<PAGE> 1
=====================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-----------------------------------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 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
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, Suite 520
Boston, Massachusetts 02116
(Address of principal executive offices, including zip code.)
(617) 422-0674
Registrant's telephone number, including area code.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by the Section 13 or 15(d) of the Securities Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES [ X ] NO [ ]
The number of shares outstanding of the Registrant's Common Stock, $.01
par value per share, at June 30, 1999 was 16,412,756 shares.
<PAGE>
<PAGE> 2
SAFESCIENCE, INC.
(A Development Stage Enterprise)
INDEX
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998 . . . . . . 2
Consolidated Statements of Operations
for the Three and Six Months Ended June 30, 1999
and 1998, and for the Period From December 8,
1992 (Inception) through June 30, 1999 . . . 3
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1999 and 1998,
and for the Period From December 8, 1992
(Inception) through June 30, 1999 . . . . 4-5
Notes to Unaudited Consolidated Financial Statements 6-12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations
Signatures
<PAGE> 3
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements
SAFESCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,949,284 $ 3,439,408
Accounts receivable, net of
allowance for doubtful accounts
of $3,500 at June 30, 1999 37,731 -
Inventory 205,979 -
Prepaid expenses and other
current assets 122,384 112,673
----------- -----------
Total current assets 7,315,378 3,552,081
----------- -----------
Property and equipment, net of
accumulated depreciation 321,890 220,224
----------- -----------
Other assets:
Restricted cash 108,128 108,128
Deposits 13,698 1,328
Notes receivable - related parties 240,027 86,827
----------- -----------
Total other assets 361,853 196,283
----------- -----------
$ 7,999,121 $ 3,968,588
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of capital
lease obligation $ 4,676 $ 4,608
Accounts payable 411,634 246,813
Accrued liabilities 139,757 185,443
Deferred revenue1 9,9751 9,975
----------- -----------
Total current liabilities 576,042 456,839
----------- -----------
Capital lease obligation,
less current portion 8,940 11,300
----------- -----------
The accompanying notes are an integral part of these financial
statements
2-a
<PAGE> 4
SAFESCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS - continued
June 30, December 31,
1999 1998
<S> <C> <C>
Stockholder's equity:
Preferred stock, $.01 par value,
5,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, $.01 par value,
25,000,000 shares authorized;
16,412,756 shares, and 14,107,216
shares issued and outstanding at
June 30, 1999, and December 31,
1998, respectively 164,128 141,072
Additional paid-in capital 30,068,557 17,749,766
Note receivable from issuance
of common stock (3,343,750) -
Deficit accumulated during
development stage (19,474,796) (14,390,389)
----------- -----------
Total stockholder's equity 7,414,139 3,500,449
----------- -----------
$ 7,999,121 $ 3,968,588
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
2-b
<PAGE> 5
SAFESCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONSFOR FORMULAS ONLY
(Unaudited)
<TABLE>
<CAPTION>
Six
Months
Three Months Ended Six Months
June 30 Ended June 30,
1999 1998 1999
<S> <C> <C> <C>
Product sales $ 206,013 $ - $ 206,013
Cost of goods sold (364,618) - (364,618)
------------ ------------ ------------
Gross loss (158,605) - (158,605)
Operating expenses:
General and
administrative 2,315,209 726,727 4,212,336
Research and development 515,006 682,374 914,467
------------ ------------ ------------
Total operating expenses 2,830,215 1,409,101 5,035,803
------------ ------------ ------------
Operating loss (2,988,820) (1,409,101) (5,194,408)
------------ ------------ ------------
Other income (expense):
Interest expense (107) (92) (217)
Interest income 77,865 36,135 110,218
Other - - -
------------ ------------ ------------
Total other income 77,758 36,043 110,001
------------ ------------ ------------
Net loss $ (2,911,062) $ (1,373,058) $ (5,084,407)
============ ============ ============
Basic and diluted net
loss per common share $ (0.18) $ (0.11) $ (0.34)
============ ============ ============
Weighted average number
of common shares
outstanding 15,942,743 12,754,835 14,855,787
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3-a
<PAGE> 6
SAFESCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS - continued
(Unaudited)
<TABLE>
<CAPTION>
Period from
12/08/92
(inception)
Through
Six Months Ended June 30,
June 30, 1998 1999
<S> <C> <C>
Product sales $ - $ 206,013
Cost of goods sold - (364,618)
------------ ------------
Gross loss - (158,605)
Operating expenses:
General and administrative 1,625,239 12,773,278
Research and development 1,276,421 6,742,098
------------ ------------
Total operating expenses 2,901,660 19,515,376
------------ ------------
Operating loss (2,901,660) (19,673,978)
------------ ------------
Other income (expense):
Interest expense (92) (140,321)
Interest income 66,548 341,273
Other - (1,767)
------------ ------------
Total other income 66,456 199,185
------------ ------------
Net loss $ (2,835,204) $(19,474,796)
============ ============
Basic and diluted net
loss per common share $ (0.23)
============
Weighted average number
of common shares
outstanding 12,556,127
============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3-b
<PAGE> 7
SAFESCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Period from
12/08/1992
(Inception)
Six Months Ended through
1999 1998 June 30, 1999
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss $ (5,084,407) $ (2,835,204) $ (19,474,796)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Operating expenses paid
in common stock and
options 1,601,523 949,157 5,541,795
Issuance of stock for
minority interest - - 719,142
Depreciation and
amortization 47,750 11,580 168,120
Other - - 1,767
------------ ------------ -------------
Cash used in operating
activities before changes
in assets and liabilities (3,435,134) (1,874,467) (13,043,972)
Changes in assets and
liabilities:
Account receivable (37,731) - (37,731)
Prepaid expenses and other
current assets (9,711) 15,558 (119,884)
Accounts payable 164,821 520 411,634
Accrued liabilities (45,686) (83,988) 139,757
Inventory (205,979) - (205,979)
Other assets (153,847) - (153,847)
Deferred revenue - 19,975 19,975
------------ ------------ ------------
Net cash used in operating
activities (3,723,267) (1,922,402) (12,990,047)
------------ ------------ ------------
Cash flows from investing
activities:
Purchase of property and
equipment (149,416) (89,275) (437,008)
Loans to stockholders - - (130,000)
Repayment of stockholders'
loans 647 575 42,581
Deposits paid, net (12,370) 5,000 (13,698)
Net cash used in acquisition - - (3,822)
Increase in restricted cash - - (108,128)
------------ ------------ ------------
Net cash used in investing
activities (161,139) (83,700) (650,075)
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 8
SAFESCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS continued
(Unaudited)
<TABLE>
<CAPTION>
Period from
12/08/1992
(Inception)
Six Months Ended through
1999 1998 June 30, 1999
<S> <C> <C> <C>
Cash flows from financing
activities:
Proceeds from notes payable $ - $ 18,900 $ 398,000
Payments on notes payable - - (90,000)
Payments on obligations
under capital leases (2,292) (744) (7,458)
Proceeds from issuance
of common stock 5,860,367 2,395,801 18,782,825
Proceeds from exercise
of warrants 1,536,207 - 1,536,207
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 7,394,282 2,413,957 20,589,406
----------- ----------- ------------
Net increase in cash and
cash equivalents 3,509,876 407,855 (2,659,554)
Cash and cash equivalents,
beginning balance 3,439,408 2,594,312 -
----------- ----------- ------------
Cash and cash equivalents,
ending balance $ 6,949,284 $ 3,002,167 $ (2,659,554)
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF
NON-CASH FINANCING ACTIVITIES
Conversion of notes payable
into equity $ - $ - $ 310,000
=========== =========== ============
Equipment acquired under
capital lease obligations $ - $ - $ 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 $ 217 $ 92 $ 719
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 9
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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.
6
<PAGE> 10
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(c) Reclassifications
Certain prior period amounts have been reclassified to conform with
current period presentation.
(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 June 30, 1999 include approximately
$6,941,000, which is held by a single bank, and approximately $116,000
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 Classification Estimated Useful Life
Motor vehicles 5 years
Computer, office and laboratory equipment 3 - 5 years
Furniture and fixtures 7 years
Leasehold improvements Lesser of useful life or
life of lease
7
<PAGE> 11
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(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.
(h) 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. 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 June 30, 1999 and 1998
excluded the potential common shares from warrants and stock options
because to do so would be antidulitive for the periods presented. At
June 30, 1999, there are 604,381 stock options outstanding with a
weighted average exercise price of $9.89 and there were 181,089
warrants outstanding with a weighted average exercise price of $4.75
that were excluded from the weighted average number of common shares
outstanding. All such remaining warrants have been exercised
subsequent to June 30, 1999.
(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.
8
<PAGE> 12
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(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 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.
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 customers 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 six months ended June 30, 1999, two customers
represented 81% and 14% of revenues and 0% and 69% of accounts
receivable, respectively. There was no accounts receivable at December
31, 1998.
9
<PAGE> 13
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(2) STOCKHOLDER'S EQUITY
(a) Private Placement Offerings
In November 1998, the Company began a new private placement of common
stock. During the period from January 1, 1999 through June 30, 1999,
the Company sold 1,398,480 shares of common stock at $4.50 per share.
(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 six months ended June 30, 1999, the Company granted options
and shares totaling 772,338 and 916,953 shares, and recorded charges to
operations of $946,317 and $1,601,523 relating to these grants,
respectively. The charge to operations represented the fair market
value of the underlying common stock or option.
As of June 30, 1999, the Company had committed to grant 210,000 shares
of common stock upon the attainment of future milestones.
(c) Warrants Exercised
In June 1999 warrants for the purchase of 307,500 and 96,833 shares of
common stock were exercised at $3.50 and $4.75 per share, respectively.
(d) Note Receivable from Issuance of Common Stock
On June 15, 1999, the Company entered into a transaction with a senior
executive, whereby the senior executive agreed to cancel a stock option
for 100,000 restricted shares of common stock at an exercise price of
$0.01 per share, which would have vested on January 3, 2000. In
exchange, the Company issued the 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.
10
<PAGE> 14
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(3) LICENSING AGREEMENTS
During the first quarter of 1999, the Company discontinued its
licensing arrangements with Agrogene Ltd., Leket-Bar Chemicals, Ltd.,
and Dominion BioSciences, Inc. (DBI). During the six months ended June
30, 1999, no charges to operations were recorded and no future
liability is anticipated as a result of the discontinuance of these
agreements.
(4) INVENTORY
Inventory is stated at lower of cost (first-in, first-out) or market.
At June 30, 1999, inventory is comprised of $189,775 of raw materials
and $16,204 of finished goods.
(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 $167,000 of product from the Company and paid for these
products by issuing $167,000 of advertising credits. The barter
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 June 30, 1999 $70,000,
of advertising credits are included in other current assets.
(6) NOTES RECEIVABLE RELATED PARTIES
On May 14, 1999, the Company entered into a loan agreement with a
supplier. The Company will loan the supplier the principal sum of
$150,000 in a series of advances. 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 June 30, 1999 the Company has advanced $75,000 to the
supplier.
On June 14, 1999, the Company entered into a loan agreement with a
senior executive and director. The principal balance of the note is
$72,000 and accrues interest at 4.92% 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 April
1, 2000.
<PAGE> 15
SAFESCIENCE, INC.
(f/k/a IGG International, Inc.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(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.
12
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and the notes thereto:
OVERVIEW
SafeScience, Inc. (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.
International Gene Group, Inc.'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, Inc.'s leading
agricultural product is Elexa PDB, an elicitor of plant defense
mechanisms against fungi. SafeScience 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, Inc.'s consumer and institutional products
include: an innovative line of safe, industrial-strength cleaning
products; chemically safe consumer household cleaning products; a lawn
and garden care line; and personal care products and "neutraceuticals".
The Company recognized its first revenues in the second quarter of 1999
through sales of some of these products. Additional products and
product lines are in various stages of development.
<PAGE> 17
In late 1997, the Company began the process of securing
distributors throughout the world. As of June 30, 1999, the Company had
established distribution agreements covering 30 countries on six
continents. In the spring of 1999, SafeScience entered into an
arrangement with Daymon Associates, Inc., the largest corporate brand
sales and marketing firm in the world, whereby Daymon would represent
all SafeScience brand consumer products to its retailing clients
worldwide. These clients include supermarkets, drug stores, mass
merchandisers, wholesale clubs and food service stores.
The Company's Common Stock has been trading publicly since August
1995, and commenced trading on the NASDAQ Small Cap market in May 1998
under the ticker symbol SAFS.
The following is a summary of certain developments that have
recently been announced by the Company:
On May 13, 1999 the Company announced that it had received a U.S.
patent covering composition and method for CAN-296, its naturally
derived carbohydrate compound under development to combat antifungal
infections. CAN-296 is a naturally occurring complex carbohydrate
extracted from arthropod shells and fungal cell walls. CAN-296 has
demonstrated pre-clinical activity against fungal infections such as
Candida and Aspergillus. The Company plans to develop CAN-296 for both
topical and systemic anti-fungal applications.
in May 17, 1999, the Company announced that it had appointed Clark
F. Springgate, M.D., Ph.D. as Chief Medical Officer. Dr. Springgate is
directing SafeScience's expanding clinical programs for cancer and
systemic fungal infection therapeutics. Dr. Springgate brings over
thirty years of experience in international regulatory affairs,
clinical pharmacology, quality assurance and marketing to his
directorship. He founded the Clinical Research Center at New Britain
General Hospital, a major teaching hospital affiliated with the
University of Connecticut School of Medicine, and directed its
activities until January 1998. Dr. Springgate also previously served
as Vice President, Clinical and Regulatory Affairs for the National
Medical Research Corporation from 1994 to 1995; Medical Director,
Senior Scientific and Regulatory Consultant and Vice President of
Product Development for the Health and Science Research Clinical
Research Group in Englewood, New Jersey from 1991 to 1994; Medical
Director of The Richardson-Vicks Pharmaceutical Company in Shelton,
Connecticut from 1989 to 1991; and Vice President of Professional
Services at Scicor, in Indianapolis, Indiana from 1988 to 1989.
On May 24, 1999, the Company announced that it had entered into an
agreement with the University of Florida Office of Technology Licensing
whereby the Company licensed worldwide rights to all patents and patent
applications on several potent strains of the microbial agent Beauveria
bassiana (fungus) for the development of natural products for pest
control. Products based on this fungus have been shown to be more
<PAGE> 18
effective than conventional toxic synthetic chemicals in laboratory
and/or field tests with household ants, cockroaches, termites and fire
ants. The Company hopes that the unique, non-toxic biopesticides
developed at the University of Florida will be a logical extension of
its currently marketed household cleaning and lawn and garden products.
On June 7, 1999, the Company announced that it had signed an
exclusive agreement with Farm-Ag International Trading Pty. Ltd., a
subsidiary of Strand Group Holdings Ltd. to the Company's products in
sub-equatorial Africa, including the large South African market. Farm-
Ag International has substantial experience in the sub-equatorial
African region in agricultural and Ag-bio products, which include
fungicides and biopesticides.
On June 24, 1999, the Company announced the completion of a Phase
I/II clinical study of its anti-cancer compound, GBC-590 at M.D.
Anderson Cancer Institute in Houston, Texas. The results showed that
the compound is well tolerated and effective in reducing or stabilizing
PSA (prostate specific antigen) levels in 18 out of 22 relapsing
prostate cancer patients that are resistant to standard therapy. As a
result, the Company will commence Phase II studies for prostate cancer
at M.D. Anderson Institute and a number of other leading cancer
centers. SafeScience also will initiate a Phase I/II study for
pancreatic carcinoma at the Beth Israel Deaconess Medical Center, a
major teaching hospital of Harvard Medical School.
On July 13, 1999, the Company announced that it had been added to
the Russell 3000 Index. The Russell 3000 is comprised of the 3000
largest companies on the NASDAQ, NYSE and AMEX based on market
capitalization.
On July 15, 1999, the Company announced that it convened the
inaugural SafeScience International Distributor's Conference in the
agricultural mecca of Northern California. The conference was attended
by 10 SafeScience international distributors representing 30 countries.
These SafeScience brand partners, all leading international
distributors specializing in marketing safe and effective agricultural
products, should represent a formidable force for introducing the full
range of SafeScience products in their respective markets. In addition
to Elexa, the attendees were able to examine CIT-30, which holds
promise to be the first effective, safe pesticide for the treatment of
firelight.
On July 26, 1999, the Company announced results of its Phase I
trial at the University of Pennsylvania Medical Center for GBC-590 in-
patients with end-stage cancer refractory to all other standard
therapies. The disease types in this study included pancreatic,
colorectal, lung and esophageal carcinomas and metastatic sarcoma. The
results showed that the compound is well-tolerated at all administered
dose levels. These data confirm the excellent safety profile which was
first reported in the GBC-590 Phase I trial in prostate cancer at the
MD Anderson Cancer Center.
<PAGE> 19
On August 4, 1999, the Company and Prince Agri Products, Inc.
announced that they had entered into an exclusive technology and
marketing partnership to distribute SafeScience products to the animal
science markets. Prince Agri Products is a leading full-service animal
feed ingredient supplier which manufactures and distributes trace
elements, feed additives and pre-mixes worldwide. The Company will
introduce safe, innovative animal science technologies and products to
Prince, which will then provide the industry intelligence to the
Company to determine their potential in the marketplace. Ultimately,
the products will be sold under the SafeScience brand by Prince in
North America and by both companies' distributors in international
markets.
Principal risks to the Company include the successful development,
commercialization and marketing of products to obtain profitable
operations; including the necessity of FDA approval (of which there can
be no assurance); the necessity of United States Environmental
Protection Agency approval of certain of the Company's agricultural and
lawn and garden products; dependence on collaborative partners; the
ability to obtain adequate financing to fund future operations; United
States Food and Drug Administration clearance and regulation; the
Company's history of operating losses; dependence on key individuals;
and competition from substitute products and larger companies.
In particular, the Company's research and development programs,
including its human therapeutic products, are in an early stage of
development, and the Company expects that certain of the drugs or other
products resulting from its or its collaborative partners' research and
development efforts may not be commercially available for several
years, if at all. The Company's potential drug and other new products
are subject to the risk of delays in development resulting from various
factors, many of which are beyond the control of the Company. Any new
drug candidates developed by the Company will require significant
additional research and development efforts. The Company has limited
experience in conducting clinical trials for human therapeutics. In
addition, the Company's potential drug candidates will be subject to the
risks of failure inherent in the development of pharmaceutical
products. These risks include the possibilities that no drug candidate
will be found safe or effective, or will otherwise meet applicable
regulatory standards or receive the necessary regulatory clearances.
There can be no assurance that these drug candidates, if safe and
effective, will be developed into commercially viable drugs, will be
economical to manufacture or produce on a large scale, will be
successfully marketed or will achieve customer acceptance.
Furthermore, the Company's potential drug candidates are subject to the
risks that the proprietary rights of third parties will preclude the
Company from marketing such drugs or that third parties will market
superior or equivalent drugs. The failure to develop safe,
commercially viable products would have a material adverse effect on
the Company's business, financial condition and results of operations.
<PAGE> 20
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 completed Phase I human testing with the FDA; Phase
II testing of GBC-590, as well as additional Phase I testing, are
scheduled to commence in the third and fourth quarters 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, testing, marketing and developing channels of
sales and distribution. Such activities have resulted in accumulated
losses of approximately $19,475,000 (including grants of stock to
employees and consultants) through the end of the Company's most recent
fiscal quarter. The Company expects that it will also incur
significant losses during the remainder of 1999 as a result of its
continued research and significant anticipated expenditures for sales
and marketing for existing commercial products and in connection with
bringing additional products to market.
RESULTS OF OPERATIONS: THREE MONTHS ENDED JUNE 30, 1999 VERSUS JUNE 30,
1998
Sales increased from $0 for the three months ended June 30, 1998
to $206,013 for the three months ended June 30, 1999. This increase
was primarily attributable to the Company's initial shipments of its
various products to individuals, retail establishments, institutions
and municipalities.
Cost of goods sold increased from $0 for the three months ended
June 30, 1998 to $364,618 for the three months ended June 30, 1999.
Costs of goods sold exceeded sales during the period as a result of
higher costs and lack of economies of scale associated with initial
manufacturing and shipping of small amounts of product.
General and administrative expenses increased from $726,727 for
the three months ended June 30, 1998 to $2,315,209 for the three months
ended June 30, 1999, an increase of $1,588,482 or 218.6%. This
increase was primarily attributable to an increase in number of
employees and in consulting expenses associated with the Company's
expansion and preparation of its products for marketing and
distribution, creation of inventory and marketing expenses. The
Company's headcount increased from 11 employees as of June 30, 1998 to
31 employees as of June 30, 1999. Approximately $859,700 of such 1999
expenses 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> 21
Research and development costs for consultants, supplies and
testing decreased from $682,374 for the three months ended June 30,
1998 to $515,006 for the three months ended June 30, 1999, a decrease
of $167,368 or 24.5%. This decrease was primarily attributable to a
decrease in consulting expense as a result of the discontinuance of
certain licensing agreements. Approximately $86,600 of such 1999
expenses were non-cash expenses resulting from the issuance of options
and warrants to purchase common stock and the grant of common stock for
services.
The Company is currently reviewing the way in which consultants
and certain employees are compensated to reflect a more favorable
accounting treatment. If non-cash compensation expenses were excluded
from the results of operations, the net loss for the three months ended
June 30, 1999, would decrease from $(2,911,062) to $(1,964,745) and
earnings per share for the period would increase from $(.18) to $(.12).
Interest income increased from $36,135 for the three months ended
June 30, 1998 to $77,865 for the three months ended June 30, 1999, an
increase of $41,730 or 115.4%. 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: SIX MONTHS ENDED JUNE 30, 1999 VERSUS JUNE 30,
1998
Sales increased from $0 for the six months ended June 30, 1998 to
$206,013 for the six months ended June 30, 1999. This increase was
primarily attributable to the Company's initial shipments of its various
products to individuals, retail establishments, institutions and
municipalities.
Cost of goods sold increased from $0 for the six months ended June
30, 1998 to $364,618 for the six months ended June 30, 1999. Costs of
goods sold exceeded sales during the period as a result of higher costs
and lack of economies of scale associated with initial manufacturing
and shipping of small amounts of product.
General and administrative expenses increased from $1,625,239 for
the six months ended June 30, 1998 to $4,121,336 for the six months
ended June 30, 1999, an increase of $2,496,097 or 153.6%. This
increase was primarily attributable to an increase in salaries and
consulting expenses associated with the Company's expansion and
preparation of its products for marketing and distribution, creation of
inventory and marketing expenses. The Company's headcount increased from
11 employees as of June 30, 1998 to 31 employees as of June 30, 1999.
Approximately $1,496,000 of such 1999 expenses 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> 22
Research and development costs for consultants, supplies and
testing decreased from $1,276,421 for the six months ended June 30,
1998 to $914,467 for the six months ended June 30, 1999, a decrease of
$361,954 or 28.4%. This decrease was primarily attributable to a
decrease in consulting expense as a result of the discontinuance of
certain licensing agreements. Approximately $105,400 of such 1999
expenses were non-cash expenses resulting from the issuance of options
and warrants to purchase common stock and the grant of common stock for
services.
The Company is currently reviewing the way in which consultants
and certain employees are compensated to reflect a more favorable
accounting treatment. If non-cash compensation expenses were excluded
from the results of operations, net loss for the six months ended June
30, 1999, would decrease from $(5,084,407) to $(3,482,884) and earnings
per share for the period would increase from $(.34) to $(.23).
Interest income increased from $66,548 for the six months ended
June 30, 1998 to $110,218 for the six months ended June 30, 1999, an
increase of $43,670 or 65.6%. 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 our 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.
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its operations primarily
with the proceeds from debt and equity securities totaling
approximately $20,300,000. For the six months ended June 30, 1999, the
Company's operations utilized cash of $3,723,267 primarily to fund the
operating loss. The Company also invested $149,416 in fixed asset
purchases related to the Company's expansion and preparation of its
products for marketing and distribution. The uses of cash were offset
by equity financings that resulted in net proceeds of $7,396,574 to the
Company during 1999.
As of June 30, 1999, the Company's accumulated deficit is
$19,474,796 and cash balances are $6,949,284. The Company has no bank
lines of credit at present. It is not known whether additional funds
could be borrowed from stockholders or other sources.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Dependence on Financing
The Company's future is dependent upon its ability to obtain
financing to fund its operations. The Company expects to incur
substantial additional operating costs, including costs related to
ongoing research and development activities, 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.
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 all both countries will be minimal and, hence,
not have a material impact on operations.
Rapid Technological Change
The biotech industry is characterized by rapid technological
change.
<PAGE> 24
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.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the second 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, the approval of
an amendment of the Company's Articles of Incorporation to increase the
authorized common shares from 25,000,000 to 100,000,000.
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 11,889,197 11,684,672 204,525
David Dube 11,889,197 11,721,156 168,041
Theodore Host 11,889,197 11,721,166 168,031
Brian Hughes 11,889,197 11,721,166 168,031
David Platt 11,889,197 11,683,883 205,314
Richard Salter 11,889,197 11,685,758 203,439
The appointment of Arthur Anderson LLP as auditors for the Company
for the fiscal year ended December 31, 1999 was approved by a vote of
11,881,902 in favor and 7,295 against out of a total of 11,889,197
votes cast.
The amendment of the Company's Articles of Incorporation was
approved by a vote of 11,750,500 in favor and 132,537 against out of
total of 11,883,037.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits filed with this Form 10-Q are:
27 Financial Data Schedule.
<PAGE> 25
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 12th day of August, 1999.
SAFESCIENCE, INC.
(the "Registrant")
BY: /s/ Bradley J. Carver
Bradley J. Carver
President, Treasurer, Chief
Financial Officer and a member
of the Board of Directors
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Financial Condition at June 30, 1999 (Unaudited) and the
Statement of Operations for the three months ended June 30, 1999 (Unaudited)
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 6,949,284
<SECURITIES> 0
<RECEIVABLES> 41,231
<ALLOWANCES> 3,500
<INVENTORY> 205,979
<CURRENT-ASSETS> 7,315,378
<PP&E> 451,344
<DEPRECIATION> 129,454
<TOTAL-ASSETS> 7,999,121
<CURRENT-LIABILITIES> 576,042
<BONDS> 0
0
0
<COMMON> 164,128
<OTHER-SE> 7,250,011
<TOTAL-LIABILITY-AND-EQUITY> 7,999,121
<SALES> 206,013
<TOTAL-REVENUES> 206,013
<CGS> 364,618
<TOTAL-COSTS> 5,400,421
<OTHER-EXPENSES> 110,218
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 217
<INCOME-PRETAX> (5,084,407)
<INCOME-TAX> 0
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,084,407)
<EPS-BASIC> (0.34)
<EPS-DILUTED> (0.34)
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