<PAGE> 1
=================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------------------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: _________ to _________
Commission file number 0 - 26476
SAFESCIENCE, INC.
(Exact name of Registrant as specified in its charter.)
NEVADA 33-0231238
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Park Square Building
31 St. James Avenue, Suite 520
Boston, Massachusetts 02116
(Address of principal executive offices, including zip code.)
(617) 422-0674
Registrant's telephone number, including area code.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by the Section 13 or 15(d) of the
Securities Act of 1934 during the preceding 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 number of shares outstanding of the Registrant's Common
Stock, $.01 par value per share, at September 30, 1998 was
13,250,611 shares.
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<PAGE> 2
SAFESCIENCE, INC.
(A Development Stage Enterprise)
INDEX
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997 F-1
Consolidated Statements of Operations
for the Three Months and Nine Months
Ended September 30, 1998 and 1997,
and the Period From December 8, 1992
(Inception) Through September 30, 1998 F-2
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30,
1998 and 1997, and the Period From
December 8, 1992 (Inception) Through
September 30, 1998 F3-F4
Notes to Unaudited Consolidated
Financial Statements F5-F9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-16
Signatures 16
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
(In order to transmit these documents to the SEC via EDGAR,
SafeScience, Inc., a development stage enterprise, Consolidated
Balance Sheets (Unaudited) has been formatted to fit across two
pages. This is page 1 of 2.)
SAFESCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,060,378 $ 2,594,312
Prepaid expenses and other
current assets 84,861 50,080
------------ -----------
Total current assets 2,145,239 2,644,392
------------ -----------
Property and equipment, net of
accumulated depreciation 187,067 47,646
------------ -----------
Other assets:
Notes receivable -
stockholders 88,364 89,233
Deposits 1,328 6,328
Restricted cash 108,128 119,138
------------ -----------
Total other assets 197,820 214,699
------------ -----------
$ 2,530,126 $ 2,906,737
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 128,213 $ 148,854
Accrued liabilities 280,267 304,763
Current portion of
long-term debt 4,574 -
Deferred revenue 19,975 10,000
------------ -----------
Total current liabilities 433,029 463,617
------------ -----------
Long-term debt, less current
portion 12,460 -
------------ -----------
F-1
<PAGE> 3
(In order to transmit these documents to the SEC via EDGAR,
SafeScience, Inc., a development stage enterprise, Consolidated
Balance Sheets (Unaudited) has been formatted to fit across two
pages. This is page 2 of 2.)
SAFESCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS . . . continued
(Unaudited)
ASSETS
September 30, December 31,
1998 1997
<S> <C> <C>
Stockholders' equity:
Preferred stock, $.01 par
value, 5,000,000 shares
authorized; no shares
issued and outstanding - -
Common stock, $.01 par
value, 25,000,000 shares
authorized; 13,250,611 shares,
and 12,098,576 shares issued
and outstanding at September
30, 1998, and December 31,
1997, respectively 132,506 120,986
Additional paid-in capital 14,309,906 10,239,018
Deficit accumulated during
development stage (12,357,775) (7,916,884)
------------ -----------
Total stockholders' equity 2,084,637 2,443,120
------------ -----------
$ 2,530,126 $ 2,906,737
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-1a
<PAGE> 4
SAFESCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Period from
12/08/92
(inception)
Three Months Ended Nine Months Ended through
September 30, September 30, September 30,
1998 1997 1998 1997 1998
<S> <C> <C> <C> <C> <C>
Revenues $ - $ - $ - $ - $ -
General and
administrative
expenses 1,052,725 598,368 2,751,527 1,728,066 6,982,583
Research and development
costs 585,766 952,132 1,788,624 2,439,391 5,441,855
----------- ----------- ----------- ----------- ------------
Operating loss (1,638,491) (1,550,500) (4,540,151) (4,167,457) (12,424,438)
----------- ----------- ----------- ----------- ------------
Other income (expense):
Interest expense (132) - (224) - (139,936)
Interest income 32,937 17,199 99,485 55,167 208,367
Other expense - - - - (1,767)
----------- ----------- ----------- ----------- ------------
Total other
income 32,805 17,199 99,261 55,167 66,664
----------- ----------- ----------- ----------- ------------
Net loss $(1,605,686) $(1,533,301) $(4,440,890) $(4,112,290) $(12,357,774)
=========== =========== =========== =========== ============
Basic and diluted
net loss per common
share $ (0.12) $ (0.14) $ (0.35) $ (0.38)
=========== =========== =========== ===========
Weighted average
number of
common shares
outstanding 13,177,439 11,250,304 12,728,086 10,738,644
=========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-2
<PAGE> 5
SAFESCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Period from
December 8, 1992
(Inception)
Nine Months Ended through
September 30, September 30,
1998 1997 1998
<S> <C> <C> <C>
Cash flows from
operating activities:
Net loss $(4,440,890) $(4,112,290) $(12,357,774)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Operating expenses
paid in common stock
and options 1,223,731 1,391,117 3,164,791
Issuance of stock for
minority interest - 719,142 719,142
Depreciation and
amortization 25,493 9,196 92,179
Other - - 1,767
----------- ----------- ------------
Cash used in operating
activities before
changes in assets and
liabilities (3,191,666) (1,992,835) (8,379,895)
Changes in assets and liabilities:
Prepaid expenses and other
current assets (34,781) (6,596) (83,600)
Accounts payable (20,640) 18,643 128,214
Accrued liabilities (24,496) - 280,267
Deferred revenue 9,975 - 19,975
----------- ----------- ------------
Net cash used in operating
activities (3,261,608) (1,980,788) (8,035,039)
----------- ----------- ------------
Cash flows from investing
activities:
Purchase of equipment (164,915) (13,699) (247,319)
Loans to stockholders - (90,000) (130,000)
Repayment of stockholders'
loans 869 485 41,636
Deposits paid, net 5,000 461 (1,328)
Net cash used in
acquisition - - (3,822)
Increase (decrease) in
restricted cash 11,010 - (108,128)
----------- ----------- ------------
Net cash used in investing
activities $ (148,036) $ (102,753) $ (448,961)
----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE> 6
SAFESCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS . . . continued
(Unaudited)
<TABLE>
<CAPTION>
Period from
December 8, 1992
(Inception)
Nine Months Ended through
September 30, September 30,
1998 1997 1998
<S> <C> <C> <C>
Cash flows from financing
activities:
Short-term borrowing $ - $ - $ 398,000
Payments on short-term
borrowing - - (90,000)
Proceeds from long-term
debt 18,900 - 18,900
Payments on long-term debt (1,866) - (1,866)
Proceeds from issuance of
common stock 2,858,676 3,200,460 10,249,712
Capital contributed by
stockholders - - 1,329
Debt issuance costs - - (31,697)
---------- ---------- -----------
Net cash provided by financing
activities 2,875,710 3,200,460 10,544,378
---------- ---------- -----------
Net increase (decrease) in cash
and cash equivalents (533,934) 1,116,919 2,060,378
Cash and cash equivalents,
beginning balance 2,594,312 444,661 -
---------- ---------- -----------
Cash and cash equivalents,
ending balance $2,060,378 $1,561,580 $ 2,060,378
========== ========== ===========
Supplemental disclosure of
non-cash financing activities
Conversion of notes payable
into equity $ - $ - $ 310,000
========== ========== ===========
Supplemental disclosure of
cash flow information
Cash paid for interest $ 224 $ - $ 6,058
========= ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE> 8 SAFESCIENCE, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The Company is a development stage enterprise formed for the
research and development of pharmaceutical and agricultural
products based on carbohydrate chemistry.
The accompanying consolidated financial statements of the
Company have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission
("SEC") for quarterly reports on Form 10Q and do not include
all of the information and note disclosure required by
generally accepted accounting principles. These financial
statements should be read in conjunction with the audited
financial statements and notes thereto included in the
financial statements filed as part of the Company's Annual
Report on Form 10-K filed for the year ended December 31,
1997. The consolidated financial statements and notes
herein are unaudited, but, in the opinion of management,
reflect all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial
position, results of operations and cash flows of the
Company.
The results of the operations for the interim periods shown
herein are not necessarily indicative of the operating
results to be expected for the entire year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect
the application of certain accounting policies described in
this and other notes to these consolidated financial
statements.
a) Principles of consolidation
The accompanying consolidated financial statements
reflect the accounts of the Company and its wholly
owned subsidiaries. All material intercompany
transactions and accounts have been eliminated in the
consolidated financial statements.
b) Net Loss Per Share
In December 1997, the Company adopted Statement of
Financial Accounting Standards Statement (SFAS) No.
128, Earnings per Share. Basic loss per share is
computed using the weighted average number of common
shares outstanding. Diluted net loss per share is the
same as basic net loss per share as the inclusion of
options and warrants would be antidilutive.
<PAGE> 9 SAFESCIENCE, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES . . . continued
c) Comprehensive Income
Effective January 1, 1998, the Company adopted
Statement of Financial Accounting Standards No. 130
Reporting Comprehensive Income. SFAS No. 130
establishes standards for reporting and display of
comprehensive income and its components in the
financial statements. Comprehensive income includes
all changes in equity during a period except those
resulting from investments by owners and distribution
to owners. The comprehensive net loss is the same as
net loss for all periods presented.
d) New Accounting Standards
In April 1998, the AICPA issued Statement of Position
(SOP) 98-5 reporting on the costs of start-up
activities. SOP 98-5 requires all costs associated
with pre-opening pre-operating and organization
activities to be expensed as incurred. The Company
will adopt SOP 98-5 beginning January 1, 1999.
Adoption of this statement will not have a material
impact on the Company's consolidated financial position
or results of operations.
3. RECLASSIFICATION
Certain items in the 1997 financial statements have been
reclassified to conform with their 1998 presentation.
4. LONG-TERM DEBT
Long-term debt at September 30, 1998 consisted of the
following:
Note payable-bank, due in monthly
installments of $418, including
interest at 2.9% through April 2002,
secured by a motor vehicle. $17,034
Less - current portion 4,574
-------
$12,460
=======
F-6
<PAGE> 10
SAFESCIENCE, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. STOCKHOLDERS' EQUITY
Private Placement Offerings
In March 1998, the Company completed a sale of 181,818
shares of common stock at $2.75 per share. These shares
also included an attached warrant to purchase one share of
common stock for $4.75 for every four shares of common stock
purchased. As of September 30, 1998, warrants to purchase
45,455 shares of common stock at $4.75 per share were
outstanding.
In June 1998, the Company completed a private placement
offering of common stock. During the period January 1, 1998
through June 30, 1998 the Company sold 146,000 shares of
common stock at $3.00 per share. The Company had sold
533,867 shares of common stock at $3.00 per share as of
December 31, 1997. These shares include an attached warrant
to purchase one share of common stock for $4.75 for every
four shares purchased. As of September 30, 1998, warrants
to purchase 169,967 shares of common stock were outstanding
from these sales.
In June 1998, the Company began a new private placement
offering of common stock. During the three months ended
September 30, 1998, the Company sold 50,088 shares of common
stock at $4.25 per share. The Company had sold 356,118
shares of common stock at 4.25 per share as of June 30,
1998.
In September 1998, the Company began a new private placement
of common stock. During the three months ended September
30, 1998, the Company sold 85,714 shares of common stock at
$3.50 per share.
Warrants and Options
The Company has entered into agreements with various
employees and consultants for the grant of stock options,
warrants and shares of common stock at $.01 per share.
During the nine month period ended September 30, 1998, the
Company granted options to purchase 51,097 shares of common
stock and issued 277,013 shares of common stock for which
the Company recorded charges to operations of approximately
$1,224,000 relating to these grants. The charge to
operations represents the fair market value of the
underlying common stock or option on the grant date.
<PAGE> 11
SAFESCIENCE, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. OTHER MATTERS
Going Concern
The consolidated financial statements of the Company have
been prepared on a going-concern basis. That basis of
accounting contemplates the realization of assets and
satisfaction of liabilities in the normal course of
conducting business operations. As shown in the
consolidated financial statements, operations since
inception resulted in a net loss of $12,357,774. During the
nine months ended September 30, 1998, the Company's net loss
was $4,440,890, the Company's operations utilized cash of
$3,261,608, and as of that date the Company had
stockholders' equity of $2,084,637. The Company's ability
to operate as a going concern is dependent on its ability to
continue to obtain additional capital or adequate financing
to fund successive phases of human clinical testing of its
products in order to prove their efficacy and marketability,
and to achieve a level of sales adequate to support its
operations. No adjustments have been made to the financial
statements as a result of this uncertainty.
The Company is currently engaged in raising additional
capital from qualified investors. The Company is also
making presentations to various venture capital sources to
raise additional capital. In addition, the Company is
pursuing possible strategic partnerships or collaborations
with other companies interested in its products under
development. During the nine months ending September 30,
1998, the Company raised $2,858,676 through the sale of
common stock and warrants to purchase common stock.
Licensing Agreements
In October 1997, the Company announced that its wholly owned
subsidiary, AGI, had entered into an agreement with an
Israeli biotechnology company, Leket-Bar, Ltd., to acquire a
worldwide, exclusive license to all Leket-Bar's products.
On March 6, 1998 Leket-Bar and the Company amended the
payment terms of the licensing agreement. Originally, the
Company was to pay Leket-Bar $25,000 per quarter over a four
year period. Under the amended terms of the agreement, the
Company is obligated to pay $225,000 in 1998, $100,000 in
1999, and $50,000 in the year 2000. The Company has paid
$200,000 as of September 30, 1998.
F-8
<PAGE> 12
SAFESCIENCE, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. OTHER MATTERS . . . continued
Commitments
In July 1998, the Company entered into a supply and
distribution agreement with a third party for certain high
performance, specialty cleaning products. The Company has
minimum annual purchase levels of $100,000, $500,000 and
$1,000,000 for the first, second and third years, beginning
on the anniversary date of the agreement.
F-9
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and the notes thereto:
Overview
SafeScience, Inc. (formerly IGG International, Inc.) is
developing and marketing a portfolio of agricultural, home and
garden, and pharmaceutical products under the SafeScience(R)
brand. These products are alternatives to conventional products
which employ potentially harmful chemicals. Beyond the Company's
agricultural products, its human therapeutic products include a
carbohydrate compound to treat cancer (GBC-590), which is in
human clinical trials currently being evaluated for prostate
cancer in Phase Ib human clinical trials at the M.D. Anderson
Hospital in Houston, TX, and in Phase Ia clinical trails for
other cancers at the University of Pennsylvania Graduate Hospital
in Philadelphia, P.A., as well as an antifungal compound. The
Company has not generated any revenue related to these products
through September 30, 1998. The Company operates through its two
wholly owned subsidiaries: International Gene Group, Inc. (IGG)
for human therapeutics, and SafeScience Products, Inc. (SSP)
(formerly Agricultural Glycosystems, Inc.) (AGI) for agricultural
and consumer products.
The Company is presently researching several products, the
vast majority of which are derived from naturally occurring
substances. SafeScience's principal agricultural products are:
Greenleaf Plant Defense Booster (Greenleaf PDB), a plant fungus
inhibitor which was recently granted approval by the
Environmental Protection Agency (EPA); SAF-711, a fungicide
derived from natural plant carbohydrates; a third fungicide,
Dentamet, which can potentially function as a fumigant; and a
line of nontoxic micro-nutrient fertilizer products. IGG's
principal human therapeutic product candidates are GBC-590, a
modified natural complex carbohydrate which inhibits cancer
metastasis; CAN-296, a natural antifungal agent for a range of
Candida infections; and Microorganism Substance (MMS-1), a
peptide-glycan which potentially inhibits melanoma cancer cells.
Patents for MMS-1, Dentamet and certain fertilizers have been
issued, and patents are currently pending for all other products
and product candidates.
The Company's primary consumer products are: Cockroach Bait
Stations, licensed from Dominion BioScience, Inc., metabolic
pathway disrupters which eliminate cockroaches while being non-
harmful to humans and pets; Multifunctional Cleaners, a line of
technologically advanced cleaning products licensed from Delta
Omega Technologies, Ltd. that are efficacious, cost effective,
environmental and safe; Greenleaf Plant Nutrition, a line of
<PAGE> 14
plant fertilizers as per the agricultural products above;
Greenleaf PDB, as per above; and Greenleaf Garden Plus, a line of
premium plant fertilizers containing Menefee Mineral Humate,
licensed from Earthgreen Products, Inc., which significantly
boost plant and fertilizer performance.
In October 1997, the Company announced that AGI had entered
into an agreement with an Israeli biotechnology company, Leket-
Bar Ltd., to acquire a worldwide, exclusive license to all Leket-
Bar's products. These products consist of a series of patented
products, including several modified carbohydrate compounds for
use as fertilizers and fungicides. The products acquired in this
transaction have been approved and marketed in Israel and other
countries.
Several of the products acquired are carbohydrate-based
fertilizers which do not require registration with the EPA to be
sold in the United States.
In April 1997, the Company announced that AGI had entered
into an exclusive, worldwide licensing agreement with Agrogene,
Ltd., an Israeli-based biotechnology company specializing in
products for agriculture. AGI acquired the rights to
commercialize the compounds derived from a collection of natural
carbohydrates identified and patented by Agrogene. The first
compound which is under development, a fungicide known as SAF-
711, has shown in field and greenhouse studies an ability to kill
a broad range of fungi on plants such as downy mildews, late
blight, powdery mildews and rusts.
In December 1997, the Company entered into two agreements
for the distribution of the Company's agricultural products. The
first agreement provides for exclusive distribution rights in the
United Arab Emirates, the Sultanate of Oman, Bahrain, Qatar and
the Kingdom of Saudi Arabia. The second agreement provides for
exclusive distribution rights in New Zealand and Australia. At
the time of signing the agreements, the Company received payments
of $10,000 from each distributor, to be credited toward amounts
subsequently payable under the agreements. In addition in March
1998, the Company entered into another agreement providing for
exclusive distribution rights in Argentina and Uruguay. No
advance payment was received in connection with such agreement.
The Company has also acquired the trademark rights to the
name "Greenleaf," which is the brand name that the Company has
begun using to market its non-toxic products, including the
products acquired from Leket-Bar.
On April 24, 1998, the Company entered into an agreement
with Dominion BioSciences, Inc. that gives SafeScience the
exclusive marketing rights for the worldwide retail consumer
distribution of certain patented products developed and
<PAGE> 15
manufactured by Dominion BioSciences, Inc. for the control of
cockroaches and other household insect pests. Under the terms of
the agreement, both companies will combine research efforts to
create worldwide non-toxic consumer products for pest control
that will be marketed under the double brands, SafeScience(R) and
Ecologix(TM) (trademark of Dominion).
On May 1, 1998, the Company signed an agreement with MIGAL
Galilee Technology Center (MIGAL) in Kiryat Shmona, Israel
whereby MIGAL will act as a partner in developing new products
that will be commercialized under the world brand,
SafeScience(R).
MIGAL is a scientific institute established in 1979. It is
dedicated to research and development in the area of agricultural
and environmental biotechnology, including plant, pathogens, and
human genetics. R&D activities include development of improved
crops, virology, recombinant vaccine for human and animals,
immunology, molecular biology. Other applied research activities
include aquaculture for nutrition and control of reproduction,
production of fungal enzymes, biodegradation of toxic compounds,
soil and water microbiology for bioremediation of pollution,
composting urban and agricultural wastes and anaerobic digestion
of animal and industrial wastes. MIGAL employs 25 researchers of
Ph.D. level and above in a staff of over 100 researchers,
engineers, technicians, and students for higher degrees.
Details of the agreement include the co-development of
certain projects currently underway at MIGAL and also to develop
new products and technologies for SafeScience(R). The agreement
also allows MIGAL to identify itself as a SafeScience(R)
Institute and gives SafeScience the option to purchase an equity
stake in MIGAL.
On May 4, 1998, the Company announced that its Common Stock
began trading on the NASDAQ Small Cap Market under its current
ticker symbol SAFS.
On June 1, 1998 and February 27, 1998, the Company entered
into exclusive agreements for the distribution of SafeScience
brand agricultural and consumer products in Europe and South
America. With these agreements, the Company established
distribution networks on four continents. Under the terms of the
exclusive agreements, Cequisa of Barcelona, Spain will distribute
the SafeScience brand of products to consumers in Spain, Portugal
and the Canary Islands. Lanafil S.A. of Montevideo, Uruguay will
distribute products in Uruguay and Argentina.
On June 25, 1998, the Company signed an agreement with
Thermo FiberGen, Inc. of Bedford, Massachusetts, a subsidiary of
Thermo FiberTek, Inc., a Thermo Electron company, to market
certain organic de-icing products and other products developed
and manufactured by Thermo FiberGen. Under the terms of the
<PAGE> 16
agreement, Thermo FiberGen will continue to research new products
for the Company, including super-granulated fertilizers.
On July 15, 1998, the Company entered into an exclusive
agreement with Earthgreen Products, Inc. to market and distribute
granular and water-soluble Menefee Mineral(R) humatebased
products, mined and produced by Earthgreen Products and its
subsidiaries. These Earthgreen products, which are rich humates,
are the result of tens of millions of years of composting and
radically enhance soil's capacity to exchange mineral nutrients
with plants without any adverse environmental effects. The
Menefee Mineral products act as potent adjuvants when added to
fertilizer products such as the Company's Greenleaf fertilizers.
On July 27, 1998, the Company signed an exclusive worldwide
agreement with Delta Omega Technologies, Ltd. of Broussard,
Louisiana, to market and distribute technologically advanced,
biodegradable cleaning products developed and manufactured by
Delta Omega Technologies. The products comprise an extended line
of home, automotive and exterior cleaning products, including
drain cleaners and concrete cleaners, that provide safe and more
cost-effective alternatives to the hazardous chemical products
that now dominate the category.
On August 14, 1998, the Company announced that James A.
Wylie, Jr. has been appointed to as the Vice President of
Corporate Development and Strategic Programs. Prior to joining
SafeScience, Mr. Wylie served as President and Chief Executive
Officer of EcoScience Corporation where he developed an extensive
international distribution network for the Company's products and
helped to raise over $50 million in private and public stock
offerings. Mr. Wylie also served as Vice President and General
Manager of Uniroyal Chemical Company where he was in charge of
the crop protection division and re-focused research and
development programs to track high potential new product leads.
In addition, Mr. Wylie has served as a member of the Executive
Committee and Board of Directors of the National Agricultural
Chemical Association and has been active with the Synthetic
Organic Chemical Manufacturers Association.
On September 25, 1998, the Company announced that Theodore
J. Host has been nominated to the Board of Directors. From 1991
to 1995, Mr. Host was President and Chief Operating Officer - and
from 1995 to 1996, President and Chief Executive Officer - of the
Scotts Company, a Company specializing in lawn and garden
products. From 1990 to 1991, Mr. Host was Senior Vice President
of Marketing for Coca-Cola, USA, where he directed the marketing
efforts for Coca-Cola soft drinks and created new products. Mr.
Host served as Division President of Boyle-Midway Household
Products, a division of American Home Products (AHP) from 1985 to
1990 and was Senior Vice President of Sales and Marketing at
American Home Foods, a subsidiary of AHP, prior to that. Mr.
Host has an M.A. and B.A. from New York University.
<PAGE> 17
On October 26, 1998, the Company announced that Brian G. R.
Hughes, formerly Chief Executive Officer of the American Rocket
Company (ARC), has been nominated to the Board of Directors. Mr.
Hughes is currently working as a consultant to several
entrepreneurial businesses. As CEO of ARC, from 1989 to 1995,
Mr. Hughes worked to develop and commercialize safe,
environmentally-clean, low-cost hybrid rocket propulsion. From
1984 to 1989, Mr. Hughes was the co-founder and Executive Vice
President of PTAT System, Inc., which together with C & W plc
built a $500 million private, transatlantic fiber optic cable
system which was sold to Sprint. Mr. Hughes earned his Bachelor
of Science from the Massachusetts Institute of Technology in 1977
and his MBA from Harvard University. Mr. Hughes is currently
President Select of the MIT Alumni Association.
Potential risks associated with the development of the
Company's products and product candidates are: 1) some of the
products referred to herein may never be developed; 2)
anticipated future losses due to the cost of research and
development; 3) the timing and cost associated with governmental
regulation and approval; 4) absence of patent protection; 5) the
risk of product liability claims; 6) the risk that the Company
can raise sufficient capital to commercialize the products; and
7) the uncertainty that the Company will ever operate profitably.
Prior to marketing certain of its products, the Company must
obtain regulatory approval from the United States Food and Drug
Administration ("FDA") and/or the EPA. The Company announced on
November 6, 1997, that it had received EPA approval of Greenleaf
PDB.
The Company has financed itself by a series of private
placement financing. In the Company's estimation these financing
have sufficiently funded the Company to continue its product
development agenda, pursue regulatory approvals of products and
begin to market its existing products. However, the Company has
to obtain and will continue to seek additional financing through
the private sale of restricted securities to investors, and will
consider joint venture, licensing or similar arrangements with
large companies to provide the funding necessary for additional
activities, such as commercialization of its existing products
and continued development of new products. There can be no
assurance that the Company will enter into any such arrangements,
complete its research and development, obtain additional
appropriate regulatory approvals, or develop, manufacture,
market, or distribute commercially viable products.
<PAGE> 18
To date, the Company's activities have consisted primarily
of research, development, testing, obtaining new products to be
sold by the Company, developing markets for its products and
raising capital. Such activities have resulted in accumulated
losses through the end of the Company's most recent fiscal year.
The Company anticipates that it will incur substantial losses in
1998 as a result of its continued research and operations.
Results of Operations: Three and Nine Months Ended September 30,
1998 versus Three and Nine Months Ended September 30, 1997
As a development stage enterprise from the date of its
inception, the Company has not derived any product sales or net
income. The Company began production of its products in the
second quarter of 1998. The Company's primary business
activities through September 30, 1998 have consisted principally
of research, product development, testing, obtaining new products
to be sold by the Company, developing markets for its products
and raising capital.
General and administrative expenses increased from $598,368
for the three months ended September 30, 1997 to $1,052,725 for
the three months ended September 30, 1998, an increase of
$454,357 or 76%, and from $1,728,066 for the nine months ended
September 30, 1997 to $2,751,527 for the nine months ended
September 30, 1998, an increase of $1,023,461 or 59%. This
increase was attributable to an increase in business development
salaries and consulting expense, including approximately $923,522
resulting from the issuance of options and warrants to purchase
common stock and the grant of common stock.
Research and development costs for consultants, supplies and
testing decreased from $952,132 for the three months ended
September 30, 1997 to $585,766 for the three months ended
September 30, 1998, a decrease of $366,366 or 38%, and from
$2,439,391 for the nine months ended September 30, 1997 to
$1,788,624 for the nine months ended September 30, 1998, a
decrease of $650,767 or 27%. This decrease was principally
attributable to the transition of the complex carbohydrate
substances from the research phase into the manufacturing phase.
Included in research and development costs is approximately
$300,209 resulting from the issuance of stock grants, and stock
options and warrants to purchase common stock.
Interest income increased from $17,199 for the three months
ended September 30, 1997 to $32,937 for the three months ended
September 30, 1998, an increase of $15,738 or 92%, and from
$55,167 for the nine months ended September 30, 1997 to $99,485
for the nine months ended September 30, 1998, an increase of
$44,318 or 80%. This increase was attributable to the temporary
investment of cash proceeds received from private placements of
the company's securities during 1998.
<PAGE> 19
Year 2000
The Company has reviewed all of its information systems to
assess what steps, if any, are required to achieve full Year 2000
compliance. The Company relies upon microprocessor-based
personal computers and commercially available applications
software. These technologies have been put into service
recently, and our review indicates that virtually all the
Company's systems are currently Year 2000 compliant. The Company
is currently discussing Year 2000 readiness with its material
supply and service vendors. To date, those vendors that have
been contacted have indicated that their hardware or software is
or will be Year 2000 compliant in time frames that meet the
Company's requirements. However, the Company intends to continue
to assess its exposure to Year 2000 noncompliance on the part of
any of its material vendors and there can be no assurance that
their systems will be Year 2000 complaint. We do not anticipate
that we will incur material expenses to make our computer
software and operating systems Year 2000 complaint. The Company
believes that the Year 2000 issue will not pose significant
operational problems for the Company's systems. The Company
currently does not have any contingency plan in the event Year
2000 compliance cannot be achieved in a timely manner.
Liquidity and Capital Resources
Since inception, the Company has funded its operations
primarily with the proceeds from debt and equity securities
totaling approximately $10,550,000. For the nine months ended
September 30, 1998, the Company's operations utilized cash of
$3,261,608 primarily to fund the operating loss. This use of
cash was offset by equity financings that resulted in net
proceeds of $2,858,676 to the Company.
The Company's audited financial statements for the year
ended December 31, 1997 indicated that there was an uncertainty
as to the Company's ability to continue as a going concern. As
of September 30, 1998, the Company's accumulated deficit is
$12,357,775 and cash balances are $2,060,378. The Company has no
bank lines of credit or other commercial financing sources at
present. It is not known whether additional funds could be
borrowed from stockholders or other sources.
Certain Factors That May Affect Future Results
Dependence on Financing
The Company's future is dependent upon its ability to obtain
financing to fund its operations. The Company expects to incur
substantial additional operating costs, including costs related
to ongoing research and development activities, preclinical
studies and clinical trials. The Company believes that its
<PAGE> 20
existing funds will be sufficient to fund its operating expenses
and capital requirements as currently planned through early 1999.
The Company is currently seeking to complete a private equity
placement. There can be no assurance that the Company will be
able to obtain the additional funding that it will require on
acceptable terms, if at all.
Inflation and Changing Prices
To date, the impacts of inflation and changing prices on the
Company's operations have been minimal. The Company is currently
testing its processes and products in the United States and
Israel in accordance with royalty and research agreements that
are already in effect. During the research, development and
testing phases of operations to satisfy regulatory requirements
for the products under development, the Company expects
inflationary pressures in both countries will be minimal and,
hence, not have a material impact on operations.
Rapid Technological Change
The biotech industry is characterized by rapid technological
change.
PART II.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBIT INDEX
27 Financial Data Schedule.
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated this 13th day of November, 1998.
SAFESCIENCE, INC.
(the "Registrant")
BY: /s/ Bradley J. Carver
Bradley J. Carver,
President, Treasurer, Chief
Financial Officer and a member
of the Board of Directors
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Financial Condition at September 30, 1998 (Unaudited) and the
Statement of Operations for the nine months ended September 30, 1998
(Unaudited) and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 2,060,378
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,145,239
<PP&E> 244,480
<DEPRECIATION> 57,413
<TOTAL-ASSETS> 2,530,126
<CURRENT-LIABILITIES> 433,029
<BONDS> 0
0
0
<COMMON> 132,506
<OTHER-SE> 1,952,131
<TOTAL-LIABILITY-AND-EQUITY> 2,530,126
<SALES> 0
<TOTAL-REVENUES> 99,485
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,540,151
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 224
<INCOME-PRETAX> (4,440,890)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,440,890)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
