55,000 cases annually, worldwide, of which approximately 40%
are eligible for autologous transplant procedures. These cancer cells have been
shown in vitro to be susceptible to VT. We also have a proprietary assay which
allows for the assessment of the efficacy of tumor cell purging in this disease.
This is a key point since it allows for rapid evaluation of the effectiveness of
treatment. Since the toxin is used ex-vivo, product development requirements are
greatly simplified. A clinical trial has been organized in cooperation with the
W.W. Cross Cancer Institute at the University of Alberta, by doctors Andrew
Belch and Linda Pilarski, to start once VT-1 is manufactured in accordance with
pharmaceutical good manufacturing practices and we obtain the regulatory
approval required to commence the trial.
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Production of VT-1 has been sourced through a qualified subcontractor with
experience in the manufacture and purification of recombinant proteins for
therapeutic use. Costs of all active ingredients required through the end of the
clinical trials is estimated at approximately $2,300,000.
Patents or licenses to patent applications on the use of VT-1, therapeutic
compositions and the specific use of VT-1 in purging applications have been
obtained. In addition, we have licensed a patented assay for immunoglobulin
changes characteristic of multiple myeloma as a development tool which can
markedly reduce the time required for clinical trials to demonstrate efficacy of
purging in improving therapeutic outcomes.
B. Application: Direct intra tumor injection
Overview: VT-1 has been shown ex-vivo to be specifically toxic to certain
cancer cells. In animal experiments, certain engrafted human tumors have totally
regressed and not recurred. There is some evidence of non-tumor binding of VT-1
in adult humans and extensive toxicological investigations would be required for
systemic administration. Direct intratumor injection without systemic
administration of the toxin might be viewed as an aggressive intervention, but
for tumors which are surgically inaccessible or unmanageable it may be
acceptable for treatment. The amount of toxin to be administered in any such use
must be low in relation to the whole body toxic threshold dose.
Clinical development: Astrocytomas are highly invasive, rapidly growing
brain tumors which are surgically intractable both because of their location and
invasive behavior. Patients typically undergo one or more debulking surgeries,
generally with significant collateral impairment of brain function. Since there
are no alternate therapies and the best available practice has very poor
prognosis for the patient, an experimental therapy involving direct intratumor
injection of VT-1 has been planned as a physician-sponsored study in Canada. The
first trial will be on patients who are being surgically managed and will be
aimed at halting progression of the disease. Direct intra-tumor injection of
VT-1 will be done under stereotactic control. The development of multiple drug
resistance in tumors after courses of conventional chemotherapy is a general and
widespread phenomenon leading to the failure of therapy in the patients where it
occurs. Multiple drug resistance is accompanied by a significant increase in the
susceptibility of tumors to VT-1. This phenomenon may make VT-1 a useful
candidate for this population.
Material for the first clinical trials of VT-1 is expected to be obtained
from the same production run as that used for the stem cell and bone marrow
purging kits.
3. Diagnostic products*
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* We recently accepted in principle a management buy-back of Sierra pursuant
to which we would receive a royalty on net sales of certain Sierra
products. Although we can give no assurance, we expect the transaction to
be concluded before December 31, 2000.
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We market and sell diagnostic products domestically through our subsidiary
Sierra Diagnostics, Inc. and distribute them overseas using third parties.
Gonostat(TM): We have developed a DNA complementation test which offers
leading price-performance to large public health laboratories and reference labs
and is sold directly to these labs.
As a result of our November 1998 acquisition of Sierra Diagnostics, Inc.,
we operate a U.S. Food and Drug Administration approved manufacturing facility
of approximately 7,606 square feet located in Sonora, California, where we
manufacture our Gonostat in-vitro diagnostic product for the detection of
gonorrhea, which received marketing clearance from the FDA in June 1998. Our
sole Gonostat customer is the Alabama Department of Health, which in November
1998 contracted with us to fill its ongoing requirements.
DNA-RNA Protect(TM): We have also developed, through Sierra Diagnostics,
Inc., and filed a U.S. patent application claiming a new technology for the
preservation of nucleic acids in diversified body fluids which would solve a
common problem of molecular testing systems by maintaining the integrity of a
sample from the time it is taken out of the body until the time it is analyzed.
This technology protects DNA and RNA from degradation in urine, serum, plasma,
and tissues for up to eight days at temperatures up to 37 degrees celsius and
allows samples to be stored and transported at room temperature and tested in
batches. We are not aware of any other technology with equivalent performance
for the stabilization of nucleic acids in urine. Sales of evaluation quantities
of our DNA-RNA Protect(TM) product started in July 1999.
We have entered into an agreement with Genelabs (Kenya) Ltd. to be our
exclusive distributor in Kenya, Tanzania and Uganda for Gonostat(TM) and DNA-RNA
Protect(TM). Genelabs, located in Nairobi, Kenya, distributes diagnostics and
other medical products.
Marketing
We are pursuing a niche product strategy which, in some cases, may make it
practical to carry products through marketing. In general, the cost and time
requirements of establishing independent distribution present significant entry
barriers. Established distribution partners can often be found and frequently
present a viable route to market entry for emerging companies.
Research and development
During our fiscal years ended June 30, 2000 and 1999, we spent
approximately $1,604,607 and $1,424,526 respectively, on research and
development.
Patents and proprietary rights
Patents and other proprietary rights are extremely important to our
business. However, the patent positions of biopharmaceutical firms, including
Select, are uncertain and involve complex legal and factual questions which can
be difficult to resolve.
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Our general policy is to license the right to develop, manufacture and
market selected early-stage compounds, which themselves are, or their use for
the licensed indication is, covered by a U.S. patent application, which is
pending or which we intend to file. To date, two patents have issued on our
portfolio therapeutics compounds:
o the "Method for Selectively Purging CD77+ Cells from Bone Marrow",
U.S. patent no. 5,801,145, dated September 1, 1998; and
o U.S. patent no. 5,968,894, effective October 19, 1999 for use of
verotoxin for the treatment of brain cancer, ovarian cancer, breast
cancer and skin cancer.
Patents for other portfolio therapeutic compounds are being sought.
One of our technologies is the subject of an allowed claim although the
U.S. patent has not yet issued:
o "Verotoxin Pharmaceutical Compositions and Medical Treatments
Therewith," dated Sept. 23, 1998.
One diagnostic technology is the subject of an issued patent:
o "Test Method for the Laboratory Diagnosis and Test Strain of Neisseria
Gonorrhea," U.S. Patent No. 4,446,230, dated May 1, 1984.*
We typically bear all patent prosecution expenses and patent maintenance
expenses for any issued patent. We also may rely upon trade secrets and
know-how.
The patent application and issuance process may take several years and
involves considerable expense, and there is no assurance that any patent sought
by us or our licensors will issue. The coverage claimed in a patent application
can be significantly reduced before a patent is issued. Consequently, neither
the applicant nor the licensee knows whether any claim contained in a patent
application will be allowed and result in the issuance of a patent or, if any
patent is issued, whether it will provide meaningful proprietary protection or
will be circumvented or invalidated. Since patent applications in the U.S. are
maintained in secrecy, until foreign counterparts, if any, are published, and
because publication of discoveries in the scientific or patent literature often
lags behind actual discoveries, we cannot be absolutely certain that we or our
licensor was the first inventor of the subject matter covered by the patent
application, was the first to file a patent application or would obtain the
freedom to practice the claimed inventions and the right to prevent others from
doing so. Moreover, priority in filing a patent application for an invention can
be overcome by a different party who first practiced
----------
* This patent is held by our subsidiary Sierra Diagnostics Inc. We recently
accepted in principle a management buy-back of Sierra. See Item 1.
"Description of Business-Overview".
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the invention. Accordingly, we may have to participate in extensive proceedings
in U.S. and foreign patent offices or courts, including interference proceedings
declared by the U.S. Patent and Trademark Office to determine priority and
patent validity. Any such proceeding would be costly and consuming of our
management's time. There can be no assurance that either our owned or licensed
patents would be held valid or that our products would not be found to infringe
upon patents owned by others. In the event of a determination that we are
infringing a third party's patent, we would likely be required to pay royalties,
which could be substantial to such third party.
There can be no assurance that any patent rights held by us will provide
any actual competitive advantage to us. Competitors may be able to develop
similar and competitive products outside the scope of our patents. For example,
should third parties patent or otherwise develop and receive governmental
clearance to commercialize a substance such as verotoxin for a use not covered
by our patents, physicians could use those third party products in place of our
verotoxin products even though such third party products were not approved by
the FDA for the same indications as our products. Any such off-label use of
third party products could have a material adverse affect on the sales of our
products and the amount of royalty revenues we receive.
From time to time, third parties may claim or we may identify intellectual
property rights not owned or licensed by us which we may infringe. To the extent
that such properties are in the public domain, in the first instance we would
seek the opinion of patent counsel to avoid claims of willful infringement. In
addition, whether or not such properties are in the public domain, we, after
consultation with patent counsel and based on our evaluation of applicable
considerations, including, without limitation, the potential duration, expense
and outcome of an infringement proceeding, the validity or enforceability of
such potential claims and other business considerations, may seek to license
such intellectual properties in consideration of our payment of royalties. There
can be no assurance that we will be able to obtain from third parties patent
licenses on commercially reasonable terms, if at all.
We also rely upon trade secret protection for our confidential and
proprietary information. We can't assure you that others will not independently
develop substantially equivalent proprietary technology and techniques or gain
access to our trade secrets or disclose such technology or that we can
meaningfully protect our trade secrets.
Government regulation
The research, testing, manufacture and marketing of pharmaceutical products
are extensively regulated by numerous governmental authorities in the U.S.,
Canada and other countries. In the U.S., drugs are subject to rigorous
regulation by the FDA. The federal Food, Drug and Cosmetic Act, as amended, and
its regulations, and other federal and state statutes and regulations govern,
among other things, the research, development, testing, manufacture, storage,
record keeping, labeling, promotion, marketing and distribution of
pharmaceutical products. Failure to comply with applicable regulatory
requirements may subject a company to administrative or judicially imposed
sanctions such as civil penalties, criminal
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prosecution, injunctions, product seizure or detention, product recalls, total
or partial suspension of product, and FDA refusal to approve pending NDAs or NDA
supplements to approved applications.
The process of obtaining FDA and other required regulatory approvals,
including foreign approvals, often takes many years and can vary substantially
based upon the type, complexity and novelty of the products involved.
Furthermore, such approval process is extremely expensive and uncertain. We
can't assure you that our potential pharmaceutical products, all of which are
early stage, will be approved for marketing by the FDA or any similar regulatory
body of Canada or any other country. Even if regulatory approval of a product is
granted, we can't assure you that we will be able to obtain the labeling claims
we seek for the promotion of our products and FDA requirements prohibit the
marketing or promotion of a drug for indications the FDA has not approved.
Furthermore, regulatory marketing approval may entail ongoing requirements for
post-marketing studies.
The steps ordinarily required before a new pharmaceutical product may be
marketed in the United States include:
o preclinical studies,
o the submission to the FDA of an investigational new drug application
("INDA"), which must become effective before clinical testing in
humans may commence, o adequate and well controlled clinical trials to
establish the safety and effectiveness of the drug for each claimed
indication,
o the submission of the NDA to the FDA, and
o FDA review and approval of the NDA prior to any commercial sale or
shipment of the drug.
Preclinical testing of a drug includes laboratory evaluation of chemistry
and formulation as well as animal studies to assess safety and efficacy.
Preclinical tests must be conducted in compliance with good laboratory practice
regulations, and compounds for clinical use must be formulated according to FDA
requirements. The results of preclinical testing are submitted to the FDA as
part of the INDA. A thirty-day waiting period after the filing of each INDA is
required prior to the commencement of clinical testing in humans. If the FDA has
not commented on or questioned the investigational new drug within this
thirty-day period, clinical studies may begin. If the FDA has comments or
questions, the questions must be answered to the satisfaction of the FDA before
initial clinical testing can begin. In addition, the FDA may impose a clinical
hold on ongoing clinical trials at any time.
If the FDA imposes a clinical hold, clinical trials cannot commence or can
recommence without FDA authorization only under terms authorized by the FDA. In
some instances, the INDA process can result in substantial delay and expense.
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Clinical trials are conducted under the supervision of a qualified
investigator in accordance with good clinical practice regulations under
protocols detailing the objective of the study, the parameters to be used in
monitoring safety and the effectiveness criteria to be evaluated. Each protocol
must be submitted to the FDA as part of the INDA. Further, each clinical study
must be conducted under the auspices of an independent institutional review
board at the institution at which the study will be conducted. The institutional
review board considers, among other things, ethical factors, the safety of human
subjects and the possible liability of the institution.
Clinical trials to support NDAs are typically conducted in three sequential
phases, but the phases may overlap. In phase one, the 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 two usually involves
studies in a limited patient population to
o determine the efficacy of the drug in specific, targeted indications,
o determine dosage tolerance and optimal dosage, and
o identify possible adverse effects and safety risks.
If a compound is found in phase two to be effective and to have an
acceptable safety profile, phase three trials are undertaken to further evaluate
clinical efficacy and to further test for safety within an expanded patient
population at geographically dispersed clinical study sites.
After successful completion of the required clinical testing, an NDA
generally is submitted. FDA approval of the NDA is required before marketing may
begin in the U.S. The NDA must include the results of clinical and other testing
and the compilation of data relating to the product's chemistry, pharmacology
and manufacture, the cost of all of which is substantial. The FDA reviews all
submitted NDAs before it accepts them for filing, and it may request additional
information before such acceptance, in which event the NDA must be resubmitted
with the additional information and, again, is subject to review before
acceptance for filing. Once the submission is accepted for filing, the FDA
begins an in-depth review of the NDA. Under the federal Food, Drug and Cosmetic
Act, the FDA has 180 days in which to review the NDA and respond to the
applicant. The review process is often significantly extended by FDA requests
for additional information or clarification of information in the submission,
which typically are made in a non-approvable letter. The FDA may refer the NDA
to an appropriate advisory committee, typically a panel of clinicians, for
review, evaluation and a recommendation as to whether the NDA should be
approved; however, the FDA is not bound by the recommendation of its advisory
committee. If FDA evaluation of the NDA and its inspection of the proposed
manufacturing facility are favorable, the FDA may issue either an approval
letter authorizing commercial marketing of the drug for certain specified
indications or a conditional approval letter which usually contains a number of
conditions that must be met in order to secure final approval of the NDA. When
and if those conditions have
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been met to the FDA's satisfaction, the FDA will issue an approval letter. As a
condition of NDA approval, the FDA may require post-marketing testing and
surveillance to monitor the drug's safety or efficacy. Once granted, product
approvals may be withdrawn if compliance with regulatory standards is not
maintained or problems occur following initial marketing.
If the FDA's evaluation of the NDA submission or manufacturing facilities
is not favorable, the FDA may refuse to approve the NDA or issue a
non-approvable letter, outlining the deficiencies in the submission and often
requiring additional testing or information. Notwithstanding the submission of
any requested additional data or information in response to a conditional
approval or non-approvable letter, the FDA ultimately may decide that the
application does not satisfy the regulatory criteria for approval.
If regulatory approval is obtained, we will be subject to ongoing FDA
obligations and continued regulatory review. In particular, a drug manufacturer
is required to adhere to regulations setting forth current good manufacturing
practices which require that it manufacture its products and maintain its
records in a prescribed manner with respect to manufacturing, testing and
quality control activities. Further, the manufacturer must pass a pre-approval
inspection of its manufacturing facilities by the FDA before obtaining marketing
approval. Failure to comply with applicable regulatory requirements may result
in penalties such as restrictions on a product's marketing or withdrawal of the
product from the market. In addition, identification of certain side effects
after a drug is on the market or the occurrence of manufacturing problems could
cause subsequent withdrawal of approval, reformulation of the drug, additional
preclinical testing or clinical trials and changes in labeling of the product.
Accordingly, prior to the submission of an NDA, any drug we develop must
undergo rigorous preclinical and clinical testing, which may take several years
and the expenditure of substantial resources. Before commencing clinical trials
in humans, we must submit to the FDA and receive clearance of an INDA. There can
be no assurance that submission of an investigational new drug for future
clinical testing of any product under development or other future products of
ours would result in FDA approval to commence clinical trials or that we will be
able to obtain the necessary approvals for future clinical testing in any
foreign jurisdiction. In addition, success in preclinical studies or early stage
clinical trials does not assure success in later stage clinical trials. Data
obtained from preclinical and clinical activities are susceptible to varying
interpretations which could delay, limit or prevent regulatory approval.
Furthermore, there can be no assurance that if such testing of our products
under development is completed, any such drug will be accepted for formal review
by the FDA or any foreign regulatory body, or approved by the FDA for marketing
in the U.S. or by any such foreign regulatory bodies for marketing in foreign
jurisdictions. Delays or rejections may be encountered based upon many factors,
including changes in regulatory policy during the period of product development.
Future federal, state, local or foreign legislation or administrative acts could
also prevent or delay regulatory approval of our products.
Our potential products are subject to the risks of failure inherent in the
development of pharmaceutical products. Our product candidates will require
additional development, preclinical studies, clinical trials and regulatory
approval prior to commercialization. There can
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be no assurance that clinical trials conducted will demonstrate sufficient
safety and efficacy to obtain the requisite approvals or that marketable
products will result.
We have not received regulatory approval in the U.S. or any foreign states
or any foreign jurisdiction for the commencement of clinical trials or the
commercial sale of any of our potential pharmaceutical products. There can be no
assurance that phase one, phase two or phase three testing will be completed
successfully within any specified time period, if at all, with respect to any of
such potential products.
Assuming we receive on a timely basis, if at all, the necessary regulatory
approval to initiate our clinical trials, as to which no assurance can be given,
the completion of our clinical trials may be delayed by many factors, including
slower than anticipated patient enrollment, difficulty in finding a sufficient
number of patients fitting the appropriate trial profile or acquiring sufficient
supplies of clinical trial materials or the occurrence of adverse drug-induced
events during the trials. Completion of testing, studies and trials may take
several years, and the length of time varies substantially with the type,
complexity, novelty and intended use of the product. As a result, there can be
no assurance that any of our development programs will be successfully
completed, that any INDAs will become effective or that clinical trials will be
allowed by the FDA or other regulatory authorities or that we will successfully
develop any marketable pharmaceutical product.
Environmental Matters
We currently use third party independent contractors to conduct research
and development on our proposed drugs. However, to the extent that our
manufacturing operations and any of our future research and development
activities involve the use of hazardous materials and chemicals, or produce
waste products, we will be subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
these materials. Although we would expect that our safety procedures for
handling and disposing of these materials would comply with the standards
prescribed by such laws and regulations, the risk of contamination or injury
from these materials could not be eliminated completely. In such event, we could
be held liable for any damages that result and any such liability could exceed
our resources. There can be no assurance that we would not be required to incur
significant costs to comply with environmental laws and regulations in the
future, or that our business, financial condition or results of operations would
not be materially adversely affected by current or future environmental laws or
regulations.
Product and Clinical Studies Liability
Administration of any drug to humans involves the risk of allergic or other
adverse reactions in certain individuals. Accordingly, it is possible that
claims might be successfully asserted against us for liability with respect to
injuries that may arise from the administration or use of our products during
clinical trials or following marketing. However, no claims involving a material
liability have ever been brought against us. We presently carry what our
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management believes is adequate product liability insurance coverage for our
diagnostics and we will obtain coverage for clinical studies liability after we
are able to commence such studies.
Competition
The pharmaceutical and biotechnology industries are characterized by
intense competition. Many companies, including major pharmaceutical and chemical
companies, as well as specialized biotechnology companies, are engaged in
activities similar to those of ours. Most of these companies have substantially
greater financial and other resources, larger research and development staffs,
and more extensive marketing and manufacturing organizations than we do. Many of
these companies have significant experience in preclinical testing, human
clinical trials, product manufacturing, marketing and distribution and other
regulatory approval procedures. In addition, colleges, universities,
governmental agencies and other public and private research organizations
conduct research and may market commercial products on their own or through
joint ventures. These institutions are becoming more active in seeking patent
protection and licensing arrangements to collect royalties for use of technology
that they have developed. These institutions also compete with us in recruiting
and retaining highly qualified scientific personnel. There can be no assurance
that we will be able to compete successfully with these entities.
Employees
As of September 22, 2000, we had 10 employees, all of whom are full-time.
Six work for our Sierra Diagnostics subsidiary, from which we recently accepted
in principle a management buy-back. See Item 1. "Description of Business -
Overview". In addition, we retain Robert Bender, Craig Sibley, Dr. Allan Green
and Dr. Clifford A. Lingwood, three of whom are directors of Select, under
consulting contracts and make extensive use of expert consulting resources.
Item 2. Description of Property.
We operate a manufacturing facility in Sonora, California on three adjacent
properties which total approximately 7,606 square feet.* The properties are
leased pursuant to a 20 month lease which expires February 28, 2001 for a
combined monthly rental of $4,627 until February 28, 2000 and $4,611 thereafter.
We believe that our facility meets or exceeds all requirements of current good
manufacturing practices.
----------
* This facility is operated by our subsidiary Sierra Diagnostics, Inc. We
recently accepted in principle a management buy-back of Sierra. See Item 1.
"Description of Business - Overview".
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Item 3. Legal Proceedings.
We do not know of any litigation pending, threatened or contemplated, or of
any unsatisfied judgments, against us, or of any proceeding to which we are a
party.
Item 4. Submission of Matters to a Vote of Security Holders.
On or before June 27, 2000, an amendment to Select's Certificate of
Incorporation was authorized by the written consent of the holders of a majority
of the outstanding shares entitled to vote thereon increasing the authorized
number of shares of the Company to 51 million, of which 50 million shares were
designated common stock and 1 million shares were designated preferred stock.
Written notice of this corporate action was given to all security holders
entitled to vote thereon who did not consent in writing.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information
Our common stock is listed on NASDAQ's over-the-counter bulletin board
under the symbol "SLPU.OB".
The following table sets forth the range of high and low bid closing
quotations for our common stock for each quarter within the last two fiscal
years since quotation commenced. These quotes were provided by Pink Sheets LLC
and reflect inter-dealer prices without retail mark-up, mark-down or commission
and may not represent actual transactions.
LOW HIGH
--- ----
Fiscal 2000
April 3 through $2.06 $5.00
June 30, 2000
Jan. 3 through 2.00 7.63
March 31, 2000
Oct. 1 through 1.31 3.69
Dec. 31, 1999
July 1 through 2.00 4.88
Sept. 30, 1999
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Fiscal 1999
April 1 through 3.13 5.03
June 30, 1999
Jan. 1 through 3.50 5.75
March 31, 1999
Oct. 1 through 3.31 5.31
Dec. 31, 1998
July 1 through 3.88 6.63
Sept. 30, 1998
Holders
As of September 22, 2000, there were 231 holders of record of our common
stock.
Dividends
To date, we have not paid any dividends on our common stock and at the
present time, we intend to retain earnings, if any, for our development and
expansion.
Recent Sales of Unregistered Securities
In March 2000, in connection with a private placement offering made
pursuant to the exemption from registration provided by Section 4(2) and 4(6) of
the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated
thereunder, we issued to our placement agent and others for their services in
the offering redeemable warrants entitling the holders to purchase 573,952
shares of our common stock at a price of $2.00 per share until December 31,
2002.
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Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
FORWARD-LOOKING STATEMENTS
THIS REPORT, INCLUDING WITHOUT LIMITATION, ITEM 6, MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION OR RESULTS OF OPERATIONS, 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 10K-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 INABILITY 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
The Company is a development stage biopharmaceutical company focused on the
identification of opportunities which combine low cost of development--both of
the Company's development programs involve ex-vivo therapies, i.e., treatments
carried out on patient tissues which have been removed from the body and
therefore are less costly to investigate--and what the Company believes, with
the advice of counsel, to be a strong intellectual property position and a
potentially short time to commercialization. The Company has a portfolio of
product opportunities in therapeutics for cancer, two of which have been
advanced to the stage at which clinical investigations may begin once it has
obtained clinical trial materials which meet regulatory requirements. The
Company has initiated contracts to have the necessary materials manufactured.
We believe that the stage has been set for development of a significant
entity in the field of cellular therapy for cancer and other diseases and look
forward to continuing to grow the value of the Company for its shareholders.
During the fiscal year which ended June 30, 2000, Management's efforts continued
to be directed to obtaining funds and repositioning the Company. Due both to
slower than expected sales growth which failed to cover operating costs and to
the need to focus on realizing the potential of its therapeutic opportunities,
Management has concluded that the Company should discontinue its activities in
the diagnostics area. Accordingly, the Company recently accepted in principle a
management buy-back of Sierra
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Diagnostics providing the Company a royalty on net sales of certain Sierra
products, and the transaction should be concluded before the end of the calendar
year. Product development efforts continued and research results from key
collaborations continue to be encouraging. Most notably, the program at the
Institut Curie, with respect to presentation of antigens to dendritic cells, has
progressed well and moved significantly towards clinical experiments aimed at
validating the potential of this approach for development of therapeutic
vaccines for cancers. Key results evidencing the potential of this program have
recently been published in the Journal of Immunology and attracted significant
favorable attention in both scientific circles and lay press. As part of our
strategy to develop this technology and build a strong platform in relation to
cell-based therapies for cancers and other diseases, we have entered into a
non-binding letter of intent to acquire Cytomatrix, Inc., a Boston-area company
which has a strong proprietary position in relation to cell growth systems.
Notably, Cytomatrix has demonstrated the ability to grow both dendritic cells
and T-cells, which is directly relevant to the delivery of our Activate(TM)
technology for presentation of antigens to dendritic cells. Cytomatrix, like us,
is a development stage company, and it has an established management and
technical development team which, we expect, will strengthen our abilities to
move forward with its products and we are excited by the possibilities facing
the combined entity. Currently both companies are conducting due diligence and
this, as well as other pre-conditions need to be met before finalization of
terms and conclusion of this transaction.
As the result of the March 2000 closing of a private placement for $9.5
million, before share issue costs, the Company has on hand cash it believes will
be sufficient to cover its current level of operating expenses for at least the
next 18 months. This placement was the first time that, to the Company's
knowledge, financial institutions have invested in Select. As we move forward,
with anticipation of expanded programs and funding requirements, we have entered
into an investment banking relationship with the firm of Gerard Klauer Mattison,
whose capacity and expertise should facilitate the Company's progression to its
next levels of activity.
Since its inception (December 6, 1996), most of the Company's resources
have been dedicated to research and development and technology acquisition and
management, and the Company has incurred substantial annual losses. The process
of developing the Company's therapeutic products will require significant
additional research and development, preclinical testing and clinical trials, as
well as regulatory approvals. These activities, together with the Company's
general and administrative expenses, are expected to result in continuing cash
outflows and operating losses. The Company will not receive product revenue from
therapeutic products unless it completes clinical trials and successfully
commercializes or arranges for the commercialization of one or more of its
products, as to the success of which no assurance can be given. Accordingly, the
continuation of the Company as a going concern is dependent on its ability to
continue to successfully raise additional equity financing and on the
development of commercially viable products. There can be no assurance that any
additional funding which the Company needs will be available to it when needed
or on commercially reasonable terms, if at all, or that the Company will be able
to develop any economically viable product.
The Company is subject to risks common to biopharmaceutical companies,
including risks inherent in its research and development efforts and clinical
trials, reliance on collaborative partners, enforcement of patent and
proprietary rights, the need for future capital, potential
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competition and uncertainty of regulatory approval. In order for a product to be
commercialized, it will be necessary for the Company and its collaborators to
conduct preclinical tests and clinical trials, demonstrate efficacy and safety
of the Company's product candidates, obtain regulatory clearances and enter into
manufacturing, distribution and marketing arrangements either directly or
through sublicensees. There can be no assurance that the Company will generate
revenues or achieve and sustain profitability in the future.
A Company website (www.selecttherapeutics.com) has been established to
provide shareholders and other interested parties with information on the
Company and its activities.
Program Review
During the year ended June 30, 2000, the Company was able to maintain and
expand its research collaborations and strengthen its portfolio of intellectual
property. Academic research on applications of Verotoxin ("VT") continued in
collaborating institutions and production of clinically qualified materials has
been initiated. The Company has applied (in Canada) for regulatory approval to
begin its first clinical trials on the use of its formulation of VT for purging
of autologous stem cell transplants and expects that approval to begin these
trials will be granted by the end of the calendar year.
The application of the non-toxic binding portion of VT to present antigens
to dendritic cells continues to be a promising approach to developing
therapeutic vaccines for cancer and other diseases which circumvent the immune
system's surveillance. Results published by a research group at the Institut
Curie in the September 15, 2000 issue of the Journal of Immunology present very
promising findings. This research was partially sponsored by the Company and
carried out under the Company's option agreement with the Institut Curie. (On
December 2, 1999, the Company announced the extension of the option agreement
and that a plan for clinical investigation of the technology is being developed
in collaboration with Dr. Evan Hersh at the Arizona Cancer Center.) Work at the
Institut Curie will continue and clinical investigations are expected to take
place in France as well under the direction of Dr. Eric Tartour, who has been
involved in the initial demonstration of the applicability of the basic
research.
As with chemotherapeutic applications of VT, significantly increased levels
of expenditure will be required as investigations move from the research
laboratory setting to the clinical setting. These expenses include but are not
limited to development of materials and formulations which are compliant with
regulatory requirements and the costs of patient recruitment and monitoring in
trial settings.
Both the purging program and the dendritic cell program involve ex-vivo
therapies (i.e. treatments are carried out on patient tissues which have been
removed from the patient). A common characteristic of ex-vivo therapies is that,
relative to systemic administration, they are less costly to investigate.
SELECT's focus is on identification of opportunities which combine low cost of
development with a strong proprietary position and potentially short time to
market. There can be no assurance that viable products will result from the
Company's programs.
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During the 1999 fiscal year, Select purchased Sierra Diagnostics Inc., a
developer and manufacturer of diagnostic products for consideration comprising
stock and assumption of debts and operating costs. The purchase and subsequent
development of Sierra was motivated by a number of factors and it was expected
that Sierra would be able to cover its costs from sales of its existing products
which were launched during fiscal year 1999. Sales of Sierra's products were
slower than expected to develop, although both products were well received
technically. After a review by an external marketing group who also attempted to
assist in developing sales for Sierra, we have concluded that the time and
resources required to develop this business opportunity are greater than
expected and that SELECT should focus its financial and management resources on
its opportunities in therapeutics. As a result of this decision, SELECT is
negotiating a management buy-out agreement with the principals of Sierra.
SELECT is developing a portfolio of proprietary product opportunities and
is aggressively pursuing patents. In addition to licensed patents, the Company
has agreements which provide for options on related inventions arising from
sponsored work. Together with a strong network of institutional investigators,
management believes that it has been able to identify and build protection for a
significant base for development of unique products. Competition in the areas of
the Company's interests is intense and both the scientific and commercial
environments change rapidly. By focusing on intellectual property development
and using external contractors, Select hopes to be able to maintain the required
flexibility to adapt to changing circumstances. The Company's key resources
include qualified subcontractors and it believes that, given adequate funding,
it can move rapidly into clinical investigations and development of products
based on its intellectual property. The magnitude of funding required as the
Company enters clinical trials significantly exceeds the funds raised by the
Company to date and there can be no assurance that such funding will be
available on acceptable terms if at all.
Financial Condition
During the fiscal year ended June 30, 2000, the Company's cash position
increased from $120,881 to $7,901,288 as a result of private placements which
are described in the financial statements. Funds are kept is U.S. treasury bills
or equivalent securities. A write down of the intangible assets in the amount of
$640,832 was made as management decided that it would not continue to support
the business of Sierra Diagnostics and does not believe that the Company will
recover the carrying value of the intangibles. Management notes that
significantly greater resources will be required in order to bring its current
candidate therapeutic products into clinical investigations and to market.
Results of Operations
For the fiscal year ended June 30, 2000, SELECT incurred a net loss of
$4,722,398 compared with a loss of $2,467,328 for the fiscal year ended June 30,
1999. The Company has been unprofitable from its formation and has an
accumulated deficit of $9,308,000 through June 30, 2000. The net loss is a
result of the routine operations of the Company in its
26
<PAGE>
development stage. We expect losses to continue and increase for the next
several years as the Company pursues development and commercialization of its
intellectual property resources.
Revenues of $187,632 during the year ended June 30, 2000 were principally
from the sale of Gonostat(TM) and there was interest income of $106,070 for the
year. During 1999, there were revenues of $130,055 from sales and interest
income was $33,656. SELECT's sole operating revenues to date were from sales of
diagnostic products through its wholly owned subsidiary, Sierra Diagnostics. The
Company has no other product or license revenues.
Costs and Expenses
Operating expenses for the year ended June 30, 2000 were $5,016,100
compared to $2,631,039 in fiscal year 1999. Expenditures required to advance the
Company's development projects, notably initiation of manufacturing of GMP
qualified materials, started to ramp up towards the end of the period.
All research and development activities of the Company are expensed as
incurred. Manufacturing, selling, general and administrative costs increased
reflecting the need to add marketing efforts to Sierra Diagnostics and the
continuing losses of Sierra's operations which were carried for a full year. In
addition it was necessary to recruit a senior executive for corporate
development functions. Personnel costs including retained consultants and
external contractors are the largest ongoing cost of operations. The Company has
no long term employment contracts or liabilities for severances. At June 30,
2000, the Company employed eight people, mainly at Sierra Diagnostics and
retained services of four key consultants who are an integral part of the
Company management.
Recruiting and retaining qualified personnel resources is a priority and
the Company anticipates that personnel costs will increase if adequate funding
is obtained.
Capital Expenditures
There were no significant capital expenditures during the last twelve
months.
Patent costs are expensed due to the uncertainties involved in realizing
value from specific patents.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through
private placements of its common stock. As of June 30, 2000 the Company had
received approximately $10,093,586 in net proceeds from the sale of 6,228,214
shares during the fiscal year just ended. Warrants and options for the purchase
of common shares were issued at various times and exercise prices as disclosed
in the notes to the financial statements both as part of certain placements and
as compensation in consideration of placement activities and management
performance.
27
<PAGE>
The Company's limited financial resources forced it to curtail some of its
planned operations through the first part of fiscal year 2000, however
operations have been ramped up subsequent to the March 2000 private placement.
The Company will require substantial additional funding in order to complete its
research and development activities and sublicense any potential products. The
Company's future capital requirements will depend on many factors, including
scientific progress in its research and development programs, the size and
complexity of such programs, the scope and results of preclinical studies and
clinical trials, the ability of the Company 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 manufacturing preclinical and
clinical material and other factors not within the Company's control. There can
be no assurance that the additional financing necessary to meet the Company's
short and long-term capital requirements will be available on acceptable terms
or at all.
Insufficient funds may require the Company to delay, scale back or
eliminate some or all of its research or 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
the Company would otherwise choose, or, may adversely affect the Company's
ability to operate as a going concern. If additional funds are raised by issuing
equity securities, substantial dilution to existing stockholders may result. The
Company currently has funds sufficient to continue operations for the next 18
months. Management has been in discussions with a number of parties regarding
additional financing required to maintain and develop the Company's position
and, while it is optimistic that such funds may be available, there is no
assurance that this will be the case.
28
<PAGE>
Item 7. Financial Statements.
Index to Financial Statement
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets as of June 30, 2000 and 1999 F-2
Consolidated Statements of Operations for the years ended June 30, 2000
and 1999 and the period from inception on December 6, 1996
to June 30, 2000 F-3
Consolidated Statements of Changes in Stockholders' Equity
for the period from inception on December 6, 1996 to
June 30, 2000 F-4
Consolidated Statements of Cash Flows for the years ended June 30, 2000
and 1999 and the period from inception on December 6, 1996
to June 30, 2000 F-5
Notes to Consolidated Financial Statements F-6
</TABLE>
[Balance of this Page Has Been Left Blank Intentionally]
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Directors of Select Therapeutics Inc.
We have audited the accompanying consolidated balance sheets of Select
Therapeutics Inc. (a Development Stage Enterprise) as at June 30, 2000 and 1999
and the related consolidated statements of operations, changes in shareholders'
equity and cash flows for the years then ended and for the period from inception
on December 6, 1996 to June 30, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as at
June 30, 2000 and 1999 and the results of its operations and its cash flows for
the years then ended and for the period from inception on December 6, 1996 to
June 30, 2000 in conformity with generally accepted accounting principles in the
United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Chartered Accountants
Toronto, Canada
September 12, 2000
F-1
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Balance Sheets
(Stated in U.S. dollars)
June 30, 2000 and 1999
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 7,901,288 $ 120,881
Restricted cash (note 11(a)) -- 72,000
Accounts receivable 17,042 7,380
Inventory 29,938 32,130
Prepaid expenses and other assets 56,516 21,740
Capital assets (note 4) 108,940 104,547
Intangible assets (note 5) -- 900,581
-------------------------------------------------------------------------------------------
$ 8,113,724 $ 1,259,259
-------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Liabilities:
Accounts payable $ 314,173 $ 43,309
Accrued liabilities 496,961 655,798
-------------------------------------------------------------------------------------------
811,134 699,107
Shareholders' equity:
Capital stock (note 6):
Authorized:
1,000,000 preferred shares (1999 - 1,000,000),
$0.0001 par value
50,000,000 common shares (1999 - 10,000,000),
$0.0001 par value
Issued and outstanding:
Nil preferred shares
11,862,308 common shares (1999 - 5,634,094) 1,186 563
1,735,902 warrants (1999 - nil) 3,805,302 --
Contributed surplus 11,522,852 5,145,191
Stock options 1,281,250 --
Deficit accumulated during the development stage (9,308,000) (4,585,602)
-------------------------------------------------------------------------------------------
7,302,590 560,152
Going concern (note 1)
Commitments (note 9)
Subsequent event (note 13)
-------------------------------------------------------------------------------------------
$ 8,113,724 $ 1,259,259
-------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statements of Operations
(Stated in U.S. dollars)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Period from
inception on
December 6,
1996 to
Years ended June 30, June 30,
2000 1999 2000
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 187,632 $ 130,055 $ 317,687
Interest income 106,070 33,656 139,726
Expenses:
Research and development 1,604,607 1,424,526 4,034,675
Manufacturing, selling, general
and administration 2,487,499 1,019,877 4,619,529
Write-down of intangible assets (note 5) 640,832 -- 640,832
Depreciation 23,413 13,470 37,462
Amortization 259,749 173,166 432,915
---------------------------------------------------------------------------------------
5,016,100 2,631,039 9,765,413
---------------------------------------------------------------------------------------
Loss for the period $4,722,398 $2,467,328 $9,308,000
---------------------------------------------------------------------------------------
Loss per share - basic and diluted (note 10) $ 0.58 $ 0.46
Weighted average number of common shares 8,175,936 5,318,743
---------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statements of Changes in Shareholders' Equity
(Stated in U.S. dollars)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Deficit
Accumulated
during the
Common shares Warrants Contributed development Stock
Number Amount Number Amount surplus stage Options Total
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 28, 1997 -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issue of
common shares 4,159,683 416 -- -- 958,633 -- -- 959,049
Loss for the period -- -- -- -- -- (199,034) -- (199,034)
-----------------------------------------------------------------------------------------------------------------------------------
Balance,
June 30, 1997 4,159,683 416 -- -- 958,633 (199,034) -- 760,015
Issue of common
shares 821,630 82 -- -- 2,221,896 -- -- 2,221,978
Loss for the year -- -- -- -- -- (1,919,240) -- (1,919,240)
-----------------------------------------------------------------------------------------------------------------------------------
Balance,
June 30, 1998 4,981,313 498 -- -- 3,180,529 (2,118,274) -- 1,062,753
Issue of common
shares 652,781 65 -- -- 1,964,662 -- -- 1,964,727
Loss for the year -- -- -- -- -- (2,467,328) -- (2,467,328)
-----------------------------------------------------------------------------------------------------------------------------------
Balance,
June 30, 1999 5,634,094 563 -- -- 5,145,191 (4,585,602) -- 560,152
Issue of common
shares 6,228,214 623 -- -- 6,377,661 -- -- 6,378,284
Issue of
warrants -- -- 1,735,902 3,805,302 -- -- -- 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 11,862,308 $1,186 -- $3,805,302 $11,522,852 $(9,308,000) $1,281,250 $7,302,590
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statements of Cash Flows
(Stated in U.S. dollars)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Period from
inception on
December 6,
1996 to
Years ended June 30, June 30,
2000 1999 2000
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by (used in):
Operating activities:
Loss for the period $ (4,722,398) $ (2,467,328) $ (9,308,000)
Items not involving cash:
Depreciation 23,413 13,470 37,462
Amortization 259,749 173,166 432,915
Write-down of intangible assets 640,832 -- 640,832
Stock Compensation 599,000 -- 599,000
Issue of stock options for services 682,250 -- 682,250
Issue of common shares for services 90,000 933,730 1,023,730
Change in non-cash operating working capital:
Accounts receivable (9,662) 92,620 82,958
Inventory 2,192 2,300 4,492
Prepaid expenses and other assets (34,776) 9,522 (55,254)
Accounts payable and accrued liabilities 112,027 554,335 737,652
-------------------------------------------------------------------------------------------------
(2,357,373) (1,796,855) (5,121,963)
Financing activities:
Proceeds from issue of common shares,
net of issue costs 10,093,586 250,000 13,385,883
Repayment of loans due to the former
shareholders of Sierra Diagnostics, Inc. -- (285,999) (285,999)
Restricted cash 72,000 (72,000) --
-------------------------------------------------------------------------------------------------
10,165,586 (107,999) 13,099,884
Investing activities:
Additions to capital assets (27,806) (44,970) (76,633)
-------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents 7,780,407 (1,949,824) 7,901,288
Cash and cash equivalents, beginning of period 120,881 2,070,705 --
-------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 7,901,288 $ 120,881 $ 7,901,288
-------------------------------------------------------------------------------------------------
Supplemental financial information:
Non-cash financing and investing activities:
Issue of common shares to purchase
licenses $ -- $ 138,730 $ 138,730
Issue of common shares related to the
acquisition of Sierra Diagnostics, Inc. -- 780,997 780,997
-------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (continued)
(Stated in U.S. dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
Select Therapeutics Inc. (the "Company" or "Select Therapeutics") was
incorporated under the laws of Delaware. Substantially all of the operations and
assets are located in the United States and the Company conducts
biopharmaceutical research and development for the purpose of developing
pharmaceutical products.
1. Going concern:
The Company has had limited commercial activity since inception.
Accordingly, the Company is considered to be in the development stage and
expects to generate additional losses and require additional financial
resources to achieve commercialization of its products. There can be no
assurance that sufficient funding can be raised to fund ongoing research
and operating expenses or that the Company will be able to develop a
commercially viable product. As described in Note 5, the Company has
decided that it will not support the diagnostic business after July 31,
2000 in order to focus resources on the research business. Management
expects that this action as well as its ongoing efforts to raise capital
through the public markets and private placements will allow the Company to
continue to settle liabilities as they come due and realize its assets in
the ordinary course of business.
2. Significant accounting policies:
(a) Basis of presentation:
The consolidated financial statements include the accounts of the
Company's wholly-owned subsidiaries, Select Therapeutics (Canada) Inc.
from the date of incorporation on December 6, 1996, and Sierra
Diagnostics, Inc. ("Sierra") from the date of acquisition on November
2, 1998. All material intercompany accounts and transactions have been
eliminated.
(b) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reported period. Actual results could differ
from those estimates.
(c) Research and development:
Research and development costs are expensed as incurred.
F-6
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (continued)
(Stated in U.S. dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(d) Income taxes:
The Company records income taxes using the asset and liability method
as required by the Financial Accounting Standards Board Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income
Taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax
rates and laws that are expected to be in effect when the differences
are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts that are more
likely than not to be realized. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the period that
such tax rates changes are enacted.
(e) Capital assets:
Capital assets are stated at cost and are amortized on a straight-line
basis over their estimated useful lives as follows:
---------------------------------------------------------------------
Leasehold improvements 10 years
Manufacturing equipment 7 years
Office equipment 5 years
---------------------------------------------------------------------
All costs incurred relating to patents and licenses were expensed
during the year due to the uncertainty relating to their future
benefit.
F-7
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (continued)
(Stated in U.S. dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(f) Intangible assets:
Intangible assets consist of goodwill and acquired license which arose
on the acquisition of Sierra on November 2, 1998 (note 3). Goodwill,
representing the excess cost over the fair value of net assets
acquired, is amortized on a straight-line basis over five years. The
Company reviews the value of goodwill regularly. The measurement of
possible impairment is based primarily on the ability to recover the
balance of goodwill from expected future operating cash flow through
the remaining amortization period on an undiscounted basis. If an
impairment exists, the amount of such impairment is calculated based
on the estimated fair value of the asset. An acquired license,
representing the fair value of a license acquired, is amortized over
the one-year term of a related contract plus a one-year renewal
period. During the year, the Company wrote off the intangible assets
as management does not believe that the Company will recover the
carrying value of the intangibles (note 5).
(g) Fair value of financial instruments:
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximate their fair values
due to the relatively short periods to maturity of these instruments.
(h) Cash and cash equivalents:
The Company considers all highly liquid investments purchased with a
maturity of 90 days or less to be cash equivalents. Cash and cash
equivalent balances consist of cash balances, investments in money
market funds and term deposits.
(i) Comparative figures:
Certain of the 1999 figures have been reclassified to conform with the
presentation adopted in the current year.
F-8
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (continued)
(Stated in U.S. dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
3. Acquisition of Sierra Diagnostics, Inc.:
Effective November 2, 1998, the Company acquired 100% of the issued and
outstanding common shares of Sierra for consideration of 219,999 common
shares valued at $747,997 and direct costs of acquisition of $33,000. The
acquisition has been accounted for using the purchase method. The total
consideration exceeded the fair value of the net assets acquired by
$923,747, which has been recorded as goodwill and is being amortized on a
straight-line basis over five years (Note 5).
4. Capital assets:
----------------------------------------------------------------------
Accumulated Net book
2000 Cost amortization value
----------------------------------------------------------------------
Leasehold improvements $ 27,942 $ 3,985 $ 23,957
Manufacturing equipment 116,621 46,032 70,589
Office equipment 29,845 15,451 14,394
----------------------------------------------------------------------
$174,408 $ 65,468 $108,940
----------------------------------------------------------------------
----------------------------------------------------------------------
Accumulated Net book
1999 Cost amortization value
----------------------------------------------------------------------
Leasehold improvements $ 12,942 $ 1,941 $ 11,001
Manufacturing equipment 109,747 29,865 79,882
Office equipment 23,913 10,249 13,664
----------------------------------------------------------------------
$146,602 $ 42,055 $104,547
----------------------------------------------------------------------
F-9
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (continued)
(Stated in U.S. dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
5. Intangible assets:
Intangible assets consist of the following:
--------------------------------------------------------------------------
Accumulated Net book
2000 Cost amortization Write-down value
--------------------------------------------------------------------------
Goodwill $ 923,747 $ 307,915 $ 615,832 $ --
Acquired license 150,000 125,000 25,000 --
--------------------------------------------------------------------------
$1,073,747 $ 432,915 $ 640,832 $ --
--------------------------------------------------------------------------
When acquired in 1999, it was expected that Sierra would cover its costs
from sales of diagnostic products and eventually contribute cash flow to
fund the Company's research and development activities. The Sierra sales
were however slower to develop than expected and accordingly, operating
losses were increased. In consultation with marketing consultants,
management believes the resources required to develop this business are
greater than expected or available. Due to the significant ongoing
investment required to develop the diagnostic business, management decided
in July 2000 that it would not continue to support this business and is
presently negotiating a management buy-out agreement with the principals of
Sierra.
Consequently, management concluded from its evaluation that a significant
impairment of the goodwill and acquired license had occurred. An impairment
charge of $640,832 was required because estimated fair value was less than
the carrying value of these assets.
----------------------------------------------------------------------
Accumulated Net book
1999 Cost amortization value
----------------------------------------------------------------------
Goodwill $ 923,747 $ 123,166 $ 800,581
Acquired license 150,000 50,000 100,000
----------------------------------------------------------------------
$1,073,747 $ 173,166 $ 900,581
----------------------------------------------------------------------
F-10
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (continued)
(Stated in U.S. dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
6. Capital stock:
(a) During the year, the Company amended their share capital to increase
the authorized number of common shares from 10,000,000 to 50,000,000.
(b) During the year ended June 30, 2000, the Company completed the
following capital stock transactions:
(i) 36,000 common shares were issued in the amount of $90,000
as consideration for consulting services;
(ii) In July 1999, 50,000 common shares were issued for gross
cash proceeds of $125,000;
(iii) In August 1999, the Board of Directors approved the
reduction of the April 1998 private offering common share
price from $3.00 per share to $2.00 per share and
authorized the issuance of an additional 381,264 common
shares to the subscribers of the April 1998 private
offering;
(iv) In October 1999, the Company completed a private placement
consisting of 151,000 units. Each unit consists of one
common share and two warrants for gross cash proceeds of
$188,750. No portion of proceeds was allocated to the
warrants (note 6(vii)).
(v) In November 1999, the Company issued a total of 58.75 units
at a price of $23,400 per unit for total gross proceeds of
$1,374,750 ($1,068,783 net of share issue costs) through a
private offering. Each unit consists of 13,000 common shares
of the Company and 13,000 warrants. No portion of proceeds
was allocated to the warrants (note 6(vii)). In addition,
the Company issued 7.4 units as consideration for services
rendered in connection with the private offering of shares
and accordingly an amount of $173,160 has been recorded as
share issue costs;
F-11
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (continued)
(Stated in U.S. dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
6. Capital stock (continued):
(vi) During March 2000, the Company, through a private offering,
issued 47.50 units at a price of $200,000 per unit for total
gross proceeds of $9,500,000 ($8,631,495, net of share issue
costs). Each unit consists of 100,000 common shares of the
Company. The Company issued a total of 573,952 warrants for
services rendered in connection with the March 2000 private
placement. These warrants representing share issue costs
have been fair valued at their issuance date and recorded as
warrants in the amount of $3,805,302 with an offset to
contributed surplus in the same amount; and
Share issue costs incurred in the year ended June 30, 2000 in the
amount of $5,152,934 (1999 - nil) have been netted against
contributed surplus.
(vii) As a result of the foregoing capital transactions, there are
a total of 1,735,902 warrants outstanding. Each warrant
entitles the holder to purchase one common share at exercise
prices ranging from $1.85 to $3.00 and has expiration dates
between September 30, 2002 and March 2003. These warrants
are not redeemable by the holder for cash.
If the closing price of the Company's common shares ranges
from $3.00 to $4.00 or more for 10 consecutive trading days,
the Company may redeem the warrant at a price of $0.001 per
warrant.
F-12
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (continued)
(Stated in U.S. dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
6. Capital stock (continued):
(c) During the year ended June 30, 1999, the Company completed the
following capital stock transactions:
(i) 11,000 common shares were issued for $33,000 as consideration
for professional services provided in relation to the
acquisition of Sierra;
(ii) 219,999 common shares were issued on the acquisition of Sierra
for a fair value of $747,997;
(iii) 321,782 common shares were issued to settle amounts payable of
$933,730; and
(iv) 100,000 common shares were issued for gross cash proceeds of
$250,000.
(d) Preferred shares:
The Company's Board of Directors is authorized to establish the number
of shares to be included in each preferred share series and to fix the
designation, powers, preferences and rights of the shares of each such
series and the qualifications, limitations or restrictions thereof. As
at June 30, 2000, no series of preferred shares are authorized by the
Board of Directors and no preferred shares are issued.
(e) Stock options:
In September 1999, the Company granted a member of management who is
also a director, 300,000 options to purchase common shares of the
Company at an exercise price of $1.73 per share. The options vest as
follows: 75,000 immediately, 75,000 on completion of the Company's
next private placement, 75,000 after six months of employment and
75,000 upon the earlier of the first anniversary of his employment
commencement date or the completion of a significant equity placement
by the Company. The options are fully vested and expire on September
30, 2004.
In March 2000, the Company also granted a total of 950,000 options to
certain directors, management and consultants to purchase common
shares of the Company with exercise prices of $4.25 and $5.00 which
expire on March 1, 2007. The options vest immediately.
F-13
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (continued)
(Stated in U.S. dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
6. Capital stock (continued):
Details of stock option transactions are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Weighted average Weighted average
Number of exercise price fair value of
options of options options
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, July 1, 1999 -- $ -- $ --
Granted 1,250,000 3.90 3.94
-------------------------------------------------------------------------------------------------
Outstanding and exercisable, June 30, 2000 1,250,000 $3.90 $3.94
-------------------------------------------------------------------------------------------------
</TABLE>
Under U.S. GAAP, there are alternative methods available for accounting for
options issued to employees, officers and directors, Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25")
and Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based compensation" ("SFAS 123"). The Company has elected to follow
APB 25 and related interpretations, including FASB Interpretation No. 44,
in accounting for its employee stock options.
Under APB 25, no compensation expense is recognized for shares issued at
greater than or equal to fair market value or for employee stock options
having an exercise price that is greater than or equal to the fair market
value of the underlying shares on the date of grant. Because the Company
granted options at an exercise price less than the fair market value of the
underlying shares on the date of grant, compensation expense has been
recorded in the amount of $599,000 which has been calculated based on the
difference between the exercise price of the option and the fair value of
the shares at the date of grant. The Company issued stock options to
consultants and has recorded $682,250 in the year ended June 30, 2000 as
compensation expense for services rendered.
SFAS 123 requires the disclosure of pro forma loss and loss per share as if
the Company had adopted the fair value method as of the beginning of its
2000 fiscal year, being the year in which all of the Company's options were
issued. Under SFAS 123, the fair value of stock-based awards to employees
is calculated through the use of option pricing models. These models also
require subjective assumptions, including expected time to exercise, which
greatly affect the calculated values.
F-14
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (continued)
(Stated in U.S. dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
6. Capital stock (continued):
The Company's calculations for options granted were made using the
Black Scholes option pricing model using the following average
assumptions:
----------------------------------------------------------------------
Risk-free interest rate 6.39%
Expected life of options in years 7
Expected dividend yield 0.00%
Expected volatility 145.00%
----------------------------------------------------------------------
Had compensation expense been determined based on the fair value of
the awards at the grant dates in accordance with the methodology
prescribed in SFAS 123, the Company's loss and loss per share under
U.S. GAAP for the periods presented would have been changed to the
following pro forma amounts:
----------------------------------------------------------------------
As reported Pro forma
----------------------------------------------------------------------
Loss - U.S. GAAP $ 4,722,398 $ 8,964,398
----------------------------------------------------------------------
Loss per share - U.S. GAAP:
Basic and diluted $ 0.58 $ 1.10
----------------------------------------------------------------------
----------------------------------------------------------------------
Options outstanding
and exercisable as at
June 30, 2000
----------------------------------------------------------------------
Weighted
average
Number remaining
Exercise price outstanding life (years)
----------------------------------------------------------------------
$1.73 $ 300,000 4
$4.25 525,000 7
$5.00 425,000 7
-----------------------------------------------------------------------
$ 1,250,000 6.28
-----------------------------------------------------------------------
F-15
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (continued)
(Stated in U.S. dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
7. Related party transactions:
In addition to the related party transactions disclosed elsewhere, during
the year ended June 30, 2000, the Company paid technical consulting fees of
$153,541 (1999 - $151,842) to members of the Board of Directors. This
amount is included in research and development expenses.
8. Income taxes:
The effective rate of income taxes of nil differs from the statutory
Federal rate of 35% due to losses for which no tax benefit has been
recorded because it is not more likely than not that such benefits will be
realized.
The tax effects of temporary differences that give rise to future tax
assets at June 30, 2000 are as follows:
--------------------------------------------------------------------------
Future income tax assets:
Licenses expensed for
accounting purposes $ 127,000
Stock option compensation 448,000
Net operating loss carryforwards 2,029,000
--------------------------------------------------------------------------
2,604,000
Valuation allowance (2,604,000)
--------------------------------------------------------------------------
Net future income tax assets $ --
--------------------------------------------------------------------------
F-16
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (continued)
(Stated in U.S. dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
8. Income taxes (continued):
The tax effects of temporary differences that gave rise to future income
tax assets at June 30, 1999 were as follows:
--------------------------------------------------------------------------
Future income tax assets:
Licenses expensed for
accounting purposes $ 138,000
Net operating loss carryforwards 720,000
--------------------------------------------------------------------------
858,000
Valuation allowance (823,000)
--------------------------------------------------------------------------
Net future income tax assets 35,000
Future income tax liability:
Acquired license 35,000
--------------------------------------------------------------------------
Net future income tax assets $ --
--------------------------------------------------------------------------
At June 30, 2000, the Company and its subsidiaries had operating loss
carryforwards for tax purposes which expire as follows:
---------------------------------------------------------------------------
2017 $ 105,000
2018 395,000
2019 2,299,000
2020 2,999,000
---------------------------------------------------------------------------
F-17
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (continued)
(Stated in U.S. dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
9. Commitments:
A subsidiary of the Company leases premises under an operating lease which
expires on February 28, 2001. The Company has an option to renew the lease
for a further 40 months. The minimum lease payment for the year ending June
30, 2001 due under the premises lease is $36,889.
Rent payment for the year ended June 30, 2000 totalled $52,694 (1999 -
$14,455).
The Company has entered into several license agreements under which the
Company has obtained rights to license and sublicense certain intellectual
property. These licenses require the Company to pay royalties of between 2%
and 7% of net revenue from products using the licensed intellectual
property. The licenses also require the Company to pay between 20% and 70%
of sublicense fees.
For the Company to retain its rights under these licenses, the licenses
require the Company to fund research and development and make further
license payments in fiscal 2001 of approximately $400,000.
There are certain penalties in the license agreements which total, in
aggregate, $156,400 if specified development milestones are not reached. In
some cases, failure to meet these payments will result in termination of
certain license agreements.
The Company can terminate the license agreements at any time, provided that
30 days' notice is given.
10. Loss per share:
The basic and diluted loss per share has been calculated using the weighted
average number of common shares outstanding during the years.
The 2,985,902 common shares issuable upon the exercise of the options and
warrants have not been included in the calculation of the fully diluted
loss per share as the results would be anti-dilutive.
The weighted average number of common shares which was used to calculate
the basic and diluted loss per share is as follows:
---------------------------------------------------------------------------
2000 8,175,936
1999 5,318,743
---------------------------------------------------------------------------
F-18
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (continued)
(Stated in U.S. dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
11. Other information:
(a) Restricted cash represents funds held in escrow by the Company's legal
representatives under the terms of an employment contract.
(b) SFAS No. 130 "Reporting Comprehensive Income" and SFAS No. 131
"Disclosure about Segments of an Enterprise on Related Information"
became effective with the fiscal year commencing July 31, 1998.
Adoption of this standard had no impact on the consolidated financial
statements.
(c) SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires
derivative instruments to be recognized in the balance sheet at fair
value. Changes in the fair value of derivative instruments are
recognized in earnings in the period of change, unless they are
designated as hedging instruments. Adoption of this standard on July
1, 2000 did not have any impact on the consolidated financial
statements.
12. Segmented information:
The Company operates in a single operating segment being biopharmaceutical
research and development for the purpose of developing pharmaceutical
products and in-vitro diagnostic and related products.
All revenue are generated from a single customer located in the United
States.
13. Subsequent event:
Subsequent to year end, the Company entered into a non-binding letter of
intent to acquire Cytomatrix Inc. in a share exchange. Neither the
consideration to be given nor the purchase price has been determined.
F-19
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
N/A
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
The following table provides information concerning each of our executive
officers and directors. All directors hold office until the next annual meeting
of shareholders or until their successors have been elected and qualified.
Name Age Title
---- --- -----
Robert Bender 53 chairman of the board, chief
executive officer, secretary
and treasurer
Robert C. Galler 40 vice president and director
Dr. Allan M. Green 56 director
Allen Krantz, Ph.D. 59 director
Dr. Clifford A. Lingwood 50 director
Paul Lucas 50 director
Thomas M. Reardon 54 director
Robert Bender: Mr. Bender is our co-founder and chief executive officer and
has been one of our directors since our inception. Mr. Bender served as our
president from inception in January 1997 until May 1997, at which time he became
our chairman of the board, secretary and treasurer. Since 1972, Mr. Bender has
been active in entrepreneurial technology based companies, primarily in the
medical field and his professional focus has been on the assessment and
development of new ventures. Mr. Bender has extensive experience in
institutional and private venture capital, having been associated with Adler &
Co. in New York City and Ventures West in Vancouver. He has participated in the
management and/or development of a number of privately held start-up companies
and been active in the transfer of technology between corporations and from
academic institutions.
Robert C. Galler: Mr. Galler has been our vice president and one of our
directors since September 1999. Since February 1994, Mr. Galler has been
president and chairman of the Lois Joy Galler Foundation for Hemolytic Uremic
Syndrome, a not-for-profit children's charity which
30
<PAGE>
he founded in August 1992. From March 1994 to August 1998, Mr. Galler served as
a director of Synsorb Biotech, Inc., a company which he helped found.
Allan M. Green, M.D., Ph.D., J.D.: Dr. Green has been one of our directors
since January 1999. He is also the chairman of our scientific and medical
advisory board. Dr. Green is a physician, lawyer, and research scientist with
experience as an operating officer in the pharmaceutical industry. Dr. Green is
vice president, pharmaceutical/biomedical products for ML Strategies, LLC, where
he serves a wide range of health care, biotechnology and pharmaceutical clients.
Dr. Green also has been of counsel to the Boston/Washington law firm of Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C. since September 1989. Dr. Green has
successfully represented many American and Canadian clients in their
relationships with the FDA and has organized a number of multi-disciplinary
conferences on healthcare, pharmaceutical and funding issues. Dr. Green was
formerly medical director of New England Nuclear/Dupont Medical Products. He
currently is a director of Neurochem, Inc. and North American Scientific, Inc.
Dr. Green has served on various government committees as a technical consultant
and has held several medical school appointments. Dr. Green is the author of
many scientific papers in biochemistry and drug development and is well known
for his issues and commentary series which analyzes the competitive commercial
aspects and potential markets for emerging pharmaceutical technologies. Dr.
Green received his B.S. in economics in 1966 and his Ph.D. in biochemistry and
metabolism in 1971 from the Massachusetts Institute of Technology. He received
his M.D. from Case Western Reserve University School of Medicine in 1972. Dr.
Green holds board certification in both internal medicine and in nuclear
medicine. Dr. Green received his J.D. from Boston College Law School in 1991.
Allen Krantz, Ph.D.: Dr. Krantz has been one of our directors since January
1999. He is trained as an organic chemist and has been working at Syntex for the
past 13 years, most recently as a vice president at Syntex Research, Canada.
Prior to that, Dr. Krantz was a tenured associate professor of chemistry and
pharmacology at the State University of New York, at Stony Brook. In 1994, Dr.
Krantz joined Red Cell, Inc., a start-up biotechnology company as executive vice
president research. Since 1997, Dr. Krantz has been president of Bullet
Therapeutics, a start-up drug development enterprise.
Dr. Clifford A. Lingwood: Dr. Lingwood is our co-founder and has been one
of our directors since our inception. For the last 20 years Dr. Lingwood has
worked in academia, during which time he participated in the development of the
scientific technology which has been licensed to us. Since 1989, Dr. Lingwood
has been affiliated with both the University of Toronto and the Hospital for
Sick Children in Toronto and is currently serving as an associate professor in
the departments of clinical biochemistry, biochemistry and microbiology at the
University of Toronto and a senior scientist in the departments of microbiology
and biochemistry at the Hospital for Sick Children. Dr. Lingwood is one of the
inventors of and a patent applicant with regard to certain of our licensed
technologies.
Paul Lucas: Mr. Lucas has been one of our directors since September 1998.
Mr. Lucas is the president and chief executive officer of Glaxo Wellcome, Inc.,
Canada, a position he has held since April 1994. Mr. Lucas joined Glaxo Wellcome
in September 1986. Mr. Lucas has more than 20 years experience in the Canadian
pharmaceutical industry, and was instrumental in overseeing the successful 1995
merger of Glaxo Canada and Burroughs Wellcome. Mr. Lucas currently serves on
several university committees and is the vice chairman of the Pharmaceutical
Manufacturers
31
<PAGE>
Association of Canada. In addition, Mr. Lucas is the chairman of the board of
Altimed Pharmaceutical Inc. and is a director of BioChem Pharma.
Thomas M. Reardon: Mr. Reardon has been one of our directors since January
1999. He is "of counsel" to the Boston law firm Greenberg, Traurig. From 1990
until September 2000 he was at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C., where he served as co-chairman of the health law group and President of
its affiliate ML Strategies, Inc. In September 1999, Mr. Reardon became the
chief executive officer of Vector Health Solutions, now Cambio Health Solutions,
LLC, an affiliate of Quorum Health Resources, LLC. In addition, Mr. Reardon
serves as a director of numerous organizations in the healthcare field.
Significant employees
Dr. George L. Spitalny: Dr. Spitalny, age 53, is our co-founder and the
president of Select Therapeutics (Canada) Inc. He has more than 25 years of
experience in clinical and biopharmaceutical development, and since October 1995
he has been an industry consultant. Dr. Spitalny served as one of our directors
from our inception until he resigned in April 2000. Dr. Spitalny served as the
chief operating officer of our Canadian subsidiary from its inception in
December 1996 until December 1998, and since May 1997 he has served as the
president of our Canadian subsidiary. From October 1996 to January 1997, Dr.
Spitalny was president of Immune Network Research Ltd. From December 1990 to
October 1995, Dr. Spitalny was vice president, research and development, and
then chief scientific officer of TargeTech, Inc., a start-up biopharmaceutical
company which was acquired by Immune Response Corp. From 1983 to 1990, Dr.
Spitalny was employed by Bristol-Myers Squibb as a director of research and
development and as a manager of its research and clinical operations. Dr.
Spitalny received a Ph.D. from New York University School of Medicine in 1973
and is the author or co-author of 55 articles on a wide range of
biopharmaceutical related topics.
Tony K. Baker: Mr. Baker, age 53, has been our vice president in charge of
the development of diagnostic products since November, 1998. Mr. Baker was the
president and chief scientist of Sierra Diagnostics, Inc., which he founded in
May, 1994, until Sierra's acquisition by us in November 1998.* From 1993 to
1995, Mr. Baker worked for Genentech as a senior development specialist. From
1991 to 1993, Mr. Baker was the immunodiagnostic development manager for Sigma
Diagnostics. From 1987 to 1991, Mr. Baker was vice president of product
development for Gen-Trans Biotechnology. From 1971 to 1987, Mr. Baker held a
variety of senior positions in the biotechnology field, including manager of
in-vitro assay development-infectious diseases for Merck Sharp and Dohme. Mr.
Baker received his M.S. in microbiology from Northern Arizona University and he
served as an officer in the U.S. Marine Corps.
Scientific and medical advisory board
Allan M. Green M.D., Ph.D., J.D. : Dr. Green is one of our directors and
chairman of our scientific and medical advisory board. Dr. Green's background is
discussed in further detail above.
*We recently accepted in principle a management buy-back of Sierra. See Item 1.
"Description of Business - Overview."
32
<PAGE>
Mark L. Greenberg, M.D., M.B., Ch.B.: Dr. Greenberg is chief of oncology
and co-head of the division of hematology and oncology at the Hospital for Sick
Children, Toronto. He is also a professor in the departments of pediatrics and
surgery at the University of Toronto. Dr. Greenberg joined the Hospital for Sick
Children in 1970. He received his medical education at the University of
Witwatersrand in Johannesburg, South Africa, M.B., Ch.B. in 1966 and served as
an intern and resident at the Johannesburg General Hospital, Transvaal Memorial
Hospital and Presbyterian St. Luke's Hospital in Chicago before joining The
Hospital for Sick Children. He is a member of the Fellow of the Royal College of
Physicians in Canada and other professional bodies. Dr. Greenberg has published
extensively in the medical literature, principally on oncology.
Evan M. Hersh, M.D.: Dr. Hersh is a professor of microbiology and
immunology at the University of Arizona, Tucson, and is the associate director
of clinical research and the director of immunology at the Arizona Cancer
Center. He has been active in the development of novel therapeutic anti-cancer
strategies. Dr. Hersh's laboratory will collaborate with ours and the Institut
Curie in Paris in pre-clinical and early clinical studies on therapeutic cancer
vaccines based on the proprietary antigen presentation technology being
developed at the Institut Curie.
Gabriel H. Hortobagyi, M.D.: Dr. Hortobagyi is the chairman of the
department of breast medical oncology in the division of medicine at the
University of Texas, M.D. Anderson Cancer Center. He received his M.D. at the
Universidad Nacional de Columbia in Bogota, Columbia in 1970 and served as and
intern and resident at the Hospital San Juan de Dios in Bogota, Columbia and St.
Luke's Hospital in Cleveland. He joined M.D. Anderson Hospital in 1974 as a
fellow in developmental therapeutics. Since joining M.D. Anderson Hospital, Dr.
Hortobagyi has had numerous academic and professional appointments. He holds
specially diplomas in internal medicine and medical oncology.
John Thomas Lamont, M.D.: Dr. Lamont is chief of the division of
gastroenterology at Beth Israel Deaconess Medical Center and a professor of
medicine at the Boston University of Rochester. Dr. Lamont interned at the UCLA
Medical Center in Los Angeles, where he later served as chief medical resident.
He has been on the faculty of Boston University since 1980 and is certified in
internal medicine and gastroenterology. Dr. Lamont's research interests include
the structure and function of intestinal mucin and the mechanisms of action of
bacterial toxins.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers, directors and certain shareholders (collectively
"Reporting Persons") to file reports of ownership and changes in ownership of
the Company's common stock with the Securities and Exchange Commission within
certain periods and to furnish the Company with copies of all such reports. To
the Company's knowledge, based on a review of the copies of such reports
furnished to the Company and written representations that no reports on Form 5
were required by such Reporting Persons, the Company believes that, during the
Company's fiscal year ended June 30, 2000, all Section 16(a) filing requirements
were complied with, except that, with the exception of our former director Craig
Sibley, all of our directors, officers and beneficial owners of more than 10% of
our common stock failed to file a Form 3, initial statement of beneficial
ownership, on a timely basis, and Messrs. Bender, Galler, Lingwood and Green
failed to timely file their Form 4s reporting options granted to them in
September 1999 and March 2000.
33
<PAGE>
Item 10. Executive Compensation.
The following table summarizes the compensation earned by or paid to our
chief executive officer and any other executive officer whose total annual
salary and bonus exceeded $100,000 for the last three fiscal years.
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Annual Compensation Awards
Other
Name and Annual Securities
Principal Salary Bonus Comp. (1) Underlying
Position Year ($) ($) ($) Options (#)/SARS
--------- ---- ------ ----- --------- ----------------
<S> <C> <C> <C> <C> <C>
Robert Bender, 2000 153,541(2) -- -- 500,000
chief executive officer 1999 144,000(3) nil nil --
1998 74,000 nil nil --
</TABLE>
----------
(1) Excludes perquisites and other benefits, unless the aggregate amount of
such compensation is at least the lesser of either $50,000 or 10% of the
total annual salary and bonus reported for the named executive officer.
(2) $92,541 was paid in cash and the balance of $61,000 is accrued.
(3) $120,000 was paid in cash, and the balance of $24,000 is accrued.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Individual Grants
----------------------------------------------------------
Number of % of Total
Securities Options/SARS
Underlying Granted to Exercise or Market Price
Options/SARS Employees Base Price Expiration on Date of
Name Granted (#) in Fiscal Year ($/share) Date Grant ($)
---- ----------- -------------- --------- ---- ---------
<S> <C> <C> <C> <C> <C>
Robert Bender 250,000 20% $4.25 03/01/07 $5.13
Robert Bender 250,000 20% $5.00 03/01/07 $5.13
</TABLE>
Aggregated Option/SAR Exercises in Fiscal Year 2000
and Option /SAR Values at June 30, 2000
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money
Options/SARs at Options/SARs at
Shares Value Fiscal Year-End (#) Fiscal Year-End ($)
Acquired on Realized ---------------------------- ----------------------------
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert Bender -- -- 600,000 0 $2,272,500 --
</TABLE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table contains information regarding ownership of our common
stock, which are our only voting securities, as of September 22, 2000 for:
o each person who beneficially owns more than 5% of our common stock,
o each of our directors and executive officers, and
o all of our directors and executive officers as a group.
Unless otherwise indicated, we believe that the individuals listed below
have the sole power to vote and dispose of the number of shares listed opposite
their respective names.
34
<PAGE>
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent
of Beneficial Owner Office Beneficial Ownership ofclass
-------------------- ------ --------------------- -------
<S> <C> <C> <C>
Robert Bender chairman of the board, 1,165,000(1) 9.4%
50 O'Connor Street chief executive officer,
Suite 300 secretary & treasurer
Ottawa, Ontario
Canada K1P 6L2
Robert C. Galler vice president and 600,000(2) 4.8%
56 Sage Hollow Court director
Dix Hills, NY 11746
Dr. Clifford A. Lingwood director 407,000(3) 3.4%
116 Kingsway Crescent
Toronto, Ontario
Canada M8X 2R9
Dr. Allan M. Green director 420,000(4) 3.5%
19 Francis Avenue
Cambridge, MA 02138
Paul Lucas director 10,000 -- *
c/o Glaxo Wellcome
Canada, Inc.
7333 Mississauga Road North
Mississauga, Ontario
Canada L5N 6L4
Thomas M. Reardon director 10,000 -- *
c/o 49 Candlewood Road
Ipswich, MA 01938
Allen Krantz, Ph.D. director 10,000 -- *
847 N Humboldt St. #310
San Mateo, CA 94401
All directors and 2,622,000 20.0%
executive officers
as a group
(7 individuals)
Sally Hansen 1,165,000(5) 9.4%
50 O'Connor Street, Suite 300
Ottawa, Ontario
Canada K1P 6L2
</TABLE>
35
<PAGE>
----------
* Owns less than 1%
(1) Includes options to purchase an aggregate of 500,000 shares of common
stock, of which 250,000 options are exercisable at $4.25 per share and
250,000 options at $5.00 per share, 95,000 shares owned by his wife, Sally
Hansen, 300,000 shares owned by ARGIL Management, a company in which Sally
Hansen is a principal shareholder, and 150,000 shares owned by 996834
Ontario Ltd., a company controlled by Sally Hansen.
(2) Includes options to purchase an aggregate of 600,000 shares of common
stock, of which 300,000 options are exercisable at a price of $1.73 per
share, 150,000 are exercisable at $4.25 per share and 150,000 are
exercisable at $5.00 per share.
(3) Includes options to purchase 40,000 shares of common stock at $4.25 per
share, and 183,500 shares owned by his spouse.
(4) Includes options to purchase 60,000 shares of common stock at $4.25 per
share, and 300,000 shares owned by ARGIL Management, a company in which he
is a principal shareholder.
(5) Includes 120,000 shares and options to purchase 500,000 shares owned by her
husband, Robert Bender, 300,000 shares owned by ARGIL Management, a company
in which she is a principal shareholder, and 150,000 shares owned by 996834
Ontario Ltd., a company in which she holds a controlling interest.
Item 12. Certain Relationships and Related Transactions.
We have an oral employment agreement with Dr. George Spitalny, who served
on our board of directors until his resignation in April 2000, by which we have
retained his full time services as the president of our Canadian subsidiary on a
month to month basis at a monthly salary of $13,179.
We have also entered into a consulting agreement with the consulting
company owned by Robert Bender, our chairman of the board, retaining his
services for a monthly fee of $12,000 of which $10,000 is to be paid monthly and
the balance is accrued. In addition, we have entered into consulting
arrangements with Craig Sibley, Dr. Clifford A. Lingwood and Dr. Allan Green,
two of whom are directors of Select, whereby we have agreed to pay them monthly
consulting fees of approximately $5,200, $1,300 and $10,000, respectively. Mr.
Sibley, who served on our board of directors until his resignation in April
2000, devotes a substantial fraction of his professional time to us and is
responsible for relationship management and technology sourcing for our Canadian
subsidiary. Dr. Lingwood's laboratory at the Hospital for Sick Children is a
principal source of technology for us and receives research support through
contractual arrangements with the hospital. Dr. Green devotes a substantial
fraction of his professional time to us and is responsible for regulatory
oversight, research program planning and coordination and scientific direction.
36
<PAGE>
In addition, Dr. Lingwood owns 35% of the shares owned by the Hospital for
Sick Children in the patent application entitled Verotoxin Pharmaceutical
Compositions and Medical Treatment. He and the other owners of the patent
granted the University of Toronto Innovations Foundation the exclusive right to
grant licenses for the verotoxin technology which in turn has granted an
exclusive license to us.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Restated Certificate of Incorporation*
3.1a Certificate of Amendment of Certificate of Incorporation, dated
June 27, 2000
3.2 By-Laws*
4.1 Specimen Common Stock Certificate
4.2 Form of Class A Redeemable Common Stock Purchase Warrant for
investors in the private placement offering dated in October 1,
1999
4.3 Form of Class B Redeemable Common Stock Purchase Warrant for
investors in the private placement offering dated November 11,
1999 and as payment to certain individuals for services rendered
in connection with said offering
4.4 Form of Class C Redeemable Common Stock Purchase Warrant as
payment to certain individuals for services rendered in
connection with the private placement offering dated March 10,
2000, as amended
4.5 Stock Option Agreement with Dawn Van Zant, dated March 2, 2000 to
purchase 25,000 shares of the Company's Common Stock at a price
of $4.25 per share.
37
<PAGE>
4.6 Stock Option Agreement with Dawn Van Zant, dated March 2, 2000 to
purchase 25,000 shares of the Company's Common Stock at a price
of $5.00 per share.
10.1 License Agremeent, dated September 1, 1993 between Temple
University and Sierra Diagnostics, Inc.*
10.2 Contract 4004293, effective October 27, 1998 between Sierra
Diagnostics, Inc. and the State of Alabama.*
10.3 Lease Agreement dated July 1, 1999, between H&H Properties and
Sierra Diagnostics, Inc.*
10.4 Consulting Agreement with Robert Bender Consulting Limited, dated
January 1, 1999.*
10.5 Consulting Agreement with Craig Sibley dated January 1, 1999.*
10.6 Consulting Agreement with Dr. Clifford A. Lingwood, dated January
1, 1999.*
10.7 Consulting Agreement with Allan Green, M.D., J.D., Ph.D., dated
January 1, 1999.*
21 Subsidiaries of the Registrant*
27 Financial Data Schedule
* Incorporated by reference on Form 10-SB filed on Sept. 16, 1999.
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
38
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SELECT THERAPEUTICS INC.
(Registrant)
By /s/ Robert Bender
----------------------------------
Robert Bender
Principal Executive Officer
and Principal Financial Officer
Date: September 28, 2000
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
/s/ Robert Bender
-------------------------------------------
Robert Bender
Director
Date: September 28, 2000
/s/ Robert C. Galler
-------------------------------------------
Robert C. Galler
Director
Date: September 28, 2000
39
<PAGE>
/s/ Dr. Allan M. Green
-------------------------------------------
Dr. Allan M. Green
Director
Date: September 28, 2000
/s/ Dr. Allen Krantz
-------------------------------------------
Dr. Allen Krantz
Director
Date: September 28, 2000
/s/ Dr. Clifford Lingwood
-------------------------------------------
Dr. Clifford Lingwood
Director
Date: September 28, 2000
/s/ Paul Lucas
-------------------------------------------
Paul Lucas
Director
Date: September 28, 2000
/s/ Thomas M. Reardon
-------------------------------------------
Thomas M. Reardon
Director
Date: September 28, 2000
40
