<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the Quarter Ended: Commission File Number
---------------------- ----------------------
June 30, 2000 0-27727
GENE-CELL, INC.
---------------------------------------------
(Name of small business issuer in its chapter)
Nevada 91-1766174
------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
1010 Hercules, Houston, Texas 77058
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (281) 461-7996
----------------
Securities registered pursuant to section 12(b) of the Exchange Act: None
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
report(s), and (2) has been subject to such filing requirements for the
past 90 days. (1) Yes [X ] No [ ]
State the number of shares outstanding of each of the registrants classes
of common equity, as of the latest practicable date:
As of June 30, 2000, issuer had 17,778,412 shares of its $.001 par value
common stock outstanding.
</Page>
<PAGE>
This Form 10-QSB contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, which
act contains a safe harbor for forward looking statements. The Company
believes that investors would be benefitted by the cautionary language
included in this paragraph. For this purpose any statements contained in
this Form 10-QSB that are not statements of historical fact may be deemed
to be forward-looking statements. Without limiting the foregoing, words
such as "may," "will," "expect," "believe," "anticipate," "estimate," or
"continue" or comparable terminology are intended to identify forward-looking
statements. These statements by their nature involve substantial
risks and uncertainties, and actual results may differ materially depending
on a variety of factors, many of which are not within the Company's
control. These factors include but are not limited to economic conditions
generally and in the industries in which the Company may participate;
competition within the Company's chosen industry, including competition
from much larger competitors; technological advances and failure by the
Company to successfully develop business relationships.
PART I FINANCIAL INFORMATION
-------------------------------
Item 1 Financial Statements
------------------------------
See pages F-1 through F-8 directly following the signature page of
this Form 10-QSB.
Condensed Balance Sheet as of June 30, 2000
and December 31, 1999 F-3
Unaudited Condensed Statement of Operations for
the three and six months ended June 30, 2000
and 1999, and for the period from inception,
December 12, 1996, to June 30, 2000 F-4
Unaudited Condensed Statement of Stockholders'
Equity for the six months ended June 30, 2000 F-5
Unaudited Condensed Statement of Cash Flows for
the six months ended June 30, 2000 and 1999,
and for the period from inception, December 12,
1996, to June 30, 2000 F-6
Selected Notes to Unaudited Condensed Financial
Statements F-7
Item 2 Plan of Operation
---------------------------
For a complete understanding, this Plan of Operations should be read in
conjunction with Part I- Item 1. Financial Statements to this Form 10-QSB.
2
</Page>
<PAGE>
<PAGE>
Gene-Cell, Inc. is a Nevada corporation involved in biopharmaceutical
research. The Company is considered a development stage enterprise because
it has not yet generated revenue from sale of its products. Since its
inception, the Company has devoted substantially all of its efforts to
research and development and the search for sources of capital to fund its
efforts.
Business of the Company
-----------------------
The Company operates in the biotechnology sector of the pharmaceutical
industry sometimes referred to as the Biopharmaceutical or Life Science
industry. The mission of the Company is to become a global leader in stem
cell gene therapy by using the Company's technologies to repair and/or
compensate for mutations in defective genes. Mutations in genes are known
to be the cause of many genetic diseases including Sickle Cell Disease and
Muscular Dystrophy. A unique aspect of the Company's non-viral process is
that it is performed on a patient's stem cells outside the body or ex vivo.
Stem cells are special cells in the body that are basic or building block
cells which have the ability to continually create large numbers of more
specialized cells. The Company has applied for a world patent to protect
its novel technology which allows for attaching or immobilizing human stem
cells. The cell can then be microinjected with properly encoded, healthy
DNA. Following this process, the DNA treated stem cells are reintroduced
into the patients body where they can re-populate. It is anticipated that
these DNA treated and/or corrected cells will produce millions of cell
offspring transmitting the desired effects. The Company's technology will
also be beneficial to the pharmaceutical industry for studying the
function(s) of individual genes and the possible contribution of these
genes to various diseases.
To better understand the business of the Company it is helpful to
understand more about the industry background and why the Company entered
this market. In basic terms, each cell in the human body contains DNA,
often called an individual's "genetic blueprint". The DNA is further
organized into genes, which are in turn organized into chromosomes. A
change in the DNA sequence or code of a gene is called a mutation. Often
mutations are harmless; however, some mutations lead to serious disease.
There are about 4,000 diseases that have been traced to gene disorders or
mutations.
The Company's approach differs from conventional medical treatment of
genetic diseases. Rather than treating the symptoms, the gene therapy
proposed by the Company focuses on the cause of disease at the origin, the
DNA. In addition, the Company will be capable of treating the patient's
cells outside the body. The treated cells will then be returned to the
patient's body, thus the patient does not need to be present for the gene
modification.
To address the disease at the origin, either a properly functioning
copy of a gene must be delivered to the cell or the known defect must be
repaired. Traditionally gene therapy has been done by generating viruses
which contain therapeutic DNA. The virus is then allowed to infect the
target cells, transferring the DNA to those cells. Viral gene therapy,
however, is only able to carry a finite amount of therapeutic DNA.
Limitations are apparent when the genetic material required to correct a
mutation exceeds the packaging limit of a virus, which is the case for a
number of genetic diseases. In these cases viral gene therapy is not a
viable option. Further, viruses do not infect all cell types with equal
efficiency. Finally, viruses are not able to deliver genetic fragments
(small pieces of DNA) necessary for gene repair. These restrictions of
viral gene therapy, as well as safety issues associated with using live
virus, have led researchers to search for alternate techniques of
performing gene therapy to treat a wide range of genetic diseases.
</Page>
<PAGE>
Dr. Brian R. Davis and Dr. David B. Brown founded Genesystems in 1996
after they recognized these significant limitations associated with
existing viral based gene therapy methods. Genesystems eventually became
Gene-Cell, Inc., or the Company. Dr. Davis and Dr. Brown decided to focus
on these and other alternate methods of delivery for therapeutic DNA.
The Company is at the forefront of gene therapy research employing a
delivery technique called glass needle mediated microinjection.
Microinjection involves injecting cells with minute amounts of material
using very small needles made of glass. In order to utilize this technique
the Company had to develop new needles because commercially available
needles were too large. The commercial needles were large enough that they
would cause physical damage to the cell they were injecting. To remedy
this problem the Company developed ultra-fine needles with a tip diameter
of ~0.3 microns which is about 1/100 the diameter of a human hair. These
smaller diameter needles made of glass are capable of delivering DNA
without damaging the cell. Improvements in needle development and
technology pioneered by the Company are included in one of the Company's
pending world patents.
In addition to the development of a smaller needle, the system
developed by the Company requires that a cell be immobilized (that is,
attached to a plastic dish or surface) in order to perform microinjection.
The Company has made major advances in this area and has developed a novel
proprietary method to immobilize cells without the loss of cell function
(world patent pending). The development of this immobilization technology
was critical to the success of the Company and comprises part of the first
patent filing of the Company.
There are many different types of cells in the body. The Company has
selected to initially focus on blood stem cells for gene therapy. Blood
stem cells are referred to as "mother" blood cells and are found in bone
marrow and umbilical cord blood. These "mother" blood cells have the
capacity to give rise to all the cells that make up the blood, including
white and red blood cells. Through microinjection of blood stem cells, the
probability of delivering DNA to cells that will create cell offspring with
the desired effect is greatly enhanced.
The Company employs acceptable scientific methods of research, and
their technology has been verified through test results and review both at
the Company and at the University of Texas Medical Branch. This work has
been presented in university lectures, at gene therapy conferences, and was
recently published in Blood (Blood 95: 437-444, 2000), the Journal of the
American Society of Hematology. In order to protect the Company's
technology, the principles have filed for patents on the related
technology.
</Page>
<PAGE>
Application of Gene Therapy Technology
--------------------------------------
The Company envisions that treatment of disease will be performed,
using the Company's technologies, at major medical centers and Gene Therapy
Centers through licensing agreements with the Company. The treatment
process is as follows:
1) Physicians collect tissue samples from patients containing the
cells needed for genetic modification (e.g. umbilical chord blood,
bone marrow);
2) The cells to be modified are purified;
3) The cells are genetically modified with DNA using the Company's
technology;
4) The modified cells are expanded without the loss of biological
activity; and finally;
5) The modified cells are transplanted back into the patient.
This approach is expected to work effectively for adults and children.
Recent reports suggest that to successfully treat a child with a
genetic disease, at least 10-100 stem cells must be successfully modified.
Estimates from the Company indicate, to achieve a sufficient number of
modified genes, injection of at least 300-5000 cells per patient will be
necessary. The Company is currently refining automated workstations that
will make clinical application of microinjection routine by providing
rapid and consistent microinjection into blood stem cells. The process of
microinjection done manually is limited to injecting approximately 300-500
cells per hour. It is anticipated that workstations will be able to
microinject approximately 1200-2000 cells per hour. Workstations are at
the core of applying the Company's technology in a clinical setting and
will be included in licensing agreements to use the Company's technology.
The Company is actively developing microinjection workstation technology
and plans to submit a world patent application once this technology is
sufficiently developed.
Diseases Potentially Treatable by Stem Cell Gene Therapy
--------------------------------------------------------
The following charts outline the estimated number of patients in the
U.S. with the seven most potentially treatable inherited diseases by blood
and muscle/bone stem cell gene therapy. There are many other genetic
disorders, which are more rare in occurrence that could also be treated by
the Company's technology.
Diseases Potentially Treatable by Blood Stem Cell Gene Therapy
--------------------------------------------------------------
* Thalassemia occurs most frequently in people of Italian, Middle Eastern,
African, Greek, Southeast Asian ancestry.
</Page>
<PAGE>
Diseases Potentially Treatable by Muscle/Bone Stem Cell Gene Therapy
--------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Disease Sickle Cell a Thalassemia B Thalassemia
------------------------------------------------------------------------------------
<S> <C> <C> <C>
# of Patents (US) 40,000-60,000 100,000 new cases/year worldwide*
------------------------------------------------------------------------------------
Gene Affected B-globin a-globin B-globin
------------------------------------------------------------------------------------
More Common Gene Point mutation Deletions of gene Point mutations
Defects (~80% of cases) (~6 mutations
Point mutations responsible for
90% of cases in
each racial group)
------------------------------------------------------------------------------------
Results of Defects Crescent shaped Poor oxygen Poor oxygen
red blood cells, transport transport
poor oxygen
transport heart
trouble, etc.
------------------------------------------------------------------------------------
Current Treatment Blood transfusions Regular blood Regular blood
transfusions transfusions
chelatin therapy chelatin therapy
------------------------------------------------------------------------------------
GCI Gene Therapy Gene Repair Gene Delivery Gene repair
Treatment of a-globin;
gene repair of
point mutations
------------------------------------------------------------------------------------
RESULTS Corrected B-globin Corrected a-globin Corrected a-globin
in red blood cells in red blood cells in red blood cells
------------------------------------------------------------------------------------
*Thalassemia occurs most frequently in people of Italian, Middle Eastern,
African, Greek Southeast Asian ancestry.
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Disease Osteogenesis Ehlers-Danlos Duchenne Marfan
Imperfecta Syndrome Muscular Syndrome
Dystrophy
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
# of US Patients 12,500 50,000 12,500 12,500-25,000
(US)
------------------------------------------------------------------------------------
Gene Affected Collagen Collagen; Lysyl Dystrophia Fibrillin
Hydroxylase
------------------------------------------------------------------------------------
More Common Point mutations Point mutations Large deletions Point mutations
Gene Defects small deletions small deletions
------------------------------------------------------------------------------------
Results of Brittle bones Joint problems Muscle weakness Skeletal & heart
Defect Continuous Extreme bruising Progressive problems,
fractures/breaks and bleeding scholiosis Reduced vision
------------------------------------------------------------------------------------
6
</Page>
<PAGE>
<PAGE>
------------------------------------------------------------------------------------
Current/ Ineffective. None. Continued Glucocorticoid None. Surgical
Treatment Continued surgery surgical joint therapy slows replacement/
Prognosis and physiotherapy repair, bleeding progression up repair of
disorders to 3 years aorta, etc.;
(only in some adrenergic
patients) agents
------------------------------------------------------------------------------------
GCI Gene Gene Repair Gene Repair Delivery of Gene repair
Therapy dystrophin
Treatment gene
------------------------------------------------------------------------------------
RESULTS Collagen Collagen or Normal Corrected
corrected: hydroxylase dystrophin fibrillin:
osteoblasts corrected: overrides eye, skeletal
and osteoblasts defective in and
osteoclasts and skeletal cardiac
osteoclasts muscle muscle
------------------------------------------------------------------------------------
</TABLE>
Immediate Use of The Company's Technology to Study Gene Function
-----------------------------------------------------------------
The Company's technology can be applied immediately to fill a current
need in the pharmaceutical industry by developing cells that are modified
and/or mutated at very specific points within the code of a gene. These
customized "gene modified cells" could be used by pharmaceutical firms to
determine the function or action of specific genes and/or mutations within
those genes. The information gained from such studies can be used to
design and develop new drugs and treatments for various diseases.
Differences in the ability of patients to respond to certain drugs (that
is, the extent to which a drug treats a disease in one patient versus
another) is often a result of small differences in the code of certain
genes. Understanding these differences will allow for the development of
drugs tailored to treatment of a particular individual. Research aided by
the Company's technology will help to explain the function of newly
discovered genes, and assist in determining whether specific mutations in
genes are truly responsible for a disease. Such information is essential
to the pharmaceutical industry for the development of new drugs that can
better treat diseases.
7
</Page>
<PAGE>
Results of Operations
---------------------
During the period from inception, December 12, 1996 through June 30,
2000, the Company has not generated any revenue from sales of clinical
products and does not expect to generate any material revenue from sales of
clinical products for at least three to five years because during such time
period, management will use substantially all Company resources for further
development of its technology, including microinjection tools.
As of June 30, 2000, the Company had an accumulated deficit of
$2,658,644 funded by paid-in capital. During the years ended December 31,
1999, 1998 and 1997 the Company had losses from operations of $594,000,
$499,260 and $427,527, respectively. During the three and six months ended
June 30, 2000, the Company recorded net losses of $180,928 and $342,976,
respectively. The Company expects to make capital expenditures of
approximately $100,000 over the next twelve months and these expenditures
will be financed through capital leasing arrangements. These expenditures
will be necessary to support increased research and development efforts
planned by the Company. Management expects that operating losses will
continue until such time as product sales generate sufficient revenues to
fund its continuing operations, as to which there can be no assurance.
The Company has financed its operations mainly through the sale of its
common stock and has been entirely dependent on outside sources of
financing for continuation of operations. In January and April 2000, the
Company received $300,000 and $200,000, respectively, of amounts due under
a subscription receivable evidenced by a promissory note. It is the belief
of the Company that these funds will be sufficient for the Company to
continue operations and its research and development efforts through
October, 2000.
Additional Funding Needs and Use of Such Funding
------------------------------------------------
The Company now seeks $2,000,000 to $10,000,000 of second round
financing to support increased R&D expenses anticipated in the next three
years. The Company will consider additional equity financing as well as
traditional bank loans and lines of credit if necessary. This investment
will be used specifically for: (1) continuing current R&D and pursuing new
lines of R&D; (2) developing a prototype of the automated microinjection
workstation; (3) licensing complementary patents and products to complete
the Company's proprietary non-viral gene therapy platform; (4) funding
sponsored research of contributory technologies; (5) establishing strong
corporate, scientific, and medical advisory boards (primarily through stock
options); (6) hiring full-time key management (especially V.P. of
Finance/Business Development) and recruiting additional
scientific/technical staff; and (7) increasing Dr. Brian Davis' involvement
as President and CEO from part-time to full-time. Obtaining such
additional funding may significantly increase yearly expenditures to
approximately $1,050,000, $2,375,000, and $3,000,000 for the years 2000,
2001, and 2002, respectively.
The Company is currently seeking relationships with larger
biopharmaceutical companies. To date, however, the Company has not entered
into any such relationships. The Company anticipates that three years from
now its research will be far enough along to enhance the Company's ability
to establish relationships with major pharmaceutical companies. These
relationships should help the Company get its technology through the
required government regulatory process and FDA approval.
8
</Page>
<PAGE>
The Company's capital requirements will depend on numerous factors,
including the progress of its research and development programs; the time
and cost involved in obtaining regulatory approvals; the cost of filing,
prosecuting, defending and enforcing any patent claims and other
intellectual property rights; the economic impact of competing
technologies; developments and changes arising from the Company's
continuing research; and the terms of any new collaborative, licensing and
other arrangements that the Company may establish. The Company believes
that its current assets and potential committed contributions from certain
accredited investors will be sufficient to meet the Company's short-term
operating expenses and capital expenditures. At the present time, however,
there is no way to predict when, and if, any additional contributions may
be made beyond those currently committed. Consequently, at the expiration
of current commitments, the Company will need to seek one or more
substantial new investors.
The Company's ability to achieve profitability will depend, in part,
on its ability to successfully develop clinical applications and obtain
regulatory approvals for its products and to develop the capacity to
manufacture and market such products on a wide scale. There is no
assurance that the Company will be able to successfully make the transition
from research and development to manufacturing and selling commercial
microinjection therapy products on a broad basis. While attempting to make
this transition, the Company will be subject to all risks inherent in a
growing venture, including the need to produce reliable and effective
products and to develop marketing expertise and an effective sales force.
Further, the Company's success will depend, in part, on revenues
derived from the sale of the microinjection therapy products in the health
care market. In the event a market for the products the Company intends to
produce does not develop as anticipated, the Company's business, financial
condition and results of operations will be adversely effected.
Additionally, cost containment measures instituted by health care providers
as a result of regulatory reform or otherwise could result in greater
selectivity in the allocation of capital funds, and such, selectivity could
have a material adverse effect on the Company's ability to sell the
microinjection therapy and services.
The report from the Company's independent accountants includes an
explanatory paragraph which describes substantial doubt concerning the
ability of the Company to continue as a going concern, without continuing
additional contributions to capital. The Company may incur losses for the
foreseeable future due to the significant costs associated with research
and development activities which will be necessary for further development
of applications for the Company's microinjection therapy. See "Financial
Statements - Report of Independent Accountants".
PART II OTHER INFORMATION
---------------------------
9
</Page>
<PAGE>
Item 1 Legal Proceedings
--------------------------------
None.
Item 2 Changes in Securities
------------------------------------
None.
Item 3 Defaults Upon Senior Securities
----------------------------------------------
None.
Item 4 Submission of Matters to a Vote of Security Holders
------------------------------------------------------------------
None.
Item 5 Other Information
--------------------------------
None.
Item 6 Exhibits and Reports on Form 8-k
-----------------------------------------------
(a) Exhibits - Exhibit 27- Financial Data Schedule
(b) Reports on Form 8-k - No reports on Form 8-k were filed during the
quarter.
Signatures
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Gene-Cell, Inc.
Date: August 10, 2000 By: /s/ Brian R. Davis
--------------------------
President
Date: August 10, 2000 By: /s/ Michael R. Davis
----------------------------
Treasurer
10
</Page>
<PAGE>
Item 2 Changes in Securities
------------------------------------
None.
Item 3 Defaults Upon Senior Securities
----------------------------------------------
None.
Item 4 Submission of Matters to a Vote of Security Holders
------------------------------------------------------------------
None.
Item 5 Other Information
--------------------------------
None.
Item 6 Exhibits and Reports on Form 8-k
-----------------------------------------------
(a) Exhibits - Exhibit 27- Financial Data Schedule
(b) Reports on Form 8-k - No reports on Form 8-k were filed during the
quarter.
Signatures
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Gene-Cell, Inc.
Date: August 10, 2000 By: __________________
President
Date: August 10, 2000 By:___________________
Treasurer
11
</Page>
<PAGE>
GENE-CELL, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
__________
UNAUDITED CONDENSED FINANCIAL STATEMENTS
as of June 30, 2000 and December 31, 1999,
for the three months and six months ended June 30, 2000 and 1999,
and for the period from inception, December 12, 1996,
to June 30, 2000
(Unaudited)
F-1
</Page>
<PAGE>
GENE-CELL, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
TABLE OF CONTENTS
__________
Page
-------
Unaudited Condensed Financial Statements:
Condensed Balance Sheet as of June 30, 2000
and December 31, 1999 F-3
Unaudited Condensed Statement of Operations for
the three and six months ended June 30, 2000
and 1999, and for the period from inception,
December 12, 1996, to June 30, 2000 F-4
Unaudited Condensed Statement of Stockholders'
Equity for the six months ended June 30, 2000 F-5
Unaudited Condensed Statement of Cash Flows for
the three and six months ended June 30, 2000
and 1999, and for the period from inception,
December 12, 1996, to June 30, 2000 F-6
Selected Notes to Unaudited Financial Statements F-7
F-2
</Page>
<PAGE>
<PAGE>
GENE-CELL, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONDENSED BALANCE SHEET
June 30, 2000 and December 31, 1999
__________
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
ASSETS (Unaudited) (Note)
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 148,605 $ 28,670
Interest receivable 1,231 -
------------ ------------
Total current assets 149,836 28,670
Deposits 24,818 18,322
Equipment under capital leases, net 140,683 111,544
------------ ------------
Total assets $ 315,337 $ 158,536
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of capital lease obligations $ 38,956 $ 56,737
Accounts payable and accrued liabilities 5,000 10,618
------------ ------------
Total current liabilities 43,956 67,355
Capital lease obligations, net of current
portion 28,738 5,562
------------ ------------
Total liabilities 72,694 72,917
------------ ------------
Commitment and contingencies
Stockholders' equity:
Common stock, $.001 par value, 100,000,000
shares authorized, 17,778,412 shares issued
and outstanding 17,778 17,778
Additional paid-in capital 2,883,509 2,883,509
Subscription receivable - (500,000)
Losses accumulated during the development
stage (2,658,644) (2,315,668)
------------ ------------
Total stockholders' equity 242,643 85,619
------------ ------------
Total liabilities and stockholders'
equity $ 315,337 $ 158,536
============ ============
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
F-3
</Page>
<PAGE>
<PAGE>
GENE-CELL, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
for the three months and six months ended June 30, 2000 and 1999 and
for the period from inception, December 12, 1996, to June 30, 2000
__________
(Unaudited)
<TABLE>
<CAPTION>
Three Three
Months Months Six Months Six Months Inception
Ended Ended Ended Ended to
June 30, June 30, June 30, June 30, June 30,
2000 1999 2000 1999 2000
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operating, general and
administrative
expenses $ 30,081 $ 15,200 $ 74,152 $ 36,166 $ 765,499
Research and development
costs 151,150 125,892 267,581 222,743 1,870,647
----------- ----------- ----------- ----------- -----------
Loss from operations (181,231) (141,092) (341,733) (258,909) (2,636,146)
Interest income 3,720 3,633 4,978 7,336 21,835
Interest expense (3,417) (8,285) (6,221) (14,714) (84,918)
----------- ----------- ----------- ----------- -----------
Net loss $ (180,928) $ (145,744) $ (342,976) $ (266,287) $(2,699,229)
=========== =========== =========== =========== ===========
Weighted average shares
outstanding 17,778,412 18,778,412 17,778,412 18,778,412
=========== =========== =========== ===========
Net loss per
common share $ (0.01) $ (0.01) $ (0.02) $ (0.01)
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-4
</Page>
<PAGE>
<PAGE>
GENE-CELL, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
UNAUDITED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
for the six months ended June 30, 2000
__________
(Unaudited)
<TABLE>
<CAPTION>
Losses
Accumulated
Common Stock Sub- During the
-------------------- Paid-In scription Development
Shares Amount Capital Receivable Stage Total
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1999 17,778,412 $17,778 $2,883,509 $(500,000) $(2,315,668) $ 85,619
Receipt of
subscription
receivable - - - 500,000 - 500,000
Net loss - - - - (342,976) (342,976)
-----------------------------------------------------------------
Balance at
June 30, 2000 17,778,412 $17,778 $2,883,509 $ - $(2,658,644) $242,643
=================================================================
</TABLE>
See accompanying notes.
F-5
</Page>
<PAGE>
GENE-CELL, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONDENSED STATEMENT OF CASH FLOWS
for the three months and six months ended June 30, 2000 and 1999, and
for the period from inception, December 12, 1996, to June 30, 2000
__________
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months Inception
Ended Ended to
June 30, June 30, June 30,
2000 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss $ (342,976) $ (266,287) $(2,658,644)
Adjustments to reconcile net
loss to net cash used in
operating activities 15,233 22,103 929,546
----------- ----------- -----------
Net cash used in
operating activities (327,743) (244,184) (1,729,098)
----------- ----------- -----------
Cash flows from financing
activities:
Proceeds from sale of common
stock - - 562,500
Proceeds from collection of
subscription receivable 500,000 500,000 1,500,000
Payment of stock offering
costs - - (64,100)
Proceeds from notes payable
to officers and stock-
holders - - 117,887
Payments on notes payable to
officers and stockholders - - (40,000)
Payments on capital lease
obligations (52,322) (33,954) (198,584)
----------- ----------- -----------
Net cash provided by
financing activities 447,678 466,046 1,877,703
----------- ----------- -----------
Net increase in cash and cash
equivalents 119,935 221,862 148,605
Cash and cash equivalents at
beginning of period 28,670 109,408 -
----------- ----------- -----------
Cash and cash equivalents at
end of period $ 148,605 $ 331,270 $ 148,605
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
</Page>
<PAGE>
GENE-CELL, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
SELECTED NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
__________
(Unaudited)
1: Organization
------------
Gene-Cell, Inc. (the "Company") is a Nevada Corporation involved in
biopharmaceutical research. The Company's research is directed at
developing gene-based therapies for treatment of a wide variety of
genetic diseases and disorders using its proprietary technology for
microinjecting DNA and proteins into living cells. The Company was
originally incorporated as Becniel and subsequently adopted name
changes to Tzaar Corporation and, finally, to Gene-Cell, Inc. The
Company is considered a development stage enterprise because it has
not yet generated revenue from sale of its products. Since its
inception, the Company has devoted substantially all of its efforts to
research and development and the search for sources of capital to fund
its efforts.
2. Interim Financial Statements
----------------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB and Article 10 of Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods
ended June 30, 2000 and 1999 are not necessarily indicative of the
results that may be expected for the respective full years.
A summary of the Company's significant accounting policies and other
information necessary to understand these consolidated interim
financial statements is presented in the Company's audited financial
statements for the years ended December 31, 1999 and 1998.
Accordingly, the Company's audited financial statements should be read
in connection with these financial statements.
Continued
F-7
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GENE-CELL, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
SELECTED NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS, Continued
__________
(Unaudited)
3. Comprehensive Income
--------------------
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130, Reporting Comprehensive Income, which requires a
company to display an amount representing comprehensive income as part
of the Company's basic financial statements. Comprehensive income
includes such items as unrealized gains or losses on certain
investment securities and certain foreign currency translation
adjustments. The Company's financial statements include none of the
additional elements that affect comprehensive income. Accordingly,
comprehensive income and net income are identical.
4. 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 disclosures of contingent assets or liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
5. Income Tax
----------
The difference between the Federal statutory income tax rate and the
Company's effective income tax rate is primarily attributable to
increases in valuation allowances for deferred tax assets relating to
net operating losses.
6. Non-Cash Financing and Investing Activities
-------------------------------------------
During the six months ended June 30, 2000, the Company acquired
$57,717 of laboratory equipment under capital lease agreements.
F-8
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