<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------------------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999.
[ ] 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
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SAFESCIENCE, INC.
(Exact name of Registrant as specified in its charter,)
NEVADA 33-0231238
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification no.)
Park Square Building
31 St. James Avenue
8th Floor
Boston, Massachusetts 02116
(Address of principal executive offices, including zip code,)
(617) 422-0674
(Registrant's telephone number, including area code.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by the Section 13 or 15(d) of the Securities Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES [ X ] NO [ ]
The number of shares outstanding of the Registrant's Common Stock, $.01
par value per share, at October 30, 1999 was 16,776,570 shares.
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<PAGE> 2
SAFESCIENCE, INC,
(A Development Stage Enterprise)
INDEX
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1999 (Unaudited)
and December 31, 1998 . . . . . . 3
Consolidated Statements of Operations
for the Three and Nine-Months Ended
September 30, 1999 (Unaudited) and
1998 and for the Period From
December 8, 1992 (Inception) through
September 30, 1999 . . . . . . . 5
Consolidated Statements of Cash Flows
for the Nine-Months Ended September 30,
1999 (Unaudited) and 1998 and for the
Period From December 8, 1992
(Inception) through September 30, 1999 . . . 6
Notes to Unaudited Consolidated
Financial Statements . . . . . . 8-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations . . . . . . . 15-20
Signature . . . . . . . . . . 21
<PAGE> 3
SAFESCIENCE, INC.
(f/k/a IGG INTERNATIONAL, INC.)
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
<S> <C> <C>
Current assets:
Cash and cash equivalents 6,200,164 3,439,408
Accounts receivable, net of
allowances of approximately
$43,000 at September 30, 1999 308,425 -
Inventory 326,324 -
Prepaid expenses and other
current assets 169,655 112,673
----------- -----------
Total current assets 7,004,568 3,552,081
----------- -----------
Property and equipment, net of
accumulated depreciation 456,221 220,224
----------- -----------
Other assets:
Notes receivable - related
parties (Note 6) 527,176 86,827
Restricted cash 108,128 108,128
Deposits 13,699 1,328
----------- -----------
Total other assets 649,003 196,283
----------- -----------
Total assets $ 8,109,792 $ 3,968,588
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital
lease obligation 4,711 4,608
Accounts payable 596,115 246,813
Accrued liabilities 235,389 185,443
Deferred revenue 19,975 19,975
----------- -----------
Total current liabilities 856,190 456,839
----------- -----------
Capital lease obligation,
less current portion 7,749 11,300
----------- -----------
The accompanying notes are an integral part of these consolidated
financial statements.
1-a
<PAGE> 4
SAFESCIENCE, INC.
(f/k/a IGG INTERNATIONAL, INC.)
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
September 30, December 31,
1999 1998
<S> <C> <C>
Stockholders' equity:
Preferred stock, $.01 par value,
5,000,000 shares authorized;
no shares issued and outstanding - -
Common stock-, $.01 par value,
100,000,000 shares authorized
16,776,781 shares and 14,107,216
shares issued and outstanding
at September 30, 1999, and
December 31, 1998, respectively 167,768 141,072
Additional paid-in capital 34,068,299 17,749,766
Note receivable from issuance
of common stock (3,343,750) -
Deficit accumulated during
development stage (Note 6) (23,646,464) (14,390,389)
----------- -----------
Total stockholders' equity 7,245,853 3,500,449
----------- -----------
Total liabilities and
stockholders' equity 8,109,792 3,968,588
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
1-b
<PAGE> 5
SAFESCIENCE, INC.
(A Development stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Period from
12/08/92
(inception)
Three-Months Ended Nine-Months Ended through
September 30, September 30, Sept. 30,
1999 1998 1999 1998 1999
<S> <C> <C> <C> <C> <C>
Product sales $ 557,788 $ - $ 763,801 $ - $ 763,801
Cost of goods
sold 485,501 - 850,119 - 850,119
----------- ----------- ----------- ----------- ------------
Gross profit
(loss) 72,287 - (86,318) - (86,318)
----------- ----------- ----------- ----------- ------------
Operating expenses:
General and
administrative 2,151,573 1,002,990 5,799,399 2,686,155 14,204,519
Sales and
marketing 756,948 49,735 1,230,458 65,372 1,477,280
Research and
development 1,407,307 585,766 2,321,774 1,788,624 8,149,405
----------- ----------- ----------- ----------- ------------
Total operating
expenses 4,315,828 1,638,491 9,351,631 4,540,151 23,831,204
----------- ----------- ----------- ----------- -----------
Operating loss (4,243,541) (1,638,491) (9,437,949) (4,540,151) (23,917,522)
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest expense (130) (132) (347) (224) (140,451)
Interest income 89,095 32,937 199,313 99,485 430,368
Other expense (17,092) - (17,092) - (18,859)
----------- ----------- ----------- ----------- ------------
Total other
income 71,873 32,805 181,874 99,261 271,058
----------- ----------- ----------- ----------- ------------
Net loss $(4,171,668) $(1,605,686) $(9,256,075) $(4,440,890) $(23,646,464)
=========== =========== =========== =========== ============
Basic and diluted
net loss per
common share $ (0.25) $ (0.12) $ (0.59) $ (0.35)
=========== =========== =========== ===========
Weighted average
number of
common shares
outstanding 16,756,271 13,177,439 15,808,539 12,728,086
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
<PAGE> 6
SAFESCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Period from
December 8, 1992
(Inception)
Nine-Months Ended through
September 30, September 30,
1999 1998 1999
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss $(9,256,075) $ (4,440,890) $(23,646,464)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Operating expenses paid in
common stock and options 2,238,272 1,223,731 6,178,541
Depreciation and
amortization 86,656 25,493 207,026
Issuance of stock for
minority interest - - 719,142
Other - - 1,767
----------- ---------- ------------
Changes in assets and liabilities:
Accounts receivable (308,425) - (308,425)
Inventory (326,324) - (326,324)
Prepaid expenses and
other current assets (56,982) (34,781) (167,155)
Accounts payable 349,302 (20,640) 596,115
Accrued liabilities 49,946 (24,496) 235,389
Deferred revenue - 9,975 19,975
----------- ---------- ------------
Net cash used in
operating activities (7,223,630) 3,261,608 (16,490,413)
----------- ---------- ------------
Cash flows from investing
activities:
Purchase of property and
equipment (322,653) (164,915) (610,245)
Loans to related parties (441,331) - (417,481)
Other assets - - (153,847)
Repayment of related
party loans 978 869 42,912
Deposits paid, net (12,370) 5,000 (13,698)
Net cash used in acquisition - - (3,822)
Increase (decrease) in
restricted cash - 11,010 (108,128)
----------- ---------- ------------
Net cash used in investing
activities $ (775,376) $ (148,036) $ (1,264,309)
----------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 7
SAFESCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS ... continued
(Unaudited)
<TABLE>
<CAPTION>
Period from
December 8, 1992
(Inception)
Nine-Months Ended through
September 30, September 30,
1999 1998 1999
<S> <C> <C> <C>
Cash flows from financing
activities:
Proceeds from note payable - $ 18,900 $ 398,000
Payments on note payable - (1,866) (90,000)
Payments on obligations
under capital lease (3,448) - (8,614)
Proceed from issuance of
common stock 9,161,291 2,858,676 22,083,749
Proceeds from exercise of
warrants 1,601,919 - 1,601,919
Proceeds from exercise of
common stock options - - 200
Capital contributed by
stockholders - - 1,329
Debt issuance costs - - (31,697)
----------- ---------- -----------
Net cash provided by
financing activities 10,759,762 2,875,710 23,954,886
----------- ---------- -----------
Net increase (decrease)
in cash and cash
equivalents 2,760,756 (533,934) 6,200,164
Cash and cash equivalents,
beginning balance 3,439,408 2,594,312 -
----------- ----------- -----------
Cash and cash equivalents,
ending balance $ 6,200,164 $ 2,060,378 $ 6,200,164
=========== =========== ===========
Supplemental disclosure of
non-cash financing activities
Conversion of notes
payable into equity $ - $ - $ 310,000
=========== =========== ===========
Equipment acquired under
capital lease obligation $ - $ - $ 21,074
=========== =========== ===========
Note receivable from issuance
of common stock $ 3,343,750 $ - $ 3,343,750
=========== =========== ===========
Supplemental disclosure
of cash flow information
Cash paid for interest $ 347 $ 224 $ 849
=========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 8
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(1) Summary of Significant Accounting Policies
(a) Organization
SafeScience, Inc. (f/k/a IGG International, Inc.) is a development
stage enterprise originally formed for the research and development of
pharmaceutical products based on carbohydrate chemistry. The Company
has expanded its focus to include other pharmaceuticals, agricultural
consumer, and home and garden products. The Company has two wholly
owned subsidiaries: International Gene Group, Inc. and SafeScience
Products, Inc. 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, home and
garden, and institutional applications for products that are also based
upon carbohydrate chemistry and other safe technologies. These products
are developed internally or licensed from or jointly developed with
third parties. SafeScience, Inc., International Gene Group, Inc., and
SafeScience Products, Inc. maintain an office in Boston, Massachusetts.
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. Principal risks to the
Company include the successful development, commercialization 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.
In the opinion of management, the accompanying unaudited financial
statements include all adjustments, consisting of only normal,
recurring adjustments, necessary to present fairly, the balance sheet,
results of operations and cash flows. The results of operations for the
interim periods presented are not necessarily indicative of results to
be expected for the entire year.
(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) Reclassifications
Certain prior period amounts have been reclassified to conform with
current period presentation.
<PAGE> 9
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(d) 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.
(e) 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 September 30, 1999 include
approximately $6,092,000, which is held in a single bank, and
approximately $108,000 held in investment accounts. 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.
(f) 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 September 30, Estimated
Classification 1999 Useful Life
Motor vehicles $ 46,100 5 years
Computer, office and
laboratory equipment 444,609 3 - 5 years
Furniture and fixtures 170,647 7 years
Leasehold improvements 1,891 Lesser of useful life
--------- or life of lease
663,247
Less: accumulated depreciation (207,026)
---------
$ 456,221
=========
(g) Research and Development
Research and development costs, which consist primarily of wages,
expenses for consultants, supplies and testing, are charged to
operations as incurred.
6
<PAGE> 10
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(h) Net Loss Per Share
The Company applies 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. The dilutive effect of the potential common shares
consisting of outstanding stock options and warrants is determined
using the treasury stock method in accordance with SFAS No. 128.
Diluted weighted average shares outstanding at September 30, 1999 and
1998 excluded the potential common shares from warrants and stock
options because to do so would be antidilutive for the periods
presented. At September 30, 1999 and 1998 there are no and 215,422
warrants outstanding, respectively, and 604,924 and 104,216 stock
options outstanding, respectively, with a weighted average exercise
price of $9.95 and $.01, respectively.
(i) 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.
j) Disclosures about Segments of an Enterprise and Significant
Customers
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
allocate resources and assess performance. The Company's sales are
primarily confined to only one geographic area. During the three months
ended September 30, 1999 96.9 % of all sales were in the United States.
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 two principal operating
segments, household products and pharmaceuticals. Revenues and cost of
revenues to date relates to household products. Expenditures are not
currently tracked by segment. As a result, the financial information
disclosed herein represents all of the material financial information
related to the Company's principal operating segment.
<PAGE> 11
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(j) Disclosures about Segments of an Enterprise and Significant
Customers
SFAS No. 105, Disclosure of Information About Financial Instruments
with Off-Balance Sheet Risk and Financial Instruments with
Concentration of Credit Risk, requires disclosure of any significant
off-balance sheet and credit risk concentrations. Financial
instruments that potentially expose the Company to concentrations of
credit risk consist primarily of cash and cash equivalents and trade
accounts receivable. The Company has not experienced significant losses
related to receivables from any individual customer or groups of
customers in any specific industry or by geographic area. Due to these
factors, no additional credit risk beyond amounts provided for
collection losses is believed by management to be inherent in the
Company's accounts receivable. For the nine months ended September 30,
1999, four customers represented 97% of revenues and 97% of accounts
receivable. For the nine months ended September 30, 1998, there were no
revenues or receivables.
(2) STOCKHOLDER'S EQUITY
(a) Private Placement Offerings
In July 1999, the Company began a new private placement of common
stock. During the period from July 1, 1999 through September 30, 1999,
the Company sold 216,605 shares of common stock. The price per share
has been calculated for each investor based on the average fair market
value of the stock for a specified period preceding the purchase date.
(b) Stock Option Plan
The Company has entered into agreements with various employees and
consultants for the grant of stock options and shares of common stock
at prices determined by the Company's Board of Directors. During the
three and nine months ended September 30, 1999, the Company granted
4,043 and 485,931 options and shares and recorded charges to operations
of 439,704 and $613,758 relating to those grants, respectively. During
the three and nine months ended September 30, 1999, the Company issued
common stock totaling 48,312 and 233,877 shares, and recorded charges
to operations of $597,522 and $1,712,843 relating to these grants,
respectively.
The following table summarizes all stock option activity to employees
and consultants for services for the nine months ended September 30,
1999.
8
<PAGE> 12
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
Stock Options
Weighted -
Average
Number Exercise Price
Of Shares Per Share
Balance December 31, 1998 190,147 $ 1.74
Granted 485,931 12.89
Exercised (71,154) 2.58
------- -------
Balance September 30, 1999 604,924 $ 10.60
======= =======
As of September 30, 1999, the Company had committed to grant 40,000
shares of common stock upon the attainment of future milestones.
(c) Warrants Exercised
During the third quarter of 1999, warrants for the purchase of 95,608
shares of common stock were exercised at $4.75 per share. The warrant
agreements contained a "net issuance" provision enabling the
shareholders to perform a "cashless" exercise. Of the 95,608 warrants
exercised, 81,774 were exercised under this provision, resulting in the
issuance of 81,774 shares of common stock.
(3) LICENSING AGREEMENTS
The Company and Volcani Institute has agreed not to continue their
research program, however, the Company has retained the right to sell
licensed products under a royalty arrangement. During the nine months
ended September 30, 1999, $200,000 has been charged to operations as a
result of this agreement.
(4) INVENTORY
Inventory is stated at lower of cost (first-in, first-out) or market.
At September 30, 1999, Inventory is stated at lower of cost (first-in,
first-out) or market. At September 30, 1999, inventory is comprised of
$259,680 of raw materials and $66,644 of finished goods. There was no
inventory balance at September 30, 1998.
(5) TRADE CREDITS
The Company has entered into a trade agreement with a barter company
for the exchange of goods and services. This barter company purchased
approximately $298,000 of product from the Company and paid for these
products by issuing $298,000 of advertising credits. The company
acquires media on behalf of the Company; 55% of the net cost of all
media utilized by the Company is payable in cash and the remaining 45%
is charged against the trade credit. As of September 30, 1999 all
credits have been utilized.
<PAGE> 13
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(6) NOTES RECEIVABLE - RELATED PARTIES
During the third quarter of 1999, the Company advanced an additional
$75,000 to one of its suppliers. The outstanding principal balance
accrues interest at 8.25% per annum, with interest payable quarterly in
arrears commencing three months after the date of the first advance.
All outstanding principal, together with accrued interest on the unpaid
principal balance of this note, will be due and payable on May 14,
2001, As of September 30, 1999 the Company has advanced a total of
$150,000 to the supplier.
During the third quarter of 1999, the Company advanced an additional
$200,000 to a senior executive and director. The outstanding principal
balance of the note as of September 30, 1999 is $200,000 and accrues
interest at 5.35% per annum, compounded semi-annually. The senior
executive has pledged shares of the Company's common stock as
collateral. All outstanding principal, together with accrued interest
on the unpaid principal balance of this note, will be due 120 days from
the date the senior executive sells any shares of Company stock, which
under the agreement, cannot be earlier than January 1, 2000.
On June 15, 1999, the Company issued a senior executive a stock option
for 250,000 shares, of common stock at an exercise price of $13.38 per
share, the estimated fair market value on the date of grant. The option
was exercised immediately. The Company loaned the senior executive an
amount representing the entire exercise price. The principal balance of
the note, which is classified in stockholder's equity as a note
receivable from the issuance of common stock, is $3,343,750 and accrues
interest at 4.92% per annum, compounded semi-annually. The senior
executive has pledged 250,000 shares of the Company's common stock as
collateral. The note is 80% non-recourse and is secured only by the
pledged shares. All outstanding principal, together with accrued
interest on the unpaid principal balance of this note, will be due on
June 15, 2004.
(7) RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. Pursuant to SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133, SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The
Company believes that the adoption of SFAS No. 133 will not have a
material impact on its financial results or financial position.
<PAGE> 14
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
In March 1998, the American Institute of Certified Public Accountants
issued a Statement of Position (SOP) 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1
requires computer software costs associated with internal use software
to be charged to operations as incurred until certain capitalization
criteria are met. SOP 98-1 is effective beginning January 1, 1999. The
adoption of this statement did not have a material impact on the
Company's financial position or consolidated results of operations.
11
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and the notes thereto.
Overview
The Company is a publicly traded "responsible science" company with
activities in the areas of biotechnology and life sciences, agriculture
and consumer products. The unifying principle is safety: offering safer
alternatives to toxic products. The Company is attempting to build a
world brand based on its own products as well as technology it has
licensed from or developed with partners around the world. The
SafeScience(R) brand currently encompasses human therapeutics and
agricultural products, as well as products for the consumer and
institutional markets. All of the Company's products seek to achieve
the highest standards of performance as well as an unequivocal
environmental, health and safety profile. The brand has attracted
retailers, distributors, consumers, scientists and development partners
to the Company, allowing it to grow through activities such as
licensing, partnering and joint ventures in research and development
with like-minded institutions, corporations and individuals. It has
also enabled the Company to pursue a strategy of "better than brand"
positioning for its consumer products; allowing corporate partners such
as supermarkets to co-brand with SafeScience to offer a qualitative
difference.
The Company operates its business through two wholly-owned
subsidiaries. SafeScience Products, Inc. ("SafeScience Products")
operates the agricultural, horticultural, consumer and institutional
products businesses and is also responsible for the marketing and brand
management of all SafeScience products. Consumer and institutional
products include an innovative line of safe, industrial-strength
cleaning products; chemically safe consumer household cleaning
products; a home and garden care line; automotive care products; and
personal care products and "nutraceuticals". Agricultural products
include an EPA-approved safe fungicide and a line of nutrient
fertilizers. Additional products in all areas are in various stages of
testing and development. The other subsidiary, International Gene
Group, Inc. (" IGG"), develops human therapeutics. GBC-590, a complex
carbohydrate glycoprotein designed to combat cancer tumors and
metastasis, will begin Phase II United States Food and Drug
Administration ("FDA") clinical trials for prostate cancer, pancreatic
cancer and colorectal cancer during the fourth quarter; Phase I trials
have shown that the drug is well tolerated in patients. IGG has also
developed a complex carbohydrate antifungal agent which is being tested
in animals to inhibit Candida infections.
As part of the Company's strategy of growth through partnering, it
has began securing distributors throughout the world. At present, the
Company has entered into distribution agreements with nine distributors
covering more than 35 countries on six continents. These distribution
arrangements cover a variety of the Company's products, from the
agricultural to the consumer and commercial areas. The distribution
partners are pioneering companies of varying sizes which share our
<PAGE> 16
mission of chemical safety and understand the power of "SafeScience" as
a branding concept. In addition, in the spring of 1999 the Company
entered into an arrangement with Daymon Associates, Inc., the largest
corporate brand sales and marketing firm in the world, whereby Daymon
would represent the Company's products to Daymon's retailing clients
worldwide. Daymon has a large customer base of supermarkets, drug
stores and mass merchandisers; Daymon also works with numerous chains
internationally. The company has not sold products through those
distributors, except Daymon as of September 30, 1999.
Results of Operations: Three Months Ended September 30, 1999 versus
September 30, 1998
Sales increased from $0 for the three months ended September 30, 1998
to $557,788 for the three months ended September 30, 1999, This
increase was primarily attributable to shipments of various household
products to individuals, retail establishments, institutions, and
municipalities. During the third quarter, the company commenced a new
program utilizing a cobranding of SafeScience's household products with
the second largest regional supermarket chain in New England.
Cost of goods sold increased from $0 for the three months ended
September 30, 1998 to $485,501 for the three months ended September 30,
1999, This increase was attributable to the shipments referred to in
the preceding paragraph. The Company was able to earn a gross Profit on
sales of $ 72,287 or 13.0 % for the three months ended September 30,
1999.
General and administrative expenses increased from $1,002,990 for the
three months ended September 30, 1998 to $2,151,573 for the three
months ended September 30, 1999, an increase of $1,148,583 or 114.5%.
A portion of this increase was attributable to employee related
expenses as headcount increased from 15 as of September 30, 1998 to 48
as of September 30, 1999, Approximately $316,451 and $161,105 of such
1999 and 1998 expenses, respectively, were non-cash expenses resulting
from the issuance of options and warrants to purchase common stock and
the grant of common stock for services.
Marketing expenses increased from $ 49,735 for the three months ended
September 31, 1998 to $ 756,948 for the three months ended September
30, 1999, This change was due to expenses related to the introduction
of the Company's new household products in the marketplace.
Research and development costs for consultants, salaries, supplies
and testing increased from $585,766 for the three months ended
September 30, 1998 to $1,407,307 for the three months ended September
30, 1999, an increase of $821,541 or 140.3%. This increase was
primarily attributable to additional costs for consultants, salaries
and testing for new technologies, including preparation of GBC-590 for
clinical trials. Approximately $320,295 and $113,469 of such 1999 and
1998 expenses, respectively, were non-cash expenses resulting from the
issuance of options and warrants to purchase common stock and the grant
of common stock for services.
<PAGE> 17
If non-cash compensation expenses were excluded from the results of
operations, the net loss for the three months ended September 30, 1999,
would decrease from $(4,171,668) to $(3,534,922) and earnings per share
for the period would increase from $(.25) to $(.21). For the three
months ended September 30, 1998 the net loss would decrease from
$(1,605,686) to $(1,331,122) and earnings per share for the period
would increase for $(.12) to $(. 10).
Interest income increased from $32,937 for the three months ended
September 30, 1998 to $89,095 for the three months ended September 30,
1999, an increase of $56,158 or 170.5%. This increase was attributable
to the temporary investment of cash proceeds received from private
placements of the Company's securities during 1999.
Results of Operations: Nine Months Ended September 30,1999 versus
September 30, 1998
Sales increased from $0 for the nine months ended September 30, 1998
to $763,801 for the nine months ended September 30, 1999. This increase
was attributable to the Company's shipments of various household
products to individuals, retail establishments, institutions and
municipalities. During the third quarter, the company commenced a new
program utilizing a cobranding of SafeScience's household products with
the second largest regional supermarket chain in Now England.
Cost of goods sold increased from $0 for the nine months ended
September 30, 1998 to $850,119 for the nine months ended September 30,
1999. This increase was attributable to the shipment of various
products referred to in the preceding paragraph. Gross profit for the
nine months ended September 30, 1999 resulted in a loss of $ 86,318,
due to extensive start up costs. For the nine months ended September
30, 1998, the Company bad no cost or sales revenue.
General and administrative expenses increased from $2,686,155 for the
nine months ended September 30, 1998 to $5,799,399 for the nine months
ended September 30, 1999, an increase of $3,113,244 or 115.9%. This
increase was primarily attributable to an increase in payroll related
expenses, consulting, and marketing as the Company began shipping
various products. Approximately $1,812,552 and $923,522 of such 1999
and 1998 expenses, respectively, were non-cash expenses resulting from
the issuance of options and warrants to purchase common stock and the
grant of common stock for services.
Marketing expenses increased from $65,372 for the nine months ended
September 31, 1998 to $1,230,458 for the nine months ended September
30, 1999. This change was due to expenses related to the introduction
of the Company's new household products in the marketplace.
Research and development costs for consultants, supplies and testing
increased from $1,788,624 for the nine months ended September 30, 1998
to $2,321,774 for the nine months ended September 30, 1999, an increase
of $533,150 or 29.8%. This increase was primarily attributable to an
increase in salaries and testing, which was partially offset by a
decrease in licenses as a result of the discontinuance of certain
<PAGE> 18
licensing agreements. Approximately $425,720 and $300,209 of such 1999
and 1998 expenses, respectively, were non-cash expenses resulting from
the issuance of options and warrants to purchase common stock and the
grant of common stock for services.
If non-cash compensation expenses were excluded from the results of
operations, net loss for the nine months ended September 30, 1999,
would decrease from $(9,256,075) to $(7,017,803) and earnings per share
for the period would increase from $(.59) to $(.45). For the nine
months ended September 30, 1998 the loss would decrease from
$(4,440,890) to $(3,217,159) and earnings per share would increase from
$(.35) to $(.25).
Interest income increased from $99,485 for the nine months ended
September 30, 1998 to $199,313 for the nine months ended September 30,
1999, an increase of $99,828 or 100.3%. This increase was attributable
to the temporary investment of cash proceeds received from private
placements of the Company's securities during 1999.
Year 2000
The Company has reviewed all of its information systems to assess
what steps, if any are required to achieve full Year 2000 compliance.
The Company relies upon microprocessor-based personal computers and
commercially available applications software. These technologies have
been put into service recently, and our review indicates that virtually
all the Company's systems are currently Year 2000 compliant. The
Company is currently discussing Year 2000 readiness with its material
supply and service vendors. To date, those vendors that have been
contacted have indicated that their hardware or software is or will be
Year 2000 compliant in time frames that meet the Company's
requirements. However, the Company intends to continue to assess its
exposure to Year 2000 noncompliance on the part of any of its material
vendors and there can be no assurance that their systems will be Year
2000 compliant. The Company does not anticipate that it will incur
material expenses to make its computer software and operating systems
Year 2000 compliant. The Company believes that the Year 2000 issue
will not pose significant operational problems for the Company's
systems. The Company currently does not have any contingency plan in
the event Year 2000 compliance cannot be achieved in a timely manner;
however, the Company is presently in the process of developing such a
plan.
Liquidity and Capital Resources
Since inception, the Company has funded its operations primarily with
the proceeds from debt and equity securities totaling approximately
$23,700,000. For the nine months ended September 30, 1999, the
Company's operations utilized cash of approximately $7,200,000
primarily to fund the operating loss. The Company also invested
$322,653 in fixed asset purchases related to the Company's expansion
and preparation of its products for marketing and distribution. The
Company has made loans to related parties totaling approximately
$440,000 during the nine months ended September 30, 1999. The uses of
cash were offset by equity financing that resulted in net proceeds of
approximately $10,800,000 to the Company during 1999.
<PAGE> 19
As of September 30, 1999, the Company's accumulated deficit is
$23,646,464 and cash balances are $6,200,164.
Certain Factors That May Affect Future Results
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES
FACING SAFESCIENCE, INC. ADDITIONAL RISKS AND UNCERTAINTIES NOT
PRESENTLY KNOWN TO THE COMPANY OR THAT IT CURRENTLY DEEMS IMMATERIAL
MAY ALSO IMPAIR ITS BUSINESS OPERATIONS.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, THE COMPANY'S BUSINESS,
FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY
ADVERSELY AFFECTED. IN THOSE CASES, THE TRADING PRICE OF THE COMMON
STOCK COULD DECLINE.
"Development Stage" Company: Operating Losses
Even though it began operations more than six years ago, the Company
remains in the development stage. The Company has incurred
approximately $23.6 million of operating losses since its inception.
Operating losses, which were $4.2 million in the last quarter, can be
expected to continue for the foreseeable future. In addition, although
the Company has several products which are ready for market and are in
fact being sold, many proposed products require further research,
development, laboratory testing, regulatory approval and/or
demonstration of commercial scale manufacturing before they can be
proven to be commercially viable.
Competition
Many companies, including large pharmaceutical, chemical,
biotechnology and agricultural concerns, universities and other
research institutions, with financial resources and research and
development staffs and facilities substantially greater than those of
the Company, may develop or attempt to develop products that compete
with those of the Company.
Dependence on Financing
The Company's future is dependent upon its ability to obtain
financing to fund its operations. The Company expects to incur
substantial additional operating costs, including costs related to
ongoing research and development activities, sales and marketing,
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 mid 2000. There can
be no assurance that the Company will be able to obtain the additional
funding that it will require on acceptable terms, if at all.
Government Regulations
The investigation, manufacture and sale, of agricultural, and
therapeutic products is subject to regulation and approval before
marketing by the EPA and the FDA, respectively, and by comparable
foreign and state agencies. While not all the Company's proposed
products require regulatory approval, several products which may be
<PAGE> 20
successfully developed will not be able to be commercially marketed for
use either in the United States or other countries unless such approval
is obtained.
Inflation and Changing Prices
To date, the impacts of inflation and changing prices on the
Company's operations have been minimal. The Company is currently
testing its processes and products in the United States and various
countries outside the U.S. in accordance with royalty and research
agreements that are already in effect. During the research, development
and testing phases of operations to satisfy regulatory requirements for
the products under development, the Company expects inflationary
pressures in all such countries will be minimal and, hence, not have a
material impact on operations.
Rapid Technological Change
The biotech industry is characterized by rapid technological change.
Product Release Schedules
Delays in the planned release of Company products may adversely
affect forecasted revenues and create operational inefficiencies
resulting from staffing levels designed to support the forecasted
revenues. The Company's failure to introduce new products on a timely
basis could delay or hinder market acceptance and allow competitors to
gain greater market share.
Volatility of Stock Price
The market price of the Company's common stock has been, and may
continue to be, highly volatile. Moreover, the stock market in general
has from time to time experienced extreme price and volume
fluctuations, particularly in the biotechnology sector, which have
often been unrelated to the operating performance of particular
companies.
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated this day of 15th day of November, 1999.
SAFESCIENCE, INC.
(the "Registrant")
BY: /s/ Bradley J. Carver,
President, Treasurer, Chief
Financial Officer and a member
of the Board of Directors
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Financial Condition at September 30, 1999 (Unaudited) and the
Statement of Operations for the nine months ended September 30, 1999 (Unaudited)
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1999
<CASH> 6,200,164
<SECURITIES> 0
<RECEIVABLES> 308,425
<ALLOWANCES> 43,172
<INVENTORY> 326,324
<CURRENT-ASSETS> 7,004,568
<PP&E> 663,247
<DEPRECIATION> 207,026
<TOTAL-ASSETS> 8,109,792
<CURRENT-LIABILITIES> 856,190
<BONDS> 0
0
0
<COMMON> 167,768
<OTHER-SE> 7,078,085
<TOTAL-LIABILITY-AND-EQUITY> 8,109,792
<SALES> 763,801
<TOTAL-REVENUES> 763,801
<CGS> 850,119
<TOTAL-COSTS> 9,351,631
<OTHER-EXPENSES> 182,221
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 347
<INCOME-PRETAX> (9,256,075)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,256,075)
<EPS-BASIC> (0.59)
<EPS-DILUTED> (0.59)
</TABLE>
