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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended - December 31, 1998
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 0-26476
SAFESCIENCE, INC.
(Exact name of Company as specified in its charter)
Nevada 33-0231238
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Park Square Building
31 St. James Avenue, Suite 520
Boston, Massachusetts 02116
(Address of principal executive offices, including postal code.)
(617) 422-0674
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock
Securities registered pursuant to Section 15(d) of the Act:
Title of each class
None
Indicate by check mark whether the Company (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Company was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES [ x ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
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The number of shares outstanding each of the Registrant's classes of
Common Stock, as of December 31, 1998 was 14,107,216.
PART I
ITEM 1. BUSINESS.
General
SafeScience, Inc. ("SafeScience" or the "Company") -- a leader in
carbohydrate technology -- is a publicly traded "responsible science"
company spanning biotechnology, life sciences and marketing. The
Company's mission is to leverage its carbohydrate technology to build
a world brand based on the highest product performance, environmental
and health-safety standards. The SafeScience brand currently
encompasses human therapeutics and agricultural products, as well as
products for the consumer and institutional markets.
SafeScience operates its business through two wholly owned
subsidiaries: International Gene Group, Inc. ("IGG"), which develops
human therapeutics, and SafeScience Products, Inc. ("SafeScience
Products"), formerly Agricultural Glycosystems, Inc., which operates
the agricultural, horticultural, consumer and institutional products
business. This subsidiary is also responsible for the marketing and
brand management of all SafeScience products.
The Company has developed an extensive portfolio of products
through internal research and development, as well as licensing
partnerships with like-minded institutions, corporations and
individuals that have products that fit the SafeScience mission.
* IGG's principal products are GBC-590, a complex carbohydrate
glycoprotein designed to combat cancer tumors and metastasis,
and CAN-296, a complex carbohydrate antifungal agent which
inhibits Candida infections.
* SafeScience Products' leading agricultural product is Elexa
PDB, an elicitor of plant defense mechanisms against fungi.
The Company has also developed and licensed a line of
nutrient fertilizers. Additional fungicides, insecticides and
herbicides are in various stages of testing and development
as well.
* SafeScience Products' consumer and institutional products
include: an innovative line of safe, industrial-strength
cleaning products; chemically safe consumer household
cleaning products; a lawn & garden care line; and automotive
care products.
In late 1997, the Company began the process of securing
distributors throughout the world. As of December 31, 1998, the Company
had established distribution agreements covering New Zealand; United
Arab Emirates, Oman, Bahrain, Qatar and Saudi Arabia; Israel and the
Palestinian territory; Mexico and Central America; and Argentina and
Uruguay. The Company receives advance payments to be credited against
future amounts payable in connection with some of these agreements. In
addition, since the beginning of 1999, the Company has entered into
additional distribution agreements for South Korea; France, Greece,
Italy, Spain, Portugal and Switzerland; and Australia.
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SafeScience stock has been trading publicly since August 1995. In
May 1998, the Company's Common Stock began trading on the NASDAQ Small
Cap market.
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 United States Environmental
Protection Agency ("EPA"). The Company has received EPA approval of
Elexa PDB; GBC-590 is presently in Phase I human testing with the FDA,
which phase is scheduled to be completed in the first half of 1999.
The Company has financed itself since inception through a series
of private placement financings. In the Company's estimation, these
financings 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 may continue to
seek additional financing through the private and/or public sale of
securities.
To date, the Company's activities have consisted primarily of
research, development and testing. Such activities have resulted in
accumulated losses of approximately $14,390,000 (including grants of
stock to employees and consultants) through the end of the Company's
most recent fiscal year. The Company expects that it will also incur
significant losses in 1999 as a result of its continued research as
well as significant anticipated expenditures in connection with
bringing several of its products to market.
The Company's principal executive office is located at 31 St.
James Avenue, Suite 520, Boston, Massachusetts 02116; the telephone
number is (617) 422-0674.
Certain Factors That May Affect Future Results
Forward-looking statements are made throughout this document.
Typically, the use of the words "believe", "anticipate", "plan",
"expect", "seek", "estimate" and similar expressions identify forward-
looking statements. Unless a passage describes a historical event, the
statement should be considered a forward-looking statement. In keeping
with the "Safe Harbor" provision of the Private Securities Litigation
Reform Act of 1995, it should be noted that forward-looking statements
regarding the Company's future expectations and projections are not
guarantees of future performance. They involve risks, uncertainties
and assumptions, and many of the factors that will determine the
Company's future results are beyond the Company's ability to control or
predict. Therefore, actual results may differ significantly from those
suggested by forward-looking statements. These risks include those
detailed under the heading "Certain Factors That May Affect Future
Results" immediately following the "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
Business Objective
SafeScience has embarked on a mission to build a comprehensive
world brand that introduces chemical safety and product performance to
many aspects of consumer, institutional and agricultural life. As a
starting position, the Company has developed carbohydrate-based human
therapeutic and agricultural products, and has licensed a variety of
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other products which complement its existing lines and are compatible
with its philosophy. The Company has partnered with individuals,
corporations and institutions that share the Company's mission,
extending the brand both geographically and in product breadth. Thus
far, the Company has established an international presence with
distributors, partners, researchers and institutes in more than 20
countries on five continents.
IGG: Human Therapeutics Subsidiary
Technical Background
The following is a summary of certain theories related to the
Company's product development activities in the areas of human
therapeutics and agriculture.
Cell Recognition and Adhesion
Cells recognize one another through pairs of complementary
structures on their surface. A structure on one cell carries encoded
biological information that a structure on another cell can decipher.
While nucleic acids and proteins were previously recognized as the
major classes of biological materials involved in cell recognition, it
has recently been theorized (though not scientifically established)
that carbohydrates play a role as well: the majority of a cell's
surface components contain carbohydrate structures on the cell which
change characteristics as the cell develops, differentiates and
sickens.
Because bacterial adhesion is so crucial to infection, medical
researchers are studying carbohydrates that may selectively inhibit
adhesion and act as molecular decoys, intercepting and binding to
pathogenic bacteria before they reach their tissue target. A 1990
study showed that the introduction of glycopeptides can result in a
measurable decrease in the ability of bacteria to attach to the
intestines of treated animals.
Based on the foregoing theory, the Company believes that cell
adhesion plays a key role in non-bacterial diseases as well, such as
the spread of cancer cells throughout the body beginning at the primary
tumor. Malignant cells may thus recruit the adhesion molecules that
are part of the body's natural defense mechanism to promote their own
metastasis. If so, anti-adhesive drugs will also be anti-metastatic
drugs. While the foregoing has been theorized by the Company, it has
not been scientifically established that the foregoing is correct and
there is no assurance that the foregoing will ever be scientifically
established.
Cancer Metastasis
Metastasis is the transfer of neoplastic disease from one organ to
another not directly connected with it. Metastasis is the process by
which cancer spreads and is the main cause of death for cancer
patients. Surgical removal of the primary cancer tumor does not
eliminate the threat of metastasis or the formation of additional
cancer tumors, and may cause the release of metastatic cells into the
blood stream.
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The process of metastasis is initiated by the detachment of tumor
cells from the primary growth cell and their entry into the blood
vessels. Once in blood circulation, the tumor cells can travel to any
and all of the body's distant organs where they can proliferate to form
new tumor colonies. It is accepted that the metastatic ability of
tumor cells is determined by unique cell properties and the ability to
interact with other tissue and blood cells.
A single isolated cancer tumor can be surgically removed.
However, once the cancer spreads to various organs, removal becomes
difficult or impossible. The Company believes that by preventing the
ability of the cancer to metastasize, aggregate and form new tumor
colonies, the number of cancer deaths can be reduced. The foregoing is
based upon theory and there is no scientific evidence to support such
theory. Moreover, it is possible that a treatment which prevents
cellular adhesion in one type of cancer (such as highly metastatic
melanoma) could prove ineffective in other types of cancer.
Products
Complex Carbohydrate Substance (GBC-590)
GBC-590 offers a completely different approach to controlling the
progression of cancer, disrupting the essential cellular recognition
process of roaming cancer cells and preventing them from reattaching to
each other and to normal tissue. IGG scientists designed and developed
the GBC-590 compound, which recognizes specific lectins on cancer
cells. The substance acts as a molecular decoy by attaching itself to
cancer cells and preventing those cells from aggregating. Eliminating
the ability of the targeted metastatic cells to create an emboli leaves
only individual cancer cells to remain in the blood circulation. GBC-
590 may thus prevent or even reverse metastasis. The body's immune
system can then destroy the individual cancer cells marked with the
carbohydrate molecule.
A paper published in the Journal of the National Cancer Institute
reported that tumor-bearing mice treated with intravenous solutions of
GBC-590 demonstrated complete reduction in metastasizing cancers.
Recently completed animal studies confirmed the efficacy of the
compound. Human melanoma cancer can also be inhibited by the GBC-590.
On November 4, 1998, Dr. Vodek Sasak of SafeScience announced new
pre-clinical data at the Intertech Glycocompounds '98 conference in
Vancouver, British Columbia, Canada. The data showed that GBC-590, when
administered as a single agent, produced a significant response in the
PANC-1 human pancreatic tumor cell model, with 44% of the mice in the
GBC-590 group surviving the 90-day experiment, and with 33%
demonstrating a complete eradication of the tumor. No mice in the
control groups that were administered saline solution or gemcitabine
survived past 43 days, with a mean survival time of less than 30 days.
Pancreatic cancer has the lowest survival rate of any cancer.
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Phase I clinical trials of GBC-590, at the MD Anderson Cancer
Center in Houston, Texas and at Pennsylvania Oncology and Hematology
Associates, an affiliate of the University of Pennsylvania - School of
Medicine in Philadelphia, Pennsylvania, are expected to be completed in
the first half of 1999. Phase II clinical trials are scheduled to
begin in the second half of 1999.
There are no assurances at present that injection with GBC-590
will prove effective in reducing or eliminating the spread of cancer in
humans. Clinical studies of GBC-590 are proceeding on schedule. FDA
regulations prohibit the reporting of interim results of such studies.
CAN-296
CAN-296 is an anti-fungal agent derived from a naturally occurring
complex carbohydrate, designed for treatment of Candida infections.
Candida, a common fungal disease, can take on two forms: superficial
infections such as athlete's foot, skin infections and vaginitis; and
deep-seated infections such as esophagitis or systemic Candidiasis,
which can be fatal. The latter form of Candida infection is prevalent
in immuno-suppressed patients, such as people with AIDS, leukemia and
severe/progressed diabetes, as well as patients undergoing transplant
surgery.
Current therapies for Candida are confined to a number of agents
which have been in the marketplace for some 20 to 30 years. When
administered systemically, these therapies have serious side effects.
Despite substantial advances in patient care, there remains a 30-40%
mortality rate in immuno-compromised patients, and many clinical
isolates of Candida have developed resistance to current anti-fungal
agents.
CAN-296 has been tested against many Candida isolates, some of
which were azole-resistant, and showed activity against the Candida
fungus. Product action was more rapid than current treatments. The
Company expects to file an Investigational New Drug application ("IND")
with the FDA in 1999.
There are no assurances at present that application of CAN-296
will prove effective in reducing or eliminating Candida infection in
humans, and there have been no clinical studies or tests conducted to
support such intended effect.
Research
Research efforts will continue on GBC-590 and CAN-296 to establish
efficacy, and to identify the processes involved in carbohydrate based
cellular interactions. Additional research will include experiments to
complete the structural identification of these substances and to gain
a better understanding of the responses they trigger.
The Company is presently conducting research on a contract or
collaboration basis with many institutions throughout the world, and
intends to continue research in select areas on a contract basis. In
doing so, it will be able to consult with experts in particular fields
who have state-of-the-art facilities and trained personnel. All such
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research will continue to be conducted under strict confidentiality
agreements which prohibit use, publication or disclosure of Company
products.
SafeScience Products: Agricultural, Consumer
and Commercial Products Subsidiary
Plant Health
The Company is commercializing products designed to improve a
plant's natural ability to resist disease. This approach is innovative
in contrast with the traditional fungicide chemicals which are toxins
that function as agents to kill fungus directly. These new
carbohydrate compounds are known to have low toxicity and very little
impact on the environment. Fungicides are used to control fungi
appearance and damage to foliage, crops, plants, roots and in
post-harvest storage of fruits and vegetables.
Elexa PDB
The Company's lead agricultural product, Elexa PDB, has been
designed to inhibit the development of fungal pathogens that cause
severe infections in a variety of plants, including many agricultural
crops. Elexa PDB contains complex carbohydrates that have been shown
effectively to eliminate fungal disease in greenhouse and field studies
without causing harm to the plants. The results of such trials have
proven that Elexa PDB is highly efficacious in controlling powdery
mildew disease in grape vineyards and on cucumbers, strawberries,
tomatoes, potatoes and rice. Tests with Elexa PDB are also being
conducted on other horticultural crops under both field and greenhouse
conditions. In addition, preliminary data indicate that Elexa PDB has
disease control potential against a variety of important diseases that
routinely occur in these crops. In vineyards, results with Elexa PDB
have been particularly encouraging in that the product offers grape
growers an alternative to the more toxic conventional chemical
pesticides that are generally restricted in the amount that can be
applied in any given growing season. Elexa PDB is as effective as
standard chemical fungicides, but does not leave harmful residues, does
not have toxicity to man and animals and has not been found to have
other negative side effects, such as causing skin irritations or
allergic reactions.
Elexa PDB was developed through a collaboration between scientists
at SafeScience and the Government of Israel (Volcani Institute) in
which a specific carbohydrate compound was found that induces plants to
develop a natural response to fungal infection. This proprietary and
patent pending technology, therefore, induces the plant's natural
defense responses. The Company believes that this discovery is
important for the following reasons:
* Elexa PDB is effective in preventing disease without harmful
effects to the plant;
* Elexa PDB is a plant stimulant, not a fungicide; resistance
is therefore unlikely;
* Many plant diseases are becoming highly resistant to
conventional chemicals;
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* Many existing chemical products are toxic and damaging to the
environment.
The active components that induce defense responses in plants are
referred to as plant "elicitors". Elexa PDB is a "carbohydrate
elicitor" that is capable of inducing plant defense responses. The
actual mechanism by which the induction of the defense responses in
plant cells occur is not completely known. Research has shown,
however, that Elexa PDB can induce several rapid responses at the plant
cell surface that may be part of the signal transduction pathway.
SafeScience scientists believe that Elexa PDB also has
considerable potential for the control of post harvest diseases on
fruit and for use in the home and garden market. In the home
environment, the Company believes that consumers will be very receptive
to products, such as Elexa PDB, that are non-toxic and that do not
leave residues on vegetables and other plants in the home garden.
SafeScience has signed an exclusive worldwide license agreement
with the Volcani Institute to commercialize Elexa PDB. In addition,
SafeScience has established a commercial manufacturing procedure to
meet the projected demand for commercial product for the next two to
three years.
Elexa PDB has been approved by the EPA. State registration in
California is expected in the first half of 1999. Sales are expected
to begin in 1999, as well.
Other Agricultural Products
The Company has developed and licensed products for the specialty
fertilizer market. These products include micronutrients and
macronutrients that take advantage of unique and proprietary
carbohydrate technology. The product line addresses both the foliar
and soil applications, specific soil conditions, as well as variable
climatic situations. Commercial trials have been conducted and are
continuing in many locations around the world on crops such as tree
fruits, grapes, ornamentals and a variety of vegetables. Sales are
expected to begin in 1999. The Company has additional pesticide
products under development and will begin field testing and EPA
registration in 1999.
Consumer and Commercial Products
In addition to the commercial agriculture market, the
micronutrient and macronutrient products have also been formulated for
the home and garden market. The Company is introducing a comprehensive
program for a healthier vegetable and flower garden without dangerous
residues. Elexa PDB has also been formulated to control fungal disease
for the home and garden market. These products will be available in
home and garden stores in 1999, and on the Company's web site
(www.safesci.com).
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Consumer Cleaning Products
Based on advanced surfactant technologies, SafeScience(TM) Healthy
Cleaners are the first household cleaning products that offer leading-
brand performance without the associated chemical hazards to human
health or the environment. These products have proven to perform as
well as the leading brands in independent laboratory testing. They
perform without the use of chlorine, ammonia and petroleum distillates.
Products include an All-Purpose Cleaner, Bathroom Cleaner, Window
Cleaner, Floor Cleaner, Dish Liquid, Automotive Cleaners and Exterior
Cleaner. These products, which are licensed from Delta Omega
Technologies, Inc., will be available for sale in 1999 and on the
Company's Web Site (www.safesci.com).
Commercial Cleaning Products
The Company's commercial cleaning products are the first
industrial-strength cleaning concentrates that offer the performance of
the leading brands, without the harsh chemicals, thus offering a non-
hazardous alternative to petroleum-distillate based, chlorinated,
caustic or high-volatile organic compound (VOC) content products. All
ingredients have been tested and reviewed, and are below the minimum
reporting levels as dictated by various government regulatory agencies.
Some of the major benefits of these products are their superior
performance, their non-corrosive and non-abrasive qualities, their
reduced cleaning time and labor requirements, and the fact that they
are not hazardous to human health and are biodegradable. These
products have been tested and used by major U.S. airlines, metropolitan
mass transit systems, schools, hospitals and the U.S. Armed Forces,
among others. Sales under the SafeScience(TM) brand name are expected
to begin in 1999.
Other Products
The Company has also acquired a product and technology portfolio
from PhytoPharmaceuticals, Inc., a privately-held company developing
therapeutics, cosmetics, neutraceuticals and personal care products
from botanical resources. In connection with such acquisition, the
Company also employed Girma Mitiku, Ph.D., PhytoPharmaceutical's co-
founder, to assist in advancing PhytoPharmaceutical's products clinical
trials. The lead product under development is a unique anti-acne
compound that is being developed as an over-the-counter topical
treatment. Initial lab results have shown the product to be non-
inflammatory and to have rapid efficacy at dosage levels several times
lower than current commercially available compounds. Clinical testing
will be conducted during the first half of 1999. In addition,
PhytoPharmaceutical's product line includes a plant-derived
molluscicide that has proven effective in eliminating zebra mussels.
Manufacturing
The Company has established a good relationship and intends to
work closely with partner companies and contract manufacturers in order
to protect the integrity of the products. The Company is working with
select contract manufacturers which have suitable facilities for
manufacturing large quantities of all the Company's products.
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Government Regulation
The Company's activities are subject to extensive federal and
local laws and regulations controlling the development, testing,
manufacture and distribution of pesticide and pharmaceutical products.
Some of the Company's products will be subject to regulation as
therapeutics by the FDA or as fungicides, insecticides or herbicides by
the EPA, and may also be subject to varying degrees of regulation by a
number of foreign governmental agencies. To comply with the FDA and
EPA regulations regarding the manufacture and marketing of the
Company's products, the Company may incur substantial costs relating to
laboratory and clinical testing of new products and for the preparation
and filing of documents in the formats required by the these agencies.
There are no assurances that the Company will receive the approvals
necessary commercially to market its products.
Food and Drug Administration Regulation
The FDA approval process consists of four steps that all new
drugs, antibiotics and biologicals must follow. These steps are:
1. investigational new drug application (IND)
2. clinical trials
3. new drug application (review and approval)
4. post-marketing surveys
In 1993 the FDA approved new procedures to accelerate the approval
of certain new drugs and biological products directed at serious or
life-threatening illnesses. These new procedures will expedite the
approvals for patients suffering from terminal illness if the drugs
subject to approval provide a therapeutic advantage over existing
treatment. The Company believes that its products will fall under the
FDA guidelines for accelerated approval for drugs and biological
products directed at serious and life threatening disease because the
Company's products are targeted as potential treatments for cancer
metastasis and primary tumors.
Clinical trials are conducted in three phases, normally involving
progressively larger numbers of patients. Phase I clinical trials are
concerned primarily with learning more about the safety of the drug,
though they may also provide some information about the drug's
effectiveness. The principal objective is to determine the drug's
toxicity. Phase I trials generally involve 20-40 patients at an
estimated cost of $10,000 per patient, taking one to two years to
complete.
Assuming the results of Phase I testing present no toxicity or
unacceptable safety problems, Phase II trials may begin. The primary
objective of this stage of clinical testing is designed to show whether
the drug is effective in treating the disease or condition for which it
is intended. Phase II studies may take a year or longer and involve a
few hundred patients in randomized controlled trials that also attempt
to disclose short-term side effects and risks in people whose health is
impaired. A number of patients with the disease or illness will
receive the treatment while a control group will receive a placebo.
The cost per patient is estimated at $10,000.
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At the conclusion of Phase II trials, the FDA and the Company will
have a clear understanding of the short-term safety and effectiveness
of the drugs and their optimal dosage levels. Phase III clinical
trials will generally begin after the results of Phase II are
evaluated. The objective of Phase III is to develop information that
will allow the drug to be marketed and used safely. Phase III trials
will involve hundreds, and sometimes thousands, of people with the
objective of expanding on the research carried out in Phase II. An
objective would be to discover optimum dose rates and schedules, less
common or even rare side effects and adverse reactions, and to generate
information that will be incorporated into the drugs' professional
labeling, as well as the FDA-approved guidelines to physicians and
others about how to properly use the drug.
Patient estimates for each phase of the clinical trial process are
as follows:
Application Phase I Phase II Phase III
Cancer
GBC-590 40 200 1,000
Fungal Disease
CAN-296 20 200 1,000
-- --- -----
TOTAL 60 400 2,000
The third step that is necessary prior to marketing a new drug is
the New Drug Application (NDA) submittal and approval. In this step,
all the information generated by the clinical trials will be received
and if successful, the drug will be approved for marketing.
The final step is the random surveillance or surveys of patients
being treated with the drug to determine its long-term effects. This
step has no effect on the marketing of the drug unless highly toxic
conditions arise. The time required to complete the above procedures
averages seven years, however, there is no assurance that the Company
will ever receive FDA approval of any of its products.
Environmental Protection Agency Approval
The Company, through its agricultural subsidiary, SafeScience
Products, is required to obtain the approval of the EPA before
beginning to sell products which constitute fungicides, insecticides or
herbicides.
The EPA approval process begins with the design and initiation of
tests to determine the chemistry of the compound being submitted and
its toxicity in animals. In addition, the manufacturing procedures
must be clearly defined and submitted with the registration. Once the
EPA approval process begin it typically takes 12 to 14 months for
approval of safer biological products.
The regulatory process for Elexa PDB has been completed; marketing
approval was granted in November 1997.
The process of obtaining EPA approval of additional Company
products now in development is expected to commence in 1999. The
Company's nutrient and fertilizer products for the agricultural and
home and garden markets do not require EPA approval.
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Competition
The Company's products will encounter significant competition from
firms currently engaged in the pharmacetical, biotechnology,
agrichemical and consumer products industries. The majority of these
companies will be substantially larger than the Company, and have
substantially greater resources and operating histories.
Product Liability
Because many of the Company's products may be used on food
products, come in contact with humans and are human theraphies.
patients, the Company may be exposed to product liability claims. The
Company has purchased product liability insurance for all its products,
which it believes is adequate; however, there can be no assurance that
available amounts of coverage will be sufficient adequately to protect
the Company in the event of a successful product liability claim.
Patent Status and Protection of Proprietary Technology
The Company intends to own or license proprietary rights with
respect to as many of its products as possible. Dr. David Platt, the
Company's Chairman and Chief Executive Officer, has granted an
exclusive, world-wide, license to the Company's subsidiary, IGG, to
make, use, have made, sell, lease or otherwise transfer products
covered by patent or patent applications that he has developed.
Further, Dr. Platt granted to IGG the right to issue sublicenses. With
respect to GBC-590. Dr. Platt is entitled to a royalty of 2% of the
net selling price. The license may be terminated by Dr. Platt in 2002
if total royalty payments in such calendar year are less than $50,000.
However, the Company has the right to pay Dr. Platt $50,000 to maintain
the license in any such year. Further, IGG is responsible for payment
of all costs connected with obtaining the patents.
Certain of the Company's products developed in house or licensed
from others have issued patents, while many product patents are still
pending. The Company will continue to pursue these patents. There can
be no assurance that the technology of the Company will be granted
patent protection, or will not infringe on patents owned by others. To
the extent that the Company currently relies upon unpatented,
proprietary technology, processes and know-how and the protection of
such intellectual property by confidentiality agreements, there can be
no assurance that others may not independently develop similar
technology and know-how or that confidentiality will not be breached.
There is no assurance that any patents will ever be granted.
Dependence Upon Key Personnel
The Company relies greatly in its efforts on the services and
expertise of its current senior officers: David Platt, Ph.D., CEO,
Secretary and Chairman of the Board of the Company; Bradley J. Carver,
President, Chief Financial Officer, Treasurer and a member of the Board
of Directors; and Richard A. Salter, Senior Vice President of the
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Company and a member of the Board of Directors. The operation and
future success of the Company would be adversely affected in the event
that Dr. Platt, Mr. Carver or Mr. Salter were incapacitated or the
Company were otherwise to lose their services.
Uncertainties Associated with Research and Development Activities
The Company intends to continue its research and development
activities on its human therapeutic products and those of its other
products which are not presently ready for market and are in various
stages of development. Research and development activities, by their
nature, preclude definitive statements as to the time required and
costs involved in reaching certain objectives. If research and
development requires more funding than anticipated, the Company will
have to achieve the necessary levels of sales to continue to support
research and development expenses or will have to reduce product
development efforts or seek additional financing. There can be no
assurance that the Company would be able to secure any necessary
additional financing or that such financing would be available on
favorable terms.
Marketing and Distribution
As of December 31, 1998, several of the Company's products were
being prepared for market, including testing and formulation, with
anticipated market entry in the first half of 1999. The Company's
marketing efforts are focused in several areas:
The Company is marketing its commercial agricultural products both
domestically and into foreign markets. The Company has already
established a distribution network in over 20 countries.
Commercial sales are expected to begin in 1999 for several
agricultural products. In the United States, the Company is
establishing distribution of its products with leading national
distribution companies with broad access to the main agricultural
markets.
The Company will market the consumer home and garden products
through retailers such as home and garden centers, hardware
stores, supermarkets, drug stores and mass merchandisers, as well
as over the Internet. Product awareness will continue to be
generated through advertisements in trade journals, print media
and radio spots, which commenced in early 1999.
The Company is marketing its institutional cleaning products
through distributors as well as directly to building maintenance
and house cleaning businesses, state departments, municipalities,
schools, prisons and merchants. This multi-leveled, comprehensive
marketing strategy is being combined with consumer marketing in
model markets such as Cape Cod, Massachusetts, which is being
targeted as the first SafeScience Community.
The Company started marketing its products over the Internet in
February, 1999, and intends to expand in this medium.
All these products will be marketed under the brand name
"SafeScience(TM) in the United States. The packaging communicates the
products' natural and environmentally friendly profile. The Company as
either registered or is in the process of registering the trademark
<PAGE> 14
SafeScience(TM) in major world markets including the United States,
China, Europe, South America, Mexico, Australia and Canada to name a
few. The Company will be extending its line of agricultural products
for both home/garden and commercial use through acquisitions and/or
in-licensing, as well as continued research and development. As of
December 31, 1998, the Company had not sold any products and there is
no assurance that it will sell products in the future.
The Company plans to distribute its agricultural products through
independent distributors throughout the world. As of December 31,
1998, the Company had entered into such agreements with distributors in
the following territories: New Zealand; United Arab Emirates, Oman,
Bahrain, Qatar and Saudi Arabia; Israel and the Palestinian territory;
Mexico and Central America; and Argentina and Uruguay. The Company
receives advance payments to be credited against future amounts payable
in connection with some of these agreements. In addition, since the
beginning of 1999, the Company has entered into additional distribution
agreements for South Korea; France, Greece, Italy, Spain, Portugal and
Switzerland; and Australia.
Company's Offices
The Company's offices are located at the Park Square Building,
Suite 520, 31 St. James Avenue, Boston, Massachusetts 02116; the
telephone number is (617) 422-0674. The Company leases a total of
5,833 square feet of office space, which management anticipates
increasing in 1999 to support future growth. Research is being
conducted at various facilities on a contract or license basis.
Employees
The Company is a development stage company and, as of December 31,
1998, had 16 employees including its Executive Officers. Management of
the Company will continue to hire employees, consultants, attorneys and
accountants as necessary.
ITEM 2. PROPERTIES.
The Company owns no properties.
ITEM 3. LEGAL PROCEEDINGS.
No material legal proceedings are pending or threatened to which
the Company or any of its officers or directors is a party or of which
any of Company's property is the subject matter other than as described
below:
A lawsuit captioned RALPH I. FREUDENTHAL VS. IGG
INTERNATIONAL, INC. AND AGRICULTURAL GLYCOSYSTEMS, INC., United
States District Court (Southern District of Florida) Case No.
97-838 CIV-ZLOCH was settled in 1998. In connection with such
settlement, mutual releases were exchanged; no liability was
admitted by either party; the Company paid $25,000 in cash; and
the Company issued a total of 15,178 shares of "unrestricted"
common stock, which were valued at an aggregate market value of
$91,263 as of the respective dates of issue.
<PAGE> 15
No legal proceedings are known to be contemplated by governmental
authorities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of the
calendar year covered by this report to a vote of security holders,
except as follows:
During the fourth quarter, the Company held its Annual Meeting of
Stockholders. Three items were voted upon: the election of directors;
the ratification of the appointment of auditors; and adoption of the
Company's 1998 Incentive Stock Option Plan.
The nominees for director were Bradley Carver, David Dube,
Theodore Host, Brian Hughes, David Platt and Richard Salter. The
following table indicates the number of votes cast with respect to each
candidate, the number of votes in favor, the number of votes against,
and the number of abstentions:
Total Votes Votes
Nominee Votes Cast In Favor Against
Bradley Carver 8,222,182 8,183,026 39,156
David Dube 8,222,182 8,183,026 39,156
Theodore Host 8,222,182 8,172,826 49,356
Brian Hughes 8,222,182 8,182,826 39,356
David Platt 8,222,182 8,183,026 39,156
Richard Salter 8,222,182 8,173,026 49,156
The appointment of Arthur Andersen LLP as auditors for the Company
for the fiscal year ended December 31, 1998 was approved by a vote of
8,214,142 in favor and 8,040 against out of a total of 8,222,182 votes
cast.
The adoption of the 1998 Incentive Stock Option Plan was approved
by a vote of 8,077,878 in favor and 144,304 against out of a total of
8,222,182 votes cast.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS' MATTERS.
(a) Market Information
In May, 1998, the Company's securities became traded on the NASDAQ
(Small Cap) market under the symbol SAFS. Prior thereto, the Company's
securities were traded over-the-counter by the National Association of
Securities Dealers, Inc. under the symbol IGGI. The table shows the
high and low bid of Company's Common Stock during 1997 and 1998:
<PAGE> 16
QUARTER ENDED BID
1997 High Low
March 31 6 1/4 3 3/8
June 30 4 7/8 4 5/8
September 30 6 1/4 5 7/8
December 31 4 3 5/8
1998
March 31 5 1/4 3 1/2
June 30 7 1/8 4
September 30 5 1/2 2 7/8
December 31 7 11/16 4 1/8
(b) Holders
As of December 31, 1998, the Company had 401 holders of record of
its Common Stock. This number does not include those beneficial owners
whose securities are held in street name. The total number of
stockholders is estimated to be approximately 2,997.
(c) Dividends
The Company has never paid a cash dividend on its Common Stock and
has no present intention to declare or pay cash dividends on the Common
Stock in the foreseeable future. The Company intends to retain any
earnings which it may realize in the foreseeable future to finance its
operations. Future dividends, if any, will depend on earnings,
financing requirements and other factors.
ITEM 6. SELECTED FINANCIAL DATA
Selected Consolidated Financial Data
The selected financial data presented below has been derived from
the financial statements of the company. The following table
summarizes certain financial information and should be read in
conjunction with "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and the Financial Statements and
related notes included elsewhere in this Report. The information shown
below may not be indicative of the Company's future results of
operations.
As of December 31,
1998 1997 1996 1995
Balance Sheet Data:
Working Capital $ 3,095,242 $ 2,180,775 $ 272,315 $(289,948)
Total Assets $ 3,968,588 $ 2,906,737 $ 488,839 $ 308,337
Stockholders' Equity
(Deficit) $ 3,500,449 $ 2,443,120 $ 298,091 $(270,941)
<PAGE> 17
As of December 31,
1998 1997 1996 1995
Statement of Operations
Data:
Revenue $ --- $ --- $ --- $ ---
General and
Administrative
Expenses 4,420,886 2,428,072 1,118,125 492,326
Research and Development
Expenses 2,174,400 2,390,021 1,095,027 154,495
----------- ----------- ----------- ---------
Operating Loss (6,595,286) (4,818,093) (2,213,152) (646,821)
----------- ----------- ----------- ---------
Other Income (Expense)
Interest expense (392) --- (103,517) (35,970)
Interest income 122,173 83,618 18,289 6,958
Loss of disposal
of assets --- --- (1,767)
----------- ----------- ----------- ---------
Total other
income (expense) 121,781 83,618 (86,995) (29,012)
----------- ----------- ----------- ---------
Net Loss $(6,473,505)$(4,734,475)$(2,300,147)$(675,833)
=========== =========== =========== =========
Basic and Diluted
Net Loss per Share $ (0.50)$ (0.43)$ (0.26)$ (0.09)
=========== =========== =========== =========
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere
in this report.
Results of Operations: December 31, 1998 versus December 31, 1997
As a development stage enterprise from the date of its inception,
the Company has not, as of December 31, 1998, derived any product sales
or revenues. The Company's business activities through December 31,
1998 have consisted principally of research, product development,
testing, production scale-up and raising capital to sustain business
activities.
General and administrative expenses increased to $4,420,886 in
1998 from $2,428,072 in 1997, an increase of $1,992,814 or 82.1%. This
increase was principally attributable to a combination of additional
administrative compensation costs and related employee benefits
expenses resulting from the Company's research and development
activities and marketing and product promotion, an increase in the
number of employees, increased travel expenses due to the Company's
efforts to build worldwide distribution and additional costs associated
with shareholder and public relations. Compensation payments to
various consultants and advisors of $1,141,750 in 1997 and $1,713,918
in 1998 resulted from the issuance of stock grants, stock options and
warrants to purchase common stock.
Research and development expenses decreased to $2,174,400 in 1998
from $2,390,021 in 1997, a decrease of $215,621 or 9.0%. This decrease
was principally attributable to the Company's discontinuance of certain
subcontracted research activities in 1998. Included in
<PAGE> 18
research and development costs is $240,710 in 1997 and $285,294 in 1998
resulting from the issuance of stock grants, and stock options and
warrants to purchase common stock.
Interest income increased to $122,173 in 1998 from $83,618 in
1997, an increase of $38,555 or 46.1%. This increase was attributable
to an increase in cash available for investment due to cash proceeds
received from four private placements of the Company's securities
during 1998.
Results of Operations: December 31, 1997 versus December 31, 1996
General and administrative expenses increased to $2,428,072 in
1997 from $1,118,125 in 1996, an increase of $1,309,947 or 117.2%.
This increase was principally attributable to a combination of
additional administrative compensation costs and related employee
benefits expenses resulting from the Company's increased research and
development activities, compensation payments to various consultants
and advisors of $1,141,750 resulting from the issuance of stock grants,
stock options and warrants to purchase common stock, and additional
costs associated with shareholder and public relations.
Research and development expenses increased to $2,390,021 in 1997
from $1,095,027 in 1996, an increase of $1,294,994 or 118.3%. This
increase was principally attributable to a combination of increasing
and expanding research efforts on complex carbohydrate and
micro-organism substances, conducted on both subcontracted and
collaboration bases, regulatory costs incurred in connection with
obtaining approval for various of the Company's planned products,
initial research and testing costs for new processes or development
products introduced during 1997, costs associated with the procurement
of overseas distribution agreements, and the issuance of stock for
minority interest valued at $719,142. Included in research and
development costs is $240,710 resulting from the issuance of stock
grants, and stock options and warrants to purchase common stock.
Interest income increased to $83,618 in 1997 from $18,289 in 1996,
an increase of $65,329 or 357.2%. This increase was attributable to an
increase in average cash available for investment due to cash proceeds
received from two private placements of the company's securities during
1997.
Liquidity and Capital Resources
Since inception, the Company has funded its operations primarily
with the proceeds from debt and equity securities totaling
approximately $12,900,000. For the year ended December 31, 1998, the
Company's operations utilized cash of $4,493,000 primarily to fund the
operating loss. This use of cash was offset by equity financings that
resulted in net proceeds of $5,531,000 to the Company. In 1997 the
Company's operations utilized cash of $2,376,000, which was offset by
equity financings that resulted in net proceeds of $4,778,000.
<PAGE> 19
The Company has no significant commitments for the purchase of
equipment, product manufacturing or marketing efforts at present. The
Company leases office facilities under an operating lease that ends in
May 2002. Rent expense for this space will be approximately $168,000
in 1999. The Company may also have the ability to expand its space in
its current location and to meet its continuing needs; in such event,
the Company's annual rent expense would be subject to increase.
The Company has entered into various licensing agreements that
require future cash payments. Aggregate future payments under
licensing agreements are approximately $1,100,000 of which
approximately $450,000 is payable in 1999.
As of December 31, 1998, the Company's cash balances were
$3,439,000, as compared to $2,594,000 as of December 31, 1997. The
Company has no bank lines of credit or other commercial financing
sources at present but may seek such sources in the fututre. It is not
known whether additional funds could be borrowed from stockholders or
other sources.
In addition to the funds raised in 1998, during the first quarter
of 1999, the Company has raised an additional $6,330,000 through equity
financing. As the March 31, 1999, the companies cash and cash
equivalents was approximately $8,092,457.
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, sales and marketing
activities, preclinical studies and clinical trials. The Company
believes that its existing funds will be sufficient to fund its
operating expenses and capital requirements as currently planned
through the end of 1999.
Year 2000 Readiness Disclosure
The Company is currently reviewing its operations to ensure that
they will not be adversely affected by year 2000 software failures,
which can arise in time-sensitive software applications that utilize a
field of two digits to define the applicable year. In such
applications, a date using "00" may be recognized as the year 1900
rather than the year 2000.
The Company's internal systems include both its information
technology ("IT") and non-IT systems. The Company has initiated an
assessment of its material internal IT systems and its non-IT systems
including security systems, building equipment and utilities. The
Company expects to complete this assessment in the first half of 1999.
To the extent that the Company is not able to test the technology
provided by third-party vendors, the Company is seeking assurances from
such vendors that their systems are Year 2000 ready. Although the
assessment is still underway, management currently believes that all
material systems which the company uses will be Year 2000 ready when
necessary and that the cost to ensure that those systems are Year 2000
ready will not be material. It should be noted, however, that the
Company depends on timely and uninterrupted interactions with its
vendors and its customers, through the use of banking systems,
commercial airline, travel, telecommunications via long-distance and
local service providers, and local utilities, including for power. To
the extent that Year 2000 ready alternatives are not readily available
at the time, any interruption caused by a
<PAGE> 20
lack of Year 2000 readiness on the part of such vendors could have a
material adverse effect on the Company's business, operating results
and financial condition.
Despite testing by the Company, the IT and non-IT systems used by
the Company may contain undetected errors or defects associated with
Year 2000 date functions. Known or unknown errors or defects in the
Company's IT systems or non-IT systems could result in delay or loss of
revenue, diversion of resources, damage to the Company's reputation,
and increased service costs, any of which could materially adversely
affect the Company's business, operating results, or financial
condition.
The Company believes that the most likely worst case scenario
related to Year 2000 risks is a material business interruption that
leads to customer dissatisfaction and the termination of a customer
relationship. Such an interruption could occur due to a breakdown in
any number of the Company's IT or non-IT systems, or the systems of
third parties. The Company currently does not have a contingency plan
in the event a particular system or vendor is not Year 2000 ready.
Such a plan will be developed if it becomes clear that the Company is
not going to achieve its scheduled objectives in respect of Year 2000
readiness. There can be no assurance that unexpected Year 2000
readiness problems of the Company or its vendors, customers and service
providers will not materially adversely affect the Company's business,
operating results and financial condition. The foregoing assessment
represents management's best estimates at the present time, which could
change significantly in the future.
Market Risk
The Company is exposed to market risk related to changes in
interest rates as well as changes in currency exchange rates as
measured against the U.S. dollar and each other which could positively
or negatively affect results of operations and retained earnings. As
of December 31, 1998, the Company has evaluated its risk and determined
that any exposure to currency exchange is not significant to the
Company's overall consolidated financial results. There can be no
assurance that the Company's exposure will remain at these levels,
especially in the event of significant and sudden fluctuations in the
value of local currencies. The Company does not use derivative
financial instruments for speculative or trading purposes.
Interest Rate Sensitivity
The Company maintains a short-term investment portfolio consisting
mainly of corporate debt securities and U.S. government agency discount
notes with an average maturity of less than six months. These held-
to-maturity securities are subject to interest rate risk and will fall in
value if market interest rates increase. If market interest rates were
to increase immediately and uniformly by 10% from levels that existed
at December 31, 1998, the fair value of the portfolio would decline by
an immaterial amount. Since the Company has the ability to hold its
fixed income investments until maturity, the Company would not expect
its operating results or cash flows to be materially affected.
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Public Accountants
To the Stockholders and Board of Directors of
SafeScience, Inc.:
We have audited the accompanying consolidated balance sheets of
SafeScience, Inc. and subsidiaries (the Company) (formerly IGG
International, Inc., a Nevada corporation in the development stage) as
of December 31, 1998 and 1997, and the related consolidated statements
of operations, stockholders' equity and cash flows for the years then
ended and for the period from inception (December 8, 1992) to
December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audits. We did not audit the consolidated financial statements of
the Company for the period from inception to December 31, 1996. Such
statements are included in the cumulative inception to December 31,
1998 totals of the consolidated statements of operations and cash
flows, and reflect total net loss of 22% of the related cumulative
total. Those statements were audited by other auditors whose reports
have been furnished to us and included herein and our opinion, insofar
as it relates to amounts for the period from inception to December 31,
1996, included in the cumulative totals, is based solely upon the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of the Company as of December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for the years
then ended and for the period from inception (December 8, 1992) to
December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen
Boston, Massachusetts
March 24, 1999
F-1
<PAGE> 22
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,439,408 $ 2,594,312
Prepaid expenses 86,191 31,680
Other current assets 26,482 18,400
----------- -----------
Total current assets 3,552,081 2,644,392
----------- -----------
PROPERTY AND EQUIPMENT, AT COST:
Computer, office and
laboratory equipment 187,255 4,763
Furniture, fixtures and
leasehold improvements 114,673 74,803
----------- -----------
301,928 79,566
Less Accumulated depreciation (81,704) (31,920)
----------- ------------
220,224 47,646
----------- ------------
OTHER ASSETS:
Restricted cash 108,128 119,138
Notes receivable Stockholders,
less current portion 86,827 89,233
Deposits 1,328 6,328
----------- ------------
Total other assets 196,283 214,699
----------- ------------
$ 3,968,588 $ 2,906,737
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-2a
<PAGE> 23
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current Liabilities:
Current portion of capital
lease obligation $ 4,608 $ -
Accounts payable 246,813 148,854
Accrued liabilities 185,443 304,763
Deferred revenue 19,975 10,000
----------- ------------
Total current liabilities 456,839 463,617
----------- ------------
CAPITAL LEASE OBLIGATION,
LESS CURRENT PORTION 11,300 -
----------- ------------
Commitments and Contingencies (Note 9)
Stockholders' equity:
Preferred stock, $.01 par value
Authorized 5,000,000 shares
Issued and outstanding None - -
Common stock, $.01 par value
Authorized 25,000,000 shares
Issued and outstanding
14,107,216 and 12,098,576
shares at December 31, 1998
and 1997, respectively 141,072 120,986
Additional paid-in capital 17,749,766 10,239,018
Deficit accumulated during
development stage (14,390,389) (7,916,884)
----------- ------------
Total stockholders' equity 3,500,449 2,443,120
----------- ------------
Total liabilities and
stockholders' equity $ 3,968,588 $ 2,906,737
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-2b
<PAGE> 24
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Period from
Inception
(December 8,
1992) through
Years Ended December 31, December 31,
1998 1997 1996 1998
<S> <C> <C> <C> <C>
GENERAL AND ADMINISTRATIVE
EXPENSES $ 4,420,886 $ 2,428,072 $ 1,118,125 $ 8,651,942
RESEARCH AND DEVELOPMENT
EXPENSES 2,174,400 2,390,021 1,095,027 5,827,631
----------- ----------- ----------- ------------
Operating loss (6,595,286) (4,818,093) (2,213,152) (14,479,573)
OTHER INCOME (EXPENSE):
Interest expense (392) - (103,517) (140,104)
Interest income 122,173 83,618 18,289 231,055
Loss on disposal of assets - - (1,767) (1,767)
----------- ----------- ----------- ------------
Total other income
(expense) 121,781 83,618 (86,995) 89,184
----------- ----------- ----------- ------------
Net loss $(6,473,505) $(4,734,475) $(2,300,147) $(14,390,389)
=========== =========== =========== ============
BASIC AND DILUTED NET
LOSS PER COMMON SHARE $ (0.50) $ (0.43) $ (0.26)
=========== =========== ==========
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING 13,000,259 11,022,577 8,700,146
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE> 25
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (DECEMBER 8, 1992) THROUGH
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Stock Additional
Number of Paid-in
Shares Amount Capital
<S> <C> <C> <C>
BALANCE, DECEMBER 8, 1992 - $ - $ -
Issuance of shares to
officers in consideration
of services provided and
additional cash contributed
during 1993, net average cost
of $.076 per share 578,165 5,782 37,905
Net loss - - -
---------- --------- --------
BALANCE, DECEMBER 31, 1993 578,165 5,782 37,905
Common stock issued for
cash at $.244 per share 40,916 409 9,591
Common stock issued for
recruiting a director with
cash paid of $.0l per share 200,134 2,001 (1,801)
Cash paid by stockholders for
a minority interest in
International Gene Group, Inc.
prior to the reverse
acquisition of Alvarada, Inc. - - 52,500
Shares issued in 9-for-1 stock
dividend to stockholders
as of January 1, 1994 5,001,871 50,019 -
Additional paid-in capital
from original stockholders - - 1,590
Net loss - - -
---------- --------- --------
Balance, December 31, 1994 5,821,086 58,211 49,766
Recapitalization of the Company
through the reverse acquisition
of Alvarada, Inc. 1,349,914 13,499 (17,321)
Common stock issued for cash
at $2.50 per share, net of
costs of $7,500 88,200 882 212,118
Common stock issued for cash
at $1.19 to $1.25 per share,
net of costs of $2,500 248,291 2,483 291,683
Net loss - - -
---------- --------- --------
BALANCE, DECEMBER 31, 1995 7,507,491 75,075 536,246
The accompanying notes are an integral part of these consolidated
financial statements.
F-4a
<PAGE> 26
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (DECEMBER 8, 1992) THROUGH
DECEMBER 31, 1998
Deficit Accumulated Total
During the Stockholders'
Development Stage Equity (Deficit)
<S> <C> <C>
BALANCE, DECEMBER 8, 1992 $ - $ -
Issuance of shares to
officers in consideration
of services provided and
additional cash contributed
during 1993, net average cost
of $.076 per share - 43,687
Net loss (38,082) (38,082)
----------- ----------
BALANCE, DECEMBER 31, 1993 (38,082) 5,605
Common stock issued for
cash at $.244 per share - 10,000
Common stock issued for
recruiting a director with
cash paid of $.0l per share - 200
Cash paid by stockholders for
a minority interest in
International Gene Group, Inc.
prior to the reverse
acquisition of Alvarada, Inc. - 52,500
Shares issued in 9-for-1 stock
dividend to stockholders
as of January 1, 1994 - -
Additional paid-in capital
from original stockholders - 1,590
Net loss (168,347) (168,347)
----------- ----------
Balance, December 31, 1994 (206,429) (98,452)
Recapitalization of the Company
through the reverse acquisition
of Alvarada, Inc. - (3,822)
Common stock issued for cash
at $2.50 per share, net of
costs of $7,500 - 213,000
Common stock issued for cash
at $1.19 to $1.25 per share,
net of costs of $2,500 - 294,166
Net loss (675,833) (675,833)
----------- ----------
BALANCE, DECEMBER 31, 1995 (882,262) (270,941)
</TABLE>
F-4b
<PAGE> 27
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (DECEMBER 8, 1992) THROUGH
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Stock Additional
Number of Paid-in
Shares Amount Capital
<S> <C> <C> <C>
Common stock issued for the
conversion of notes payable
at $1.25 per share, including
accrued interest 272,596 2,726 338,020
Common stock issued to extend
notes payable at one share
per $5.00 of note, valued
at $1.25 per share 80,000 800 99,200
Common stock issued for services
valued at $2.00 per share 2,400 24 4,776
Common stock issued for cash
at $1.25 to $2.50 per share,
net of costs of $60,826 1,142,431 11,424 1,513,157
Common stock issued as part of
a private placement at $2.50 per
share with warrants attached 190,000 1,900 473,100
Common stock issued for common
stock of International Gene
Group, Inc. minority interests 173,449 1,734 (1,734)
Common stock issued for
adjustment in share prices 33,774 338 (338)
Stock options for 215,206 shares
of common stock issued for
consulting and professional
services valued at $1.50
to $2.69 per share - - 424,052
Stock options exercised 60,500 605 (605)
Net loss - - -
---------- -------- ----------
BALANCE, DECEMBER 31, 1996 9,462,641 94,626 3,385,874
Common stock issued for cash
at $2.00 to $3.00 per share
with warrants attached,
net of costs of $175,000 750,000 7,500 1,567,500
Common stock issued as part of
a private placement at $2.50
per share with warrants attached,
net of costs of $63,375 463,000 4,630 1,076,995
The accompanying notes are an integral part of these consolidated
financial statements.
F-5a
<PAGE> 28
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (DECEMBER 8, 1992) THROUGH
DECEMBER 31, 1998
Deficit Accumulated Total
During the Stockholders'
Development Stage Equity (Deficit)
<S> <C> <C>
Common stock issued for the
conversion of notes payable
at $1.25 per share, including
accrued interest - 340,746
Common stock issued to extend
notes payable at one share
per $5.00 of note, valued
at $1.25 per share - 100,000
Common stock issued for services
valued at $2.00 per share - 4,800
Common stock issued for cash
at $1.25 to $2.50 per share,
net of costs of $60,826 - 1,524,581
Common stock issued as part of
a private placement at $2.50 per
share with warrants attached - 475,000
Common stock issued for common
stock of International Gene
Group, Inc. minority interests - -
Common stock issued for
adjustment in share prices - -
Stock options for 215,206 shares
of common stock issued for
consulting and professional
services valued at $1.50
to $2.69 per share - 424,052
Stock options exercised - -
Net loss (2,300,147) (2,300,147)
---------- ----------
BALANCE, DECEMBER 31, 1996 (3,182,409) 298,091
Common stock issued for cash
at $2.00 to $3.00 per share
with warrants attached,
net of costs of $175,000 - 1,575,000
Common stock issued as part of
a private placement at $2.50
per share with warrants attached,
net of costs of $63,375 - 1,081,625
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5b
<PAGE> 29
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (DECEMBER 8, 1992) THROUGH
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Stock Additional
Number of Paid-in
Shares Amount Capital
<S> <C> <C> <C>
Common stock issued as part
of a private placement at
$3.00 per share with
warrants attached 533,867 5,339 1,596,478
Common stock issued for
common stock of International
Gene Group, Inc. minority
interests 205,469 2,055 717,087
Common stock issued for
consulting services and
wages valued at $2.00 to
$5.81 per share 195,800 1,958 822,300
Stock options for 141,426
shares of common stock issued
for consulting and
professional services valued at
$2.90 to $5.83 per option - - 557,662
Stock options exercised 187,799 1,878 (1,878)
Warrants exercised 300,000 3,000 517,000
Net loss - - -
---------- -------- -----------
BALANCE, DECEMBER 31, 1997 12,098,576 120,986 10,239,018
Common stock issued as
part of a private placement
at $2.75 per share with
warrants attached 181,818 1,818 498,182
Common stock issued as part
of a private placement
at $3.00 per share with
warrants attached 145,999 1,460 436,540
Common stock issued as part
of a private placement at
$4.25 per share, net of
$101,200 in issuance costs 406,206 4,062 1,621,114
Common stock issued as part
of a private placement at
$3.50 per share, net of
$97,220 in issuance costs 646,918 6,469 2,155,275
The accompanying notes are an integral part of these consolidated
financial statements.
F-6a
<PAGE> 29
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (DECEMBER 8, 1992) THROUGH
DECEMBER 31, 1998
Deficit Accumulated Total
During the Stockholders'
Development Stage Equity (Deficit)
<S> <C> <C>
Common stock issued as part
of a private placement at
$3.00 per share with
warrants attached - 1,601,817
Common stock issued for
common stock of International
Gene Group, Inc. minority
interests - 719,142
Common stock issued for
consulting services and
wages valued at $2.00 to
$5.81 per share - 824,258
Stock options for 141,426
shares of common stock issued
for consulting and
professional services valued at
$2.90 to $5.83 per option - 557,662
Stock options exercised - -
Warrants exercised - 520,000
Net loss (4,734,475) (4,734,475)
---------- -----------
BALANCE, DECEMBER 31, 1997 (7,916,884) 2,443,120
Common stock issued as
part of a private placement
at $2.75 per share with
warrants attached - 500,000
Common stock issued as part
of a private placement
at $3.00 per share with
warrants attached - 438,000
Common stock issued as part
of a private placement at
$4.25 per share, net of
$101,200 in issuance costs - 1,625,176
Common stock issued as part
of a private placement at
$3.50 per share, net of
$97,220 in issuance costs - 2,161,744
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6b
<PAGE> 31
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (DECEMBER 8, 1992) THROUGH
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Stock Additional
Number of Paid-in
Shares Amount Capital
<S> <C> <C> <C>
Common stock issued as part
of a private placement at
$4.50 per share 179,222 1,792 804,710
Common stock issued for
services and wages valued
at $2.88 to $6.94 per share 332,263 3,323 1,289,926
Common stock issued as
charitable contribution at
$3.55 to $4.30 per share 5,000 50 18,450
Stock options issued for
consulting and professional
services valued at $3.63
to $7.66 per option - - 687,463
Stock options exercised 111,214 1,112 (912)
Net loss - - -
---------- --------- -----------
BALANCE, DECEMBER 31, 1998 14,107,216 $ 141,072 $17,749,766
========== ========= ===========
The accompanying notes are an integral part of these consolidated
financial statements
F-7a
<PAGE> 32
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (DECEMBER 8, 1992) THROUGH
DECEMBER 31, 1998
Deficit Accumulated Total
During the Stockholders'
Development Stage Equity (Deficit)
<S> <C> <C>
Common stock issued as part
of a private placement at
$4.50 per share - 806,502
Common stock issued for
services and wages valued
at $2.88 to $6.94 per share - 1,293,249
Common stock issued as
charitable contribution at
$3.55 to $4.30 per share - 18,500
Stock options issued for
consulting and professional
services valued at $3.63
to $7.66 per option - 687,463
Stock options exercised - 200
Net loss (6,473,505) (6,473,505)
------------- ------------
BALANCE, DECEMBER 31, 1998 $ (14,309,389) $ 3,500,449
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
F-7b
<PAGE> 33
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,473,505) $ (4,734,475)
Adjustments to reconcile net loss to
net cash used in operating activities
Operating expenses paid in common
stock and options 1,999,212 1,382,460
Issuance of stock for minority interest - 719,142
Depreciation and amortization 53,684 15,545
Loss on disposal of assets - -
Changes in assets and liabilities
Prepaid expenses (54,511) (25,546)
Other current assets (6,843) (6,132)
Accounts payable 97,959 86,206
Accrued liabilities (119,320) 176,663
Deferred revenue 9,975 10,000
------------ ------------
Net cash used in operating activities (4,493,349) (2,376,137)
------------ ------------
Cash Flows from Investing Activities:
Purchase of property and equipment (205,188) (39,744)
Proceeds from loans to stockholders - (90,000)
Repayment of stockholders' loans 1,167 767
Decrease (increase) in deposits, net 5,000 (4,539)
Net cash paid in acquisition - -
Decrease (increase) in restricted cash 11,010 (119,138)
------------ ------------
Net cash used in investing activities (188,011) (252,654)
------------ ------------
Cash Flows from Financing Activities:
Short-term borrowing - -
Payments on short-term borrowing - -
Payments for obligations under capital lease (5,166) -
Proceeds from issuance of common stock 5,531,422 4,778,442
Proceeds from exercise of common stock option 200 -
Capital contributed by stockholders - -
Debt issuance costs - -
------------ ------------
Net cash provided by financing activities 5,526,456 4,778,442
------------ ------------
Net Increase in Cash 845,096 2,149,651
Cash and Cash Equivalents,
beginning of period 2,594,312 444,661
------------ ------------
Cash and Cash Equivalents,
end of period $ 3,439,408 $ 2,594,312
============ ============
Supplemental Disclosure of Noncash Financing Activities:
Conversion of notes payable into equity $ - $ -
============ ============
Equipment acquired under capital $ 21,074 $ -
lease obligations ============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 392 $ -
============ ============
The accompanying ntoes are an integral part of these consolidated financial
statements.
F-8a
<PAGE> 34
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
Period from
Years Ended Inception
December 31 (12/08/92)
1998 through
(12/31/98)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,300,147) $ (14,390,389)
Adjustments to reconcile net loss to
net cash used in operating activities
Operating expenses paid in common
Stock and options 559,598 3,940,272
Issuance of stock for minority interest - 719,142
Depreciation and amortization 10,740 120,370
Loss on disposal of assets 1,767 1,767
Changes in assets and liabilities
Prepaid expenses 21,918 (86,191)
Other current assets (1,480) (23,982)
Accounts payable 45,440 246,813
Accrued liabilities (33,970) 185,443
Deferred revenue - 19,975
------------ ------------
Net cash used in operating activities (1,696,134) (9,266,780)
------------ ------------
Cash Flows from Investing Activities:
Purchase of property and equipment (19,684) (287,592)
Proceeds from loans to stockholders - (130,000)
Repayment of stockholders' loans - 41,934
Decrease (increase) in deposits, net 480 (1,328)
Net cash paid in acquisition - (3,822)
Decrease (increase) in restricted cash - (108,128)
------------ ------------
Net cash used in investing activities (19,276) (488,936)
------------ ------------
Cash Flows from Financing Activities:
Short-term borrowing - 398,000
Payments on short-term borrowing (90,000) (90,000)
Payments for obligations under capital lease - (5,166)
Proceeds from issuance of common stock 1,999,581 12,922,458
Proceeds from exercise of common stock option - 200
Capital contributed by stockholders - 1,329
Debt issuance costs - (31,697)
------------ ------------
Net cash provided by financing activities 1,909,581 13,195,124
------------ ------------
Net Increase in Cash 194,171 3,439,408
Cash and Cash Equivalents,
beginning of period 250,490 -
------------ ------------
Cash and Cash Equivalents,
end of period $ 444,661 $ 3,439,408
============ ============
Supplemental Disclosure of Noncash Financing Activities:
Conversion of notes payable into equity $ - $ 310,000
============ ============
Equipment acquired under capital $ - $ 21,074
lease obligations ============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 392 $ -
============ ============
</TABLE>
F-8b
<PAGE> 35
SAFESCIENCE, INC.
(f/k/a/ IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(1) Summary of Significant Accounting Policies
(a) Organization
SafeScience, Inc. (f/k/a IGG International, Inc.) (the Company) is a
development stage enterprise formed for the research and development of
pharmaceutical products based on carbohydrate chemistry. Today, the
Company has two wholly owned subsidiaries: International Gene Group,
Inc. and SafeScience Products, Inc. The Company has expanded its focus
to include other pharmaceuticals, agricultural consumer, and home and
garden products. International Gene Group, Inc. focuses on the
development of carbohydrate-based pharmaceutical products related to
two major areas of disease: cancer and fungal infections. SafeScience
Products, Inc. focuses on developing agricultural consumer, and home
and garden applications for products that are also based upon
carbohydrate chemistry. These products will be either licensed from or
jointly developed with third parties (Note 9). SafeScience, Inc.,
International Gene Group, Inc., and SafeScience Products, Inc. maintain
an office in Boston, Massachusetts.
The Company is in the development stage and is devoting substantially
all of its efforts toward product research and development and raising
capital. Management anticipates that all future revenues will be
derived from products under development or those developed in the
future. Principal risks to the Company include the successful
development and marketing of products to obtain profitable operations,
dependence on collaborative partners, the ability to obtain adequate
financing to fund future operations, United States Food and Drug
Administration clearance and regulation, dependence on key individuals
and competition from substitute products and larger companies.
(b) Principles of Consolidation
The Company's consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, International Gene
Group, Inc., and SafeScience Products, Inc. All material intercompany
transactions and accounts have been eliminated in the consolidated
financial statements.
(c) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of
operational expenses during the reporting period. Actual results could
differ from those estimates.
F-9<PAGE> 36
SAFESCIENCE, INC.
(f/k/a/ IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Continued)
(d) Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased
with an original maturity of three months or less to be cash
equivalents. Cash and cash equivalents at December 31, 1998 and 1997
include approximately $254,000 and $230,000, respectively, which is
held by a single bank, and approximately $3,122,000 and $2,450,000,
respectively, held in investment accounts, which represent
concentrations of credit risk. The Company's management believes
such a risk is minimal since these funds are in a "sweep" account
which is reinvested daily in government securities funds and money
market funds. Restricted cash represents funds held under an
irrevocable standby letter of credit. The letter of credit serves as
a security for the Company's facility lease. The funds are being
held in an investment account.
(e) Depreciation and Amortization
The Company provides for depreciation and amortization using
straight-line and accelerated declining balance methods to allocate
the cost of property and equipment over their estimated useful lives
as follows:
Asset Estimated
Classification Useful Life
Computer, office and laboratory equipment 3 5 years
Furniture and fixtures 7 years
Leasehold improvements Lesser of useful life or
life of lease
(f) Research and Development
Research and development costs, which consist primarily of expenses for
consultants, supplies and testing, are charged to operations as
incurred.
(g) 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 common stock equivalents would be
antidilutive. Antidilutive securities that are not included in diluted
net loss per common share were 765,532, 601,763 and 902,206 for 1998,
1997 and 1996, respectively.
F-10
<PAGE> 37
SAFESCIENCE, INC.
(f/k/a/ IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Continued)
(h) Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS 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 is defined as the change in equity of
a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. The comprehensive net
loss is the same as net loss for all periods presented.
(i) Disclosures about Segments of an Enterprise
The Company has adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, in the fiscal year ended
December 31, 1998. SFAS No. 131 establishes standards for reporting
information regarding operating segments in annual financial statements
and requires selected information for those segments to be presented in
interim financial reports issued to stockholders. SFAS No. 131 also
establishes standards for related disclosures about products and
services and geographic areas. Operating segments are identified as
components of an enterprise about which separate discrete financial
information is available for evaluation by the chief operating
decision-maker, or decision-making group, in making decisions how to
allocates resources and assess performance. The Company's chief
decision-maker, as defined under SFAS No. 131, is the chief executive
officer. To date, the Company has viewed its operations and manages
its business as one principal operating segment. As a result, the
financial information disclosed herein represents all of the material
financial information related to the Company's principal operating
segment.
(j) Concentrations of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk, requires disclosure of any significant
off-balance-sheet risk and credit risk concentrations. The Company has
no significant off-balance-sheet risk or credit risk concentrations.
The Company maintains its cash and cash equivalents with several
financial institutions and invests in investment-grade securities.
(k) Financial Instruments
The estimated fair values of the Company's consolidated financial
instruments, which include cash equivalents, notes receivable and
accounts payable, approximate their carrying value due to the short
maturity of these instruments.
F-11
<PAGE> 38
SAFESCIENCE, INC.
(f/k/a/ IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Continued)
The estimated fair value of the Company's capital lease obligations
approximates its carrying value based upon the current rates offered to
the Company for similar type arrangements.
(l) Postretirement Benefits
The Company has no obligations for postretirement benefits.
(m) Minority Interest
At December 31, 1996, minority stockholders held an approximate three
percent interest in International Gene Group, Inc. During 1997, these
minority stockholders converted their shares in International Gene
Group, Inc. into 205,469 shares of the Company's common stock. The
Company recorded the fair value of the shares issued as research and
development expense in the year ended December 31, 1997.
(n) Reclassification
Certain items in the 1997 consolidated financial statements have been
reclassified to conform with their 1998 presentation.
(2) NOTES RECEIVABLE - STOCKHOLDERS
Notes receivable from stockholders represents promissory notes from two
officers stockholders of the Company. The loans are payable in monthly
installments of $375 and $160, including interest at 5.66% and 6.65%,
respectively, with final payments of $60,601 due on March 11, 2002, and
$23,603 due on June 20, 2002, respectively. Each note is
collateralized by shares of the Company's common stock held by each
individual.
F-12
<PAGE> 39
SAFESCIENCE, INC.
(f/k/a/ IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Continued)
(3) CAPITAL LEASE OBLIGATION
Capital lease obligations at December 31, 1998 consisted of the
following:
Capital lease, due in monthly installments
of $418, including interest at 2.96% through
April 2002, secured by a motor vehicle. $ 15,908
Less Current portion 4,608
-----------
$ 11,300
===========
Property and equipment under capital lease are capitalized using
interest rates appropriate at the inception of each lease. The net
book value of property and equipment under capital lease amounted to
$16,859 at December 31, 1998. Property and equipment under capital
lease are net of accumulated amortization of $4,215 at December 31,
1998. There were no assets under capital lease at December 31, 1997.
(4) Stockholders' Equity
(a) Authorized Shares
International Gene Group, Inc. was incorporated on December 8, 1992; it
did not begin its activities or issue stock until early 1993. In 1993,
the original stockholders received common stock for services provided
and contributed $43,687 in cash. In 1994, these stockholders
contributed an additional $1,590 cash. During 1994, International Gene
Group, Inc. sold common stock by subscription agreements for a total of
$62,700.
In March 1995, the majority stockholders of International Gene Group,
Inc., controlling 19,633 shares of common stock, acquired eighty-one
percent control of Alvarada, Inc. through a reverse acquisition in
exchange for their stock (Note 6). The investment of the remaining
stockholders, controlling 1,278 shares of International Gene Group,
Inc. was recorded as minority interest in this subsidiary.
The acquisition was accounted for as a reverse acquisition and the
subsequent capital structure of the continuing entity includes the
restated stock of Alvarada, Inc. at $0.01 par value and a combination
of International Gene Group, Inc.'s and Alvarada, Inc.'s additional
paid-in capital. The authorized capital stock of Alvarada, Inc.,
subsequently known as IGG International, Inc. and SafeScience, Inc.,
was amended to include 30,000,000 authorized shares of stock,
consisting of 25,000,000 shares of common stock with a par value of
$0.01, and 5,000,000 shares of preferred stock with a par value of
$0.01.
F-13<PAGE> 40
SAFESCIENCE, INC.
(f/k/a/ IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Continued)
Additional capital raised by the Company in 1995 includes a $271,666
payment on a subscription for 684,874 shares of common stock with a
total subscription price of $815,000. The balance of this agreement
amounting to $543,334 was paid during 1996.
(b) Private Placement Offerings
In November 1996, the Company began a private placement offering of
common stock. As of December 31, 1996, 190,000 shares had been sold at
$2.50 per share. In 1997, the Company sold an additional 463,000
shares at $2.50 per share. These shares included an attached warrant
to purchase one share of common stock for $3.50 for every four shares
of common stock purchased. As of December 31, 1998, 161,963 warrants
were outstanding.
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 December 31, 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 purchases included an attached warrant
to purchase one share of common stock for $4.75 for every four shares
purchased. As of December 31, 1998, warrants to purchase 169,967
shares of common stock were outstanding from these sales.
In September 1998, the Company completed a private placement offering
of common stock. During the year ended December 31, 1998, the Company
sold 406,206 shares of common stock at $4.25 per share.
During the period from September 1998 through December 1998, the
Company completed a private placement of common stock. During the four
months ended December 31, 1998, the Company sold 561,133 shares of
common stock at $3.50 per share. The Company had sold 85,714 shares of
common stock at $3.50 per share as of September 30, 1998.
In November 1998, the Company began a new private placement of common
stock. Through December 31, 1998, the Company sold 179,222 shares of
common stock at $4.50 per share.
F-14
<PAGE> 41
SAFESCIENCE, INC.
(f/k/a/ IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Continued)
(c) Regulation S Stock Sales
In January 1997, the Company completed a sale of 500,000 shares of
common stock for $900,000 under regulation S of the Securities and
Exchange Commission's regulations. These shares also included an
attached warrant to purchase one share of common stock for $3.50 for
every four shares of common stock purchased. As of December 31, 1998,
warrants to purchase 125,000 shares of common stock at $3.50 per share
were outstanding.
In September 1997, the Company completed an additional sale of 250,000
shares of common stock for $675,000 under regulation S of the
Securities and Exchange Commission's regulations. These shares also
include an attached warrant to purchase one share of common stock for
$4.75 for every four shares of common stock purchased. As of December
31, 1998, warrants to purchase 62,500 shares of common stock at $4.75
per share were outstanding.
(d) Stock Option Plan
The Company has a Nonqualified Stock Option Plan (1996 Plan) and has
registered 500,000 shares of common stock with the Securities and
Exchange Commission for the issuance under option agreements. The
exercise price of each option will be determined by the Board of
Directors and must be exercised within ten years from May 1, 1996. The
Company may issue these options to its officers, directors, employees
and consultants. As of December 31, 1998, options to purchase 11,659
shares were available for future grant.
Effective December 1, 1998, the Company adopted the 1998 Incentive
Stock Option Plan under which 600,000 shares of common stock were
reserved for issuance under option agreements. As with the 1996 Plan,
the exercise price of the each option will be determined by the Board
of Directors, and may be issued to officers, directors, employees and
consultants. Additionally, the options must be exercised within ten
years from December 1, 1998. As of December 31, 1998, options to
purchase 472,900 shares were available for future grant.
The Company has entered into agreements with various employees and
consultants for the grant of stock options and shares of common stock
at $0.01 per share. During 1998 and 1997, the Company granted options
and shares totaling 153,517 and 337,226 shares, respectively, and
recorded charges to operations of approximately $1,999,000 and
$1,382,000, respectively, relating to these grants. The charge to
operations represented the fair market value of the underlying common
stock or option.
F-15
<PAGE> 42
SAFESCIENCE, INC.
(f/k/a/ IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Continued)
The following table summarizes all stock option activity to employees
and consultants for services and all warrant activity in connection
with equity financings as of December 31, 1998.
Stock Options
Weighted -
Average
Number Exercise Price
of Shares Per Share
[S] [C] [C]
Balance, December 31, 1995 - $ -
Granted 215,206 0.01
Exercised (60,500) 0.01
-------- -------
Balance, December 31, 1996 154,706 0.01
Granted 141,426 0.01
Exercised (187,799) 0.01
Canceled - 0.01
-------- -------
Balance, December 31, 1997 108,333 0.01
Granted 193,028 1.72
Exercised (111,214) 0.01
-------- -------
Balance, December 31, 1998 190,147 $ 1.74
======== =======
The following table presents weighted-average price and life
information about significant option groups outstanding at December 31,
1998:
---------Options Outstanding---------- ----Options Exercisable----
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
[C] [C] [C] [C] [C] [C]
$ 0.01 130,147 9.3 years $ 0.01 96,597 $ 0.01
5.50 60,000 9.9 years 5.50 12,000 5.50
------- --------
190,147 108,597
====== =======
F-16
<PAGE> 43
SAFESCIENCE, INC.
(f/k/a/ IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Continued)
As of December 31, 1998, the Company had committed to grant options to
purchase 230,000 shares of common stock at $0.01 per share upon the
attainment of future milestones.
(e) Pro Forma Disclosures of Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, Accounting for Stock-Based Compensation. SFAS No. 123
requires the measurement of the fair value of stock options or warrants
granted to employees to be included in the statement of operations or,
alternatively, disclosed in the notes to financial statements. The
Company has determined that it will continue to account for stock-based
compensation for employees under Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and elect the
disclosure-only alternative under SFAS No. 123. The Company records
the fair market value of stock options and warrants granted to
nonemployees in the consolidated statement of operations. The Company
has computed the pro forma disclosures required under SFAS No. 123 for
stock options granted in 1998, 1997 and 1996 using the Black-Scholes
option-pricing model. The weighted average assumptions used for 1998,
1997 and 1996 are as follows:
1998 1997 1996
Risk-free interest rate 4.2% 5.6% 5.8% 6.8% 5.5% 6.9%
Expected dividend yield - - -
Expected life 5 years 5 years 5 years
Expected volatility 60% 60% 60%
Had compensation cost for the Company's stock option plans been
determined consistent with SFAS No. 123, net loss would have been as
follows:
1998 1997 1996
As reported
Net loss $ (6,473,505) $ (4,734,475) $ (2,300,147)
============ ============ ============
Basic and diluted net
loss per common share $ (0.50) $ (0.43) $ (0.26)
============ ============ ============
Pro forma
Net loss $ (6,516,065) $ (4,734,475) $ (2,300,147)
============ ============ ============
Basic and diluted net
loss per common share $ (0.50) $ (0.43) $ (0.26)
============ ============ ============
F-17<PAGE> 44
SAFESCIENCE, INC.
(f/k/a/ IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Continued)
(f) Warrants
The following table summarizes all warrant activity in connection with
equity financing as of December 31, 1998:
Warrants
Weighted-
Average
Number of Exercise Price
Shares Per Share
Balance, December 31, 1995 100,000 $ 0.10
Granted 647,500 4.13
Exercised - -
--------
Balance, December 31, 1996 747,500 3.59
Granted 445,930 4.06
Exercised (300,000) 1.73
Canceled (400,000) 5.00
--------
Balance, December 31, 1997 493,430 4.00
Granted 81,955 4.75
Exercised - -
--------
Balance, December 31, 1998 575,385 $ 4.10
======== =======
As of December 31, 1998, all warrants outstanding were fully
exercisable into common shares. These warrants have a weighted-average
exercise price of $4.10, and weighted-average remaining contractual
life of 3.6 years.
(g) Acquisition of Minority Interest in Subsidiary
In 1997, the Company acquired the remaining minority interest in its
subsidiary, International Gene Group, Inc. by issuing 205,469 shares of
restricted stock in exchange for the outstanding shares in the
subsidiary. Research and development costs have been charged for
$719,142, which represented the fair market value of the shares issued.
F-18
<PAGE> 45
SAFESCIENCE, INC.
(f/k/a/ IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Continued)
(5) RELATED-PARTY TRANSACTIONS
In January 1994, the Company agreed that its founder, Dr. David Platt,
would receive a royalty of two percent of net sales, in exchange for
the licensed patent rights on certain products being developed. The
Company has agreed to pay all of the costs to procure and maintain any
patents granted under this agreement.
The agreement includes a requirement that the royalties paid in the
sixth year of this agreement and all subsequent years meet a minimum
requirement of $50,000. If this requirement is not met, Dr. Platt may
terminate the agreement and retain the patent rights. The Company may
terminate the agreement on sixty days' notice. The Company has not made
any royalty payments under the agreement.
(6) ACQUISITION AND RECAPITALIZATION
On March 7, 1995, Alvarada, Inc. acquired International Gene Group,
Inc. by exchanging 5,821,086 shares of its issued and outstanding
common stock for 19,633 issued and outstanding shares of International
Gene Group, Inc. As a result of this exchange, Alvarada, Inc. acquired
approximately 94% of the outstanding common stock of International Gene
Group, Inc. In the reverse acquisition, no adjustment of assets of
either company to "fair value" has been made, and goodwill has not been
recognized as a result of the acquisition.
Prior to the acquisition of International Gene Group, Inc., Alvarada,
Inc. had approximately 1,349,860 shares of common stock issued and
outstanding. As shares were reissued from the stock split and
acquisition, any fractional shares were rounded upward in accordance
with the agreements. As of March 28, 1995, Alvarada, Inc. changed its
name to IGG International, Inc.
(7) LEASE COMMITMENTS
The Company leases office space in Boston, Massachusetts, under an
operating lease expiring in May 2003. The Company also leases certain
equipment under operating leases.
F-19
<PAGE> 46
SAFESCIENCE, INC.
(f/k/a/ IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Continued)
Minimum future payments under the operating leases as of December 31,
1998 for each of the next five calendar years are approximately as
follows:
Years ending December 31,
1999 $ 184,556
2000 181,696
2001 181,710
2002 128,633
2003 64,462
------------
$ 741,057
============
Rent expense in the accompanying consolidated statements of operations
was approximately $100,000, $45,700, and $54,500 in 1998, 1997, and
1996 respectively.
(8) LICENSING AGREEMENTS
On December 29, 1995, the Company's subsidiary SafeScience Products,
Inc. (SPI) entered into a licensing agreement with the Government of
Israel's Agricultural Research Organization concerning shared
technology. The licensing agreement requires that SPI pay a three
percent (3%) royalty on the net selling price of any licensed products
developed from the shared technology. As an additional condition of
this agreement, SPI will fund a research and development program
requiring payments over the next five years totaling $1,573,000. In
the first year of the licensing agreement, SPI is obligated to pay
$327,000 followed by successive annual payments of $332,000, $314,000,
$300,000 and $300,000, respectively. This agreement will be effective
until the patents concerning the licensed technology have expired or
the agreement is terminated by the parties involved. The Company paid
$200,000, $332,000 and $297,000 in 1998, 1997 and 1996, respectively,
related to this agreement.
On April 29, 1997, SPI signed an exclusive, worldwide licensing
agreement with Agrogene Ltd. to commercialize carbohydrate compounds
derived from a collection of natural carbohydrates identified and
patented by Agrogene Ltd. Agrogene Ltd. is an Israeli based
biotechnology company specializing in products for agriculture. SPI
will fund the research and development of this product and future
generation products for 5 years at $150,000 per year. The Company made
three payments of $25,000 during 1997. A fourth payment of $25,000 was
due and paid in January 1998. The Company paid $75,000 during 1998.
In October 1997, the Company entered into an agreement to license
certain patented technology from Leket-Bar Chemicals, Ltd. The Company
is required to pay license fees totaling $400,000 over the next four
years and royalties on future product sales. The Company paid $175,000
during 1998.
<PAGE> 47
SAFESCIENCE, INC.
(f/k/a/ IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Continued)
During April 1998, the Company entered into an agreement with Dominion
BioSciences, Inc. (DBI) to license and distribute certain patented
technologies. At the signing of the agreement, the Company was
obligated to pay $50,000 to DBI and will make additional payments based
upon attaining certain defined milestones totaling $450,000.
Furthermore, the Company will be required to share the profit from the
sale of developed products with DBI equally up to $10 million at which
point the Company and DBI will receive 65% and 35%, respectively, on
excess profits. During 1998, the Company made payments totaling
$100,000 to DBI.
(9) INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, Accounting
for Income Taxes, the objective of which is to recognize the amount of
current and deferred income taxes payable or refundable at the date of
the consolidated financial statements as a result of all events that
have been recognized in the accompanying consolidated financial
statements, as measured by enacted tax laws.
At December 31, 1998, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $13,510,000, which
expire through 2018. The Company also has certain tax credits
available to offset future federal and state income taxes, if any. Net
operating loss carryforwards and credits are subject to review and
possible adjustments by the Internal Revenue Service and may be limited
in the event of certain cumulative changes in excess of 50% in the
ownership interests of significant stockholder over a three-year
period.
The components of the Company's deferred tax asset are as follows:
1998 1997
Net operating loss carryforwards $ 5,405,000 $ 1,986,000
Tax credit carryforwards 296,000 284,000
Temporary differences 174,000 (167,000)
----------- -----------
Total deferred tax assets 5,875,000 2,103,000
Less Valuation allowance (5,875,000) (2,103,000)
----------- -----------
Net deferred tax assets $ - $ -
=========== ===========
F-21
<PAGE> 48
SAFESCIENCE, INC.
(f/k/a/ IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Continued)
In evaluating realizability of these deferred tax assets, management
has considered the Company's short operating history, the volatility of
the market in which it competes and the operating losses incurred to
date, and believes that given the significance of this evidence, a full
valuation reserve against its deferred tax assets is required as of
December 31, 1998 and 1997. The increase in the valuation allowance
during these periods primarily relates to the increase in the Company's
net operating loss carryforwards.
(10) Employee Benefit Plan
The Company instituted the SafeScience 401(k) Plan (the Plan) in 1998
pursuant to which employees may defer compensation for income tax
purposes under Section 401(k) of the Internal Revenue Code.
Substantially all of the Company's employees are eligible to participate
in the Plan. Participants may contribute up to 20% of their annual
compensation to the Plan, subject to certain limitations. The Company
matches a discretionary amount as determined by the Board of Directors.
The Company did not make any contributions to the Plan during 1998.
(11) Subsequent Event
During the period from January 1, 1999 through March 24, 1999, the
Company completed a private placement offering of common stock and sold
1,401,123 shares of common stock at $4.50 per share for net proceeds of
$6,305,053.
F-22
<PAGE> 49
ITEM 9. CHANGE IN CERTIFYING ACCOUNTANT
(a) Beginning with the year ended December 31, 1997, the
Company's independent auditor has been Arthur Andersen LLP. Williams
& Webster, P.S. audited the Company's financial statements from
inception through December 31, 1996.
(b) Williams & Webster, P.S. was replaced as a result of the
engagement of Arthur Andersen. There were no disagreements with
Williams & Webster, P.S. on any matter of accounting principles or
practices, financial disclosure, or auditing scope or procedure or any
reportable events.
(c) From inception of the Company through December 31, 1996,
Williams & Webster's reports on the financial statements contained no
adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles,
except the disclosure of substantial doubt that the Company would
continue as a going concern.
(d) Williams & Webster, P.S. has provided a letter addressed to
the Securities and Exchange Commission stating it agrees with the
statements contained in the Form 10-K, a copy of which is filed as an
Exhibit to this Form 10-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The officers and directors of the Company are as follows:
Name Age Position
David Platt, Ph.D. 45 Chief Executive Officer, Secretary
Chairman of the Board of Directors
Bradley J. Carver 37 President, Chief Financial Officer,
Treasurer and a member of the
Board of Directors
Richard A. Salter 56 Senior Vice President and a member
of the Board of Directors
David Dube 42 Director
Theodore J. Host 53 Director
Brian G.R. Hughes 44 Director
All directors hold office until the next annual meeting of
shareholders and until their successors have been elected and
qualified. The Company's officers are elected by the Board of
Directors at the annual meeting of the Company's shareholders and hold
office until their death, or until they resign or have been removed
from office.
Dr. Platt has been the Chief Executive Officer, Secretary and
Chairman of the Board of Directors since March 1995 and has been the
Chief Executive Officer, Secretary and the Chairman of the Board of
Directors of IGG, the Company's wholly-owned subsidiary for the
development of human therapeutics, since December 1992. Dr. Platt has
been Chief Executive Officer and Chairman of the Board of Directors of
SafeScience Products, the Company's agricultural and consumer products
subsidiary, since its inception on June 23, 1995. From January 1991 to
<PAGE> 50
November 1992, Dr. Platt was a research scientist with the Department
of Internal Medicine at the University of Michigan, Ann Arbor,
Michigan. From October 1989 to November 1991, Dr. Platt was a research
fellow with Dr. A. Raz at the Michigan Cancer Foundation, Detroit,
Michigan. From January 1989 to August 1989, Dr. Platt was a research
fellow under Dr. M. Wilcheck, Weizmann Institute of Science, Rehovot,
Israel. Dr. Platt received a Doctor of Philosophy degree (1989),
Masters of Science degree (1983), and Bachelor of Science degree (1978)
from the Hebrew University of Jerusalem, Israel and a Bachelor of
Engineering degree (1980) from Technion, Haifa, Israel.
Mr. Carver has been President, Chief Financial Officer, Treasurer
and a member of the Board of Directors of the Company since March 1995
and has been the President, Chief Financial Officer, Treasurer and a
member of the Board of Directors of IGG since February 1993. Mr.
Carver has been President, Chief Financial Officer, Secretary,
Treasurer and a member of the Board of Directors of SafeScience
Products since its inception on June 23, 1995. From June 1992 to
October 1994, Mr. Carver has been a consultant with Cyrowski and
Associates, which is engaged in the business of commercial real estate.
From March 1991 to October 1994, Mr. Carver has been a consultant with
Circuit Master, Inc., a Michigan corporation, which is an electronics
design and engineering firm engaged in the production of audio power
amplifiers. From June 1991 to September 1993, Mr. Carver was a
consultant with EPI Medical Products, a Michigan corporation, which is
engaged in the production and licensing of a patented device for
disposal of hazardous medical waste and surgical products. From
January 1991 to March 1993, Mr. Carver was a consultant with Capital
Networks, Inc., a Michigan corporation, which is a consulting firm for
small business. From January 1989 to March 1991, Mr. Carver was a
consultant with Lincoln Technical Services, Inc., a Michigan
corporation, which is engaged in the selection and management of
engineers for automotive clients. From December 1988 to December 1990,
Mr. Carver was the founder of Carver Nutritional Products, which was
engaged in production and sale of sports nutrition products sold to
professional and college sports teams. Mr. Carver received a Bachelor
of Arts degree in management from Michigan State University in 1983.
Mr. Dube has been a director of the Company since May 1998. Mr.
Dube has been a Senior Vice President, Investment Banking with RAS
Securities Corporation since March 1998, specializing in early stage
financings, strategic financial planning and advisory services relating
to mergers, acquisitions, capital formation and restructuring for
private and public companies and was previously, from September 1997 to
February 1998, a project finance consultant to the firm. Mr. Dube has
been the President and Chief Executive Officer of Optimax Industries,
Inc., a publicly-traded company with interests in the horticultural,
decorative giftware and truck part accessories industries from July
1996 to September 1997. From February 1991 to June 1996, Mr. Dube had
been the principal of Dube & Company, a financial consulting firm.
From December 1986 to February 1991, Mr. Dube was the Treasurer and
Chief Financial Officer of Inland Credit Industries, Inc., a mortgage
finance and investment firm. Mr. Dube serves on the boards of
directors of publicly-traded Helmstar Group, Inc., a merchant banking
firm and privately-held Meyers Capital Management, LLC, a registered
investment advisory firm. Mr. Dube is a Certified Public Accountant in
the state of New Hampshire.
<PAGE> 51
Mr. Salter has been the Company's Executive Vice President since
January 1998. Prior thereto, Mr. Salter was the Company's Vice
President - Corporate Development from June 1997 through January 1998
and served the Company as a consultant from June 1996 through July
1997. Prior thereto, from 1989 through 1996 Mr. Salter rendered
consulting services in the areas of sales and marketing to a variety of
small businesses and companies. From 1971 to 1989, Mr. Salter was co-
founder and Senior Vice President of International Weekends, a travel
and leisure company. Mr. Salter is a graduate of the Boston University
School of Law.
Mr. Host has been a member of the Board of Directors since
December 1998. From 1991 through 1996 Mr. Host was the President and
Chief Operating Officer, and later Chief Executive Officer, of The
Scotts Company. Prior thereto, Mr. Host was Senior Vice President -
Marketing for Coca-Cola, USA in Atlanta, Georgia from 1990 to 1991.
From 1967 through 1990 Mr. Host held a variety of positions with
American Home Products, a company involved primarily in the health care
industry.
Mr. Hughes has been a Director since December 1998. Mr. Hughes is
president-select of the Association of Alumni and Alumnae of the
Massachusetts Institute of Technology (MIT). Since 1978 Mr. Hughes has
held a variety of positions with the MIT Corporation, the board which
governs MIT. From 1989 through 1995 Mr. Hughes was Vice Chairman and
then CEO of American Rocket Company, which worked to develop and
commercialize safe, clean, low cost hybrid rocket propulsion. Prior
thereto, from 1984 through 1989, he was co-founder and Executive Vice
President of PTAT System Inc., which co-built a private, transatlantic
fiber optic cable system. PTAT System Inc. was sold to Sprint in
August 1989. Prior thereto, from 1982 through 1984 Mr. Hughes was
Senior Vice President of U.S. Aviation Underwriters, Inc. in
Washington, DC.
Indemnification
The Company's Bylaws provide that the Company's directors and
officers will be indemnified to the fullest extent permitted by the
Nevada Corporation Code, however, such indemnification shall not apply
to acts of intentional misconduct; knowing violations of law; or any
transaction where an officer or director personally received a benefit
in money, property, or services to which to the director was not
legally entitled.
The Company has been advised that in the opinion of the
Securities and Exchange Commission indemnification is against public
policy as expressed in the Securities Act of 1933, as amended, and is,
therefore, unenforceable.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities and Exchange Act of 1934 requires
certain defined persons to file reports of and changes in beneficial
ownership of a registered security with the Securities and Exchange
Commission in accordance with the rules and regulations promulgated by
the Commission to implement the provisions of Section 16. Under the
regulatory procedure, officers, directors and persons who own more than
ten percent of a registered class of a company's equity securities are
also required to furnish the Company with copies of all Section 16(a)
forms they file.
<PAGE> 52
Based solely on review of the copies of Forms 3, 4 and 5 furnished
to the Company for transactions occurring between January 1, 1998 and
December 31, 1998, or with respect to transactions which occurred
between January 1, 1998 and December 31, 1998, all reports which were
required to be filed under Section 16(a) of the Exchange Act were in
fact so filed.
ITEM 11. EXECUTIVE COMPENSATION.
(a) Cash Compensation.
The Company anticipates entering into employment agreements with
its Executive Officers in the near future. Employees, including
Executive Officers, who serve as directors do not receive compensation
for their services as directors and are not reimbursed for expenses
incurred in attending board meetings. The Company paid the following
salaries to its Officers:
1998 1997 1996
David Platt, Ph.D. $ 119,000 $ 106,000 $96,000
Bradley Carver $ 119,000 $ 104,000 $80,000
Richard Salter $ 671,988 (1) $ 139,781 (2) $ 0
(1) Mr. Salter's salary was paid in the form of 190,000 shares of
Common Stock of the Company valued at $671,988. Mr. Salter did
not receive any cash compensation from the Company.
(2) Mr. Salter's salary was paid in the form of 30,000 shares of
Common Stock of the Company valued at $139,781. Mr. Salter did
not receive any cash compensation from the Company. In addition,
prior to becoming an employee of the Company, he received 30,000
shares of Common Stock as a consultant and exercised options to
purchase 57,500 shares of Common Stock at $0.01 per share which
were granted in 1996. The value of the 87,500 shares issued to
Mr. Salter as a consultant during 1997 totaled $281,938.
and anticipates paying the following salaries in 1999:
David Platt, Ph.D. $ 135,000
Bradley Carver $ 135,000
Richard Salter $ 0 (1)
(1) Mr. Salter's salary for the period January through June, 1999 will
be paid in the form of 30,000 shares of Common Stock of the
Company, plus an additional 100,000 shares granted in January
1999. Prior to July 1999, Mr. Salter will not receive any cash
compensation from the Company. The Company has not yet determined
Mr. Salter's salary for the period beginning in July 1999.
Pursuant to a contract which terminates at the end of June 1999,
Richard Salter, the Company's Senior Vice President, receives a salary
which is paid entirely in options to purchase Common Stock of the
Company. Mr. Salter receives options to purchase 5,000 shares for each
month of employment, of which 2,500 relate to so-called "restricted"
shares and the remaining 2,500 are registered on Form S-8. In
addition, in January 1998, the Company granted Mr. Salter options to
purchase 100,000 shares of "restricted" Common Stock for a purchase
price of $0.01 per share, for each of the three years 1998, 1999 and
2000 at the commencement of which Mr. Salter remains with the Company.
<PAGE> 53
(b) Compensation Pursuant to Plans.
The Company has no retirement, pension, profit sharing, insurance
and medical reimbursement plans covering its Officers or Directors
other than: (i) a 401(k) benefit plan; (ii) a medical reimbursement
plan; (iii) the 1998 Incentive Stock Option Plan. As of December 31,
1998, non-qualified options to purchase a total of 127,100 shares have
been issued under the 1998 Incentive Stock Option Plan, including
options to purchase 60,000 shares issued to non-employee Directors of
the Company and options to purchase 20,000 shares issued to Richard
Salter, Executive Vice President and a Director of the Company. None
of such options have been exercised. No qualified options were granted
under the 1998 Incentive Stock Option Plan as of December 31, 1998.
Prior to the adoption of the 1998 Incentive Stock Option Plan, options
to purchase a total of 65,928 shares were issued during 1998 under the
Company's previous non-qualified incentive stock option plan filed on
Form S-8 Registration Statement with the Commission; 111,214 of the
options outstanding under such previous plan were exercised during the
year ending December 31, 1998.
(c) Other Compensation.
Officers and Directors of the Company did not receive any other
compensation during the fiscal year ended December 31, 1998.
(d) Compensation of Directors.
The Company's Directors who are not employees of the Company
receive cash compensation for their services equal to $1,500 per
meeting, in addition to reimbursement for travel expenses incurred in
traveling to and from meetings. In addition, each Director who is not
an employee of the Company received non-qualified options to purchase
20,000 shares of the Company's Common Stock for two years of service on
the Board. Such options vest and are exercisable as follows: 4,000
shares vest at the time of grant; an additional 2,000 shares vest at
the end of each fiscal quarter that such Director serves on the Board.
The exercise price of such options is $5.50 per share, the low/bid
price of the Common Stock on the date of grant of the options, and the
options bear a term of ten years from the date of grant.
(e) Termination of Employment and Change of Control Arrangements.
No compensatory plan or arrangement exists between the Company and
any Executive Officer, except as discussed herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth the Common Stock ownership, at
December 31, 1998 of each person known by the Company to be the
beneficial owner of five percent or more of the Company's Common Stock,
each director individually and all officers and directors of the
Company as a group. Each person has sole voting and investment power
with respect to the shares of Common Stock shown, and all ownership is
of record and beneficial.
<PAGE> 54
Name and Number Percent
address of owner of Shares Position of Class
David Platt, Ph.D. 2,959,550 Chief Executive 21.1%
31 St. James Avenue Officer, Secretary
Suite 520 and Chairman of the
Boston, MA 02116 Board of Directors
Bradley J. Carver 2,562,980 President, Chief 18.3%
31 St. James Avenue Financial Officer,
Suite 520 Treasurer and
Boston, MA 02116 Director
Richard A. Salter 150,600 Senior Vice 1.1%
31 St. James Avenue President and
Suite 520 Director
Boston, MA 02116
David Dube 20,000(1) Director *
c/o RAF
Securities Corporation
50 Broadway, 14th Floor
New York, NY 10004
Theodore J. Host 20,000(1) Director *
26201 Myra Way
Bonita Springs, FL 34134
Brian G.R. Hughes 20,000(1) Director *
c/o Martinez & Hughes
700 Alta Avenue
San Antonio, TX 78209
ALL OFFICERS AND 5,733,130(2) 40.7%
DIRECTORS AS A
GROUP (6 persons)
George Strawbridge, Jr. 912,146(3) 6.5%
3801 Kenneth Pike
Building B-100
Wilmington, DE 19807
* Less than 1%.
(1) Includes 20,000 shares which may be issued upon the exercise of
options granted in connection with election to the Board of
Directors. 6,000 of such options are exercisable as of December
31, 1998 or within 60 days thereafter.
(2) Includes the 60,000 shares which may be issued upon the exercise
of the options issued to non-employee Directors as described in
note (1) above.
(3) Includes 45,455 shares which may be issued upon the exercise of
warrants issued in connection with the Company's private
placements in 1998. Such shares bear an exercise price of $4.75
per share.
<PAGE> 55
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On January 7, 1994, IGG entered into a licensing agreement with
Dr. Platt, the Company's Chief Executive Officer and a member of the
Board of Directors to pay Dr. Platt a royalty of two percent (2%) of
the net sales of the Company's GBC-590 product only. See "Business -
Patent Status and Protection of Proprietary Technology."
During 1998, the Company issued 1,560,163 shares of Common Stock
for cash consideration of $5,729,892 less associated expenses of
$198,420. These shares include 181,818 shares issued pursuant to an
offering under Regulation S for a total purchase price of $500,000.
Also included in this amount are 146,000 shares sold in the first half
of 1998, for an aggregate purchase price of $438,000, in a private
placement commenced in the fall of 1997, which private placement
resulted in the issuance of a total (during 1997 and 1998) of 679,867
shares of Common Stock for total consideration of $2,039,601, before
expenses. The stock offered in each private placement has warrants
attached allowing the purchaser to purchase one additional share, for
a purchase price of $4.75, for every four shares purchased. All such
warrants expire five years from the date of issue, or earlier in the
event the market price of the Company's Common Stock reaches and
remains at $11.00 for thirty consecutive trading days. Also included
in this amount are 406,206 shares sold in a private placement in the
third quarter of 1998, for an aggregate purchase price of $1,625,176;
an additional 646,918 shares sold in a private placement in the end of
the third and the beginning of the fourth quarter of 1998, for an
aggregate purchase price of $2,161,744; and 179,222 shares sold in a
private placement commenced in December 1998, for an aggregate purchase
price of $806,500.
Since December 31, 1998, the Company has issued an additional
1,406,679 shares of Common Stock for cash consideration of $6,330,053.
In 1996, the Company adopted a Nonqualifying Stock Option Plan and
registered, pursuant to a Form S-8 Registration Statement 500,000
shares of stock for the compensation of directors, consultants and
employees as per the agreement. During 1997, the Company issued 86,841
shares qualifying as these S-8 shares. The Company had other stock for
services agreements which resulted in restricted shares being issued.
The Company issued 250,385 other shares for services in 1997. The
value of stock options and stock grants was approximately $1,382,000
for the year ended December 31, 1997.
Effective July 7, 1997, the Company hired Richard Salter as its
Vice President for Business Development, for a period of two years.
Mr. Salter had served the Company as a consultant from June 1996
through July 7, 1997, during which period he received options to
purchase a total of approximately 110,000 shares of Common Stock. In
exchange for his services beginning in July 1997, Mr. Salter receives
options to purchase 5,000 shares of Common Stock (of which 2,500 shares
will be issued under Form S-8 and the remaining 2,500 shares will
either be restricted shares or, at the Company's option, will be issued
under Form S-8), for each month that he serves the Company. In January
1998, the Company granted Mr. Salter options to purchase 100,000 shares
of "restricted" Common Stock for a purchase price of $0.01 per share,
for each of the three years 1998, 1999 and 2000 at the commencement of
which Mr. Salter remains with the Company.
<PAGE> 56
Mr. Salter is reimbursed for his reasonable expenses but does not,
prior to July 1999, receive any cash compensation; he receives only
Common Stock, or options to purchase Common Stock, of the Company, as
described above. All options will be exercisable for a term of ten
years from the date of grant. During the period ended December 31,
1998, options to purchase an aggregate of 19,928 "restricted" shares,
exercisable at $0.01 per share, were similarly granted to Mr. David
Sandberg in consideration of legal services.
Mark Donohue has rendered consulting services in the areas of
assisting the Company in establishing relationships in the socially
responsible business community and serving as a senior adviser to the
officers of the Company with regard to corporate strategy and
marketing. During 1998, the Company paid Mr. Donohue $185,000 in cash
and he was also issued 36,000 shares of "restricted" shares of Common
Stock.
On December 6, 1996, David Platt, Ph.D., the Company's Chairman of
the Board of Directors, signed a Confidentiality and Invention
Agreement with the Company. The Agreement provides that Dr. Platt
assigns all his rights, title and interest in any invention, data or
idea, made or conceived or reduced to practice either alone or jointly
with other to the Company. Further, that all rights thereto shall
remain the sole property of the Company and Dr. Platt agreed not to
disclose any information about the Company's confidential information.
In January 1998, the Company changed its name from IGG
International, Inc. to SafeScience, Inc.
The foregoing agreements and transactions were as favorable as
could have been obtained from an unaffiliated third party in a similar
transaction.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a) Financial Statements are contained in Item 8 of this Form 10.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the last quarter of
the year ended in regard to this report.
(c) Exhibits.
The following documents are incorporation herein by reference from
the Registrant's Form 10, as filed with the Securities and Exchange
Commission, SEC file No. 0-26476:
3.1 Articles of Incorporation of Alvarada, Inc..
3.2 Amendment to the Articles of Incorporation dated March 1,
1995
3.3 Amendment to the Articles of Incorporation dated March 3,
1995
3.4 Amendment to the Articles of Incorporation dated May 23, 1995
<PAGE> 57
3.5 Bylaws of Alvarada, Inc.
3.6 Articles of Incorporation of International Gene Group
3.7 Bylaws of the Company of International Gene Group
3.8 Articles of Incorporation of Agricultural Glycosystems, Inc.
3.9 Bylaws of the Company of Agricultural Glycosystems, Inc.
4.1 Specimen Stock Certificate
10.1 Agreement and Plan of Reorganization
10.2 Licensing Agreement with Dr. Platt
10.3 Office Lease
10.4 Licensing Agreement with The Government of Israel .
The following documents are incorporated herein by reference from
the Registrant's Form S-8 Registration Statement filed with the
Commission on May 14, 1996, SEC file No. 333-04764:
10.5 Incentive Stock Option Plan
The following documents are incorporation herein by reference from
the Registrant's Form 10-K for the period ending December 31, 1996:
10.6.1 Employee Confidentiality and Invention Agreement between Dr.
David Platt and the Company.
The following documents are incorporated herein by reference from
the Registrant's Registration Statement on Form SB-2, filed with the
Commission on November 20, 1996, SEC file no. 333-16087:
10.6 Warrant Agreement with Trinity American Corporation.
10.7 Consulting Agreement wtih Richard Salter and Amendment
thereto.
10.8 Consulting Agreement with Keith Greenfield.
10.9 Consulting Agreement with James C. Czirr.
10.10 Warrant Agreement with James C. Czirr.
The following documents are incorporated herein by reference from
the Registrant's Form 10-K for the period ending December 31, 1997:
10.11 Amendment to Consulting Agreement with Keith Greenfield
10.12 Licensing Agreement with Agrogene Ltd.
10.13 Trademark Sales and License Agreement with Elk Mound Feed and
Farm Supply, Inc.
<PAGE> 58
10.14 Consulting Agreement with Michelangelo, LLC, dated May 1997
10.15 Consulting Agreement with Michelangelo LCC, dated September
1997.
10.16 Agreement with Leket-Bar Chemicals, Ltd., dated October 1997
99.1 Office Lease
The following documents are an exhibit hereto:
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Kevin J. Williams & Co., Certified Public
Accountants.
27 Financial Data Schedule.
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized,
in Boston, Massachusetts, on this 31st day of March, 1997.
SAFESCIENCE, INC.
BY: /s/ Bradley J. Carver
Bradley J. Carver, President and Chief Financial
Officer
KNOW ALL MEN BY THESE PRESENT, that each person whose signature
appears below constitutes and appoints Bradley J. Carver, as true and
lawful attorney-in-fact and agent, with full power of substitution, for
his and in his name, place and stead, in any and all capacities, to
sign any and all amendments to this registration statement, and to file
the same, therewith, with the Securities and Exchange Commission, and
to make any and all state securities law or blue sky filings, granting
unto said attorney-in-fact and agent, full power and authority to do
and perform each and every act and thing requisite or necessary to be
done in about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying the confirming all that
said attorney-in-fact and agent, or any substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Form 10-K has been signed by the following persons in the
capacities and on the dates indicated:
Signatures Title Date
/s/ David Platt Chief Executive Officer, March 31, 1999
David Platt, Ph.D Secretary and Chairman of
the Board of Directors
/s/ Bradley J. Carver President, Chief Financial March 31, 1999
Bradley J. Carver Officer, Treasurer and a
member of the Board of Directors
/s/ Richard A. Salter
Richard A. Salter Senior Vice President and March 31, 1999
a member of the Board
of Directors
/s/ David Dube
David Dube Director March 31, 1999
/s/ Theodore J. Host
Theodore J. Host Director March 31, 1999
/s/ Brian G. R. Hughes March 31, 1999
Brian G.R. Hughes Director
<PAGE> 61
EXHIBIT 23.1
ARTHUR
ANDERSEN
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the
Company's previosly filed Registration Statement File No. 33-04764.
/s/ Arther Andersen LLP
Boston, Massachusetts
March 30, 1999
<PAGE> 62
WILLIAMS & WEBSTER, P.S.
Certified Public Accountants
Seafirst Financial Center
601 West Riverside
Suite 1970
Spokane, WA 99201-0611
Phone: (509) 838-511
FAX: (509) 624-5001
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Safescience, Inc.
Boston, Massachusetts
We consent to the use of our audit report dated March 27, 1997,
on the consolidated financial statements of IGG International,
Inc. (now known as Safescience, Inc.) as of December 31, 1996,
for the filing with and attachment to the Form 10-K for the year
ending December 31, 1998, and inclusion in the Company's
previously filed Registration Statement File No. 333-04764.
/s/ Williams & Webster, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at December 31, 1999 Audited
and the Consolidated Statement of Income for the twelve months ended
December 31, 1998 Audited and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,439,4088
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,552,081
<PP&E> 301,928
<DEPRECIATION> 81,704
<TOTAL-ASSETS> 3,968,588
<CURRENT-LIABILITIES> 456,839
<BONDS> 0
0
0
<COMMON> 141,072
<OTHER-SE> 3,359,377
<TOTAL-LIABILITY-AND-EQUITY> 3,968,588
<SALES> 0
<TOTAL-REVENUES> 122,173
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,595,678
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 392
<INCOME-PRETAX> (6,473,505)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,473,505)
<EPS-PRIMARY> (.50)
<EPS-DILUTED> (.50)
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