SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------------------------------------------
FORM 10-Q/A
(Amendment No. 1)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from: ______________ to ________________
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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 May 31, 2000 was 17,593,102 shares.
1
<PAGE>
EXPLANATORY NOTE
This Amendment No. 1 of Form 10-Q to the Quarterly Report on Form 10-Q for the
period ending March 31, 2000 of SafeScience, Inc. amends and restates in its
entirety Item 1 of Part I to reflect corrections to the Company's cash flow
statement and to add information in the notes to the financial statements
concerning trade credits and license agreements.
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SAFESCIENCE, INC.
CONSOLIDATED BALANCE SHEETS
---------------------------
(Unaudited)
<CAPTION>
ASSETS
------
March 31, December 31,
2000 1999
-----------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents 9,690,940 3,377,067
Accounts receivable, net of allowances of approximately
$ 68,000 at March 31, 2000 and $43,000 at December 31, 1999 310,598 95,222
Inventory 478,639 356,211
Prepaid expenses, trade credits and other current assets 605,654 538,823
-----------------------------------------
Total current assets 11,085,831 4,367,323
-----------------------------------------
Property and equipment, at cost
Computer, office and laboratory equipment 486,673 470,614
Furniture, fixtures and leasehold improvements 217,970 210,274
Motor vehicles 46,100 46,100
-----------------------------------------
750,743 726,988
Less-accumulated depreciation (242,097) (207,267)
-----------------------------------------
508,646 519,721
-----------------------------------------
Other assets:
Notes receivable - related parties (Note 6) 439,008 661,005
Restricted cash 108,128 108,128
Deposits 14,068 14,068
-----------------------------------------
Total other assets 561,204 783,201
-----------------------------------------
Total assets $ 12,155,681 $ 5,670,245
=========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable 726,472 484,208
Accrued liabilities 673,619 644,945
Deferred revenue 19,975 19,975
-----------------------------------------
Total current liabilities 1,420,066 1,149,128
-----------------------------------------
Stockholders' equity:
Preferred stock, $.01 par value
Authorized -5,000,000 shares
issued and outstanding - None
- -
Common stock, $.01 par value
Authorized -100,000,000 shares
Issued and outstanding - 17,595,777 and 16,835,923
shares at March 31, 2000 and December 31, 1999, respectively 175,958 168,359
Additional paid-in capital 43,292,056 34,388,615
Note receivable from officer -Issuance of common stock (3,343,750) (3,343,750)
Accumulated deficit (29,388,649) (26,692,107)
-----------------------------------------
Total stockholders' equity 10,735,615 4,521,117
-----------------------------------------
Total liabilities and stockholders' equity $ 12,155,681 $ 5,670,245
=========================================
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
3
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<TABLE>
SAFESCIENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
<CAPTION>
Three Months Ended March 31,
-----------------------------------------
2000 1999
------------------ ------------------
<S> <C> <C>
Sales $ 572,551 $ -
Cost of goods sold
458,374 -
----------------------------------------
Gross profit
114,177 -
----------------------------------------
Operating expenses:
General and administrative 1,275,215 1,390,283
Sales and marketing 860,912 414,537
Research and development 662,941 399,461
----------------------------------------
Total operating expenses 2,799,068 2,204,281
----------------------------------------
Operating loss (2,684,891) (2,204,281)
----------------------------------------
Other income (expense):
Other expense (32,710) (1,417)
Interest income 21,059 32,353
----------------------------------------
Total other income (expense) (11,651) 30,936
----------------------------------------
Net loss (2,696,542) (2,173,345)
========================================
Basic and diluted net loss per common share $ (0.16) $ (0.15)
========================================
Weighted average number of common
shares outstanding 17,143,728 14,762,172
========================================
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
4
<PAGE>
<TABLE>
SAFESCIENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended March 31,
----------------------------------------
2000 1999
------------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss (2,696,542) (2,173,345)
Adjustments to reconcile net loss to net cash
used in operating activities:
Operating expenses paid in common
stock and options 405,611 655,206
Depreciation and amortization 34,830 22,288
Changes in assets and liabilities:
Accounts receivable (215,376) -
Inventory (122,428) (270,920)
Prepaid expenses and other current assets (66,831) (20,490)
Accounts payable 242,264 159,776
Accrued liabilities
28,674 381,452
----------------------------------------
Net cash used in operating activities (2,389,798) (1,246,033)
----------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (23,755) (104,773)
Repayment of loans to related parties, net 221,997 321
Deposits paid, net - (11,370)
----------------------------------------
Net cash provided by (used in) investing activities 198,242 (115,822)
----------------------------------------
Cash flows from financing activities:
Payments on obligations under capital lease
- (1,144)
Proceeds from sale of common stock, net of issuance costs 8,505,000 5,834,795
Proceeds from exercise of common stock options
429 -
----------------------------------------
Net cash provided by financing activities 8,505,429 5,833,651
----------------------------------------
Net increase in cash and cash equivalents 6,313,873 4,471,796
Cash and cash equivalents, beginning balance 3,377,067 3,439,408
----------------------------------------
Cash and cash equivalents, ending balance $ 9,690,940 $7,911,204
========================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ - $ 110
========================================
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
5
<PAGE>
SAFESCIENCE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(1) Summary of Significant Accounting Policies
(a) Organization
SafeScience, Inc. (the Company) was formed in 1992 for the research and
development of pharmaceutical products based on carbohydrate chemistry. Today,
the Company has two wholly owned subsidiaries: International Gene Group, Inc.
and SafeScience Products, Inc. The Company has expanded its focus to include
other pharmaceuticals, agricultural, consumer and home and garden products.
International Gene Group, Inc. focuses on the development of carbohydrate-based
pharmaceutical products related to two major areas of disease: cancer and fungal
infections. SafeScience Products, Inc. focuses on developing consumer and home
and garden, industrial and agricultural applications for products some of which
are also based upon carbohydrate chemistries. These products are either licensed
from or jointly developed with third parties (Note 3). SafeScience, Inc.,
International Gene Group, Inc. and SafeScience Products, Inc. maintain an office
in Boston, Massachusetts.
The Company was a development stage enterprise from inception until the third
quarter of 1999.
The Company is producing and marketing its consumer and industrial products
while continuing its efforts toward product research and development and raising
capital. Management anticipates that additional revenues may be derived from
products under development or those developed in the future. Principal risks to
the Company include the successful development and marketing of products to
attain profitable operations, dependence on collaborative partners, the need to
obtain adequate financing to fund future operations, United States Food and Drug
Administration approval and other regulatory agencies, clearance and regulation,
dependence on key individuals and competition from substitute products and
larger companies.
(b) Principles of Consolidation
The Company's consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, International Gene Group, Inc., and
SafeScience Products, Inc. All material intercompany transactions and accounts
have been eliminated in the consolidated financial statements.
(c) Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission, and reflect all adjustments, consisting of only normal
recurring adjustments, which, in the opinion of management, are necessary for a
fair statement of the results of the interim periods presented. These financial
statements do not include disclosures associated with the annual financial
statements and, accordingly, should be read in conjunction with the attached
Management's Discussion and Analysis
6
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SAFESCIENCE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
of Financial Condition and Results of Operations and the financial statements
and footnotes for the year ended December 31, 1999 included in the Company's
Form 10-K.
(d) Reclassifications
Certain prior period amounts have been reclassified to conform with current
period presentation.
(e) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of operational expenses during the reporting period. Actual
results could differ from those estimates.
(f) Revenue Recognition
The Company recognizes revenue related to product sales upon shipment of the
product. The Company provides for anticipated product returns at the time of
product shipment. Approximately $136,000 or 23.8% of the Company's revenues for
the three months ended March 31, 2000 were derived from a barter transaction.
(See Note 5)
(g) Cash and Cash Equivalents
Cash and cash equivalents at March 31, 2000 were $9,960,940 including $9,678,264
held by a single bank. Of that amount $ 8,722,079 was in an overnight investment
account, which reinvests daily in government securities funds and money market
funds. Restricted cash represents funds held under an irrevocable standby letter
of credit. The letter of credit serves as a security for the Company's facility
lease. The funds are being held in an investment account.
(h) 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
-------------------- ---------------------
Computer, office and laboratory equipment 3 - 5 years
Furniture and fixtures 7 years
Motor vehicles 4 years
7
<PAGE>
SAFESCIENCE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(i) Research and Development
Research and development costs, which consist primarily of wages, expenses for
consultants, supplies and testing, are charged to operations as incurred.
(j) 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 March 31, 2000 and 1999 excluded
the potential common shares from warrants and stock options because to do so
would be antidulitive for the periods presented. At March 31, 2000 and 1999
there are 259,754 and 650,385 warrants outstanding, respectively, with a
weighted average exercise price of $14.37 and $4.83, respectively, and 541,294
and 153,175 stock options outstanding, respectively, with a weighted average
exercise price of $11.24 and $4.81 respectively.
(k) 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.
(l) Disclosures about Segments of an Enterprise and Significant Customers
The Company 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 March 31, 2000 84.2% 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:
SafeScience products and pharmaceuticals. Revenues and cost of revenues to date
relate to SafeScience products.
8
<PAGE>
SAFESCIENCE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
Our financial information has been reported on the basis that we use internally
for evaluating segment performance and deciding how to allocate resources to
segments.
(m) Concentration of Risk
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
risk beyond amounts provided for returns is believed by management to be
inherent in the Company's accounts receivable. For the three months ended March
31, 2000, four customers represented 97% of revenues and 97% of accounts
receivable.
(2) STOCKHOLDER'S EQUITY
(a) Private Placement Offerings
In March 2000, the Company raised $5,000,000 in a private placement offering of
common stock in which 346,020 shares were sold at $14.45 per share. The
purchasers also received a warrant to purchase 108,996 additional shares of
common stock at $15.98 per share exercisable for five years, and a warrant to
purchase shares at $0.01 per share, the number of shares of common stock to be
determined in the future according to a formula based on the then market price
per share compared to the $14.45 per share sales price paid by the purchasers in
the offering. The purchasers have certain rights, including but not limited to,
registration rights, rights-of-first-refusal, and adjustments for certain
events. Net proceeds from the offering were $4,625,000. The purchasers have a
commitment to purchase up to $2,000,000 of additional common stock at $14.45 per
share upon the date at which the registration statement for the initial shares
becomes effective, provided the date is no later than June 29, 2000. In
addition, the purchasers have a commitment to purchase $7,000,000 of additional
common stock at the price equal to the lesser of (i) 110% of the average of the
closing bid prices of the Company's common stock for the four trading days
preceding the closing date of the tranche and (ii) $16.00, with additional
warrants within 190 - 210 days from the closing of the initial transaction
subject to conditions, including but not limited to, market capitalization,
trading volume, and share price conditions.
Also during March 2000, the Company raised an additional $4,000,000 in a private
placement offering of common stock in which 333,334 shares were sold at $12.00
per share. The purchasers also received warrants to purchase 75,758 additional
shares of common stock at $15.98 per share exercisable for five years. Net
proceeds from the offering were $3,880,000. The purchasers have
9
<PAGE>
SAFESCIENCE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
"piggyback" registration rights in any registered public offering of common
shares by the Company subject to standard underwriter consent and other
customary provisions.
(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 Compensation Committee. During the three months ended March 31,
2000, the Company issued 2,061 shares of common stock and recorded charges to
operations of $28,080 relating to those issuances of common stock. During the
three months ended March 31, 1999, the Company granted options to purchase 7,419
shares of common stock and granted 144,615 shares of common stock, and recorded
charges to operations of $54,812 and $600,394 relating to these issuances,
respectively.
The following table summarizes all stock option activity to employees and
consultants for services for the three months ended March 31, 2000.
Stock Options
Weighted -
Average
Number Exercise Price
Of Shares Per Share
Balance December 31, 1999 585,424 $ 10.42
Granted - -
Exercised (42,876) .01
Cancelled (1,254) 12.03
----------- --------
Balance March 31, 2000 541,294 $ 11.24
======= =======
As of March 31, 2000, the Company had committed to grant 40,000 shares of common
stock upon the attainment of future milestones.
10
<PAGE>
SAFESCIENCE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(c) Warrants
The following table summarizes all warrant activity for the three months ended
March 31, 2000.
Weighted -
Average
Number Exercise Price
Of Shares Per Share
Balance December 31, 1999 75,000 $ 10.40
Issued 184,754 15.98
Exercised - -
----------- --------
Balance March 31, 2000 259,754 $ 14.37
=========== ========
(3) LICENSING AGREEMENTS
The Company and Volcani Institute have agreed not to continue their research
program, however, the Company has retained the right to sell licensed products
under a royalty arrangement. During the three months ended March 31, 2000 and
1999, no payments were paid under this agreement.
In January 2000, the Company terminated its agreement with PhytoPharmaceuticals,
Inc and Girma Mitiku, Ph.D. under which the Company licensed certain products
and employed Dr. Mitiku. During the three months ended March 31, 2000 and 1999,
the Company made payments of $25,128 and $16,633, respectively, under this
agreement.
In January 2000, the Company terminated its distribution agreement with Interbox
Co. Ltd. During the three months ended March 31, 2000 and 1999, no payments were
paid under this agreement.
(4) INVENTORY
Inventory is stated at lower of cost (first-in, first-out) or market and consist
of the following:
March 31, 2000 March 31, 1999
-------------- --------------
Raw Materials $391,257 $270,920
Finished Goods 87,382 0
---------- --------
Total Inventory $478,639 $270,920
========== ========
11
<PAGE>
SAFESCIENCE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(5) TRADE CREDITS
The Company has entered into trade agreements with two barter companies for the
exchange of goods and services. One barter company purchased approximately
$130,000 of product from the Company during the three months ended March 31,
2000 and paid for these products by issuing $130,000 of advertising credits. The
barter company acquires media time on behalf of the Company; 55% of the net cost
of all media time utilized by the Company is payable in cash and the remaining
45% is charged against the trade credit. The other barter company purchased
approximately $6,000 of product from the Company during the three months ended
March 31, 2000 and paid for these products by issuing $6,000 of advertising
credits. The barter company acquires radio time on behalf of the Company; 15% of
the net cost of all media time utilized by the Company is payable in cash and
the remaining 85% is charged against the trade credit. As of March 31, 2000,
$523,921 of trade credits were outstanding. The Company expects to utilize these
credits by the end of the year 2000.
(6) NOTES RECEIVABLE - RELATED PARTIES
The Company has the following notes due from:
<TABLE>
Principal Amount as of
----------------------
Interest
Date of Note Relationship Rate Maturity Date Mar 31, 2000 Dec. 31, 1999
------------ ------------ ---- ------------- -------------------- -------------
<S> <C> <C> <C> <C> <C>
Mar 11, 1997 Officer 5.66 % Mar 11, 2002 $ 61,291 $ 85,514
May 14, 1999 Supplier 8.25 May 14, 2001 150,000 150,000
Dec. 30, 1999 Supplier - Dec. 30, 2000 - 50,000
June 14, 1999 Officer 4.92 July 31, 2000 72,000 (1), (2) 72,000
Sept. 3, 1999 Officer 5.50 May 1, 2000 76,000 (1), (2) 200,000
Dec. 31, 1999 Officer 6.75 Sept. 30, 2000 27,347 16,491
Various Dates Others 52,370 87,000
-------------- ------------------
$ 439,008 $ 661,005
============== ===================
(1) Non-recourse
(2) Secured by pledge of common stock of SafeScience, Inc.
</TABLE>
(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
12
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SAFESCIENCE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
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.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements," ("SAB 101") as
amended by SAB 101A, which is effective no later than the quarter ending June
30, 2000. SAB 101 clarifies the Securities and Exchange Commission's views
regarding recognition of revenue. The Company will adopt SAB 101 in the second
quarter of 2000 and is currently evaluating the effects it will have. The
Company anticipates that the adoption of SAB 101 will not have a material
adverse effect on the Company's 2000 financial position and results of
operations.
13
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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 20th day of June 2000.
-----------------------------------------
SAFESCIENCE, INC.
(the "Registrant")
BY: /s/ Bradley J. Carver
---------------------
Bradley J. Carver, Chief Executive Officer,
President, Treasurer, and a member of the
Board of Directors
BY: /s/ John W. Burns
-----------------
John W. Burns, Chief Financial Officer and
Secretary
