U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ________
Commission File Number 000-27353
SELECT THERAPEUTICS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 98-0169105
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
124 Mt. Auburn St., Suite 200 North, Cambridge, MA 02138
(Address of principal executive offices) Zip Code)
(617) 520-6693
(Issuer's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if
changed since last report)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No___
The aggregate number of shares outstanding of the Issuer's Common Stock, its
sole class of common equity, was 11,862,308 as of May 10, 2000.
Transitional Small Business Issuer Disclosure Format: Yes ___ No _X_
Page 1 of 10; Exhibit Index is on Page 9
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Balance Sheets
(Stated in U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
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March 31, June 30,
2000 1999
(Audited)
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<S> <C> <C>
Assets
Cash and cash equivalents $ 176,667 $ 120,881
Restricted cash -- 72,000
Cash held in trust 8,695,350 --
Accounts receivable -- 7,380
Inventory 22,805 32,130
Prepaid expenses and other assets 18,780 21,740
Property, plant and equipment 112,437 104,547
Intangible assets 705,769 900,581
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$ 9,731,808 $ 1,259,259
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Liabilities and Shareholders' Equity
Liabilities:
Accounts payable $ 164,536 $ 43,309
Accrued liabilities 388,738 655,798
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553,274 699,107
Shareholders' equity:
Capital stock:
Authorized:
1,000,000 preferred shares
50,000,000 common shares,
$0.0001 par value
Issued:
Nil Preferred Shares
11,862,308 common shares
(June 30, 1999 - 5,634,094) 1,186 563
1,735,902 warrants (1999-nil) 3,805,302 --
Contributed surplus 11,748,986 5,145,191
Stock options 1,281,250 --
Deficit accumulated during the development stage (7,658,190) (4,585,602)
------------------------------------------------------------------------------------
9,178,534 560,152
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$ 9,731,808 $ 1,259,259
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</TABLE>
See accompanying notes to consolidated financial statements.
F-1
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statements of Operations
(Stated in U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Nine months ended Three months ended
March 31, March 31,
----------------------------------------------------------------------------------------------
2000 1999 2000 1999
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 170,590 $ 110,750 $ 77,465 $ 110,750
Cost of revenue 56,902 77,556 43,191 77,556
----------------------------------------------------------------------------------------------
113,688 33,194 34,274 33,194
Interest income 524 32,570 8 5,829
Research and development 1,050,050 1,103,923 263,426 802,131
Selling, general and administration 1,912,064 714,442 369,684 146,948
Depreciation 29,874 11,437 9,958 8,825
Amortization 194,812 108,230 64,937 64,938
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3,186,800 1,938,032 708,005 1,022,842
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Loss for the period $(3,072,582) $(1,872,268) $ (673,723) $ (983,819)
----------------------------------------------------------------------------------------------
Loss per share $ (0.44) $ (0.36) $ (0.10) $ (0.19)
Weighted average number of shares 6,956,082 5,228,791 6,956,082 5,228,791
----------------------------------------------------------------------------------------------
</TABLE>
Consolidated Statements of Changes in Shareholders' Equity
(Stated in U.S. dollars)
Nine months ended March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Deficit
accumulated
during the
Common shares Warrants Contributed development Stock
Shares Amount Number Amount surplus stage Options Total
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 -- -- 6,603,795 -- -- 6,604,418
Issue of warrants -- -- 1,735,902 3,805,302 -- -- -- 3,805,302
Loss for the year -- -- -- -- -- (3,072,588) -- (3,072,588)
Issue of stock options -- -- -- -- -- -- 1,281,250 1,281,250
-----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 11,862,308 $ 1,186 1,735,902 $ 3,805,302 $ 11,748,986 $ (7,658,190) $ 1,281,250 $ 9,178,534
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</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statements of Cash Flows
(Stated in U.S. dollars)
Nine months ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------------------------
Cash provided by (used in):
<S> <C> <C>
Operating activities:
Loss for the period $ (3,072,588) $ (1,872,268)
Items not involving cash:
Depreciation 29,874 11,437
Amortization 194,812 108,230
Issue of common shares for services 183,600 933,730
Changes in non-cash operating working capital:
Accounts receivable 7,380 (15,500)
Inventory 9,325 (18,528)
Prepaid expenses and other assets 2,960 21,000
Accounts payable 121,227 (754,659)
Accrued liabilities (267,060) 396,058
-----------------------------------------------------------------------------------------
(2,790,470) (1,190,500)
Financing activities:
Repayment of loans due to the former shareholders
of Sierra Diagnostics Inc. -- (285,999)
Proceeds from issuance of common shares 11,507,370 --
Restricted cash 72,000 (72,000)
-----------------------------------------------------------------------------------------
11,579,370 (357,999)
Investing activities:
Additions to property, plant and equipment (37,764) (118,280)
-----------------------------------------------------------------------------------------
(37,764) (118,280)
Decrease in cash 8,751,136 (1,666,779)
Cash and cash equivalents, beginning of period 120,881 2,070,705
-----------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 8,872,017 $ 403,926
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Supplementary disclosure:
Non-cash financing and investing activities:
Issue of common shares to purchase licenses $ -- $ 138,730
Issue of common shares related to the acquisition
of Sierra Diagnostics Inc. -- 780,997
Issue of common shares for services 183,600 795,000
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</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements
(Stated in U.S. dollars)
Nine months ended March 31, 2000 and 1999
(Unaudited)
--------------------------------------------------------------------------------
Basis of presentation:
In the opinion of management, the unaudited consolidated financial statements of
Select Therapeutics Inc. (the "Company") included herein have been prepared on a
consistent basis with the June 30, 1999 audited consolidated financial
statements and include all material adjustments, consisting of normal recurring
adjustments, necessary to fairly present the information set forth therein.
These interim financial statements should be read in conjunction with the June
30, 1999 audited consolidated financial statements and notes thereto. The
Company's results of operations for the first three fiscal quarters of 2000 are
not necessarily indicative of future operating results.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual results could
differ materially from those estimates.
Cash and cash equivalents
Cash and cash equivalents includes cash, mutual funds, and cash held in trust.
Capital stock
(a) During the nine months ended March 31, 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)).
F-4
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (continued)
(Stated in U.S. dollars)
Nine months ended March 31, 2000 and 1999
(Unaudited)
--------------------------------------------------------------------------------
(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;
(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 shares 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 nine months ended March 31, 2000 in the amount
of $4,847,242 (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.
(b) 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-5
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
FORWARD-LOOKING STATEMENTS
THIS REPORT, INCLUDING WITHOUT LIMITATION, ITEM 2, MANAGEMENT'S DISCUSSION
AND ANALYSIS OR PLAN OF OPERATION, CONTAINS STATEMENTS WHICH ARE NOT HISTORICAL
FACTS AND ARE FORWARD-LOOKING STATEMENTS WHICH REFLECT MANAGEMENT'S
EXPECTATIONS, ESTIMATES AND ASSUMPTIONS. SUCH STATEMENTS ARE BASED ON
INFORMATION AVAILABLE AT THE TIME THIS FORM 10Q-SB WAS PREPARED AND INVOLVE
RISKS AND UNCERTAINTIES THAT COULD CAUSE FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS OF THE COMPANY TO DIFFER SIGNIFICANTLY FROM PROJECTED RESULTS.
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY INCLUDE, WITHOUT
LIMITATION, THE HIGH COST AND UNCERTAINTY OF THE RESEARCH AND DEVELOPMENT OF
PHARMACEUTICAL PRODUCTS, THE UNPREDICTABILITY OF THE DURATION AND RESULTS OF THE
U.S. FOOD AND DRUG ADMINISTRATION'S REVIEW OF NEW DRUG APPLICATIONS, THE
COMPANY'S 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 formed to
acquire and develop rights to selected early-stage compounds and technologies
which have potential use as therapeutics or diagnostics. Since its inception on
December 6, 1996, substantially all of the Company's resources have been
dedicated to research and development and technology acquisition. To date, the
Company has not generated significant product revenues. Sales of Gonostat,
launched in January 1999, and potential sales of other diagnostic products are
not expected to generate sufficient revenues to cover the Company's operating
costs during the next three years.
Although the Company raised gross proceeds of $9.5 million from a private
equity placement in March 2000, the continuation of the Company as a going
concern is dependent on additional equity financing and on the development of
economically viable products. The Company has incurred losses of $3,072,582 and
$1,872,268 in the nine months ended March 31, 2000 and 1999, respectively, and
negative cash flow is expected to continue for the Company for at least the next
three years. There can be no assurance that funding will be available to the
Company or that the Company will be able to develop an economically viable
product.
2
<PAGE>
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 operating losses for at least three more years. 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.
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 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.
During the quarter which ended March 31, 2000, SELECT's management's
efforts continued to be directed to obtaining funds and repositioning the
Company. Product development efforts continued but were constrained by both
funding and management availability. In March 2000 the Company closed a private
placement for $9,500,000. Investors included institutions and individuals. The
funds from this placement are believed to be sufficient to cover operations for
the next 18 months. This placement is a key step in the process of building the
Company and is the first time that institutions have participated in SELECT.
Program Review
During the quarter ended March 31, 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. However, due to the significant funding
requirements, production of clinically qualified materials was not initiated and
all clinically oriented programs were halted for both purging and direct
applications of the toxin. In April 2000, following the receipt of the net
proceeds from the $9.5 million private placement completed in March 2000, the
Company recommenced these activities and both programs moved forward. Both of
these
3
<PAGE>
programs continue to be viewed as promising and management believes that with
the Company's recently obtained near-term funding, both can move forward rapidly
since institutional collaborations are in place with clinical investigators.
The application of VT to present antigens to dendritic cells continues to
be a promising approach to the development of therapeutic vaccines for cancer
and other diseases which circumvent the immune system's surveillance. Research
carried out under the Company's option agreement with the Institut Curie has
resulted in very promising findings. On December 2nd 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. 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 that 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.
The Company owns as a 100% subsidiary Sierra Diagnostics Inc. ("Sierra"),
a developer and manufacturer of diagnostic products for consideration comprising
stock and assumption of debts and operating costs. Sierra has a base of
proprietary technology relating to assays for sexually transmitted diseases and
handling of clinical samples. It launched two products in 1999 both of which
have significant revenue potential. The first product, Gonostat(TM) is a
clinical laboratory test for gonorrhea which offers unique advantages in cost
and performance relative to other technologies available in the market. There
can, however be no assurance of performance in the market. The second product
brought to market by Sierra is a sample preservation and handling product which
eliminates the need for refrigeration of clinical samples intended for molecular
(DNA/RNA based) assays. This product fits into the general practice of clinical
testing and is expected to find wide application due to elimination of sample
degradation and thus the need for repeat testing or sampling with attendant
costs
4
<PAGE>
and inconvenience. Sales of products based on this technology and efforts to
license the technology to third parties are beginning but no significant
revenues had been generated.
Sierra Diagnostics has operated within its expense projections but sales
of Gonostat(TM), while contributing on a gross margin basis, lagged
expectations. This resulted in a higher than anticipated cash requirement for
Sierra. At the end of October Sierra entered into a distribution agreement for
sales of its products to within third world countries and believes that
operating results for fiscal 2001 will significantly improve. SELECT has engaged
a sales and marketing group on a consulting basis to assist in developing the
market for both diagnostic products and to evaluate other diagnostic
opportunities for the Company. To date, the operations of Sierra have generated
losses and there can be no assurance that profitable operations will be achieved
or that, if achieved, they can be maintained.
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 it can move rapidly into
clinical investigations and development of products based on its intellectual
property given adequate funding. The funding required as the Company enters
clinical trials significantly exceeds the magnitude of funds raised by the
Company to date and there can be no assurance that such funding is available on
acceptable terms if at all.
Financial Condition
During the quarter the Company's cash position increased from $371,121 to
$8,872,017, consisting of cash and cash equivalents and cash held in trust,
principally reflecting the net proceeds of the Company's $9.5 million equity
private placement. The Company also decreased its accounts payable and accrued
liabilities from $797,597 to $553,274 in the quarter. Management believes that
adequate funding for continuation of operations and development of the Company's
technology assets has been obtained but notes that
5
<PAGE>
significantly greater resources will be required in order to bring its
therapeutic products to market.
Results of Operations
For the quarter ended March 31, 2000, SELECT incurred a net loss of
$673,723 compared with a loss of $983,819 for the corresponding three months
ended March 31, 1999. For the nine months ended March 31, 2000 the Company
incurred losses of $3,072,582 versus $1,872,268 for the corresponding period in
1999. The Company has been unprofitable from its formation and has an
accumulated deficit of $7,658,190 through March 31, 2000. The net loss is a
result of the routine operations of the Company in its 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.
Revenue of $170,590 during the nine months ended March 31, 2000 were
principally from the sale of Gonostat(TM). During the corresponding quarter in
1999, there were revenues of $110,750 from sales and interest income was $5,829.
SELECT's sole operating revenues to date arise from sales of diagnostic products
through its wholly owned subsidiary, Sierra Diagnostics. The Company has no
other product or license revenues. Management anticipates that future revenues
may consist primarily of product sales either directly by the Company or, more
likely, through collaborative development and marketing agreements with other
companies in the pharmaceutical industry. Sierra's operations are expected to
achieve breakeven during fiscal 2000 and thereafter be profitable. However,
there can be no assurance that such performance will be realized or maintained.
Costs and Expenses
Operating expenses for the nine months ended March 31, 2000 were
$3,186,800 compared to $1,938,032 in the same period of 1999. Expenditures
required to advance the Company's development projects, notably initiation of
manufacturing of GMP qualified materials, were deferred during the period but
recommenced in April 2000.
All research and development activities of the Company are expensed as
incurred. 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 March 31, 2000 the
Company employed seven people, mainly at Sierra Diagnostics and retained
services of three key consultants who are an integral part of the Company
management.
6
<PAGE>
Locating and retaining appropriate personnel resources is a priority and
the Company anticipates that personnel costs will increase if adequate funding
is obtained. The percentage of expenditures related to personnel and other
operations is expected to decline as increasing commitments are made to external
manufacturing and clinical studies.
Capital Expenditures
There were no significant capital expenditures during the last nine 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 March 31, 2000 the Company had
received approximately $9,340,000 in net proceeds from the sale of equity
securities during the quarter. 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.
The Company's limited financial resources forced it to curtail some of its
planned operations through March 2000. Although these activities recommenced in
April 2000, 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
7
<PAGE>
issuing equity securities, substantial dilution to existing
stockholders may result.
The Company currently has funds sufficient to continue operations for 18
months, including funds required to move current projects into clinical
investigations. 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. Sales of Sierra's products to date are not
sufficient to cover operating costs. Sierra Diagnostic's ongoing operations
require compliance with FDA requirements and that a base level of manufacturing
be maintained.
Year 2000
Year 2000 (Y2K) issues arise because many computer systems use two rather
than four digits to identify the year thus creating ambiguities which may
produce errors before, on or after January 1, 2000. If not addressed, errors
could impact all aspects of operations including financial reporting, clinical
and production records or controls and communications. Errors may range from
minor to significant systems failures and could be imported from suppliers'
systems.
We have assessed, taken corrective actions in light of, and continue to
monitor our vulnerability to Y2K issues in all aspects of our business including
information and computer systems and critical suppliers and service providers.
To the best of our knowledge, systems and equipment critical to our operations
are Y2K compliant. However, it is not possible to be certain that the systems of
our suppliers, service providers or other third parties upon which we rely are
compliant or that they will unaffected by problems in their own supply chain.
Based on the nature of our operations and ongoing assessments we believe that
Select has little direct exposure to Y2K issues.
We estimate that our direct costs of addressing the Y2K issue are less
than $5,000, which are being expensed in the normal course of our business
operations.
Summary
SELECT is a reporting entity under the Securities and Exchange Act of 1934
and believes it now satisfies the financial requirements for listing its Common
Stock on the NASDAQ-Small Cap Market. The Company has succeeded in obtaining the
funds it required to position the Company for continuing operations and forming
development partnerships with other companies. We believe
8
<PAGE>
it has a strong portfolio of product opportunities in therapeutics for cancer,
two of which have been advanced to the stage at which clinical investigations
may begin (subject to adequate funding resources). Sierra sales growth has been
slower than expected, but significant sales growth is anticipated in fiscal
2001. We are adding new products and technology to Sierra as part of an overall
plan to develop a diagnostics business with both sales and earnings.
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.
PART II - OTHER INFORMATION
Item 2. Changes in Securities.
In September 1999, in connection with the election of Robert C. Galler as
our vice president, we issued to Mr. Galler options entitling him to purchase
300,000 shares of our common stock at $1.73 per share, exercisable until
September 30, 2004.
From January to March, 2000, we sold to accredited investors 58 3/4 units,
each unit consisting of 13,000 shares of the Company's Common Stock and 13,000
redeemable warrants, at a price of $23,400 per unit, for an aggregate price of
$1,374,750, in a private placement made pursuant to the exemption from
registration provided by Section 4(2) and 4(6) of the Securities Act of 1933, as
amended (the "Securities Act") and Rule 506 of Regulation D promulgated
thereunder (the "November 1999 Offering"). Each redeemable warrant entitles the
holder to purchase one share of the Company's Common Stock at a price of $3.00
per share until December 31, 2002. In addition, for services rendered in the
November 1999 Offering by the placement agent and others, the Company issued 7.4
additional units valued at $173,160 in reliance on the exemption from
registration provided by Section 4(2) and 4(6) of the Securities Act and Rule
506 of Regulation D promulgated thereunder.
In March 2000, we sold to 47 accredited investors 4,750,000 shares of the
Company's Common Stock at a price of $2.00 per share, for an aggregate price of
$9,500,000, in a private placement made pursuant to the exemption from
registration provided by Section 4(2) and 4(6) of the Securities Act and Rule
506 of Regulation D promulgated under the Securities Act (the "March 2000
Offering"). We also issued to our placement agent and others for their services
in the March 2000 Offering redeemable warrants entitling the holders to purchase
573,952 shares of the Company's Common Stock at a price of $2.00 per share until
December 31, 2002.
In March 2000, we issued options to purchase an aggregate of 900,000 shares
of our common stock, exercisable until March 1, 2007, to four of our officers
and/or directors in consideration for services rendered as follows: Robert
Bender received an aggregate of 500,000 options entitling him to purchase
250,000 shares at $4.25 per share and 250,000 shares at $5.00 per share; Robert
C. Galler received an aggregate of 300,000 options entitling him to purchase
150,000 shares at $4.25 per share and 150,000 shares at $5.00 per share; Dr.
Allen M. Green received options entitling him to purchase 60,000 shares at $4.25
per share; and Dr. Clifford A. Lingwood received options entitling him to
purchase 40,000 shares at $4.25 per share. In addition, also in March 2000, we
issued an aggregate of 50,000 options to a consultant as payment for services
rendered, entitling her to purchase 25,000 shares at $4.25 per share and 25,000
shares at $5.00 per share. Such options are exercisable until March 1, 2007.
Item 4. Submission of Matters to a Vote of Security Holders.
In March 2000, by written consent in lieu of a meeting, holders of a
majority of the Company's stock approved an amendment to the Company's
Certificate of Incorporation (the "Amendment") increasing the number of
authorized shares of the Company's Common Stock from ten million (10,000,000) to
fifty million (50,000,000) shares. The Amendment is expected to become effective
on or about June 15, 2000. The Company is in the process of preparing an
Information Statement pursuant to Section 14c of the Securities Exchange Act of
1934.
Item 5. Other Information.
In April 2000, Craig A. Sibley and Dr. George L. Spitalny resigned as
directors of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibit is filed with this report: Page
----
27. Financial Data Schedule 11
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: November 21, 2000 SELECT THERAPEUTICS, INC.
By: /s/ Robert Bender
---------------------------
Name: Robert Bender
Title: Chairman of the Board
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