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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended - December 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _________ to ________.
Commission file number 0-26476
GLYCOGENESYS, INC.
(Exact name of Company as specified in its charter)
Nevada 33-0231238
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Park Square Building
31 St. James Avenue, 8th Floor
Boston, Massachusetts 02116
(Address of principal executive offices, including postal code.)
(617) 422-0674
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None
This Annual Report on Form 10-K contains unaudited financial statements for the
year ended December 31, 2001 in lieu of audited financial statements for such
period because the Company elected not to have Arthur Andersen LLP issue a
manually signed audit report in respect of the Company's financial statements
for the year ended December 31, 2001 in reliance on Securities and Exchange
Release No. 34-45589. Please see additional information regarding the Company's
unaudited financial statements for the year ended December 31, 2001 in Item 8
hereto.
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Common Stock
Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value at April 12, 2002 of the voting stock of the
Registrant held by non-affiliates (based on the closing price of $1.40_on the
Nasdaq SmallCap market on that date) was approximately $31,360,000.
The number of shares outstanding each of the Registrant's classes of common
stock, as of April 12, 2002 was 37,064,044.
PART I
Forward-looking statements are made throughout this document.
Typically, the use of the words "believe", "anticipate", "plan", "expect",
"seek", "estimate" and similar expressions identify forward-looking statements.
Unless a passage describes a historical event, the statement should be
considered a forward-looking statement. In keeping with the "Safe Harbor"
provision of the Private Securities Litigation Reform Act of 1995, it should be
noted that forward-looking statements regarding the Company's future
expectations and projections are not guarantees of future performance. They
involve risks, uncertainties and assumptions, and many of the factors that will
determine the Company's future results are beyond the Company's ability to
control or predict. Therefore, actual results may differ significantly from
those suggested by forward-looking statements. These risks include those
detailed under the heading "Certain Factors That May Affect Future Results"
immediately following the "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
ITEM 1. BUSINESS
Overview
GlycoGenesys, Inc. (the "Company," formerly known as SafeScience, Inc.) is a
biotechnology company developing novel pharmaceutical products based on
carbohydrate compounds and related technologies. The Company's lead drug
candidate GCS-100 (formerly known as GBC-590), a potential treatment for
multiple forms of cancer, recently completed Phase II(a) clinical trials for
pancreatic cancer and completed Phase IIa clinical trials for colorectal cancer
in 2001. In July 2001, the Company formed a joint venture (SafeScience Newco,
Ltd.) with Elan Corporation, plc ("Elan") to advance GCS-100 in the field of
oncology.
While the Company is also developing two agricultural products (Elexa, a
registered trademark of the Company, and Bb447), it continues to seek strategic
alternatives, including the sale, of its agricultural products business area.
The Company's near term objective is to continue to proceed through the various
phases of United States Food and Drug Administration (FDA) clinical trials for
GCS-100.
The Company's business was founded in 1992 as IGG International, inc.
to pursue carbohydrate based pharmaceutical research for cancer therapeutics. In
1995, the Company merged with Alvarada Inc., a publicly-traded corporation
having no active operations. In 1998 the Company changed its name to
SafeScience, Inc. and more recently in October 2001 the Company changed its name
to GlycoGenesys, Inc. The Company's principle executive offices are located at
31 St. James Avenue, 8th Floor, Boston, MA 02116 and the telephone number is
(617) 422-0674. The Company's homepage is located on the World Wide Web at
http://www.glycogenesys.com
GlycoGenesys, Inc.
GlycoGenesys conducts its business through two wholly-owned subsidiaries,
International Gene Group, Inc. and SafeScience Products, Inc.
International Gene Group, Inc. ("IGG") develops human therapeutics. IGG has been
focused on developing GCS-100, a complex carbohydrate intended to fight
cancerous tumors and metastasis, which it exclusively licenses from Dr. David
Platt and Wayne State University and the Barbara Ann Karmanos Cancer Institute.
Theoretical Background of GCS-100. Cells recognize one another through pairs of
complementary structures on their surface. A structure on one cell carries
encoded biological information that a structure on another cell can decipher.
While nucleic acids and proteins were previously recognized as the major classes
of biological materials involved in cell recognition, it has recently been
scientifically established that carbohydrates play a role as well. Cell surface
components contain carbohydrate structures, which change characteristics as the
cell develops, differentiates, transforms and progresses through its life cycle.
It is contended that cell adhesion plays a role in cancer and cancer metastasis.
Metastasis is the process by which cancer cells spread throughout the body,
beginning at the primary tumor. The spread of the cancer cells throughout the
body is the main cause of death for cancer patients. These cells, once
circulating in the bloodstream after their detachment from the primary tumor,
must adhere to new cells in other parts of the body in order to proliferate to
form new tumor colonies. The Company believes that drugs, which inhibit this
process of adhesion, may inhibit metastasis although this theory has not been
scientifically established.
GCS-100 may offer a novel approach to controlling the progression of cancer, by
disrupting the cellular recognition process of roaming cancer cells and
preventing them from reattaching to each other and to normal tissue. The GCS-100
compound acts as a "molecular decoy" by recognizing a specific lectin on cell
surfaces called Galectin-3 which plays a role in aggregation of cancer cells. By
binding to Galectin-3, a protein that binds to specific carbohydrates, GCS-100
may thus prevent metastasis. In addition, independent research has shown that
Galectin-3 is involved in regulating cell growth, migration and apoptosis (cell
death). By binding to Galectin-3, GCS-100 may induce cancer cell death.
Furthermore, independent research has shown that Galectin-3 plays a role in
angiogenesis. Angiogenesis, identified in the 1980's, is the biological process
by which tumors form new blood vessels allowing them to obtain the nutrients
necessary for tumor growth. By binding to Galectin-3, GCS-100 may inhibit
angiogenesis.
The Company believes that GCS-100 has the potential for therapeutic effect on
multiple cancer types (i.e., pancreatic, colorectal, prostate, breast and liver)
because the target for GCS-100 on the cancer cells is
Galectin-3 which is over expressed on all these cancer types. GCS-100 is
delivered intravenously.
Phase I clinical trials of GCS-100, at the MD Anderson Cancer Center in Houston,
Texas and at Pennsylvania Oncology and Hematology Associates, an affiliate of
the University of Pennsylvania - School of Medicine in Philadelphia,
Pennsylvania, were completed in 1999. Phase I is intended to assess toxicity;
GCS-100 showed no dose limiting toxicity in patients.
A Phase IIa clinical trial for colorectal cancer was completed in 2001 and a
Phase IIa clinical trial for pancreatic cancer was completed in 2002. These
Phase Iia trials were conducted at the following locations:
. Beth Israel/Deaconess Hospital in Boston, Massachusetts;
. University of Chicago Pritzker School of Medicine;
. University of Rochester Cancer Center;
. Christiana Healthcare in Wilmington, Delaware;
. Ocala Oncology Center in Ocala, Florida;
. Hematology and Oncology Associates in Kansas City, Missouri; and
. Medical Oncology Associates in San Diego, California.
On March 23, 2001, the Company announced that GCS-100 demonstrated positive
clinical activity in colorectal cancer patients in the completed Phase IIa
clinical trial. Specifically, five of 23 patients showed tumor stabilization for
periods of two to six months before disease state progression was observed, with
one of the five patients showing a period of tumor shrinkage. On April 8, 2002,
the Company announced the completion of its Phase IIa pancreatic cancer clinical
trial. Phase II clinical trials are designed to help determine both the safety
and efficacy of a potential drug, which may involve several sets of trials
(Phase IIa, Phase IIb, etc.). Based on promising early data from these trials,
and the fact that higher doses of GCS-100 than administered in the Phase IIa
colorectal and pancreatic trials have already been tested in animals, with no
dose limiting toxicity observed, a Phase I dose escalation trial to include
colorectal and other types of cancer patients began in February 2002. This trial
is being conducted at Sharp Clinical Oncology Research Memorial Hospital in San
Diego. In addition, a Phase II dose escalation trial with GCS-100 in combination
with a standard cancer therapy is planned to begin in 2002/2003 and will enroll
pancreatic cancer patients. These dose escalation trials may enroll up to 75
cancer patients separated into groups, each receiving a different dose level of
GCS-100. Assuming the results of these dose escalation trials support an
expanded Phase II/III pivotal clinical trial for pancreatic cancer, the Company
intends to initiate such a trial in 2003/2004. In connection with this trial the
Company intends to seek fast track designation from the FDA which would enable
the Company to seek accelerated approval for GCS-100 for the treatment of
pancreatic cancer. There can be no assurances at present that intravenous
injection of GCS-100 will prove effective in reducing or eliminating the spread
of cancer in humans, be safe at higher doses or that accelerated or other
approval will be granted by the FDA.
On September 19, 2001, we announced that we entered into a sponsored research
agreement with the Massachusetts Institute of Technology (MIT). The research
conducted by MIT will focus on an expanded analysis of GCS-100 and
identification of other compounds with promising biochemical and pharmaceutical
activity.
The estimated amount expended by the Company during the fiscal year ending 2001
on Company sponsored research was approximately $266,500, exclusive of amounts
totaling $2,075,000 paid to consulting companies or clinical research
organizations.
On July 10, 2001, the Company closed on a business venture with Elan
Corporation, plc, an Irish limited liability company ("Elan") and Elan
International Services, Ltd., a Bermuda exempted limited liability company
("Elan International"). As part of the transaction, Elan International and the
Company founded a Bermuda exempted limited liability company, SafeScience Newco,
Ltd., to further advance GCS-100. The Company owns all of the common stock and
60.2% of the non-voting preferred shares of SafeScience Newco, Ltd. and Elan
International owns 39.8% of the non-voting preferred shares of SafeScience
Newco, Ltd. Of the outstanding combined common and non-voting preferred shares
of SafeScience Newco, Ltd., the Company owns 80.1% and Elan International owns
19.9%. Elan and the Company entered into license agreements under which the
Company licensed to SafeScience Newco, Ltd. its intellectual property related to
GCS-100 for use in the field of oncology and Elan licensed to SafeScience Newco,
Ltd. proprietary oral drug technology.
As part of the transaction, Elan International also purchased 2,700,000 shares
of the Company's Common Stock, 1,116.79 shares of the Company's Series C
Non-Voting Preferred Stock ("Series C Stock") convertible into 1,116,790 shares
of Common Stock after two years and a five-year warrant to purchase 381,679
shares of Common Stock at an exercise price of $2.43 per share for an aggregate
purchase price of $5,000,000. Elan International also purchased shares of the
Company's Series A Convertible Exchangeable Non-Voting Preferred Stock ("Series
A Stock") for $12,015,000. The Series A Stock bears a 7% dividend
payable-in-kind. The Series A Stock is exchangeable at the option of Elan
International at any time for all of the preferred stock of SafeScience Newco,
Ltd. held by the Company which, if exchanged, would give Elan International 50%
ownership of the fully diluted equity in SafeScience Newco, Ltd. The Series A
Stock shall be redeemed by the Company, if still outstanding on July 10, 2007
for either cash, shares of Common Stock, or shares of Common Stock and a warrant
of the Company at their fair market value at the time of redemption, at its
option. The proceeds from the issuance of the Series A Stock were contributed by
the Company to SafeScience Newco, Ltd. Consequently, the value assigned to the
Company's investment in SafeScience Newco, Ltd. is the same as the value of the
Series A Stock issued, which was approximately $12,015,000.
Elan International and the Company may fund SafeScience Newco, Ltd.'s
research and development according to their respective equity holdings in
SafeScience Newco, Ltd. Subject to mutual agreement, Elan International may
purchase from the Company up to $9.612 million of Series B Convertible Preferred
Stock, which bears a 7% dividend payable-in-kind and is convertible into Common
Stock. Elan International purchased $1.4 million of the Company's Series B
Preferred Stock, constituting 862.76047 shares, on December 31, 2001.
During the first quarter of 2002, the Company retained Beardsworth Consulting
Group, a full service contract research organization to support two projects: a
Phase I dose escalation trial, and database transfer/management for the recently
completed Phase IIa trials. They will provide clinical research management,
study monitoring, data management and medical writing. The costs for both
efforts will be approximately $1,228,000 and be paid out over the next 9-12
months. In addition, the costs associated with the Phase I dose escalation trial
currently being conducted at Sharp Clinical Oncology Research Memorial Hospital
("Sharp") is estimated to cost approximately $545,000 to be paid to Sharp over
the next 9-12 months.
Pipeline Development
In addition to expanding the clinical trial program for GCS-100, we will devote
resources to building a pipeline of drug candidates. Our research efforts will
focus on three initiatives: licensing new technologies from outside sources,
exploring the therapeutic potential of existing compounds in diseases other than
their original indication, and evaluating existing technologies currently
in-house. Priority will be given to drug candidates that provide therapeutic
activity in diseases that are life threatening or debilitating, have an unmet
medical need and for which Phase I/II clinical trails can be initiated in a
relatively short period of time.
We are critically evaluating all data in connection with CAN-296 and its market
potential in relation to our long term product focus on life threatening or
debilitating disease where there is an unmet medical need.
The Company is currently evaluating three new external programs of drug
candidates based on carbohydrate and related technology. As a result of this
process, we are seeking to add at least one new compound to our pre-clinical
development program during the next 12 months and may add one compound to our
clinical program during the next 12 to 18 months.
SafeScience Products, Inc.
Historically, SafeScience Products developed agriculture products and developed,
marketed and distributed chemically safe consumer and commercial products.
In the agricultural area, SafeScience Products has developed and/or
licensed products that include a Federal EPA-approved plant defense booster
(Elexa) for application to crops and other plants against certain fungal
diseases. An additional insecticidal product (Bb447) is being tested and
developed against both indoor and outdoor insect pests.
On February 15, 2001, the Company received notice of unconditional registration
from the United States Environmental Protection Agency's Office of Pesticide
Programs, Biopesticides and Pollution Prevention Division for its Elexa(R)4
Plant Defense Booster. Elexa(R)4 is an effective non-toxic treatment that works
by stimulating the plant's own natural defense system to defend against fungal
diseases, such as powdery mildew and Botrytis, or gray mold, on grapes and
strawberries and powdery mildew on other crops, ornamental plants and flowers.
On June 8, 2001, conditional registration by the State of California's
Department of Pesticide Regulation was received for use as a plant defense
booster for application against various strains of powdery mildew disease on
grapes, strawberries, and greenhouse and nursery roses. In addition to
California, the state with the largest potential market, Elexa has received
registration in 13 other states, including New York. Modest resources, primarily
devoted to conducting field trials and maintaining product value, have been
allocated to our agricultural products business while the Company seeks
alternatives, including its sale.
On February 23, 2001 the Company announced the discontinuation of its consumer
and commercial operations. The Company estimated that the cost of disposing of
the business assets and the expenses incurred during the phase-out period were
$2,283,200. Estimated reductions in the assets and expenses were as follows:
Accounts receivable $ 100,000
Inventory 555,720
Barter credits 263,880
Machinery & equipment 41,919
Leasehold improvements 2,978
Provision for loss on operations 2000 785,503
Provision for loss on operations 2001 533,200
----------
Total $2,283,200
==========
Manufacturing; Source of Materials
We have established manufacturing relationships with three firms, two
of which are involved in the production of GCS-100 and one that is involved in
the production of Elexa. The Company believes its current relationships will
provide the capability to meet our anticipated requirements for GCS-100 and
Elexa for the foreseeable future. We audit our contract-manufacturing firms for
process suitability, cGMP compliance and for the capacity to scale-up production
in the event that larger quantities of product are needed.
Materials and components are selectively sourced from suppliers
nationally. We have good working relationships with all our manufacturing
associates and suppliers.
Nonetheless, the Company does not have long term arrangements with its
manufacturing associates and the Company's operations could be disrupted if the
current manufacturers would have to be replaced.
Government Regulation
Certain of our activities are subject to extensive federal and local
laws and regulations controlling the development, testing, manufacture and
distribution of pharmaceutical and pesticide products. The pharmaceutical
products of our IGG subsidiary are subject to regulation as therapeutics by the
FDA, while our agricultural products are regulated under FIFRA (Federal
Insecticide, Fungicide and Rodenticide Act) by the EPA and by state regulatory
agencies. Our products are also regulated in most foreign countries by
governmental agencies in those countries. Compliance with FDA and EPA
regulations often results in substantial costs relating to safety and clinical
testing of new products, for the preparation and filing of registration
documents in their required formats and for other similar purposes. Moreover,
there are no assurances that we will receive necessary approvals.
Food and Drug Administration Regulation
The FDA approval process consists of four steps that all new drugs,
antibiotics and biologicals must follow. These steps are:
1. investigational new drug application
2. clinical trials
3. new drug application (review and approval)
4. post-marketing surveys
In 1993 the FDA approved new procedures to accelerate the approval of
certain new drugs and biological products directed at serious or
life-threatening illnesses. These new procedures are intended to expedite the
approval process for patients suffering from terminal illness, if the drugs
subject to approval provide a therapeutic advantage over existing treatment. We
believe that GCS-100 may fall under the FDA guidelines for accelerated approval,
since it is targeted as a potential treatment for cancer metastasis and primary
tumors, although there can be no assurance that it will be subject to such
accelerated approval standards.
Human clinical trials are conducted in three phases, normally involving
progressively larger numbers of patients. Phase I clinical trials are concerned
primarily with learning more about the safety of a drug, by determining the
drug's toxicity. Typically oncology-related Phase I trials involve 20-40
patients, taking one to two years to complete. Phase I has been completed for
GCS-100 up to a dose level of 20 mg/m2. A recently started Phase I dose
escalation study will examine the safety of higher doses in patients.
Assuming the results of Phase I testing present no unmanageable
toxicity or unacceptable safety problems, Phase II trials may begin. The primary
objective of this stage of clinical testing is to determine whether the drug is
effective in treating the disease or condition for which it is intended. Phase
II studies may take a year or longer and could involve 200 or more patients for
each type of disease or illness tested and could involve several sets of trials
(IIa, IIb, etc.). These studies are randomized controlled trials that also
attempt to disclose
short-term side effects and risks in people whose health is impaired. The cost
per patient is estimated at $50,000 to $70,000. Phase IIa trials for pancreatic
and colorectal cancers have been completed. We plan to commence an expanded
Phase II pancreatic trial in 2002/2003 and may commence additional clinical
trials in 2003/2004.
The objective of Phase III clinical trials is to develop information that
will allow the drug to be marketed and used safely. Phase III trials involve
hundreds of patients with the objective of expanding on the research carried out
in Phase II and to learn how the drug compares with existing, approved drugs for
this indication. Among the objectives of Phase III trial are to discover less
common or even rare side effects and adverse reactions, and to generate
information that will be incorporated into the drug's labeling and the
FDA-approved guidelines to physicians and others about how properly to use the
drug.
The third step that is necessary prior to marketing a new drug is the New
Drug Application (NDA) submission and approval. In this step, all the
information generated by the clinical trials will be submitted to the FDA for
review and, if successful, the drug will be approved for marketing.
The final step of the FDA approval process is the random surveillance or
surveys of patients being treated with the drug to determine its long-term
effects. This step has no effect on the marketing of the drug unless toxic
conditions arise. The time required to complete all four of these steps averages
seven years, but can take significantly longer. There is no assurance that the
Company will ever receive FDA approval of any of its products.
Environmental Protection Agency Approval
Under FIFRA, we must obtain EPA approval for our agricultural products
before these products can be sold.
EPA approval requires submitting a comprehensive data package
describing the product and its active ingredients. The package includes
information on product identity, product chemistry, mammalian toxicology,
non-target animal and plant studies and a clear and well-defined manufacturing
process. Although there is no set registration time schedule, due in part to
EPA's backlog of registration filings and need to be satisfied that all data
requirements are carefully reviewed and have been met, most low risk, exempt
from tolerance, pesticides (like those from GlycoGenesys) typically take from 12
to 24 months for approval. The EPA regulatory process for the first generation
(1%) Elexa PDB was completed and the product was approved for sale in October
1997. Unconditional registration approval from the EPA for the 4% formulation of
Elexa PDB, now referred to as Elexa(R)4 PDB, was received on February 15, 2001.
In addition, the Company has received a conditional registration from the State
of California for Elexa(R)4 PDB and registration in 13 other states, including
Florida and New York. In order to be in compliance with the conditional
registration received in California, the California Department of Pesticide
Regulation has required the Company to supply certain data on the physical
chemistry and storage stability of the product by December 31, 2002.
The Company has initiated the registration process for its household
insecticide containing an insect-attacking, naturally occurring fungal agent,
referred to as Bb447. Bb447 is the active ingredient in bait stations that can
be used in homes and commercial settings for control of ants. EPA has recently
notified the Company that registration for indoor ant control should be
approved, subject to the Company revising the label for the EPA.
Competition
Our products will encounter significant competition from firms
currently engaged in the pharmaceutical, biotechnology, and agrochemical
products industries.
In the pharmaceutical area, GCS-100, our lead drug candidate for the
treatment of various forms of cancer, addresses large markets which are already
populated with several biotechnology and large pharmaceutical companies. These
companies utilize different drug discovery platforms, including but not limited
to small molecules, protein-based drugs, liposome technology, and genomics. The
drug development industry is intensely competitive, and many of our actual or
potential competitors have significantly greater financial resources and/or drug
development experience than we do. There is no assurance that other
carbohydrate-based or non-carbohydrate-based drugs with similar clinical effects
to GCS-100 may not already be in development by other companies or that other
companies may not successfully develop such drugs in the future.
The agricultural products under development may compete in several
different markets. Elexa(R)4-PDB and Bb447 would compete in the "high value"
agricultural market, and Bb447 will also compete in the home and commercial
markets. Many competitors have established brand recognition and customer
loyalty and are significantly larger, with much greater financial resources and
well-established chains of distribution, than the Company. It is our goal to
offer an alternative mode of action which can be used in conjunction with many
conventional pesticides in integrated pest management programs.
CAN-296 was developed pre-clinically as an anti-fungal compound. The
current market has several competing approved drugs.
Our failure to compete successfully against current or future
competitors could seriously harm our business, financial condition and results
of operation.
Product Liability
The testing, marketing and sale of pharmaceutical and agricultural
products entails a risk of product liability claims by consumers and
others. While we currently maintain product liability insurance which we believe
to be adequate and consistent with industry norms for similar stage
biotechnology companies, such insurance may not continue to be available at a
reasonable cost or may not be sufficient to fully cover any potential claims. In
the event of a successful suit against us, the lack of sufficiency of insurance
coverage and possible damage to our reputation could have a material adverse
effect on our business and financial condition.
Patent Status and Protection of Proprietary Technology
On January 26, 2001, the Company executed an agreement, which has been
amended on May 14 and November 7, 2001, with Wayne State University and the
Barbara Ann Karmanos Cancer Institute. This agreement grants the Company an
exclusive world-wide license to patents, patent applications, and other
intellectual property related to "GCS-100 Material" issued, developed, or
applied for by Wayne State University and the Barbara Ann Karmanos Cancer
Institute. This agreement adds the rights to these issued patents and patent
applications to the Company's existing patent portfolio, which consolidates the
rights to all of the parties' existing GCS-100 intellectual property within the
Company. Pursuant to this agreement, the Company made an initial payment of
$300,000 upon signing the agreement and is required to make up to an additional
$1,635,000 in license payments at the rate of 6% of cash raised through the sale
of securities of the Company. To date the Company has paid license fees of
$1,290,363 and owes license fees of $644,637 to be paid by July 11, 2002.
Additional payments of up to $3,000,000 are contingent upon reaching future
commercialization milestones.
The Company granted Wayne State University and the Barbara Ann Karmanos
Cancer Institute warrants to jointly purchase 1,375,000 shares of common stock
at $1.15 that vest in quarterly installments over two years. On November 7,
2001, the Company also granted Wayne State University and the Barbara Ann
Karmanos Cancer Institute warrants to jointly purchase 125,000 shares of common
stock at $1.15 that vest through January 26, 2003. During the year ended
December 31, 2001, the Company recorded an expense of $1,046,730 related to the
warrants which vested under this agreement and expense of $1,139,635 in payment
of the 6% amount due on sales of securities.
In order to maintain its rights under this agreement, the Company must
on the first occurrence of the following milestones: (a) pay Wayne State
University and the Barbara Ann Karmanos Cancer Institute $500,000 within thirty
(30) days following the date on which the Company commences Phase III clinical
drug investigations relating to GCS-100; (b) pay Wayne State University and the
Barbara Ann Karmanos Cancer Institute $1,000,000 within thirty (30) days
following the date on which the Company makes a new drug application ("NDA")
submission to the FDA relating to GCS-100; and (c) pay Wayne State University
and the Barbara Ann Karmanos Cancer Institute $1,500,000 within thirty (30) days
following the date on which the FDA approves an NDA of the Company covering
GCS-100. In addition,
the Company will pay a 2% royalty jointly to Wayne State University and the
Barbara Ann Karmanos Cancer Institute on net sales of GCS-100.
Dr. David Platt, our former Chairman, CEO and Director, has granted
GlycoGenesys' IGG subsidiary an exclusive, world-wide license, including the
right to sublicense, for all products covered by certain patents, (if and when
granted) or patent applications that he has developed (including GCS-100). IGG
is responsible for payment of all costs connected with obtaining and maintaining
the patents. In the case of GCS-100, Dr. Platt is entitled to a royalty of 2% of
all net sales.
The Company owns, or is the exclusive licensee of, all of its
intellectual property. This intellectual property includes eight issued US
patents which have expiration dates ranging from 2013 to 2018; three of these
eight patents relate directly to GCS-100. The intellectual property also
includes three foreign patents having expiration dates ranging from 2016 to
2017. Two of these three foreign patents relate directly to GCS-100. The
Company's intellectual property further includes eight pending US patent
applications, of which six directly relate to GCS-100; and 28 pending foreign
patent applications of which 15 relate directly to GCS-100.
To the extent that the Company currently relies upon unpatented,
proprietary technology, processes and know-how and the protection of such
intellectual property by confidentiality agreements, there can be no assurance
that others may not independently develop similar technology and know-how or
that confidentiality will not be breached. The Company believes our intellectual
property rights are significant and that the loss of all or a substantial
portion of such rights could have a material adverse effect on our business,
financial condition and results of operation. There is no assurance that any
patents will ever be granted on our unpatented intellectual property.
Uncertainties Associated with Research and Development Activities
The Company intends to continue its research and development activities
on its human therapeutic products and to a limited extent its agricultural
products, which are not presently ready for market and are in various stages of
development. Research and development activities, by their nature, preclude
definitive statements as to the time required and costs involved in reaching
certain objectives although the costs of these activities will be significant.
If research and development requires more funding than anticipated, the Company
will have to reduce product development efforts or seek additional financing.
There can be no assurance that the Company would be able to secure any necessary
additional financing or that such financing would be available on favorable
terms.
Dependence Upon Key Personnel
The Company relies greatly in its efforts on the services and expertise
of its current senior officers: Bradley J. Carver, CEO, President, Treasurer and
a member of the Board of Directors; John W. Burns, Senior Vice President, Chief
Financial Officer and Secretary; and Brian G. R. Hughes, Chairman of the Board.
The operation and future
success of the Company could be adversely affected in the event the Company were
to lose any of their services.
Employees
At December 31, 2001 we had approximately 11 employees on a full-time
basis and also employed one part-time worker. As of April 16, 2002 we had 12
full time employees and one part-time worker.
Consultants
The Company's clinical, regulatory and scientific research team has
grown by recruiting additional people, as consultants, from the biotechnology
industry. Each consultant has many years of experience in specific areas of drug
development.
ITEM 2. PROPERTIES.
Our offices are located at the Park Square Building, 8th Floor, 31 St.
James Avenue, Boston, Massachusetts 02116. We lease a total of 11,300 square
feet of office space, which exceeds our current space requirements and therefore
we charged $346,600 of future rent to discontinued operations expense in 2001.
In addition to our leased space in Boston, we are conducting research,
development and manufacturing at various facilities on a contract or license
basis.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information
In May 1998, the Company's securities became traded on the NASDAQ
(Small Cap) market under the symbol SAFS. On October 31, 2001 the symbol was
changed to GLGS reflecting the Company's name change to GlycoGenesys, Inc. Prior
to May 1998, the Company's securities were traded over-the-counter by the
National Association of Securities Dealers, Inc. under the symbol IGGI. The
table shows the high and low sales prices of Company's common stock during 2000
and 2001:
QUARTER ENDED SALES
High Low
2000
March 31 18.8750 11.0000
June 30 13.2500 4.5000
September 30 5.5000 1.5000
December 31 3.0600 1.0310
2001
March 31 1.9380 0.5630
June 30 2.0000 0.5500
September 30 2.1500 1.0000
December 31 2.0300 0.8000
(b) Holders
As of December 31, 2001, the Company had 496 holders of record of its
common stock. This number does not include those beneficial owners whose
securities are held in street name. The total number of stockholders is
estimated to be approximately 8,000.
(c) Dividends
The Company has never paid a cash dividend on its common stock and has
no present intention to declare or pay cash dividends on the common stock in the
foreseeable future. The Company intends to retain any earnings which it may
realize in the foreseeable future to finance its operations. Future dividends,
if any, will depend on earnings, financing requirements and other factors.
(d) Sales of Unregistered Securities
Set forth in chronological order below is information regarding the
number of shares of capital stock issued by the Company during the year ended
December 31, 2001. Further included is the consideration, if any, received by
the Company for such shares, and information relating to the section of the
Securities Act or rule of the Securities and Exchange Commission under which
exemption from registration was claimed.
1. During the first quarter of 2001, the Company raised $875,000 in a
private placement offering of Common Stock to accredited investors
whereby 775,000 shares were sold, together with warrants to purchase
77,500 shares of Common Stock each at prices of $2.20, $2.50, $3.00 and
$5.00 per share exercisable for five years, and warrants to purchase
90,000 shares at $0.01 per share exercisable for five years.
2. On February 9, 2001, the Company issued an aggregate of 729,445 shares of
Common Stock pursuant to the cashless exercise of an adjustable warrant
to an accredited investor. There were no proceeds from the exercise.
3. On February 9, 2001, the Company issued an aggregate of 160,000 shares of
Common Stock pursuant to a license purchase agreement with Delta Omega
Technologies, Inc. for the purchase of certain cleaning formulas.
4. On July 10, 2001 Elan International Services, Ltd. ("EIS") purchased
2,700,000 shares of Common Stock, 1,116.79 shares of Series C
Preferred Stock convertible into 1,116,790 shares of Common Stock after
two years, and a five-year warrant to purchase 381,679 shares of Common
Stock at an exercise price of $2.43 per share for an aggregate purchase
price of $5,000,000. EIS also purchased 4,944.44 shares of Series A
Preferred Stock for $12,015,000. The proceeds from the issuance of the
Series A Preferred Stock were used by the Company to purchase its equity
interest in SafeScience Newco, Ltd. The Series A Preferred Stock is
convertible into Common Stock after two years at a conversion price of
$2.43. The Series A Preferred Stock is exchangeable at the option of EIS
at any time for all of the preferred stock of SafeScience Newco, Ltd.
held by the Company which, if exchanged, would give EIS 50% ownership of
the fully-diluted equity interest in SafeScience Newco, Ltd.
5. On August 27, 2001 and October 11, 2001, the Company sold to accredited
investors an aggregate of 470,370 shares of its Common Stock and warrants
to purchase 235,186 shares of Common Stock for $635,000. The Company
received net proceeds of approximately $593,000. The Common Stock was
sold at a price of $1.35 per share. The warrants have an exercise price
of $1.90 per share and have a term of 5 years.
6. In 2001, the Company issued 148,312 shares of Common Stock to various
consultants in consideration for services.
7. In 2001, the Company issued 108,209 shares of Common Stock to a former
employee in settlement of amounts due under an employment contract.
8. During the fourth quarter of 2001, the Company raised $5,693,300 in a
private placement offering of Common Stock to accredited investors
whereby 4,280,362 shares were sold, together with 2,140,186 warrants to
purchase shares of Common Stock at a weighted average price of $1.91 per
share exercisable for five years, and warrants to purchase 171,216 shares
at $0.01 per share exercisable for five years. Net proceeds from the
offering were $5,402,230. In connection with this offering, the Company
issued an aggregate of 151,130 shares of Common Stock and warrants to
purchase 192,435 shares of Common Stock to employees and affiliates of
The Shemano Group, Inc. and Social Capital Partners as placement agent
fees.
9. On December 31, 2001, the Company sold 862.70647 shares of Series B
Preferred Stock to EIS for $1,466,601. Net proceeds of the sale were
$1,341,224. The Series B Preferred Stock is convertible into Common Stock
after two years at a conversion price of $1.70.
No underwriters were used in connection with these sales and issuances. The
sales and issuance of these securities were exempt from registration under the
Securities Act pursuant to Section 4(2) of the Securities Act and the rules and
regulations thereunder (including Rule 506 under Regulation D) on the basis that
the transactions did not involve a public
offering. All of the foregoing securities are deemed restricted securities for
the purposes of the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
Selected Consolidated Financial Data
The selected financial data presented below has been derived from the
financial statements of the Company. The following table summarizes certain
financial information and should be read in conjunction with "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
the Financial Statements and related notes included elsewhere in this Annual
Report on Form 10-K. The consolidated statement of operations data set forth
below for the fiscal years ended December 31, 1999 and 2000 and the consolidated
balance sheet data as of December 31, 2000, are derived from the Company's
financial statements which have been audited by Arthur Andersen LLP, independent
public accountant, for the fiscal years ended December 31, 1999 and December 31,
2000, and which are included elsewhere in this Annual Report on Form 10-K. In
reliance on the Securities and Exchange Commission Release No. 34-45589, the
Company has elected to include unaudited consolidated statement of operations
data for the fiscal year ended December 31, 2001, and unaudited consolidated
balance sheet data as of December 31, 2001. The Company intends to file audited
financial statements for the year ended December 31, 2001 by filing an amendment
to this Annual Report on Form 10-K by May 31, 2002. The consolidated statement
of operations data for the years ended December 31, 1997 and 1998 as well as the
consolidated balance sheet data as of December 31, 1999, 1998 and 1997 are
derived from the audited consolidated financial statements not included in this
Annual Report on Form 10-K. The information shown below may not be indicative of
the Company's future results of operations.
As of December 31,
-------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Balance Sheet Data:
Cash and cash equivalents $ 7,977,910 $ 2,547,353 $3,377,067 $ 3,439,408 $ 2,594,312
Working capital 5,635,439 1,768,357 2,574,719 3,095,242 2,180,775
Total assets 8,956,597 5,779,117 5,493,524 3,968,588 2,906,737
Other equity 15,091,827 866,216 -- -- --
Stockholders' equity (8,927,245) 1,845,751 4,521,117 3,500,449 2,443,120
Year Ended December 31,
-------------------------------------------------------------------------------------------
Statement of Operations
Data: 2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Research and development 4,291,064 6,182,150 3,929,898 2,256,193 2,390,021
General and administrative 4,045,088 4,093,507 5,837,861 4,339,093 2,428,072
Restructuring charge (177,283) 1,478,957 - - -
------------- ------------- ------------- ------------ ------------
Operating expenses (8,158,870) (11,754,613) (9,767,759) (6,595,286) (4,818,093)
------------- ------------- ------------- ------------ ------------
Other expense (income)
Equity in loss of
SafeScience Newco, Ltd. (14,188,470) -- -- -- --
Other expense (33,345) (243,373) (8,063) (392) --
Interest income 187,721 216,842 353,492 122,173 83,618
------------- ------------- ------------- ------------ ------------
Total other expense (income) (14,034,094) (26,531) 345,429 121,781 83,618
------------- ------------- ------------- ------------ ------------
Loss from continuing operations
(22,192,963) (11,781,144) (9,422,330) (6,473,505) (4,734,475)
------------- ------------- ------------- ------------ ------------
Loss from discontinued operations
(533,200) (5,489,167) (2,879,388) - -
Net loss before preferred
stock dividend (22,726,163) (17,270,311) (12,301,718) (6,473,505) (4,734,475)
Accretion of dividend on preferred
stock (404,273) -- -- -- --
Net loss applicable to common stock
$(23,130,436) $(17,270,311) $(12,301,718) $(6,473,505) $(4,734,475)
============= ============= ============= ============ ============
Basic and diluted net loss per common
share from continuing operations
(0.80) (0.64) (0.59) (0.50) (0.43)
Basic and diluted net loss per common
share from discontinued operations
(0.02) (0.30) (0.18) - -
Before preferred stock dividend
(0.82) (0.94) (0.77) (0.50) (0.43)
Accretion of dividend on preferred
stock (0.01) -- -- -- --
------------- ------------- ------------- ------------ ------------
Net loss applicable to common stock
(0.84) (0.94) (0.77) -- --
============= ============= ============= ============ ============
Weighted average number of common
shares outstanding 27,612,020 18,314,819 16,060,783 13,000,259 11,022,577
============= ============= ============= ============ ============
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in this
report.
Critical Accounting Policies
In December 2001, the SEC requested that reporting companies discuss their
most "critical accounting policies" in management's discussion and analysis of
financial condition and results of operations. The SEC indicated that a
"critical accounting policy" is one that is important to the portrayal of a
company's financial condition and operating results and requires management's
most difficult, subjective or complex judgments, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain.
We have identified the policies below as critical to our business operations
and the understanding of our results of operations. The impact and any
associated risks related to these policies on our business operations is
discussed throughout Management's Discussion and Analysis of Financial Condition
and Results of Operations where such policies affect our reported and expected
financial results. For a detailed discussion on the application of these and
other accounting policies, see Note 1 in the Notes to the Consolidated Financial
Statements of this Annual Report on Form 10-K. The Company's preparation of this
Annual Report on Form 10-K requires it to make estimates and assumptions that
affect the reported amount of assets and liabilities, disclosure of contingent
assets and liabilities at the date of its financial statements, and assurance
that actual results will not differ from those estimates.
In July 2001, the Securities and Exchange Commission issued an SEC Staff
Announcement which was codified as EITF Topic No. D-98. Classification and
Measurement of Redeemable Securities. Topic No. D-98 provides additional
guidance for determining when an equity security is redeemable at the option of
the holder or upon the occurrence of an event that is solely within the control
of the issuer. Topic No. D-98 is to be applied retroactively in the first fiscal
quarter ending after December 15, 2001 by restating the financial statements of
prior periods.
During the fiscal quarter ended December 31, 2001, we adopted Topic No.
D-98. Our Series A, B and C Preferred shares contain provisions for redemption
in cash in the event that a change in control of the Company were to occur
without prior approval by our Board of Directors. We have negotiated with the
holders of these shares to amend those provisions by requiring the event to be
subject to approval of our Board of Directors. The Company believes that the
amended provisions will permit the Company to restore the full value to
stockholders' equity.
In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This
Statement supercedes FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the
accounting and reporting provisions of Accounting Principles Board (APB) Opinion
No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions. Under this Statement, it is required that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired, and it broadens the
presentation of discontinued operations to include more disposal transactions.
The provisions of this Statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years, with early adoption permitted. The Company does not expect
the adoption of this Statement to have a material impact on its financial
position or results of operations.
Severance and Termination Benefits
In connection with the restructuring plan adopted in the second quarter
of 2000, the Company accrued severance and other employee-related exit costs of
approximately $1.75 million. This restructuring resulted in the termination of 8
employees, including six sales and marketing, one general and administrative,
and one research and development positions.
In accordance with EITF 94-3 Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity, the Company
established a liability for severance and other related costs associated with
involuntary termination of employees. The affected employees were notified of
their terminations and their severance benefits before the end of the second
quarter of 2000. All of the employees were terminated as of July 10, 2000.
Discontinued Operations
On November 15, 2000, the Company engaged a merchant bank to explore
alternatives including sale or other disposition of the Company's consumer,
commercial and agriculture business areas. The Company terminated operations of
the consumer and commercial product business areas on February 23, 2001 and
began the process of liquidating all assets and liabilities pertaining to those
operations.
Accordingly, the Company has treated its consumer and commercial
products operations as a discontinued operation in accordance with APB Opinion
No. 30 and has reclassified the 1999 financial statements to reflect this
treatment. For the year ended December 31, 2000, the Company recorded a reserve
in the amount of $1,750,000 which includes approximately $983,000 to reduce the
carrying value of assets to their estimated liquidation value and a liability of
approximately $767,000 to accrue for the cost of closing the operations.
The net losses of these operations prior to March 31, 2001 are included
in the statements of operations under discontinued operations. Revenues from
such operations were $0 and $1,354,898 for the years ended December 31, 2001 and
2000, respectively.
Years Ended December 31,
2001 2000
---- ----
Revenues -- $ 1,354,898
Cost of goods sold $ 186,629 1,229,508
--------- -----------
Gross margin (186,629) 125,390
--------- -----------
Marketing -- 3,566,900
General and administrative 346,571 --
Research and development -- 297,657
--------- -----------
Total expenses 533,200 3,864,557
--------- -----------
Operating loss (533,200) (3,739,167)
--------- -----------
Provision -- (1,750,000)
--------- -----------
Loss on discontinued operations $(533,200) $(5,489,167)
========= ===========
The loss on discontinued operations reflected in the statement of
income includes all the income statement accounts, write-down of the assets to
estimate net realizable values associated with the consumer products and
commercial products business and the estimated costs of discontinuing these
operations.
Results of Operations: Year Ended December 31, 2001 versus Year Ended December
31, 2000
We had a net loss attributable to common stockholders of $23,130,436
for the twelve months ended December 31, 2001 versus a net loss of $17,270,311
for the twelve months ended December 31, 2000. The net loss for the twelve
months ended December 31, 2001 included $14,188,470 for an adjustment for Equity
in loss of SafeScience Newco, and $404,273 for dividends accrued on our Series A
convertible exchangeable preferred stock.
Our total research and development expenses for the fiscal year ended
December 31, 2001 are the sum of expenses reported in two lines in the
Consolidated Statements of Operations: (1) Research and Development ("R&D"), and
(2) Equity in loss of SafeScience Newco, Ltd.
Expenses related to the development of GCS-100 incurred during the
first half of fiscal 2001 were $2,726,632, which were charged to R&D expenses.
In July 2001, GlycoGenesys, Inc. transferred its rights to GCS-100 in the field
of oncology to SafeScience Newco, Ltd. ("SafeScience Newco"). Costs related to
GCS-100 incurred after the transfer to SafeScience Newco are on behalf of
SafeScience Newco. Amounts for expenses incurred and work performed by
GlycoGenesys, Inc. on behalf of SafeScience Newco for GCS-100 are billed to
SafeScience Newco and netted against R&D expenses. Subsequent to our investment
in SafeScience Newco our expenses associated with development of GCS-100 flow
through "Equity in loss of SafeScience Newco." For the last six months of fiscal
2001 our equity in loss of SafeScience Newco was $14,188,470, of which
$12,015,000 was recorded as a research and development expense for our share of
the
cost of the license granted to SafeScience Newco by Elan International Services,
Ltd., $2,103,615 in research and development charges incurred by the Company
billed to the joint venture, $130,000 of our allowable overhead charges and the
balance representing our portion of other SafeScience Newco expenses,
respectively.
Total research and development expenses for the fiscal year ended
December 31, 2001 were thus $6,394,679, the sum of the $4,291,064 recorded in
R&D and $2,103,615, our portion of the Equity in Loss of SafeScience Newco, Ltd.
attributable to our research and development expenses in connection with the
development of GCS-100 in the field of oncology.
Total research and development expenses thus increased $212,526, or
3.4%, to $6,394,679 for the twelve months ended December 31, 2001 from
$6,182,150 for the twelve months ended December 31, 2000.
We incurred research and development expenses of $1,140,000 related to
license fees paid to Wayne State University and non-cash research and
development expenses of $1,052,000 in connection with warrants issued to Wayne
State University to purchase common stock which vested during the year. Cost of
managing our clinical trials decreased from $2,097,000 to $1,675,000, or 20.1%,
during the year ended December 31, 2001 compared to 2000, primarily due to
completion of the field work on both the colorectal and pancreatic trials.
Sponsored research increased from $104,000 to $266,500, or 158%, during the year
ended December 31, 2001 compared to 2000 primarily due to our new relationship
with MIT.
Research and development expenses for Elexa-4 and Bb-447, our
agricultural compounds, decreased from $1,578,000 for the twelve months ended
December 31, 2000 to $315,000 for the twelve months ended December 31, 2001 and
consisted primarily of wages, consulting and license fees. The decrease reflects
the Company's de-emphasis of its agricultural business. We have engaged an
investment advisor to assist in the sale or other disposition of this registered
product. We expect future expenditures to be limited to a level similar to last
year.
The Company is actively seeking to expand its product pipeline under
development. These new product candidates will either be developed jointly or
licensed by the Company. The cost related to the development of new product
candidates is projected to be in the range of $500,000-$1,000,000 during the
twelve months ended December 31, 2002 although it could be higher.
General and administrative expenses decreased to $4,045,088 for the
year ended December 31, 2001 from $4,093,507 for the year ended December 31,
2000, a decrease of $48,419, or 1.2%. This decrease was principally attributable
to reductions in outside consulting of $233,000, public relations of $220,000,
office expenses in the aggregate of approximately $200,000, expenses of $130,000
charged to SafeScience Newco flowing through our Equity in loss of SafeScience
Newco, travel expense of
$123,000, rent expense related to the reclassification in 2001 of approximately
$57,600 to discontinued operations for space which is deemed to be surplus
offset by expenses previously charged as overhead to operations now discontinued
of $417,000, an increase in legal expense of $249,000, or 42%, from $592,000 to
$841,000 due primarily to professional fees associated with the negotiation of
the Elan transactions and non-cash compensation for stock options granted to
employees of $204,000.
Interest income decreased to $187,721 for the year ended December 31,
2001 from $216,842 for the year ended December 31, 2000, a decrease of $29,121,
or 13%. This decrease was attributable to a reduction in cash available for
investment and lower rates of return on those investments.
On November 15, 2000, The Board of Directors authorized the sale or
other disposition of the Company's consumer and commercial products business.
The Company discontinued operations on February 23, 2001 and began the process
of liquidating all assets pertaining to those operations.
The net losses of these operations prior to March 31, 2001 are included
in the statements of operations under discontinued operations. Revenues from
such operations were $0 and $1,354,898 for the years ended December 31, 2001 and
2000, respectively.
Years Ended December 31,
2001 2000
---- ----
Revenues $ -- $ 1,354,898
Cost of goods sold $ 186,629 1,229,508
--------- -----------
Gross margin (186,629) 125,390
--------- -----------
Marketing -- 3,566,900
General and administrative 346,571 --
Research and development -- 297,657
--------- -----------
Total expenses 533,200 3,864,557
--------- -----------
Operating loss (533,200) (3,739,167)
--------- -----------
Provision -- (1,750,000)
--------- -----------
Loss on discontinued operations $(533,200) $(5,489,167)
========= ===========
The loss on discontinued operations reflected in the statement of
income includes all the income statement accounts, write-down of the assets to
estimate net realizable values associated with the consumer products and
commercial products business and the estimated costs of discontinuing these
operations.
Results of Operations: Year Ended December 31, 2000 versus Year Ended December
31, 1999
On November 15, 2000, The Board of Directors authorized the sale or
other disposition of the Company's consumer and commercial products business.
The Company discontinued operations on February 23, 2001 and
began the process of liquidating all assets pertaining to those operations.
The net losses of these operations prior to March 31, 2001 are included
in the statements of income under discontinued operations. Revenues from such
operations were $1,354,000 and $1,368,000 for the years ended December 31, 2000
and 1999, respectively.
Years Ended December 31,
2000 1999
---- ----
Revenues $ 1,354,898 $ 1,368,514
Cost of goods sold 1,229,508 1,410,732
----------- ------------
Gross margin 125,390 (42,218)
----------- ------------
Marketing 3,566,900 2,818,050
Research and development 297,657 19,120
----------- ------------
Total expenses 3,864,557 2,837,170
----------- ------------
Operating loss (3,739,167) (2,879,388)
----------- ------------
Provision (1,750,000) --
----------- ------------
Loss on discontinued operations $(5,489,167) $ (2,879,388)
=========== ============
The loss on discontinued operations reflected in the statement of
income includes all the income statement accounts, write-down of the assets to
estimate net realizable values associated with the consumer products and
commercial products business and the estimated costs of discontinuing these
operations.
Research and development expenses increased to $6,182,850 for the year
ended December 31, 2000 from $3,929,898 for the year ended December 31, 1999, an
increase of $2,252,252, or 57.3%. This increase was principally attributable to
the Company's ongoing clinical trials of GCS-100, its lead pharmaceutical
compound and increased salaries and consulting expense on agriculture product
development. Included in research and development costs in 1999 are $197,143 of
non-cash compensation resulting from the issuance of stock grants, and stock
options and warrants to purchase common stock.
General and administrative expenses decreased to $4,093,057 for the
year ended December 31, 2000 from $5,837,861 for the year ended December 31,
1999, a decrease of $1,744,804, or 29.9%. This decrease was principally
attributable to a reduction in consulting expense and officers' compensation
partially offset by increases in other salaries and rent. Non-cash compensation
to various consultants and advisors of $577,383 in 2000 and $2,367,871 in 1999
resulted from the issuance of stock grants, stock options and warrants to
purchase common stock.
During the second quarter of 2000, the Company began a restructuring of
operations including the replacement of its Chief Executive Officer. In
connection with this severance and other employee reductions, the Company
recorded a charge in the amount of $1,478,000 to cover the estimated costs of
terminating an existing employment agreement and other severance costs. (See
Note 3 to the consolidated financial statements included in the Annual Report on
Form 10-K)
Interest income decreased to $216,842 for the year ended December 31,
2000 from $353,492 for the year ended December 31, 1999, a decrease of $136,650,
or 38.7%. This decrease was attributable to a reduction in cash available for
investment.
Liquidity and Capital Resources
Since inception, the Company has funded its operations primarily with
the proceeds from equity securities totaling approximately $52,900,000. For the
year ended December 31, 2001, the Company's operations utilized cash of
approximately $7,294,000, primarily to fund the operating loss. This use of cash
was offset by equity financings that resulted in net proceeds of approximately
$12,423,000 to the Company. In 2000, the Company's operations utilized cash of
approximately $13,287,000 which was offset by equity financings that resulted in
net proceeds of approximately $12,851,000.
Capital expenditures for the year ended December 31, 2001 were as
follows:
Computer and office equipment $16,733
=======
The Company has no significant commitments for the purchase of
equipment, product manufacturing facilities or marketing efforts at present. The
Company leases office facilities under an operating lease that ends in March
2005. Rent expense for this space will be approximately $384,000 in 2002. The
Company anticipates that will be adequate for its space requirements for the
foreseeable future.
During the first quarter of 2002, the Company retained Beardsworth
Consulting Group, a full-service contract research organization, to support two
projects: A Phase I dose escalation trial, and database transfer/management for
the recently completed Phase IIa trials. They will provide clinical research
management, study monitoring, data management and medical writing. The costs for
both efforts will be approximately $1,100,000 and be paid out over the next 9-12
months. In addition, costs associated with the Phase I dose escalation trial
currently being conducted at Sharp Clinical Oncology Research Memorial Hospital
will be approximately $500,000 paid over the next 9-12 months.
As of December 31, 2001, the Company's cash balances were $7,978,000,
as compared to $2,547,000 as of December 31, 2000. The Company has a $100,000
stand-by secured line of credit with a bank which has no outstanding balance and
a secured letter of credit in the amount of $100,000 which is held as security
for deposits required by its lease of office space. The Company has no other
commercial financing sources at present but may seek such sources in the future.
It is not known whether additional funds could be borrowed from stockholders or
other sources.
As of April 16, 2002, the Company's cash and cash equivalents was
approximately $ 9,703,000.
The Company believes that its existing funds will be sufficient to fund
its operating expenses and capital requirements into the first quarter of 2003.
The Company intends to raise additional debt and/or equity financing. We may
receive approximately $10 million of additional funds from Elan International
Services, Ltd. ("EIS") for the development of GCS-100 pursuant to our agreement
with EIS. However, we will not receive additional capital from EIS unless we
agree with EIS on a quarterly basis on the business plan for SafeScience Newco,
Ltd. The Company's future is dependent upon its ability to obtain financing to
fund its operations. The Company expects to incur substantial additional
operating costs, including costs related to ongoing research and development
activities, preclinical studies and clinical trials.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE AND MARKET RISK
Market Risk
The Company is exposed to market risk related to changes in interest
rates as well as changes in currency exchange rates as measured against the U.S.
dollar and each other which could positively or negatively affect results of
operations and retained earnings. As of December 31, 2001, the Company has
evaluated its risk and determined that any exposure to currency exchange is not
significant to the Company's overall consolidated financial results. There can
be no assurance that the Company's exposure will remain at these levels,
especially in the event of significant and sudden fluctuations in the value of
local currencies. The Company does not use derivative financial instruments for
speculative or trading purposes.
Interest Rate Sensitivity
The Company maintains short-term investments in an overnight money
market account comprised of U.S. treasury bills. If market interest rates were
to increase immediately and uniformly by 10% from levels that existed at
December 31, 2001, the fair value of the portfolio would decline by an
immaterial amount.
Certain Factors That May Affect Future Results
You should carefully consider the risks described below before making an
investment decision. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially and adversely
affected. In such case, the trading price of our common stock could decline, and
you may lose all or part of your investment.
WE HAVE EXPERIENCED SIGNIFICANT LOSSES THROUGHOUT OUR HISTORY, WE EXPECT THESE
LOSSES TO CONTINUE AND WE MAY NOT ACHIEVE PROFITABILITY IN THE FUTURE.
We began operations more than eight years ago and began to generate
revenue only in the second quarter of 1999. Through December 31,2000 we only
generated $2,723,000 from product sales. On February 23, 2001,we announced the
discontinuation of our consumer and commercial product business from which all
of our revenues to date have been generated. We do not expect to generate
product revenue for several years, if at all. We will not generate funds on an
ongoing basis unless we receive current payments with respect to the sale of
these areas, or generate revenues through the receipt of payments in connection
with any potential licensing, marketing or other partnering arrangement with
other pharmaceutical or biotechnology companies, or bringing to market
pharmaceutical or agricultural products. We have incurred an estimated $66.7
million of losses since our inception, including $23.1 million for the year
ended December 31, 2001. Extensive losses can be expected to continue for the
foreseeable future.
OUR PRODUCTS ARE STILL IN DEVELOPMENT, THERE ARE UNCERTAINTIES ASSOCIATED WITH
RESEARCH AND DEVELOPMENT ACTIVITIES AND WE MAY BE UNABLE TO BRING THESE PRODUCTS
TO MARKET.
Our 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. The products
are in the development stage and are subject to the risks inherent in the
development of new products. Potential products that appear to be promising at
early stages of development may not reach the market for a number of reasons.
Such reasons include the possibilities that potential products are found during
testing to be ineffective, or unsafe, that they fail to receive necessary
regulatory approvals, are difficult or uneconomical to manufacture on a large
scale, fail to achieve market acceptance or are precluded from commercialization
by proprietary rights of third parties. We cannot predict with any degree of
certainty when, or if, the research, development, testing and/or regulatory
approval process for our proposed products will be completed. Our product
development efforts may be unsuccessful, required regulatory approvals from U.S.
or foreign authorities may not be obtained, and products, if introduced, may not
be capable of being produced in commercial quantities at reasonable costs or be
successfully marketed. The failure of our research and development activities to
result in any commercially viable products or technologies would materially
adversely affect our future prospects.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL FUNDING, WHICH COULD REDUCE OUR ABILITY
TO FUND, EXPAND OR CONTINUE OPERATIONS.
The Company believes that its existing funds will be sufficient to fund
its operating expenses and capital requirements into the first
quarter of 2003. The Company intends to raise additional debt and/or equity
financing. We may receive approximately $10 million of additional funds from
Elan International Services, Ltd. ("EIS") for the development of GCS-100
pursuant to our agreement with EIS. However, we will not receive additional
capital from EIS unless we agree with EIS on a quarterly basis on the business
plan for SafeScience Newco, Ltd. The Company's future is dependent upon its
ability to obtain additional financing to fund its operations. The Company
expects to incur substantial additional operating costs, including costs related
to ongoing research and development activities, preclinical studies and clinical
trials. We may also seek funds in conjunction with the in-licensing of
additional biopharmaceutical products where we acquire in licenses and
development funds for our securities. Additional equity financing may result in
dilution to our shareholders. If the market price of our common stock declines,
some potential investors may either refuse to offer us any financing or will
offer additional financing at unacceptable rates or unfavorable terms. If we are
unable to obtain financing necessary to fund our operations, we may have to sell
or liquidate GlycoGenesys.
OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY OR OUR INFRINGEMENT ON THE
PROPERTY RIGHTS OF OTHERS MAY IMPEDE OUR ABILITY TO OPERATE FREELY.
We rely significantly upon proprietary technology and protect our
intellectual property through patents, copyrights, trademarks and contractual
agreements as appropriate. The Company owns, or is the exclusive licensee of,
all of its intellectual property. This intellectual property includes eight
issued US patents which have expiration dates ranging from 2013 to 2018; three
of these eight patents relate directly to GCS-100. The intellectual property
also includes three foreign patents having expiration dates ranging from 2016 to
2017. Two of these three foreign patents relate directly to GCS-100. The
Company's intellectual property further includes eight pending US patent
applications, of which six directly relate to GCS-100; and 28 pending foreign
patent applications of which 15 relate directly to GCS-100. We continually
evaluate our technology to determine whether to make further patent filings.
To the extent certain aspects of our technology may be unpatentable or
we determine to maintain such technology as trade secrets, we protect such
unpatented technology by contractual agreements. Our unpatented technology or
similar technology could be independently developed by others. In addition, the
contractual agreements by which we protect our unpatented technology and trade
secrets may be breached. If our technology is independently developed or our
contractual agreements are breached, our technology will be less valuable and
our business will be harmed.
There is always a risk that issued patents may be subsequently
invalidated, either in whole or in part, and this could diminish or extinguish
our patent protection for key elements of our technology. We are not involved in
any such litigation or proceedings, nor are we aware of any basis for such
litigation or proceedings. We cannot be certain as
to the scope of patent protection, if any, which may be granted on our patent
applications.
Our potential products or business activities could be determined to
infringe intellectual rights of third parties despite our issued patents. Any
claims against us or any purchaser or user of our potential products, including
GCS-100, asserting that such product or process infringes intellectual property
rights of third parties, if determined adversely to us could have a material
effect on our business, financial condition or future operations. Any asserted
claims of infringement, with or without merit, could be time consuming, result
in costly litigation, divert the efforts of our technical and management
personnel, or require us to enter into royalty or licensing agreements, any of
which could materially adversely affect our operating results. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
us, if at all. In the event a claim is successful against us and we cannot
obtain a license to the relevant technology on acceptable terms, license a
substitute technology or redesign our products to avoid infringement, our
business, financial condition and operating results would be materially
adversely affected.
WE DEPEND ON TECHNOLOGY LICENSED TO US BY THIRD PARTIES AND IF WE ARE UNABLE TO
CONTINUE LICENSING THIS TECHNOLOGY OUR FUTURE PROSPECTS MAY BE MATERIALLY
ADVERSELY AFFECTED.
We license our technology, including GCS-100, from third parties. We
anticipate that we will continue to license technology from third parties in the
future. To maintain our license with Wayne State University and the Karmanos
Cancer Institute we must, among other things, pay Wayne State University and the
Karmanos Cancer Institute approximately $76,000 in four monthly payments through
July 2002 plus an additional $339,000 on May 14, 2002, pay 2% royalties on
product sales and up to $3 million in milestone payments and receive FDA or
equivalent agency approval to sell GCS-100 by January 1,2006. To maintain our
license with Dr. Platt we must pay an annual license fee equal to the greater of
$50,000 or 2% of product sales starting this year. To maintain our joint
venture's license with Elan for its oral drug delivery technology we do not have
material obligations other than royalty payments, if any, which shall be
determined by SafeScience Newco prior to commercialization of GCS-100.
The technology we license from third parties would be difficult to
replace. The loss of any of these technology licenses would result in delays in
the availability of our products until equivalent technology, if available, is
identified, licensed and integrated and could materially adversely affect our
future prospects. The use of replacement technology from other third parties
would require us to enter into license agreements with these third parties,
which could result in higher royalty payments and a loss of product
differentiation.
WE EXPECT TO REMAIN DEPENDENT ON THIRD PARTIES FOR RESEARCH AND DEVELOPMENT
ACTIVITIES NECESSARY TO COMMERCIALIZE OUR PRODUCTS.
We do not maintain our own laboratories and employ five scientific
personnel. We contract out research and development operations, utilizing third
party contract manufacturers to supply clinical grade material and third party
contract research organizations, to perform pre-clinical and/or clinical studies
in accordance with our designed protocols, as well as sponsoring research at
several medical and academic centers, such as MIT and Wayne State University. In
addition, we employ several consultants to oversee various aspects of our
protocol design, clinical trial oversight and other research and development
functions.
Because we rely on third parties for much of our research and
development work, we have less direct control over our research and development.
We face risks that these third parties may not be appropriately responsive to
our timeframes and development needs.
OUR FUTURE PROSPECTS ARE HEAVILY DEPENDENT ON THE RESULTS OF GCS-100.
While we have more than one product in development, we do not have a
wide array of products which we are developing. Most of our attention and
resources are directed to the development of GCS-100. If GCS-100 is ultimately
ineffective in treating cancer, does not receive the necessary regulatory
approvals or does not obtain commercial acceptance, GlycoGenesys will be
materially adversely affected.
THE DEVELOPMENT OF GCS-100 IS NOT IN OUR EXCLUSIVE CONTROL AND IS JOINTLY
DETERMINED WITH ELAN AND EIS.
We are developing GCS-100 through collaboration with Elan and EIS.
SafeScience Newco, Ltd. is a company that we formed and jointly own with EIS to
develop GCS-100 in the field of oncology. We own 80.1% and EIS owns 19.9% of
SafeScience Newco, Ltd. Despite our majority ownership of SafeScience Newco,
Ltd., we do not fully control the development activities regarding GCS-100,
because we need consent of EIS for material development decisions regarding
GCS-100. As a result, development of GCS-100 will depend on our ability to
negotiate development issues with EIS.
EIS has the right to exchange our Series A convertible exchangeable
preferred stock it owns for all of the convertible preferred securities we own
of SafeScience Newco, Ltd. at any time until July 10, 2007, which would give EIS
a 50% ownership interest in SafeScience Newco, Ltd. If EIS exercises this right,
our ownership in SafeScience Newco, Ltd. will be reduced to 50% from its current
80.1%, which would reduce our economic interest in GCS-100.
IF OUR AGRICULTURE PRODUCTS ARE NOT ACCEPTED BY THE AGRICULTURAL COMMUNITY OUR
BUSINESS WILL SUFFER.
Our focus is primarily pharmaceuticals and to a lesser extent
agricultural products. Although we currently do not market any products,
commercial sales of our proposed agricultural products will substantially depend
upon the products' efficacy and on their acceptance by the agricultural
community. For example, Elexa works by a different mode of action than current
fungicides because it increases a plant's natural resistance to disease instead
of killing the fungus directly. Widespread acceptance of Elexa in the
agricultural field will require educating the agricultural community as to the
benefits and reliability of Elexa. Our proposed products may not be accepted,
and, even if accepted, we are unable to estimate the length of time it would
take to gain such acceptance.
IF THE THIRD PARTIES WE RELY ON FOR MANUFACTURING OUR PRODUCTS ARE UNABLE TO
PRODUCE THE NECESSARY AMOUNTS OF OUR PRODUCTS, DO NOT MEET OUR QUALITY NEEDS OR
TERMINATE THEIR RELATIONSHIPS WITH US, OUR BUSINESS WILL SUFFER.
We do not presently have our own manufacturing operations, nor do we
intend to establish any unless and until in the opinion of our management, the
size and scope of our business so warrants. While we have established
manufacturing relationships with two contract manufacturing firms involved in
the production of GCS-100 and one contract manufacturing firm involved in the
production of Elexa that we believe will provide the capability to meet our
anticipated requirements for the foreseeable future, we have not entered into
any long-term arrangements for manufacturing and such arrangements may not be
obtained on desirable terms. Therefore, for the foreseeable future, we will be
dependent upon third parties to manufacture our products.
Our reliance on independent manufacturers involves a number of risks,
including the absence of adequate capacity, the unavailability of, or
interruptions in, access to necessary manufacturing processes and reduced
control over delivery schedules. If our manufacturers are unable or unwilling to
continue manufacturing our products in required volumes, we will have to
identify acceptable alternative manufacturers. The use of a new manufacturer may
cause significant interruptions in supply if the new manufacturer has difficulty
manufacturing products to our specifications. Further, the introduction of a new
manufacturer may increase the variation in the quality of our products.
MANY OF OUR COMPETITORS HAVE SUBSTANTIALLY GREATER RESOURCES THAN WE DO AND MAY
BE ABLE TO DEVELOP AND COMMERCIALIZE PRODUCTS THAT MAKE OUR POTENTIAL PRODUCTS
AND TECHNOLOGIES OBSOLETE OR NON-COMPETITIVE.
A biotechnology company such as ours must keep pace with rapid
technological change and faces intense competition. We compete with
biotechnology and pharmaceutical companies for funding, access to new
technology, research personnel and in product research and development. Many of
these companies have greater financial resources and more experience than we do
in developing drugs, obtaining regulatory approvals, manufacturing and
marketing. We also face competition from academic and research institutions and
government agencies pursuing
alternatives to our products and technologies. We expect that our products under
development, including GCS-100, will face intense competition from existing or
future drugs. In addition, our product candidates may face increasing
competition from generic formulations or existing drugs whose active components
are no longer covered by patents.
According to industry surveys there are approximately 402 new drug
candidates in development to treat various types of cancer. This research is
being conducted by 170 pharmaceutical and biotechnology companies and the
National Cancer Institute (NCI). We have conducted two Phase I clinical trials,
the first enrolled late stage patients with differing types of cancer and the
second enrolled patients with late stage prostate cancer. We also conducted and
completed two Phase IIa clinical trials, one in patients with refractory or
relapsing pancreatic cancer and the other in refractory or relapsing colorectal
cancer. Published surveys indicate that, including GCS-100, approximately
twenty-six drugs are in various stages of clinical trial development for
pancreatic cancer and fifty five drugs in various stages of clinical trial
development for colorectal cancer. Our current clinical trial plan is to pursue
pancreatic cancer as a lead indication and we are planning to conduct a Phase
II/III pivotal trial in 2003/2004.
There are approximately ten drugs currently having completed or in
Phase III clinical trial development, ten drugs in Phase II and six drugs in
Phase I for pancreatic cancer. Competitors may receive approval before us for
competing pancreatic cancer drugs, including without limitation the following
drugs which have completed Phase III trials: Imclone and Bristol Meyer's
Erbitux; Pharmacia's Camptosar; Snaofi-Synthelabo's tirapazamine; Aphton and
Aventis Pasteur's anti-gastrin therapeutic vaccine; Genentech's Herceptin
(already approved for breast cancer); MGI Pharma's Irofulven; Supergens'
Mitoextra and rubiteacan, Janssen Pharmaceuticals' R115777 and Lorus
Therapeutics' Virulizin. In addition, GCS-100, if it receives FDA approval, will
face competition from existing cancer drugs approved for pancreatic cancer.
These drugs are flourouacil (5- FU) and Eli Lilly's gemcitabine (Gemzar).
Combination studies utilizing new drug candidates and Gemzar are ongoing and
combination therapies of new drug candidates and Gemzar may present future
competition.
Our competitors may:
. successfully identify drug candidates or develop products earlier than we
do;
. obtain approvals from the FDA or foreign regulatory bodies more rapidly
than we do;
. develop products that are more effective, have fewer side effects or cost
less than our products; or
. successfully market products that may compete with our products
candidates.
The success of our competitors in any of these efforts would adversely
affect our ability to develop, commercialize and market our product candidates.
OUR BUSINESSES ARE SUBJECT TO SIGNIFICANT GOVERNMENT REGULATION AND FAILURE TO
ACHIEVE REGULATORY APPROVAL OF OUR PRODUCTS WOULD SEVERELY HARM OUR BUSINESS.
The FDA regulates the manufacture, distribution and promotion of
pharmaceutical products in the United States pursuant to the Federal Food Drug
and Cosmetic Act and related regulations. We must receive premarket approval by
the FDA for any commercial sale of our pharmaceutical products. Before receiving
such approval we must provide proof in human clinical trials of the nontoxicity,
safety and efficacy of our pharmaceutical products, which trials can take
several years. Premarket approval is a lengthy and expensive process. We may not
be able to obtain FDA approval for any commercial sale of our product. By
regulation, the FDA has 180 days to review an application for approval to market
a pharmaceutical product; however, the FDA frequently exceeds the 180-day time
period. In addition, based on its review, the FDA may determine that additional
clinical trials are required. Except for any potential licensing or marketing
arrangements with other pharmaceutical or biotechnology companies, we will not
generate any revenues in connection with our pharmaceutical products unless and
until we obtain FDA approval to sell our products in commercial quantities for
human application.
The investigation, manufacture and sale of agricultural products are
subject to regulation by the EPA, including the need for approval before
marketing, and by comparable foreign and state agencies. Our agricultural
products will be able to be commercially marketed for use either in the United
States or other countries only by first obtaining the necessary approvals. While
we hope to obtain regulatory approvals for our proposed products, we may not
obtain these approvals on a timely basis, if at all. We have received approval
from the EPA, California and other states for Elexa 4%.
REIMBURSEMENT PROCEDURES AND FUTURE HEALTHCARE REFORM MEASURES ARE UNCERTAIN AND
MAY ADVERSELY IMPACT OUR ABILITY TO SUCCESSFULLY SELL ANY PHARMACEUTICAL
PRODUCT.
Our ability to successfully sell any pharmaceutical product will depend
in part on the extent to which government health administration authorities,
private health insurers and other organizations will reimburse patients for the
costs of our future pharmaceutical products and related treatments. In the
United States, government and other third-party payers have sought to contain
healthcare costs by limiting both coverage and the level of reimbursement for
new pharmaceutical products approved for marketing by the FDA. In some cases,
these payers may refuse to provide any coverage for uses of approved products to
treat medical conditions even though the FDA has granted marketing approval.
Healthcare reform may increase these cost containment efforts. We believe that
managed care organizations may seek to restrict the use of new products,
delay authorization to use new products or limit coverage and the level of
reimbursement for new products. Internationally, where national healthcare
systems are prevalent, little if any funding may be available for new products,
and cost containment and cost reduction efforts can be more pronounced than in
the United States.
CERTAIN OF OUR PRIOR SECURITIES OFFERINGS MAY NOT HAVE COMPLIED WITH STATE
SECURITIES LAWS WHICH COULD RESULT IN PENALTIES BEING IMPOSED UPON US.
Certain prior private placement offerings of our securities may not
have complied with technical requirements of applicable state securities laws.
In such situations a number of remedies may potentially be available to
regulatory authorities and stockholders who purchased securities in such
offerings.
OUR GROWTH MAY BE LIMITED IF WE ARE UNABLE TO RETAIN AND HIRE ADDITIONAL
QUALIFIED PERSONNEL AS NECESSARY.
Our success will depend on our ability to retain key employees and our
continuing ability to attract and retain highly qualified scientific, technical
and managerial personnel. We may hire additional clinical operations personnel
in the future. Competition for such personnel is intense and we may not be able
to retain existing personnel or attract qualified employees in the future. Our
limited drug pipeline and small size make it more difficult to compete for such
personnel against larger, more diversified companies. At present, we employ
approximately 12 full time employees and one part-time worker. We depend upon
the personal efforts and abilities of our officers and directors, including
Bradley J. Carver, our President, CEO and a director, John W. Burns, our Senior
Vice President and Chief Financial Officer and Brian G.R. Hughes, Chairman of
the Board and would be materially adversely affected if their services ceased to
be available for any reason and comparable replacement personnel were not
employed.
THE BUSINESSES IN WHICH WE ENGAGE HAVE A RISK OF PRODUCT LIABILITY, AND IN THE
EVENT OF A SUCCESSFUL SUIT AGAINST US, OUR BUSINESS COULD BE SEVERELY HARMED.
The testing, marketing and sale of agricultural and pharmaceutical
products entails a risk of product liability claims by consumers and others.
While we currently maintain product liability insurance which we believe to be
adequate and consistent with industry norms for similar stage biotechnology
companies, such insurance may not continue to be available at a reasonable cost
or may not be sufficient to fully cover any potential claims. In the event of a
successful suit against us, the lack or insufficiency of insurance coverage and
damage to our reputation could have a material adverse effect on our business
and financial condition.
WE ARE CONTRACTUALLY OBLIGATED TO ISSUE SHARES IN THE FUTURE, INCLUDING SHARES
TO BE ISSUED UPON THE CONVERSION OF OUTSTANDING PREFERRED STOCK AND WARRANTS
HELD BY EIS AND OTHERS, WHICH WILL CAUSE DILUTION OF YOUR INTEREST IN US.
As of December 31, 2001,there are outstanding options to purchase
1,118,542 shares of common stock, at a weighted average exercise price of $5.69
per share and outstanding warrants to purchase 8,227,230 shares of common stock
at a weighted average exercise price of $2.40 per share. Moreover, we may in the
future issue additional shares to raise capital, acquire other companies or
technologies, to pay for services, or for other corporate purposes. Any such
issuances will have the effect of further diluting the interest of the
purchasers of the current shareholders.
In July 2001, in connection with a business venture and financing
transaction, we sold to EIS 1,116.79 shares of our Series C convertible
non-voting preferred stock, 4,944.44 shares of our Series A convertible
exchangeable non-voting preferred stock and a warrant to purchase 381,679 shares
of our common stock. In December 2001,we sold 862.70647 shares of our Series B
convertible non-voting preferred stock to EIS. Each share of our Series A
preferred stock and Series C preferred stock is presently convertible after July
10,2003 into 1,000 shares of our common stock. Each share of our Series B
preferred stock is presently convertible after December 31,2003 into 1,000
shares of our common stock. The Series A preferred stock and the Series B
preferred stock each bear a 7% dividend payable in Series A preferred stock and
Series B preferred stock, respectively, which compounds annually. In January
2002 we sold to EIS warrants to purchase a total of 597,205 shares of common
stock in connection with a private placement. Accordingly, a total of 7,902,820
shares of our common stock could be issued to EIS, assuming the exercise of the
warrants and the conversion into common stock of all shares of Series A, Series
B and Series C preferred stock currently outstanding, but not including any
dividends to be issued on the Series A and Series B preferred stock. This amount
of shares represents 21.3% of our currently outstanding common stock. Pursuant
to provisions in our agreement with EIS, if the exercise or conversion of any of
our securities held by EIS would result in EIS owning more than 9.9% of our
common stock at any time EIS may opt to receive non-voting securities instead of
common stock. In addition, we may elect to sell to EIS, subject to its
agreement, up to an additional 4,791.4111 shares of our Series B convertible
non-voting preferred stock in the future at a price per share of $1,700. Upon
conversion, a total of an additional 4,791,411 shares of common stock would be
issued to EIS assuming the purchase of all the remaining Series B preferred
stock, but not including any dividends to be issued on the Series B preferred
stock. Thus, we could potentially issue a total of 12,694,231 shares of our
common stock to EIS, assuming the exercise of all warrants and conversion of all
Series A, Series B and Series C preferred stock outstanding or that may be sold
to EIS in the future, but excluding any dividends to be issued on the Series A
and Series B preferred stock. This amount of shares represents 34.3% of our
currently outstanding common stock.
WE MUST COMPLY WITH THE LISTING REQUIREMENTS OF THE NASDAQ SMALLCAP MARKET OR
OUR COMMON STOCK MAY DECLINE AND THE LIQUIDITY OF AN INVESTMENT IN OUR
SECURITIES WOULD DECREASE.
Our common stock could be delisted from The Nasdaq Stock Market for the
following reasons:
. if the bid price of our common stock falls below $1.00 per share
for thirty (30) consecutive business days; or
. if our market capitalization falls below $35 million and we have
less than (A) $2,000,000 in net tangible assets (totalassets less
total liabilities and goodwill) or (B) $2,500,000 in equity; or
. if the value of our common stock held by our stockholders (other
than our directors, executive officers and 10% stockholders) is
less than $1,000,000.
On November 1, 2002, the $2,000,000 net tangible assets test will no
longer be a listing requirement and will be replaced by the requirement to have
no less than $2,500,000 in equity. There are other quantitative and qualitative
criteria of the Nasdaq SmallCap Market which if violated could lead to delisting
of our common stock.
On June 6, 2001, we received a letter from The Nasdaq Stock Market
notifying us that the staff had determined that we did not comply with the
minimum standards for continued listing. On July 13, 2001, we filed a Current
Report on Form 8-K/A containing our unaudited May 31, 2001 balance sheet on a
pro forma basis reflecting the closing of the transaction with Elan and EIS. On
July 16, 2001, we were notified by Nasdaq that they deemed us to be in
compliance with the net tangible assets/market capitalization/net income
requirement and all other requirements necessary for continued listing on the
Nasdaq SmallCap Market. However, we may not be able to maintain our compliance
with Nasdaq continued listing requirements in the future. The closing bid price
of our common stock has not been below $1.00 for a thirty day period. However,
the closing bid price has been below $1.00 for 21 days ending on April 30, 2001
and as recently as October 2001 for a five day period ending on October 26,
2001. Our market capitalization is above $35 million as of April 2, 2002 but has
been below $35 million as recently as December 2001. Our net tangible assets and
equity as reported in the unaudited financial statements are less than
$2,000,000 and $2,500,000, respectively, as of December 31, 2001.
If Nasdaq delisted our common stock, we would likely seek to list our
common stock for quotation on a regional stock exchange. However, if we were
unable to obtain listing or quotation on such market or exchange, trading of our
common stock would occur in the over-the-counter market on an electronic
bulletin board for unlisted securities or in what are commonly known as the
"pink sheets." In addition, delisting from Nasdaq and failure to obtain listing
or quotation on such market or exchange would subject our common stock to
so-called "penny stock" rules. These rules impose additional sales practice and
market making requirements on broker-dealers who sell and/or make a market in
such securities, such as disclosing offer and bid prices and compensation
received from a trade to a purchaser and sending monthly account statements to
purchasers. Consequently, broker-dealers may be less willing or able to sell
and/or make a market in our common stock. Additionally, an investor would find
it more difficult to dispose of, or to obtain accurate quotations for the price
of, our common stock. As a result of delisting, it may become more difficult for
us to raise funds through the sale of our securities.
OUR STOCK PRICE COULD DECLINE IF A SIGNIFICANT NUMBER OF SHARES BECOME AVAILABLE
FOR SALE.
Approximately 12,879,513 shares of common stock presently issued and
outstanding are "Restricted Securities" as that term is defined in Rule 144
promulgated under the Act. In general, a person (or persons whose shares are
aggregated) who has satisfied a one year holding period may sell, within any
three month period, an amount of restricted securities which does not exceed the
greater of 1% of the then outstanding shares of common stock or the average
weekly trading volume during the four calendar weeks prior to such sale.
Restricted securities can be sold, under certain circumstances, without any
quantity limitation, by persons who are not affiliates of GlycoGenesys and who
have beneficially owned the shares for a minimum period of two years. The
Company has filed a registration statement on Form S-3, which is not yet
effective, with respect to 7,233,266 shares of the approximately 12,879,513
restricted securities, as well as with respect to shares issued upon the
exercise of warrants. In addition, the Company has seven S-3 Registration
Statements which are currently effective.
The sale of these restricted shares and the registered shares shall
increase the number of free-trading shares and may have a depressive effect on
the price of our securities. Moreover, such sales, if substantial, might also
adversely affect our ability to raise additional equity capital.
BECAUSE OUR CURRENT MANAGEMENT CONTROLS A SIGNIFICANT PERCENTAGE OF OUR COMMON
STOCK, THEY HAVE SUBSTANTIAL CONTROL OVER US.
The holders of the common stock do not have cumulative voting rights.
Our directors, one of whom is an executive officer of GlycoGenesys, own
approximately 9.6% collectively of the outstanding shares of common stock. These
stockholders can substantially influence all matters requiring stockholder
approval, including the election of directors and the approval of significant
corporate transactions. One of the conditions of the transactions between us,
Elan and EIS requires that we expand our board of directors to six members on
the next regularly scheduled stockholders' meeting at which time EIS may appoint
one director. EIS has currently decided not to appoint a director at the next
regularly scheduled stockholders' meeting, but may choose to do so in the
future. If EIS appoints a director, members of the board of directors and their
affiliates shall own approximately 18.5% of the outstanding common stock,
assuming EIS has not converted or exercised any of our securities held by it,
and the same number of shares are outstanding at such time as are currently
outstanding. If EIS were to have converted or exercised all of our securities
held by it, the members of our board of directors and their affiliates would own
approximately 32.9% of the outstanding common stock, assuming the number of
shares outstanding at such time equals the number of shares currently
outstanding plus the number of shares issued on exercise or conversion of
securities held by EIS. This percentage would increase if we were to sell
additional shares of our Series B preferred stock to EIS. This concentration of
ownership could have the effect of delaying or preventing a change in control or
otherwise discouraging a potential acquirer from attempting to obtain control of
us, which in turn could materially adversely affect our stock price.
THE PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE, WHICH COULD RESULT IN
SUBSTANTIAL LOSSES BY YOU.
The market price of our common stock, which is traded on the National
Association of Securities Dealers Automated Quotation (NASDAQ--Small Cap) has
been, and may continue to be, highly volatile. During the twelve months ending
March 31, 2002, our common stock has traded at prices ranging from $0.55 to
$2.43 per share. Factors such as announcements of clinical trial results,
financings, technological innovations or new products, either by us or by our
competitors or third parties, as well as market conditions within the biotech
and pharmaceutical industries, may have a significant impact on the market price
of our common stock.
In addition, the stock market 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.
Current market conditions are particularly unstable
and there is a large degree of uncertainty at this time. In general,
biotechnology stocks tend to be volatile even during periods of relative market
stability because of the high rates of failure and substantial funding
requirements associated with biotechnology companies. Market conditions and
conditions of the biotechnology sector could negatively impact the price of our
common stock.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This Annual Report on Form 10-K contains unaudited financial statements for the
year ended December 31, 2001 in lieu of audited financial statements for such
period because the Company elected not to have Arthur Andersen LLP issue a
manually signed audit report in respect of the Company's financial statements
for the year ended December 31, 2001 in reliance on Securities and Exchange
Commission Release No. 34-45589. The Company intends to file financial
statements for the year ended December 31, 2001 audited by filing an amendment
to this Annual Report on Form 10-K by May 31, 2002.
No auditor has opined that the Company's unaudited financial statements for the
year ended December 31, 2001 present fairly, in all material respects, the
financial position, the results of operations, cash flows and the changes in
stockholder's equity of the Company in accordance with generally accepted
accounting principles. The audited financial statements and the notes thereto to
be filed by May 31, 2002 may differ from the unaudited financial statements and
the notes thereto contained herein.
F-1
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
CONSOLIDATED BALANCE SHEETS
ASSETS
UNAUDITED
December 31,
------------
2000 2001
---- ----
CURRENT ASSETS:
Cash and cash equivalents $2,547,353 $7,977,910
Stock subscription receivable 2,000,000 --
Due from
SafeScience Newco, Ltd. (Note 1(f)) -- 177,646
Prepaid expenses and other current assets 288,134 271,899
---------- ----------
Total current assets 4,835,487 8,427,455
---------- ----------
PROPERTY AND EQUIPMENT, AT COST:
Computer, office and laboratory equipment 455,994 469,253
Furniture and fixtures 281,274 284,748
Motor vehicles 25,026 25,026
---------- ----------
762,294 779,027
Less-accumulated depreciation 324,932 437,844
---------- ----------
437,362 341,183
---------- ----------
OTHER ASSETS:
Notes receivable-related parties (Note 2) 128,659 --
Restricted cash (Note 1d) 108,128 108,128
Deposits 269,481 79,831
---------- ----------
Total other assets 506,268 187,959
---------- ----------
Total assets $5,779,117 $8,956,597
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
UNAUDITED
December 31,
2000 2001
CURRENT LIABILITIES:
Accounts payable 1,360,615 1,094,872
Accrued liabilities 797,964 1,370,364
Net liabilities of discontinued
operations 908,571 326,780
------------ ------------
Total current liabilities 3,067,150 2,792,016
------------ ------------
Other equity 866,216 --
Preferred stock, $0.01 par value
Authorized - 5,000,000 shares
Series A convertible, exchangeable preferred
Stock, 7,500 authorized;
4,944.44 and no shares issued and outstanding as
of December 31, 2001 and 2000, respectively
(liquidation value $12,419,273 and $0, at
December 31, 2001 and 2000, respectively) -- 12,419,273
Series B convertible preferred stock, $0.01 par
value; 6,000 authorized;
862.70 and -0- shares issued and outstanding as of
December 31, 2001 and 2000,respectively
(liquidation value $1,466,601 and $0 at
December 31, 2001 and 2000, respectively -- 1,341,224
Series C convertible preferred stock, $0.01 par value
1,117 authorized;
1,116.79 and -0- shares issued and outstanding as of
December 31, 2001 and 2000, respectively -- 1,331,330
------------ ------------
Commitments and Contingencies (Note 6)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value
Authorized - 100,000,000 shares
Issued and outstanding - 33,568,952 and 23,998,504 shares
at December 31, 2001 and 2000, respectively 239,985 335,690
Additional paid-in capital 48,243,184 60,100,645
Note receivable from officer (Note 2) (2,6750,000) (2,675,000)
Accumulated deficit (43,962,418) (66,688,581)
------------ ------------
Total stockholders' equity 1,845,751 (8,927,246)
------------ ------------
Total liabilities and stockholders' equity $ 5,779,117 $ 8,956,597
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
Consolidated Statements of Operations
UNAUDITED
Years Ended December 31,
--------------------------------------------------
1999 2000 2001
---- ---- ----
Operating Expenses:
Research and development $ 3,929,898 $ 6,182,150 $ 4,291,064
General and administrative 5,837,861 4,093,507 4,045,088
Restructuring charge (note 3) -- 1,478,956 (177,283)
Operating loss (9,767,759) (11,754,613) (8,158,869)
------------ ------------ ------------
OTHER (EXPENSE) INCOME:
Equity in loss of SafeScience Newco, Ltd.
-- -- (14,188,470)
Other expense (8,063) (243,373) (33,345)
Interest income 353,492 216,842 187,721
------------ ------------ ------------
Total other (expense) income 345,429 (26,531) (14,034,094)
------------ ------------ ------------
Loss from continuing operations (9,422,330) (11,781,144) (22,192,963)
Loss from discontinued operations (2,879,388) (5,489,167) (533,200)
Net loss (12,301,718) (17,270,311) (22,726,163)
Accretion of preferred stock dividend -- -- (404,273)
------------ ------------ ------------
Net loss applicable to common
Shareholders $(12,301,718) $(17,270,311) $(23,130,436)
============ ============ ============
Basic and diluted net loss per common share from continuing
operations (0.59) (0.64) (0.80)
============ ============ ============
Basic and diluted net loss per common share from
discontinued operations (0.18) (0.30) (0.02)
============ ============ ============
Net loss applicable to common
Shareholders (0.77) (0.94) (0.84)
============ ============ ============
Weighted average number of common shares outstanding
16,060,783 18,314,819 27,612,020
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
UNAUDITED
- ------------------------------------------------------------------------------------------------------------------------------------
Additional
Common Stock Series A Series B Series C Paid-In
Preferred Stock Preferred Stock Preferred Stock Capital
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
BALANCE, DECEMBER 31, 1998 14,107,216 $141,072 -- -- -- -- -- -- $17,749,766
Options exercised 78,877 789 -- -- -- -- -- -- (116,731)
Expense associated with options granted to
non-employees -- -- -- -- -- -- -- -- 528,233
Private placements, net of finders fee of
$445,259 includes 1,112 shares for
payment) 1,615,706 16,157 -- -- -- -- -- -- 9,119,944
Stock issued for services 218,276 2,183 -- -- -- -- -- -- 1,413,727
Warrants exercised 545,396 5,454 -- -- -- -- -- -- 1,812,374
Notes receivable from issuance of common
stock 250,000 2,500 -- -- -- -- -- -- 2,672,500
Common stock issued as legal settlement 20,453 204 -- -- -- -- -- -- 306,590
Net loss -- -- -- -- -- -- -- -- --
-- --
BALANCE, DECEMBER 31, 1999 16,835,924 $168,359 -- -- -- -- -- -- $33,719,865
Private Placements 4,778,184 68,142 -- -- -- -- -- -- 14,783,101
Cashless exercise of warrants 2,262,256 2,262 -- -- -- -- -- -- (2,262)
Reclassification to other equity -- -- -- -- -- -- -- -- (866,216)
Exercise of common stock options 44,376 444 -- -- -- -- -- -- (444)
Common stock issued for services and wages 93,287 933 -- -- -- -- -- -- 804,562
Common stock redeemed in payment of notes
receivable (15,523) (155) -- -- -- -- -- -- (195,422)
Net loss -- -- -- -- -- -- -- -- --
BALANCE, DECEMBER 31, 2000 23,998,504 239,985 -- -- -- -- -- -- 48,243,194
Common stock issued as part of private
placements, net of $906,227 in issuance 5,624,515 56,246 -- -- -- -- -- -- 6,585,044
costs
Common stock issued pursuant to exercise of
warrants 765,526 7,655 -- -- -- -- -- -- 858,911
Common stock issued for license purchase 160,000 1,600 -- -- -- -- -- -- 198,400
Exercise of common stock options 195,000 1,950 -- -- -- -- -- -- 276,134
Common stock issued for services and wages 125,406 1,254 -- -- -- -- -- -- 104,835
Amortization of value of warrants issued
for license -- -- -- -- -- -- -- -- 1,046,730
Series A Preferred -- -- 4,944.44 49 -- -- -- -- 12,014,951
Accreted dividends Series A Preferred -- -- -- -- -- -- -- -- (404,273)
Series B Preferred, net of $125,377 in
issuance costs -- -- -- -- 862.71 9 -- -- 1,341,215
Common stock issued as part of private
placements, net of $318,330 in issuance 2,700,000 27,000 -- -- -- -- -- -- 3,191,670
costs
Series C Preferred, net of $131,670 in
issuance costs -- -- -- -- -- -- 1,116.79 11 1,331,319
Beneficial conversation feature associated
with Series C Preferred stock -- -- -- -- -- -- -- -- --
Reclassification to other equity -- -- -- (49) -- (9) -- (11) (14,687,485)
Net loss -- -- -- -- -- -- -- -- --
BALANCE, DECEMBER 31, 2001 33,568,952 $335,690 4,944.44 $ -- 862.71 $ -- 1,116.79 $ -- $60,100,645
Stockholder
Note Receivable Accumulated Equity
from Officer Deficit (Deficit)
BALANCE, DECEMBER 31, 1998 -- $(14,390,389) $3,500,449
Options exercised -- -- 117,520
Expense associated with options granted to
non-employees -- -- 528,233
Private placements, net of finders fee of
$445,259 includes 1,112 shares for
payment) -- -- 9,136,101
Stock issued for services -- -- 1,415,910
Warrants exercised -- -- 1,817,828
Notes receivable from issuance of common
stock (2,675,000) -- --
Common stock issued as legal settlement -- -- 306,794
Net loss -- (12,301,718) (12,301,718)
BALANCE, DECEMBER 31, 1999 $(2,675,000) (26,692,107) $ 4,521,117
Private Placements -- -- 14,851,243
Cashless exercise of warrants -- -- --
Reclassification to other equity -- -- (866,216)
Exercise of common stock options -- -- --
Common stock issued for services and wages -- -- 805,495
Common stock redeemed in payment of notes
receivable -- -- (195,577)
Net loss -- (17,270,311) (17,270,311)
BALANCE, DECEMBER 31, 2000 (2,675,000) (43,962,418) 1,845,761
Common stock issued as part of private
placements, net of $906,227 in issuance -- -- 6,641,290
costs
Common stock issued pursuant to exercise of
warrants -- -- 866,566
Common stock issued for license purchase -- -- 200,000
Exercise of common stock options -- -- 278,084
Common stock issued for services and wages -- -- 106,089
Amortization of value of warrants issued
for license -- -- 1,046,730
Series A Preferred -- -- 12,015,000
Accreted dividends Series A Preferred (404,273)
Series B Preferred, net of $125,377 in
issuance costs -- -- 1,341,224
Common stock issued as part of private
placements, net of $318,330 in issuance -- -- 3,218,670
costs
Series C Preferred, net of $131,670 in
issuance costs -- -- 1,331,330
Beneficial conversation feature associated
with Series C Preferred stock -- -- --
Reclassification to other equity -- -- (14,687,554)
Net loss -- (22,726,163) (22,726,163)
BALANCE, DECEMBER 31, 2001 $(2,675,000) $(66,688,581) $ (8,927,246)
The accompanying notes are an integral part of these consolidation financial
statements
F-5
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
Consolidated Statements of Cash Flows
UNAUDITED
Years Ended December 31,
------------------------
1999 2000 2001
---- ---- ----
Cash Flows from Operating Activities:
Net loss $(12,301,718) $(17,270,311) $(22,726,163)
Adjustments to reconcile net loss to net cash used in operating
activities:
Operating expenses paid in common stock, options and warrants 2,367,871 805,495 382,222
Amortization of value of warrants issued for
license -- -- 1,046,730
Common stock issue for license purchase -- -- 200,000
Compensation charges related to loan forgiveness
-- 336,768 --
Equity adjustment in SafeScience Newco, Ltd. -- -- 14,188,470
Depreciation and amortization 125,563 160,662 112,912
Changes in assets and liabilities:
Due from Elan International Services, Ltd. -- -- (177,646)
Prepaid expenses and other current assets (57,386) (118,075) 16,236
Accounts payable 80,649 1,033,153 (265,743)
Accrued liabilities 459,503 133,044 396,990
Net assets of discontinued operations (724,060) 724,060 --
Net Liabilities of discontinued operations -- 908,571 (581,791)
------------ ------------ ------------
Net cash used in operating and (10,049,578) (13,286,633) (7,407,783)
discontinued activities
------------ ------------ ------------
Cash Flows from Investing Activities:
Purchase of property and equipment (364,450) (138,913) (16,733)
Deposits (12,741) (255,411) 189,650
Loans to related parties (574,178) -- 128,659
------------ ------------ ------------
Net cash provided by (used in) investing activities (951,369) (394,324) 301,576
------------ ------------ ------------
Cash Flows from Financing Activities:
Payments on notes payable (15,908) -- --
Stock subscription receivable -- (2,000,000) --
Proceeds from sale of common stock, net of
issuance costs 9,136,101 14,851,243 6,643,240
Proceeds from exercise of warrants 1,818,413 -- 1,950
Proceeds from exercise of options -- -- 350
Proceeds from sale of common stock, net of issuance costs
-- -- 3,218,670
------------ ------------ ------------
Proceeds from sale of Series C preferred stock, net of issuance
costs -- -- 1,331,330
------------ ------------ ------------
Proceeds from sale of Series B preferred stock, net of issuance
costs -- -- 1,341,224
------------ ------------ ------------
Net cash provided by financing activities 10,938,606 12,851,243 12,536,764
------------ ------------ ------------
Net increase in cash and cash equivalents (62,341) (829,714) 5,430,557
Cash and Cash Equivalents, beginning balance 3,439,408 3,377,067 2,547,353
------------ ------------ ------------
Cash and Cash Equivalents, ending balance 3,377,067 2,547,353 7,977,910
============ ============ ============
Supplemental disclosure of noncash financing activities:
Issuance of common stock upon
exercise of adjustable warrant -- -- $ 866,216
============ ============ ============
Series A preferred stock issued for
investment in SafeScience Newco, Ltd. -- -- $ 12,015,000
============ ============ ============
Liabilities for restructuring expenses settled by issuance of
common stock -- -- $ 174,510
============ ============ ============
Beneficial conversion feature associates with
Series C Preferred Stock -- -- $ 262,064
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 319 $ 3,451 $ 33,345
============ ============ ============
Exchange of common stock for notes receivable $ -- $ 195,577 $ --
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
GlycoGenesys, Inc. ("the Company," formerly known as SafeScience, Inc.) 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. International Gene
Group, Inc. focuses on the development of carbohydrate-based pharmaceutical
products and related technologies in connection with oncology and other life
threatening and/or debilitating diseases. SafeScience Products, Inc. develops
agricultural products, some of which are also based upon carbohydrate
chemistries. The therapeutic products will be either licensed from or jointly
developed with third parties. GlycoGenesys, Inc., International Gene Group, Inc.
and SafeScience Products, Inc. maintain an office in Boston, Massachusetts.
As of December 31, 2001, the Company has an accumulated deficit of
$66,688,581. The Company believes that its existing funds will be sufficient to
fund its operating expenses and capital requirements into the first quarter of
2003. The Company intends to raise additional debt and/or equity financing. We
may receive approximately $10 million of additional funds from Elan
International Services, Ltd. ("EIS")for the development of GCS-100 pursuant to
our agreement with EIS. However, we will not receive additional capital from EIS
unless we agree with EIS on a quarterly basis on the business plan for
SafeScience Newco, Ltd. The Company's future is dependent upon its ability to
obtain financing to fund its operations. The Company expects to incur
substantial additional operating costs, including costs related to ongoing
research and development activities, preclinical studies and clinical trials.
Other than the $5,600,000 raised during January 2002, the Company has not
obtained commitments from any existing or potential investors to provide
additional financing as of April 16, 2002. In the event additional financing is
not obtained, the Company may be required to significantly reduce or curtail
operations. There is doubt that the Company will have the ability to continue as
a going concern.
Principal risks to the Company include the successful development and marketing
of pharmaceutical products, dependence on collaborative partners, the need to
obtain adequate financing to fund future operations, United States Food and Drug
Administration approval, dependence on key individuals and competition from
substitute products and larger companies (See "Risk Factors").
F-7
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
On January 29, 2001 GlycoGenesys announced that it had retained Burrill &
Company, a leading private merchant bank focused exclusively on the life
sciences, to assist in the process of determining appropriate alternatives for
its consumer, commercial and agricultural product areas. GlycoGenesys has since
discontinued operation of its consumer and commercial product business. The
opportunity to acquire the Company's agricultural products including Elexa-4,
derivatives thereof, and Bb447 are being offered to enterprises with product
portfolios which are similar in function and performance to Elexa-4.
On February 23, 2001 the Company announced the discontinuation of its consumer
and commercial operations. The cost of disposing of the business assets and the
expenses incurred during the phase out period is approximately $2,283,200.
(b) Principles of Consolidation
The Company's consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries: International Gene Group, Inc. and
SafeScience Products, Inc. All material intercompany transactions and accounts
have been eliminated in the consolidated financial statements.
(c) Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
(d) Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. Cash and cash
equivalents at December 31, 2001 and 2000 include approximately $664,587 and
$653,478 in cash and approximately $7,313,323 and $1,893,875 in cash
equivalents, respectively, held in an overnight investment account, which is
reinvested daily in government securities funds and money market funds.
Restricted cash represents funds held under an irrevocable standby letter of
credit. The letter of credit serves as a security for the Company's facility
lease. The funds are being held in an investment account.
F-8
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
(e) Depreciation
The Company provides for depreciation using straight-line and accelerated
declining balance methods to allocate the cost of property and equipment over
their estimated useful lives as follows:
Asset Estimated
Classification Useful Life
Computer, office and laboratory equipment 3 - 5 years
Furniture and fixtures 7 years
Motor vehicles 4 years
(f) Research and Development
Research and development costs, which consist primarily of expenses for clinical
trials, preclinical research, drug manufacturing for clinical trials, sponsored
research, consultants, supplies and testing, are charged to operations as
incurred. In July 2001, the Company and Elan International Services, Ltd. formed
a joint venture in Bermuda, (SafeScience Newco, Ltd.) for the purpose of
furthering the development of its drug candidate GCS-100 in the field of
oncology. The joint venture may be provided funding from EIS and the Company up
to $12,000,000 to complete its research and development plan. The Company's
share of these expenses is equal to its equity interest in the joint venture of
80.1%. The Company may fund its share of the research and development expense
out of its available funds or by issuing shares of its Series B Preferred Stock
to EIS. In either case, the proceeds are provided to SafeScience Newco, Ltd. as
an unconditional gift for the purpose of funding the research and development
costs incurred. On December 31, 2001, the Company sold 862.70647 shares of
Series B Preferred Stock to EIS for $1,466,601, which represented its share of
the joint venture's research and development expenses of $1,830,962 for the four
months ended October 31, 2001. At December 31, 2001, the balance due from
SafeScience Newco, Ltd. represents 19.1% of the $892,693 due for the period.
(g) Net Loss Per Share
In December 1997, the Company adopted Statement of Financial Accounting
Standards Statement (SFAS) No. 128, Earnings per Share. Basic loss per share is
computed using the weighted-average number of common shares outstanding. Diluted
net loss per share is the same as basic net loss per share as the inclusion of
common stock equivalents would be antidilutive. Antidilutive securities that are
not included in diluted net loss per common share were 16,467,965, 3,828,521,
and 660,424 for 2001, 2000 and 1999, respectively.
F-9
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
(h) Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in the financial statements.
Comprehensive income loss 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 Company's comprehensive net loss is the same as net
loss for all periods presented.
(i) Disclosures About Segments of an Enterprise
The Company has adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, in the fiscal year ended December 31, 1998.
SFAS No. 131 establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS No. 131 also establishes standards for related disclosures
about products and services and geographic areas. Operating segments are
identified as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief operating
decision-maker, or decision-making group, in making decisions how to allocate
resources and assess performance. Due to the discontinuation of consumer and
commercial products business, the Company operates in one segment.
(j) Concentrations of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance-sheet risk and credit
risk concentrations. The Company has no significant off-balance-sheet risk or
credit risk concentrations. The Company maintains its cash and cash equivalents
with multiple financial institutions and invests in investment-grade securities.
(k) Financial Instruments
The estimated fair values of the Company's consolidated financial instruments,
which include cash equivalents, notes receivable and accounts payable,
approximate their carrying value due to the short maturity of these instruments.
F-10
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
The estimated fair value of the Company's capital lease obligations approximates
its carrying value based upon the current rates offered to the Company for
similar type arrangements. As of December 31, 2001 and December 31, 2000, there
were no capital lease obligations.
(l) Post Retirement Benefits
The Company has no obligations for post retirement benefits.
(m) Reclassification
Certain items in the prior years consolidated financial statements have been
reclassified to conform to their 2001 presentation. Marketing expenses for the
years ended December 31, 1999 and 2000 have been reclassified as research and
development because they relate to development of Elexa-4 and Bb447.
(n) Advertising Costs- The Company had no advertising expenses during the fiscal
year ended December 31, 2001.
(o) Derivative Instruments and Hedging Accounting
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. As amended in
June 1999, the statement is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. In June 2000, the FASB issued statement No.
138, which is a significant amendment to SFAS NO. 133. SFAS NO. 133 and its
amendments establish accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively, the derivatives) and for hedging activities. The
Emerging Issues Task Force (EITF) has also issued a number of derivative-related
tentative and final consensuses. The adoption of these statements did not have a
material impact on our consolidated financial position or results of operations.
(p) Recent Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" (SFAS 141),
and Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). SFAS 141 requires that all business combinations
be accounted for under a single method -
F-11
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
the purchase method. Use of the pooling-of-interest method is no longer
permitted. SFAS 141 requires that the purchase method be used for all business
combinations initiated after June 30, 2001. SFAS 142 requires, among other
things, that goodwill no longer be amortized to earnings, but instead reviewed
for impairment annually.
Under SFAS 142, the amortization of goodwill ceases upon adoption of the
statement, which will become effective for the Company on January 1, 2002. The
effects of adopting these standards have not been completely determined.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" (SFAS 143). SFAS 143 establishes accounting standards for
recognition and measurement of a liability for an asset retirement obligation
and the associated asset retirement cost. SFAS 143 requires the recognition of
the fair value of a liability for an asset retirement obligation in the period
in which it is incurred if a reasonable estimate of fair value can be made. If a
reasonable estimate of fair value cannot be made in the period the asset
retirement obligation is incurred, the liability shall be recognized when a
reasonable estimate of fair value can be made. The fair value of a liability for
an asset retirement obligation is the amount at which that liability could be
settled in a current transaction between willing parties, that is, other than in
a forced or liquidation transaction. SFAS 143 is effective for financial
statements issued for fiscal years beginning after June 15, 2002. The provisions
of SFAS 143 will become effective for the Company on January 1, 2003. The
effects of adopting this standard have not been determined.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 establishes a
"primary-asset" approach to determine the cash flow estimation period for a
group of assets and liabilities that represents the unit of accounting for a
long-lived asset to be held and used. SFAS 144 requires that a long-lived asset
to be (1) abandoned, (2) exchanged for a similar productive asset, or (3)
distributed to owners in a spin-off be considered held and used until it is
abandoned, exchanged, or distributed. SFAS 144 requires (1) that spin-offs and
exchanges of similar productive assets to be recorded at the lower of carrying
value or fair value, and that such assets be classified as held and used until
disposed of and (2) that any impairment loss resulting from a spin-off or
exchange of similar productive assets be recognized when the asset is disposed
of. The provisions of SFAS 144 will be come effective for the Company on January
1, 2002. The effects of adopting this standard have not been determined.
F-12
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
(2) Note Receivable From Officer
On June 15, 1999, the Company entered into a transaction whereby a senior
executive relinquished an option to purchase 100,000 shares of common stock for
a price of $0.01 per share which would have vested on January 1, 2000 and, in
exchange, the Company issued to the executive a stock option for 250,000 shares
of common stock at an exercise price of $10.70 per share, the estimated fair
market value of the common stock on the date of the transaction. The option was
exercised immediately. The Company loaned the executive an amount representing
the entire exercise price. The principal balance of this note receivable from
the issuance of common stock represents 80% of the value of the purchase price
of $3,343,750 for the shares issued or $2,675,000 and accrues interest at 4.92%
per annum, compounded semi-annually. The difference of $668,750 was recorded as
a non-cash compensation expense. The executive has pledged the 250,000 shares of
common stock as collateral. The note is 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. The balance
outstanding at December 31, 2001 is $2,675,000 and is shown in the accompanying
statement of stockholders' equity.
(3) RESTRUCTURING CHARGE
During the second quarter of 2000, the Company implemented a restructuring plan
to reduce the size and realign its organization to conform with strategic
changes. The major components of the restructuring relates to the elimination of
approximately 8 employees across the following functions: sales and marketing
(6), general and administrative (1), and research and development (1).
Components of the charge include severance and other related expenses. At
December 31, 2001 approximately $258,200 of accrued restructuring charges
remained which is comprised of severance costs. Approximately $372,000 of the
expense has been paid by the issuance of common stock. The total cash paid
through December 31, 2001 was approximately $750,000.
F-13
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
Restructuring reserve activities for the twelve months ended December
31, 2000 and 2001 were as follows:
($ Millions)
- --------------------------------------------------------------------------------------------------------------------------------
Reductions in Revised Paid through Remaining Balance
Estimated Estimated Estimated December 31, December 31,
Expense Expense Expense 2000 2000
- --------------------------------------------------------------------------------------------------------------------------------
Severance and
Benefits $1.41 $(0.25) $1.16 $(0.73) $0.43
- --------------------------------------------------------------------------------------------------------------------------------
Potential Litigation
0.10 - 0.10 - 0.10
- --------------------------------------------------------------------------------------------------------------------------------
Other 0.22 - 0.22 (0.22) -
---- ----- ---- ------ ----
- --------------------------------------------------------------------------------------------------------------------------------
Total $1.73 $(0.25) $1.48 $(0.95) $0.53
===== ======= ===== ======= =====
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Remaining Balance Reductions in Paid through Remaining Balance
December 31, Estimated December 31, December 31,
2000 Expense 2000 2000
- --------------------------------------------------------------------------------------------------------------------------------
Severance and
Benefits $0.43 $ - $(0.18) $0.25
- --------------------------------------------------------------------------------------------------------------------------------
Potential Litigation
0.10 (0.10) - -
- --------------------------------------------------------------------------------------------------------------------------------
Other - - - -
---- ----- ------ ----
- --------------------------------------------------------------------------------------------------------------------------------
Total $0.53 $(0.10) $(0.18) $0.25
===== ======= ======= =====
- --------------------------------------------------------------------------------------------------------------------------------
(4) STOCKHOLDERS'EQUITY
(a) Authorized Shares
The authorized capital stock of GlycoGenesys, Inc. consists of 105,000,000
shares consisting of 100,000,000 shares of common stock, $0.01 par value per
share, of which 37,064,044 were outstanding as of December 31, 2001 and
5,000,000 shares of preferred stock of which 6,924 shares were outstanding as of
December 31, 2001.
(b) Sales of Common Stock
In 1999, the Company sold 1,399,101, 307,500, and 216,605 shares of common stock
for $4.50, $3.50 and $ 15.24 weighted average price per share, respectively. The
Company also issued 545,396 shares of common stock for warrants exercised at an
average of $ 3.333 per share.
In 2000, the Company sold 484,429, 333,334 and 3,960,421 shares of common stock
at $ 14.45, $12.00 and $1.1875 per share, respectively. The Company also issued
2,262,256 shares of common stock for warrants exercised on a cashless basis.
F-14
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
In 2001, the Company sold 775,000, 2,700,000, and 470,370 and 4,280,362 shares
of common stock at a weighted average price of $1.13, $1.31, $1.35 and $1.33 per
share, respectively. The Company also issued 729,445 shares of common stock for
warrants exercised on a cashless basis.
(c) Stock Option Plans
The Company has a Nonqualified Stock Option Plan (1996 Plan) and has registered
500,000 shares of common stock with the Securities and Exchange Commission for
future issuance under option agreements. The exercise price of each option will
be determined by the Board of Directors and must be exercised within ten years
from May 1, 1996. The Company may issue these options to its officers,
directors, employees and consultants. As of December 31, 2001, no shares were
available for future grant.
Effective December 1, 1998, the Company adopted the 1998 Stock Option Plan (1998
Plan) under which 600,000 shares of common stock were reserved for issuance
under option agreements. As with the 1996 Plan, the exercise price of the each
option will be determined by the Board of Directors and may be issued to
officers, directors, employees and consultants. Additionally, the options must
be exercised within 10 years from December 1, 1998. As of December 31, 2001, no
shares were available for future grant.
Effective June 7, 2000, the Company adopted the 2000 Stock Incentive Plan under
which 1,000,000 shares of common stock were reserved for issuance under option
agreements. On June 5, 2001, the plan was amended to increase the number to
2,250,000 shares of common stock reserved for issuance under option agreements.
As with the 1998 Plan, the exercise price of the each option will be determined
by the Board of Directors and may be issued to officers, directors, employees
and consultants. Additionally, the options must be exercised within 10 years
from date of issuance. As of December 31, 2001, options to purchase 1,502,970
shares were available for future grant.
F-15
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
The following table summarizes all stock option activity to employees and
consultants for services as of December 31, 2001.
Weighted
Average
Number Exercise Price
Of Shares Per Share
Balance, December 31, 1999 585,424 $ 10.42
Granted 768,357 4.22
Exercised (44,376) 0.00
Cancelled (145,988) 13.00
--------- -------
Balance, December 31, 2000 1,163,417 6.39
Granted 425,629 0.72
Exercised (195,000) 0.00
Cancelled (265,504) 4.14
--------- -------
Balance, December 31, 2001 1,118,542 $ 5.69
========= =======
Exercisable at December 31, 1999 561,424 $ 10.42
========= =======
Exercisable at December 31, 2000 596,236 $ 8.89
========= =======
Exercisable at December 31, 2001 861,869 $ 6.33
========= =======
The following table presents weighted-average price and life information about
significant option groups outstanding at December 31, 2001:
---------Options Outstanding---------- ---Options Exercisable---
Weighted
Average Weighted
Number Remaining Average Number Weighted Average
Range of Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
$ 0.0100 $ 0.9500 20,500 7.39 $ 0.23 20,500 $ 0.23
$ 1.4700 $ 1.4700 183,500 9.72 $ 1.47 183,500 $ 1.47
$ 1.7800 $ 1.7800 140,000 5.97 $ 1.78 46,655 $ 1.78
$ 2.3500 $ 3.0000 134,267 8.12 $ 2.58 102,668 $ 2.65
$ 3.4375 $ 3.4375 73,079 1.81 $ 3.43 73,079 $ 3.43
$ 4.9700 $ 4.9700 225,000 8.53 $ 4.97 93,747 $ 4.97
$ 5.5000 $ 12.6250 67,272 6.34 $ 6.22 66,796 $ 6.18
$ 13.3750 $ 13.3750 263,442 0.51 $13.37 263,442 $13.38
$ 13.6880 $ 17.8125 11,040 0.99 $15.21 11,040 $15.22
$ 20.7500 $ 20.3750 442 1.53 $20.37 442 $20.38
--------- ---- ------ ------- ----------
$ 0.0100 $ 20.3750 1,118,542 5.80 $ 5.69 861,869 $ 6.33
========= ==== ====== ======= ==========
F-16
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
(d) Pro Forma Disclosures of Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS No. 123 requires the measurement
of the fair value of stock options or warrants granted to employees to be
included in the statement of operations or, alternatively, disclosed in the
notes to financial statements. The Company has determined that it will continue
to account for stock-based compensation for employees under Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,
and elect the disclosure-only alternative under SFAS No. 123. The Company
records the fair market value of stock options and warrants granted to
nonemployees in the consolidated statement of operations. The Company has
computed the pro forma disclosures required under SFAS No. 123 for stock options
granted in 1999, 2000 and 2001 using the Black-Scholes option pricing model. The
weighted average assumptions used for 1999, 2000 and 2001 are as follows:
1999 2000 2001
Risk-free interest rate 5.8% 5.17% 4.302%
Expected dividend yield - - -
Expected life 5 years 5 years 9.3 years
Expected volatility 60% 150% 99.5%
Weighted average fair value
of options granted $ 8.84 $ 2.44 $ 1.36
Had compensation cost for the Company's stock option plans been determined
consistent with SFAS No. 123, net loss would have been as follows:
1999 2000 2001
As reported
Net loss applicable to
common shareholders $ (12,301,718) $ (17,270,311) $ (23,130,436)
============== ============== ==============
Pro forma
Net loss applicable to
Common shareholders $ (12,792,904) $ (17,819,118) $ (23,708,592)
============== ============== ==============
Basic and diluted net
loss per common share $ (0.77) $ (0.94) $ (0.84)
============== ============== ==============
Pro forma
Basic and diluted net
loss per common share $ (0.80) $ (0.97) $ (0.87)
============== ============== ==============
F-17
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
(e) Warrants
The following table summarizes all warrant activity in connection with equity
financing as of December 31, 2001:
Warrants
Weighted
Average
Number of Exercise Price
Shares Per Share
Balance, December 31, 1999 75,000 $ 10.40
Granted 2,610,104 3.84
Exercised (2,262,256) 0.00
Expired (20,000) 6.00
----------- ----------
Balance, December 31, 2000 2,665,104 $ 4.03
Granted 6,385,857 1.51
Exercised (765,526) 0.00
Cancelled (58,205) 11.33
----------- ----------
Balance, December 31, 2001 8,227,230 $ 2.40
=========== ==========
Exercisable, December 31, 1999 75,000 $ 12.40
----------- ----------
Exercisable, December 31, 2000 2,665,104 $ 4.03
----------- ----------
Exercisable, December 31, 2001 7,400,667 $ 2.54
=========== ==========
Warrants issued to certain investors contain anti-dilution provisions which
require the exercise price to be adjusted for securities transactions sold at
prices lower than the then current exercise price.
In January 2001, the Company granted Wayne State University and the Barbara Ann
Karmanos Cancer Institute warrants to jointly purchase 1,375,000 shares of
common stock at $1.15 that vest in quarterly installments over two years. On
November 7, 2001, the Company also granted Wayne State University and the
Barbara Ann Karmanos Cancer Institute warrants to jointly purchase 125,000
shares of common stock at $1.15 that vest through January 26, 2003.
F-18
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
Series A Preferred Stock
Our articles of incorporation provides for the issuance of up to 7,500
shares of Series A Preferred Stock, of which 4,944.44 shares are outstanding,
and contains the designations, preferences and relative rights, qualifications
and restrictions of the Series A Preferred Stock.
Dividends
The Series A Preferred Stock receives a 7% annual dividend, payable in
kind. If our board of directors declares a dividend on outstanding shares of
Common Stock or any other capital stock that is junior or pari passu to the
Series A Preferred Stock, the holders of Series A Preferred Stock will be
entitled to receive the same amount of dividends as would be declared payable on
the number of shares of Common Stock into which the shares of Series A Preferred
Stock could be converted on the record date for such dividend.
Liquidation
Upon our liquidation, dissolution or winding up, upon a change in
control approved by the Board of Directors or a sale of all or substantially all
of the assets of the Company, the holders of Series A Preferred Stock will be
entitled to receive before any distribution or payment is made to the holders of
Common Stock or any other series of preferred stock ranking, as to liquidation
rights, junior to the Series A Preferred Stock, and subject to the liquidation
rights and preferences of any class or series of preferred stock senior to, or
on a parity with, the Series A Preferred Stock as to liquidation preferences, an
amount equal to $2,430 per share, as adjusted for stock splits, stock dividends,
recapitalizations and the like, plus any accrued and unpaid dividends.
If, upon our liquidation, dissolution or winding up, our assets and
funds available for distribution to our stockholders are insufficient to pay the
holders of Series A Preferred Stock the full amounts to which they are entitled,
then the holders of Series A Preferred Stock will share ratably, together with
the holders of capital stock with pari passu liquidation preferences, in any
distribution of available assets, pro rata in proportion to the full liquidation
preference to which each holder is entitled.
F-19
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
After payment is made in full to the holders of Series A Preferred
Stock and the holders of capital stock with pari passu liquidation preferences,
our remaining assets available for distribution will be distributed among the
holders of Common Stock, the holders of Series A Preferred Stock and the holders
of capital stock with pari passu liquidation preferences based on the number of
shares of Common Stock held by each, assuming conversion of any other class of
series of capital stock convertible into shares of Common Stock.
Voting Rights
Holders of Series A Preferred Stock are not entitled to vote on matters
submitted to a vote of stockholders, except to (i) amend our articles of
incorporation so as to affect adversely the shares of Series A Preferred Stock,
(ii) change the rights of the holders of the Series A Preferred Stock in any
other respect, or (iii) authorize, create, designate or issue of any additional
equity securities having any rights that are senior or pari passu to the Series
A Preferred Stock with respect to liquidation preference or rights to dividends
or distributions, which shall require the approval of at least a majority of the
outstanding shares of Series A Preferred Stock, voting separately as a class.
Conversion
Each share of Series A Preferred Stock is convertible at any time after
two years after issuance, at the option of the holder, into the number of shares
of Common Stock equal to the Series A liquidation preference divided by $2.43.
The applicable conversion rate will be adjusted upon the occurrence of various
dilutive and other events specified in our articles of incorporation. In the
event of a merger in which our stockholders own less than 50% of the surviving
entity, all of the outstanding shares of Series A Preferred Stock will
automatically convert at our option or upon the election of the holders of at
least a majority of the outstanding shares of Series A Preferred Stock, into
Common Stock at the applicable conversion rate.
Anti-Dilution Adjustments
The conversion rate for the Series A Preferred Stock will be adjusted
upon the occurrence of various events, such as stock splits, recapitalizations,
mergers and consolidations, distribution of dividends payable in shares of our
Common Stock, and certain issuances of capital stock at below the lower of the
Series A conversion price and the fair market value of the Common Stock as
described in our articles of incorporation.
F-20
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
Redemption
On July 11, 2007, we are required to redeem all of the outstanding
shares of Series A Preferred Stock at a price per share equal to $2,430 per
share plus any accrued and unpaid dividends, in either cash or by issuance of
shares of Common Stock, or Common Stock and warrants with an aggregate fair
market value equal to such redemption price.
Exchange Rights
The original purchaser (or any of its affiliates) of the Series A
Preferred Stock shall have the right, exercisable at its option at any time to
exchange all of the shares of Series A Preferred Stock for all the non-voting
convertible preferred shares of SafeScience Newco, Ltd., a Bermuda exempted
limited liability company, held by the Corporation and which shall be
convertible into 50% of Newco's common shares on a fully-diluted basis (or, if
such preferred shares of SafeScience Newco held by us shall have been converted
prior to the exercise of this exchange right, the Series A Preferred Stock shall
be exchangeable for the common shares of SafeScience Newco issued upon such
conversion).
Other than in the case of a required conversion of the Series A
Preferred Stock, if any shares of the Series A Preferred Stock are converted
into shares of Common Stock, this exchange right shall be cancelled. In the case
of a required conversion of the Series A Preferred Stock, this exchange right
shall remain valid and enforceable.
Series B Preferred Stock
Our articles of incorporation provides for the issuance of up to 6,000
shares of Series B Preferred Stock, of which no shares are outstanding, and
contains the designations, preferences and relative rights, qualifications and
restrictions of the Series B Preferred Stock.
Dividends
The Series B Preferred Stock receives a 7% annual dividend, payable in
kind. If our board of directors declares a dividend on outstanding shares of
Common Stock or any other capital stock that is junior or pari passu to the
Series B Preferred Stock, the holders of Series A Preferred
F-21
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
Stock will be entitled to receive the same amount of dividends as would be
declared payable on the number of shares of Common Stock into which the shares
of Series A Preferred Stock could be converted on the record date for such
dividend.
Liquidation
Upon our liquidation, dissolution or winding up, upon a change in
control approved by the Board of Directors or a sale of all or substantially all
of the assets of the Company, the holders of Series B Preferred Stock will be
entitled to receive before any distribution or payment is made to the holders of
Common Stock or any other series of preferred stock ranking, as to liquidation
rights, junior to the Series B Preferred Stock, and subject to the liquidation
rights and preferences of any class or series of preferred stock senior to, or
on a parity with, the Series B Preferred Stock as to liquidation preferences, an
amount equal to $1,700 per share, as adjusted for stock splits, stock dividends,
recapitalizations and the like, plus any accrued and unpaid dividends.
If, upon our liquidation, dissolution or winding up, our assets and
funds available for distribution to our stockholders are insufficient to pay the
holders of Series B Preferred Stock the full amounts to which they are entitled,
then the holders of Series B Preferred Stock will share ratably, together with
the holders of capital stock with pari passu liquidation preferences, in any
distribution of available assets, pro rata in proportion to the full liquidation
preference to which each holder is entitled.
After payment is made in full to the holders of Series B Preferred
Stock and the holders of capital stock with pari passu liquidation preferences,
our remaining assets available for distribution will be distributed among the
holders of Common Stock, the holders of Series B Preferred Stock and the holders
of capital stock with pari passu liquidation preferences based on the number of
shares of Common Stock held by each, assuming conversion of any other class of
series of capital stock convertible into shares of Common Stock.
Voting Rights
Holders of Series B Preferred Stock are not entitled to vote on matters
submitted to a vote of stockholders, except to (i) amend our articles of
incorporation so as to affect adversely the shares of Series B Preferred Stock,
(ii) change the rights of the holders of the Series B
F-22
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
Preferred Stock in any other respect, or (iii) authorize, create, designate or
issue of any additional equity securities having any rights that are senior or
pari passu to the Series B Preferred Stock with respect to liquidation
preference or rights to dividends or distributions, which shall require the
approval of at least a majority of the outstanding shares of Series B Preferred
Stock, voting separately as a class.
Conversion
Each share of Series B Preferred Stock is convertible at any time after
two years after issuance, at the option of the holder, into the number of shares
of Common Stock equal to the Series B liquidation preference divided by $1.70.
The applicable conversion rate will be adjusted upon the occurrence of various
dilutive and other events specified in our articles of incorporation. In the
event of a merger in which our stockholders own less than 50% of the surviving
entity, all of the outstanding shares of Series B Preferred Stock will
automatically convert at our option or upon the election of the holders of at
least a majority of the outstanding shares of Series B Preferred Stock, into
Common Stock at the applicable conversion rate.
Anti-Dilution Adjustments
The conversion rate for the Series B Preferred Stock will be adjusted
upon the occurrence of various events, such as stock splits, recapitalizations,
mergers and consolidations, distribution of dividends payable in shares of our
Common Stock, and certain issuances of capital stock at below the lower of the
Series B conversion price and the fair market value of the Common Stock as
described in our articles of incorporation.
Redemption
Shares of Series B Preferred Stock are not redeemable.
F-23
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
Series C Preferred Stock
Our articles of incorporation provides for the issuance of up to 1,117
shares of Series C Preferred Stock, of which 1,116.79 are outstanding, and
contains the designations, preferences and relative rights, qualifications and
restrictions of the Series C Preferred Stock.
Dividends
The Series C Preferred Stock do not bear a dividend.
Liquidation
Upon our liquidation, dissolution or winding up, upon a change in
control approved by the Board of Directors or a sale of all or substantially all
of the assets of the Company, the holders of Series C Preferred Stock will be
entitled to receive, pari passu with the holders of Common Stock and subject to
the rights of holders of senior classes or series of capital stock, our assets
in proportion to the number of shares of Common Stock into which the Series C
Preferred Stock held by such holder are convertible.
Voting Rights
Except as required by law, holders of Series C Preferred Stock are not
entitled to vote on matters submitted to holder of the Common Stock or any other
class of capital stock.
Conversion
Each share of Series C Preferred Stock is convertible at any time after
two years after issuance, at the option of the holder, into 1,000 shares of
Common Stock. The applicable conversion rate will be adjusted upon the
occurrence of various dilutive and other events specified in our articles of
incorporation. In the event of a merger in which our stockholders own less than
50% of the surviving entity, all of the outstanding shares of Series C Preferred
Stock will automatically convert at our option or upon the election of the
holders of at least a majority of the outstanding shares of Series C Preferred
Stock, into Common Stock at the applicable conversion rate.
F-24
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
Anti-Dilution Adjustments
The conversion rate for the Series C Preferred Stock will be adjusted
upon the occurrence of various events, such as stock splits, recapitalizations,
mergers and consolidations described in our articles of incorporation.
Redemption
Shares of Series C Preferred Stock are not redeemable.
(5) RELATED PARTY TRANSACTIONS
In January 1994, the Company agreed that one of its founders, Dr. David Platt,
would receive a royalty of 2% of net sales, in exchange for the licensed patent
rights on certain products being developed. The Company has agreed to pay all of
the costs to procure and maintain any patents granted under this agreement. The
agreement includes a requirement that the royalties paid in the sixth year of
this agreement and all subsequent years meet a minimum requirement of $50,000.
If this requirement is not met, Dr. Platt may terminate the agreement and retain
the patent rights. The Company may terminate the agreement on 60 days' notice.
The Company has not made any royalty payments under the agreement. The parties
executed an amendment to the agreement to delay the first year of this minimum
threshold from 1999 to 2002.
On December 6, 1996, Dr. Platt signed a Confidentiality and Invention Agreement
with the Company. The Agreement provides that Dr. Platt assigns all his rights,
title and interest in any invention, data or idea, made or conceived or reduced
to practice either alone or jointly with others to the Company. Further, the
agreement provides all rights thereto shall remain the sole property of the
Company and Dr. Platt agreed not to disclose any information about the Company's
confidential information.
F-25
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
On June 15, 1999, the Company entered into a transaction whereby Mr.
Salter, its former executive vice president, relinquished an option to purchase
100,000 shares of common stock for a price of $0.01 per share which would have
vested on January 1, 2000 and, in exchange, the Company issued to him a stock
option for 250,000 shares of common stock at an exercise price of $10.70 per
share, the estimated fair market value of the common stock on the date of the
transaction. The option was exercised immediately. The Company loaned Mr. Salter
an amount representing the entire exercise price. The principal balance of this
note is $2,675,000, and accrues interest at 4.92% per annum, compounded
semi-annually. Mr. Salter pledged the 250,000 shares of common stock as
collateral. The loan is non-recourse and is secured by the pledged shares. All
outstanding principal, together with accrued interest in the unpaid principal
balance of this note, will be due on June 15, 2004. The balance outstanding as
of December 31, 2001 is $2,675,000.
Mr. Hughes was granted options to purchase 25,000 shares of common
stock at an exercise price of $2.35 per share on December 7, 2000. These options
vested on a quarterly basis over one year commencing December 1, 2000. In
addition, the Board has agreed to compensate Mr. Hughes for services rendered
beyond his role as a director, effective October 1, 2001, in the amount of
$1,200 per day, not to exceed $60,000 per year, and has received $8,100 in
connection therewith for the period October 31, 2001 to December 31, 2001.
(6) COMMITMENTS AND CONTINGENCIES
(a) Clinical Trials
During the first quarter of 2002, the Company retained Beardsworth
Consulting Group, a full-service contract research organization, to support two
projects: A Phase I dose escalation trial, and database transfer/management for
the recently completed Phase II(a) trials. They will provide clinical research
management, study monitoring, data management and medical writing. The costs for
both efforts will be approximately $1,228,000 and be paid out over the next 9-12
months. In addition, costs associated with the Phase I dose escalation trial
currently being conducted at Sharp Memorial Hospital will be approximately
$545,000 paid over the next 9-12 months.
The costs of these trials are intended to be qualified expenses of
SafeScience Newco pursuant to our agreements with EIS and therefore potentially
reimbursable to GlycoGenesys through the method described in Note 1(f) up to a
maximum of approximately $10,200,000.
F-26
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
(b) Leases
The Company leases office space in Boston, Massachusetts, under an operating
lease expiring in May 2005. The Company also leases certain equipment under
operating leases.
Minimum future payments under the operating leases as of December 31, 2001 for
each of the next four calendar years are approximately as follows:
Years ending December 31, ($000)
- ------------------------------------
2001 $ 388
2002 407
2003 429
2004 449
2005 80
--------
$ 1,753
========
Rent expense in the accompanying consolidated statements of operations was
approximately $223,000, $395,000 and $388,000, in 1999, 2000 and 2001,
respectively. Additional rent expense of $346,000 was charged to discontinued
operations for surplus space.
(7) LICENSING AGREEMENTS
In September 2000, the Company entered into a sales and distribution agreement
with BioSafe Technologies, Inc. of Denison, Texas, under which GlycoGenesys has
the right to market the patented BioSafe head lice cleansing product in the
consumer market within the United States, Mexico and Canada. The Company agreed
to purchase $150,000 of product and had the right to extend the term of the
agreement by purchasing product totaling approximately $312,500 before April 15,
2002. The Company and BioSafe Technologies agreed to terminate the license
agreement on April 27, 2001.
On January 26, 2001, the Company executed an agreement, which has been
amended on May 14 and November 7, 2001, with Wayne State University and the
Barbara Ann Karmanos Cancer Institute. This agreement grants the Company an
exclusive world-wide license to patents, patent applications, and other
intellectual property related to "GCS-100 Material" issued, developed, or
applied for by Wayne State University and the Barbara Ann
F-27
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
Karmanos Cancer Institute. This agreement adds the rights to these issued
patents and patent applications to the Company's existing patent portfolio,
which consolidates the rights to all of the parties' existing GCS-100
intellectual property within the Company. Pursuant to this agreement, the
Company made an initial payment of $300,000 upon signing the agreement and is
required to make up to an additional $1,635,000 in license payments at the rate
of 6% of cash raised through the sale of securities of the Company. To date the
Company has paid license fees of $1,290,363 and owes license fees of $644,637 to
be paid by July 11, 2002. Additional payments of up to $3,000,000 are contingent
upon reaching future commercialization milestones.
The Company granted Wayne State University and the Barbara Ann Karmanos
Cancer Institute warrants to jointly purchase 1,375,000 shares of common stock
at $1.15 that vest in quarterly installments over two years. On November 7,
2001, the Company also granted Wayne State University and the Barbara Ann
Karmanos Cancer Institute warrants to jointly purchase 125,000 shares of common
stock at $1.15 that vest through January 26, 2003. During the year ended
December 31, 2001, the Company recorded an expense of $1,046,730 related to the
warrants which vested under this agreement and expense of $1,139,635 in payment
of the 6% amount due on sales of securities.
In order to maintain its rights under this agreement, the Company must
on the first occurrence of the following milestones: (a) pay Wayne State
University and the Barbara Ann Karmanos Cancer Institute $500,000 within thirty
(30) days following the date on which the Company commences Phase III clinical
drug investigations relating to GCS-100; (b) pay Wayne State University and the
Barbara Ann Karmanos Cancer Institute $1,000,000 within thirty (30) days
following the date on which the Company makes a new drug application ("NDA")
submission to the FDA relating to GCS-100; and (c) pay Wayne State University
and the Barbara Ann Karmanos Cancer Institute $1,500,000 within thirty (30) days
following the date on which the FDA approves an NDA of the Company covering
GCS-100. In addition, the Company will pay a 2% royalty jointly to Wayne State
University and the Barbara Ann Karmanos Cancer Institute on net sales of
GCS-100.
F-28
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
(8) INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, Accounting for Income
Taxes, the objective of which is to recognize the amount of current and deferred
income taxes payable or refundable at the date of the consolidated financial
statements as a result of all events that have been recognized in the
accompanying consolidated financial statements, as measured by enacted tax laws.
At December 31, 2001, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $62,511,942 which expire through
2021. The Company also has certain tax credits available to offset future
federal and state income taxes, if any. Net operating loss carryforwards and
credits are subject to review and possible adjustments by the Internal Revenue
Service and may be limited in the event of certain cumulative changes in excess
of 50% in the ownership interests of significant stockholders over a three-year
period.
The components of the Company's deferred tax asset follow:
2000 2001
---- ----
Net operating loss carryforwards $ 14,558,000 $25,174,000
Tax credit carryforwards 456,000 682,000
Temporary differences 2,672,000 1,671,000
------------ -----------
Total deferred tax assets 17,686,000 27,527,000
Less valuation allowance (17,686,000) (27,527,000)
------------ -----------
Deferred tax assets $ - $ -
============ ===========
In evaluating realizability of these deferred tax assets, management has
considered the Company's short operating history, the volatility of the market
in which it competes and the operating losses incurred to date, and it believes
that given the significance of this evidence, a full valuation reserve against
its deferred tax assets is required as of December 31, 2000 and 2001. The
increase in the valuation allowance during these periods primarily relates to
the increase in the Company's net operating loss carryforwards.
F-29
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
(9) Employee Benefit Plan
The Company instituted the GlycoGenesys 401(k) Plan (the Plan) in 1998, pursuant
to which employees may defer compensation for income tax purposes under Section
401(k) of the Internal Revenue Code. Substantially all of the Company's
employees are eligible to participate in the Plan. Participants may contribute
up to 20% of their annual compensation to the Plan, subject to certain
limitations. The Company could match a discretionary amount as determined by the
Board of Directors. The Company did not make any contributions to the Plan
during 1999, 2000 and 2001.
(10) Subsequent Events
During the first quarter of 2002, the Company has raised $5,650,666 in a private
placement offering of common stock whereby 3,008,608 shares were sold at a
weighted average price of $1.88 per share, as well as warrants to purchase
2,256,457 shares each at a weighted average price of $2.25 per share exercisable
for five years, and warrants to purchase 903,243 shares at $0.01 per share.
F-30
GLYCOGENESYS, INC.
(f/k/a SafeScience, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Continued)
(11) Quarterly Financial Data
In reliance on Securities and Exchange Commission Release No. 34-45589, the
Company has elected to include unaudited financial data for the fiscal year
ended December 31, 2001. The Company intends to file audited financial
statements for the year ended December 31, 2001 audited by filing an amendment
to this Annual Report on Form 10-K by May 31, 2002.
Quarterly financial data for 2000 and 2001 is summarized below.
Quarters Ended
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
--------------------------------------------------------------------------------------------------
2000 2000 2000 2000 2001 2001 2001 2001
--------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 647 992 1,901 954 1,752 975 438 1,126
General and administrative 915 1,212 942 1,025 1,328 1,062 781 875
Restructuring charge 0 1,731 (252) 0 (183) 0 0 5
Total expenses 2,126 4,464 2,853 2,312 2,897 2,037 1,220 2,006
Operating loss (2,126) (4,464) (2,853) (2,312) (2,897) (2,037) (1,220) (2,006)
OTHER INCOME/(EXPENSE):
Other income
Other income/Other expense 0 0 0 0 (6) (19) (6) (2)
Interest income 21 107 57 31 28 2 20 15
Other income 0 0 0 0 0 0 0 123
Total other income 21 107 57 31 22 (17) 14 136
Other expense
Equity in loss of SS Newco - - - - 0 0 13,146 1,043
Preferred stock dividend accret - - - - 0 0 189 215
Interest expense 33 188 1 22 - - - -
Total other expense 33 188 1 22 0 0 13,335 1,258
Total other income (expense) (12) (81) 57 9 22 (17) (13,321) (1,083)
Loss from continuing
operations (2,137) (4,545) (2,796) (2,303) (2,875) (2,054) (14,540) (3,128)
Loss from discontinued
operations 561 1,147 1,276 2,506 187 58 0 (289)
Net loss (2,698) (5,693) (4,072) (4,808) (3,062) (2,111) (14,540) (3,417)
F-31
SafeScience Newco, Ltd.
(A Development Stage Company)
BALANCE SHEET
UNAUDITED
ASSETS
December 31,
2001
-------------
CURRENT ASSETS:
Cash $ 20,881
Prepaid expenses 2,250
-----------
Total assets $ 23,131
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 903,787
-----------
Total current liabilities $ 903,787
===========
STOCKHOLDERS' DEFICIT:
Non-redeemable convertible preferred stock, $1.00 par value
Authorized, issued and outstanding - 2,388 (EIS), 3,612 (GlycoGenesys)
shares as of December 31, 2001 respectively $ 6,000
Common Stock, $1.00 par value
Authorized, issued and outstanding - 6,000 (GlycoGenesys) shares as
of December 31, 2001 6,000
Additional Paid-in Capital
Capital in excess of par value of stock 14,988,000
Additional capital 1,832,789
Deficit accumulated during the development stage (17,713,445)
-----------
Total stockholders' equity (880,656)
-----------
Total liabilities & stockholders' equity $ 23,131
===========
The accompanying notes are an integral part of
these financial statements.
F-32
SafeScience Newco, Ltd.
(A Development Stage Company)
STATEMENT OF OPERATIONS
UNAUDITED
For The Period
from Inception
(July 10, 2001)
through
December 31, 2001
-----------------
Costs and Expenses:
Research and development 2,694,894
General and administrative 15,018,551
-----------
Net Loss applicable to common stockholders $ (17,713,445)
===========
Basic and Diluted Net Loss per Common Share $ (2,952)
===========
Basic and Diluted Weighted Average Shares Outstanding 6,000
===========
The accompanying notes are an integral part of
these financial statements.
F-33
SafeScience Newco, Ltd.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' DEFICIT
UNAUDITED
Non-redeemable
Convertible Deficit
preferred stock Common Stock Accumulated
-------------------- -------------------- Additional Due During the Total
Number $1.00 Number $1.00 Paid-in from Development Stockholder's
of Shares Par Value of Shares Par Value Capital Stockholders Stage Equity
--------- --------- --------- --------- ------- ------------ ----- ------
Incorporation of the Company:
Issuance of non-redeemable
preferred stock 6,000 $6,000 -- -- $7,494,000 -- -- $7,500,000
Issuance of common stock -- -- 6,000 $6,000 7,494,000 -- -- 7,500,000
Capital contribution -- -- -- -- 1,832,789 -- -- 1,832,789
Net Loss -- -- -- -- -- -- (17,713,445) (17,713,445)
----- ------ ----- ------ ----------- ----------- ------------- -----------
6,000 $6,000 6,000 $6,000 $16,820,789 -- $(17,713,445) $ (880,656)
===== ====== ===== ====== =========== =========== ============= ===========
The accompanying notes are an integral part of
these financial statements.
F-34
SAFESCIENCE NEWCO, LTD. (A Development Stage Company)
Notes to Financial Statements (including data applicable to unaudited periods)
December 31, 2001
(1) Operations
On July 10, 2001, GlycoGenesys, Inc. (GlycoGenesys, formerly known as
SafeScience, Inc.) and Elan Corporation, plc and EIS International Services Ltd.
(EIS), formed SafeScience Newco, Ltd. (SafeScience Newco) in Bermuda.
SafeScience Newco is owned by GlycoGenesys and EIS holding 80.1% and 19.9%
(non-voting shares) interests, respectively. The primary objective of
SafeScience Newco is the business of development, testing, registration,
manufacturing, commercialization and licensing of GCS-100 as defined in the
Subscription, Joint Development and Operating Agreement dated July 10, 2001
between EIS and GlycoGenesys.
On July 10, 2001, EIS purchased 4,944.44 shares of GlycoGenesys's Series A
convertible exchangeable preferred stock (Series A Preferred Stock) for proceeds
of $12,015,000. The Series A Preferred Stock is convertible, at EIS's option,
into GlycoGenesys's common stock or exchangeable into shares representing a
30.1% interest in SafeScience Newco on a fully diluted basis. Upon the closing
of GlycoGenesys's proposed initial public offering the Series A Preferred Stock
automatically converts into GlycoGenesys common stock, which is also
exchangeable, at EIS's option, into shares representing a 30.1% interest in
SafeScience Newco on a fully diluted basis. Such exchange would increase EIS's
ownership in SafeScience Newco to 50% on a fully diluted basis. GlycoGenesys
used the proceeds of the Series A Preferred Stock sale to purchase its 80.1%
interest in SafeScience Newco on a fully diluted basis. SafeScience Newco used
these proceeds, along with proceeds from EIS's 19.9% investment, to pay
$15.0 million to EIS for a license giving the Joint Venture rights to use EIS's
drug delivery technologies. Immediately, upon completing this transaction, the
cost of the license was expensed as a research and development cost as the
technology acquired had not yet reached technological feasibility and there was
no future alternative use for the technology.
While GlycoGenesys owns 100% of the voting common stock, EIS has retained
significant minority investor rights that are considered "participating rights"
as defined in Emerging Issues Task Force (EITF) Issue 96-16, Investors'
Accounting for an Investee When the Investor Has a Majority of the Voting
Interest but the Minority Shareholder Has Certain Approval or Veto Rights. EIS's
participating rights overcome the presumption that GlycoGenesys exercises
control over SafeScience Newco.
Upon continued agreement of a business plan, and once agreement has been reached
on funding, GlycoGenesys and EIS are required to contribute to SafeScience Newco
in relation to their relative ownership interests (see Note 5). In July 2001,
GlycoGenesys entered into an $9,612,000 stock subscription agreement (the
Subscription Agreement) with EIS. The stock purchases under the Subscription
Agreement are restricted for GlycoGenesys's funding of SafeScience Newco. As of
December 31, 2001 there had been 862.71 shares purchased under the Subscription
Agreement.
F-35
SAFESCIENCE NEWCO, LTD. (A Development Stage Company)
Notes to Financial Statements
December 31, 2001
(continued)
SafeScience Newco is in the development stage and is devoting substantially all
of its efforts toward product research and development. SafeScience Newco is
subject to a number of risks similar to those of other development stage
companies. Principal among these risks are the dependence on key individuals,
the need to develop commercially usable products, competition from substitute
products and larger companies, and the need to obtain adequate financing
necessary from GlycoGenesys and EIS to fund further product development.
(2) Summary of Significant Accounting Policies
The accompanying financial statements reflect the application of certain
accounting policies described below and elsewhere in the notes to the financial
statements.
(a) Unaudited Interim Financial Statements
The accompanying financial statements as of December 31, 2001, for the period
from inception (July 10, 2001) to December 31, 2001 are unaudited. These
unaudited financial statements have been prepared on a going concern basis and
include, in the opinion of management, all normal recurring adjustments
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented. Results for the
period ended December 31, 2001 are not necessarily indicative of the results
that may be expected for the entire fiscal year or future periods.
(b) Fair Value of Financial Instruments
The carrying amounts of SafeScience Newco's financial instruments, which include
the amounts due from stockholders and the amounts due to GlycoGenesys and EIS,
approximate their fair value.
(c) Concentrations of Limited Suppliers
Certain materials used in SafeScience Newco's development process are procured
from a single source. The failure of a supplier, including a subcontractor, to
deliver on schedule could delay or interrupt the development process and thereby
adversely affect SafeScience Newco's operating results.
F-36
SAFESCIENCE NEWCO, LTD. (A Development Stage Company)
Notes to Financial Statements
December 31, 2001
(Continued)
(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 expenses during the reporting period. Actual results
could differ from those estimates.
(e) Research and Development Expenses
SafeScience Newco charges research and development expenses to operations as
incurred.
(f) Net Loss per Share Basic and diluted net loss per common share is calculated
by dividing the net loss applicable to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted net loss
per common share is the same as basic net loss per common share, since the
effects of potentially dilutive securities are antidilutive for all periods
presented. Antidilutive securities, which consist of convertible preferred
stock, aggregated to 6,000 shares as of July 10, 2001 and December 31, 2001,
respectively.
(g) Comprehensive Loss
Comprehensive loss is defined as the change in stockholders' deficit during a
period from transactions and other events and circumstances from non-owner
sources. SafeScience Newco's net loss is equal to its comprehensive loss for all
periods presented.
(h) Organization Costs
All organization costs have been expensed as incurred.
(i) Disclosures about Segments of an Enterprise
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
regarding resource allocation and assessing performance. To date, SafeScience
Newco has viewed its operations and manages its business as principally one
operating segment.
F-37
SAFESCIENCE NEWCO, LTD. (A Development Stage Company)
Notes to Financial Statements
December 31, 2001
(Continued)
(j) Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (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
balance sheet and measure those instruments at fair value. SFAS No. 133, as
amended by SFAS No.137 and SFAS No.138, is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The adoption of SFAS No.133 did not
have a material impact on SafeScience Newco's financial statements.
In July 2001, the FASB issued SFAS No.141, Business Combinations. SFAS No.141
requires all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method. The adoption of SFAS No.141 is not expected to
have a material impact on SafeScience Newco's financial statements.
In July 2001, the FASB also issued SFAS No. 142, Goodwill and Other Intangible
Assets Under SFAS No.142, goodwill is no longer subject to amortization over its
estimated useful life. Rather, goodwill is subject to at least an annual
assessment for impairment by applying a fair-value-based test. Intangible assets
will continue to be amortized over their respective useful lives under SFAS
No.142. The adoption of SFAS No.142 is not expected to have a material impact on
SafeScience Newco's financial statements.
(3) Income Taxes
Under current Bermuda law, SafeScience Newco is not required to pay any taxes in
Bermuda on either income or capital gains. SafeScience Newco has received an
undertaking from the Minister of Finance in Bermuda that, in the event of such
taxes being imposed, SafeScience Newco will be exempt from taxation until the
year 2016.
(4) Stockholders' Deficit
(a) Authorized Stock
SafeScience Newco has authorized capital stock of 12,000 shares, of which 6,000
are $1.00 par value common stock and 6,000 are $1.00 par value convertible
preferred stock.
F-38
SAFESCIENCE NEWCO, LTD. (A Development Stage Company)
Notes to Financial Statements
December 31, 2001
(Continued)
(b) Common Stock
In July 2001, SafeScience Newco sold 6,000 shares of common stock at $1,250 per
share resulting in net proceeds of $7,500,000.
(c) Convertible Preferred Stock
In July 2001, SafeScience Newco sold 6,000 shares of convertible preferred stock
(Preferred Stock) at $1,250 per share resulting in net proceeds of $7,500,000.
The rights, preferences and privileges of the Preferred Stock are as follows:
Voting Rights
Preferred stockholders do not have voting rights.
Dividends
Preferred stockholders are entitled to dividends as and when declared by the
Board of Directors. Preferred stockholders are entitled to participate equally
on a pro rata basis in any dividend declared for the holders of common stock.
Liquidation Preference
In the event of liquidation, dissolution or winding-up of SafeScience Newco and
before any distribution to common stockholders and any prior series of preferred
stock, the holders of Preferred Stock are entitled to receive $1,250 per share,
respectively, plus all declared but unpaid dividends.
Conversion
Each share of Preferred Stock is convertible, at the option of the holder, into
one share of common stock, subject to adjustments for dilutive issuances of
stock at any time after July 10, 2002.
(5) Related Party Transactions
SafeScience Newco's research and development and general and administrative
costs were paid for directly by the SafeScience Newco stockholders. These
transactions are in the normal course of operations and amounts payable to these
stockholders are summarized as follows:
F-39
SAFESCIENCE NEWCO, LTD. (A Development Stage Company)
Notes to Financial Statements
December 31, 2001
(Continued)
The following table summarizes SafeScience Newco's related party transactions:
December 31,
2001
------------
Due to GlycoGenesys $ 892,691
Due to EIS $ 11,096
-------
Total $ 903,787
=======
These balances are unsecured and interest free with no set terms of repayment.
They are classified as current liabilities as SafeScience Newco will reimburse
GlycoGenesys and EIS upon its funding by its stockholders.
Due from stockholders represents the amounts required to be funded into
SafeScience Newco as contributed capital by its stockholders. As of December 31,
2001, once agreement has been reached on funding, GlycoGenesys and EIS would be
required to contribute $723,933 and $179,854, respectively. GlycoGenesys plans
to fund its obligation upon the draw down of the Subscription Agreement
Note 1).
F-40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective April 12, 2002, the Company dismissed its independent public
accountants, Arthur Andersen LLP ("Andersen"). The Company is currently in the
process of engaging independent public accountants to audit its financial
statements for the fiscal year ended December 31, 2001. The decision to dismiss
Andersen was made by the Company's Audit Committee and ratified by the Board of
Directors.
Andersen's reports on the Company's financial statements for each of the fiscal
years ended December 31, 1999 and 2000 did not contain an adverse opinion or a
disclaimer of opinion, nor were such reports qualified or modified as to
uncertainty, audit scope or accounting principles, except that Andersen's report
for the year ended December 31, 2000 expressed an unqualified opinion and
included an explanatory paragraph concerning substantial doubt about the
Company's ability to continue as a going concern.
During the Company's fiscal years ended December 31, 1999 and 2000,
respectively, and the subsequent interim period through April 12, 2002, there
were no disagreements between the Company and Andersen on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to Andersen's
satisfaction, would have caused Andersen to make reference to the subject matter
of the disagreement in connection with its reports.
During the Company's fiscal years ended December 31, 2000 and 2001,
respectively, and the subsequent interim period through April 12, 2002, none of
the reportable events described under Item 304(a)(1)(v) of Securities and
Exchange Commission's Regulation S-K occurred.
The Company provided Andersen with a copy of the above disclosure.
In reliance on the Securities and Exchange Commission Release No. 34-45589, the
Company intends to file audited financial statements for the year ended December
31, 2001 by May 31, 2002.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
Directors
The Board of Directors presently is comprised of four directors. Set forth below
is certain information with respect to each of the directors of the Company.
Theodore J. Host, 56, has been a director of the Company since December 1998.
Mr. Host is a Class I director whose term expires in 2002. Since October 2001,
Mr. Host has been the CEO and Director, and from November 1999 until October
2001 was President & CEO of Prestige Brands International, a consumer products
company. From October 1992 through April 1995, Mr. Host was the President and
Chief Operating Officer, and from April 1995 through February 1996, Chief
Executive Officer, of The Scotts Company, a lawn care company. In addition, Mr.
Host worked with McCown DeLeeuw & Co. to create a consumer products start up
company from March 1996 to November 1999.
Bradley J. Carver, 40, the Chief Executive Officer since June 2000, has been
President and Treasurer and a member of the Board of Directors of the Company
since March 1995 and has been the President, Chief Financial Officer, Treasurer
and a member of the Board of Directors of IGG since February 1993. Mr. Carver is
a Class III director whose term expires in 2004. Mr. Carver has been President,
Chief Financial Officer, Treasurer and a member of the Board of Directors of
SafeScience Products, Inc., a wholly owned subsidiary of the Company since its
inception on June 23, 1995. Mr. Carver received a Bachelor of Arts degree in
management from Michigan State University in 1983.
David W. Dube, 46, has been a director of the Company since May 1998. Mr. Dube
is a Class III director whose term expires in 2004. Mr. Dube is a private
investor with active interests in various real estate, financial services and
giftware companies. Mr. Dube was Senior Vice President and Chief Financial
Officer of FAB Capital Corporation, a merchant banking and securities investment
firm, and served in various other capacities from September 1997 through October
1999. Mr. Dube was the President and Chief Executive Officer of Optimax
Industries, Inc., a publicly traded company with interests in the horticultural,
decorative giftware and truck part accessories industries from July 1996 to
September 1997. From February 1991 to June 1996, Mr. Dube had been the principal
of Dube & Company, a financial consulting firm. Mr. Dube serves on the boards of
directors of publicly-traded CareerEngine Network, Inc., Kings Road
Entertainment, Inc. and New World Wine Group, Ltd. Mr. Dube is a Certified
Public Accountant in the state of New Hampshire, and holds general and principal
securities licenses.
Brian G.R. Hughes, 47, has been a director of the Company since December 1998.
Mr. Hughes is a Class II director whose term expires in 2003. Mr. Hughes is past
President of the Association of Alumni and Alumnae of the Massachusetts
Institute of Technology (MIT). Since July 1978, Mr. Hughes has held a variety of
positions with the MIT Corporation, the board which governs MIT. From February
1989 through April 1995 Mr. Hughes was Vice Chairman and then CEO of American
Rocket Company, which worked to develop and commercialize safe, clean, low cost
hybrid rocket propulsion. Executive Officers
In addition to Mr. Carver who is listed as being a director of the Company, the
Company has the following executive officers:
John W. Burns, 56, has been the Company's Chief Financial Officer since January
2000. Prior thereto, Mr. Burns was the CFO/Senior Vice President, Finance &
Business Operations for South Shore Hospital, a regional healthcare services
provider based in South Weymouth, MA, from February 1993 to February 1999. From
January 1989 to December 1992, Mr. Burns was the Vice President/Treasurer and a
subsidiary CFO/Vice President, Finance for Eastern Enterprises, a NYSE company
engaged in energy and marine transportation. Mr. Burns has also held corporate
finance and treasury positions with Allied-Signal, Citicorp Investment Bank, and
International Paper. Mr. Burns holds a Master of Business Administration in
Finance from New York University and a Doctor of Philosophy degree in
Mathematics from Stevens Institute of Technology.
Christopher P. Szustkiewicz, Ph. D.,57, joined the Company in April 2002 as
Senior Vice President, Operations and Development. Dr. Szustkiewicz was the Vice
President, Planning & Program Management of Pharmacologics, LLC, an affiliate of
MDS, Inc., an investment and drug development company focused in oncology and
other therapeutic areas, from September 1999 to September 2001 and the Vice
President, MDS China Operations from June 1997 to August 1999. From August 1996
until May 1997, Dr. Szustkiewicz was the Managing Director for Clinical
Development Consultants, a health care consulting company based in Smithtown,
NY. Prior thereto, Dr. Szustkiewicz was the Vice President & General Manager of
International Pharmaceutical Outcomes in Uniondale, NY from February 1994 to
July 1996. In addition, Dr. Szustkiewicz has held executive positions with NDA
Clinical Trial Services, Inc., which he co-founded and Smithkline Beecham
Laboratories. Dr Szustkiewicz holds a Doctor of Philosophy degree in
Pharmacogenetics from West Virginia University.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of the Company's
outstanding shares of Common Stock (collectively, "Section 16 Persons"), to file
initial reports of ownership and reports of changes in ownership with the
Commission and Nasdaq. Section 16 Persons are required by Commission regulations
to furnish the Company with copies of all Section 16(a) forms they file. Based
solely on the its review of the copies of such forms received by it, or written
representations from certain Section 16 Persons that all Section 16(a) reports
required to be filed for such persons had been filed, the Company believes that
during
the fiscal year ended December 31, 2001 the Section 16 Persons complied with all
Section 16(a) filing requirements applicable to them except for the inadvertent
late filing of a Form 4 by Theodore Host.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued during
2001, 2000 and 1999 for services rendered during such period by the chief
executive officer and chief financial officer (the "named executive officers").
No other executive officer of the Company had aggregate compensation from the
Company exceeding $100,000 in 2001.
Summary Compensation Table
Securities
Underlying All Other
Position Year Salary Bonus Options Compensation
-------- ---- ------ ----- ------- ------------
Bradley J. Carver, Chief 2001 $191,667 $35,000 69,400 1,795(2)
Executive Officer, 2000 $180,000 -- 12,057 2,071(2)
President and Treasurer (1) 1999 $157,500 -- 100,000 3,160(3)
John W. Burns, Senior Vice President 2001 $178,750 $25,000 125,400 2,033(2)
and Chief Financial Officer 2000 $155,359 -- 103,802 1,187(2)
(1) In June 2000, Mr. Carver was appointed to the additional position of
Chief Executive Officer.
(2) Consists of transportation-related payments and life insurance premiums.
(3) Consists of transportation-related payments.
Option Grant Table. The following table set forth certain information regarding
options granted during the year ended December 31, 2001 to the named executive
officers.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 2001
Individual Grants
- -----------------------------------------------------------------------------------------
Number of Percent of
Securities Total Options Potential Realizable Value at
Underlying Granted to Exercise or Assumed Annual Rates of Stock Price
Options Employees in Base Price Appreciation for Option Term (2)
Name Granted (#) Fiscal Year (1) ($/Share) Expiration Date 5%($) 10%($)
---- ----------- --------------- --------- --------------- ----- ------
Bradley J. Carver 51,000(3) 14.5% $0.01 2/15/11 121,608 193,942
Bradley J. Carver 19,400(3) 5.5% $1.47 9/19/11 12,879 37,399
John W. Burns 51,000(3) 14.5% $0.01 2/15/11 121,608 193,943
John W. Burns 14,400(3) 4.1% $1.47 9/19/11 9,559 27,760
John W. Burns 60,000(4) 17.1% $1.47 9/19/11 39,831 115,668
(1) Based on options to purchase an aggregate of 350,629 shares granted to
officers and employees during the fiscal year ended December 31, 2001.
(2) These columns show the hypothetical gains or option spreads of the
options granted
based on the fair market value of the Common Stock on the date of grant
and assumed annual compound share appreciation rates of 5% and 10% over
the full term of the options. The assumed rates of appreciation are
mandated by the SEC and do not represent the Company's estimate or
projection of future share prices. Actual gains, if any, on option
exercises will depend on the timing of such exercise and the future
performance of the Common Stock. Values are net of the option exercise
prices, but do not include deductions for taxes or other expenses
associated with the exercise.
(3) The underlying shares were fully vested on the date of grant.
(4) The underlying shares vest quarterly in equal installments over a three
year period.
Year-end Option Table. The following table sets forth certain information
regarding options exercised during the year ended December 31, 2001 by the named
executive officers.
AGGREGATE OPTION EXERCISES AS OF DECEMBER 31, 2001
AND YEAR-END OPTION VALUES
Number of
Shares
Acquired On Value Number of Securities Underlying Value of Unexercised Options at
Name Exercise Realized ($) Unexercised Options at Fiscal Year-End Fiscal Year-End (1)
---- -------- ------------ -------------------------------------- -------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Bradley J. Carver 51,000 $48,960 131,457 -- 258,970 --
John W. Burns 51,000 $48,960 64,391 113,811 126,850 224,208
- ---------------
(1) Value is based on the closing price of the Common Stock on December 31,
2001 of $1.97, the last trading day of the Company's 2001 fiscal year,
less the applicable option exercise price.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors of the Company determines
the cash and other incentive compensation, if any, to be paid to the Company's
executive officers and key employees.
Executive compensation consists of both cash and equity-based compensation. Cash
compensation is comprised of base salary and bonus. Base salary is determined
pursuant to employment agreements entered into with executive officers with
reference to market norms. Bonus compensation is related to the Company's
financial and non-financial performance. Bonus payments are made at the
discretion of the Compensation Committee at the end of the year. The
Compensation Committee awarded bonuses to Bradley Carver and John Burns of
$35,000 and $25,000, respectively, for 2001.
Equity-based compensation is comprised primarily of stock option grants. In
establishing equity-based compensation, the Compensation Committee places
particular emphasis on the achievement of the Company's long-term performance
goals. The Company believes that equity-based compensation closely aligns the
economic interest of the Company's executive officers with the economic
interests of the Company's shareholders. The Compensation Committee reviews the
outstanding unvested options of the key executives from time to time and may
grant additional options to encourage the retention of key executives. The
Compensation Committee
retained an outside executive compensation firm to provide consulting services
and recommendations regarding executive compensation. Executive compensation
decisions and grants of stock options made by the Compensation Committee were
based in large part upon such recommendations.
On February 15, 2001, the members of the Compensation Committee approved the
grant of an option award in the amount of 51,000 shares to each of Mr. Carver
and Mr. Burns. These grants were made in connection with performance during the
2000 fiscal year consistent with the remaining shares available for issuance
under the 1998 Stock Option Plan and the 2000 Stock Incentive Plan. On September
17, 2001, the Compensation Committee voted to increase Mr. Carver's base salary
from $180,000 to $220,000 and to increase Mr. Burns' base salary from $170,000
to $200,000. On September 19, 2001, the Compensation Committee voted the grant
of an option in the amounts of 19,400 and 14,400 shares to Mr. Carver and Mr.
Burns, respectively, also in connection with performance during the 2000 fiscal
year representing the balance of the proposed award following the approval of
the increase to the number of shares available in the 2000 Stock Incentive Plan
at the annual meeting of stockholders on June 5, 2001. In addition, on September
19, 2001, the Compensation Committee voted the grant of an option award in the
amount of 60,000 shares to Mr. Burns in consideration of his special
achievements and efforts in connection with the Company's financing.
The Chief Executive Officer's compensation generally is based on the same
policies and criteria as the other executive officers. Mr. Carver's base salary
was increased from $180,000 to $220,000 on September 17, 2001. Mr. Carver
received a $35,000 bonus for 2001. In establishing Mr. Carver's compensation,
the factors described above are taken into account. The Compensation Committee
believes that Mr. Carver's compensation, including salary and stock options,
falls within the Company's compensation philosophy and are within industry
norms. The Company retained an independent compensation consultant to help the
Company develop a formal compensation policy. Based upon a review of peer
companies and the industry in which the Company operates, the independent
compensation consultant provided the Company with a report on option grants to
existing employees and new hires, as well as a future cash bonus plan. The
objective of a formal compensation policy is to enable the Company to attract
and retain qualified executives, and reward executives for performance against a
blend of individual and Company goals agreed upon for each executive toward the
maximization of shareholder value. The Compensation Committee has implemented
this policy against which to assess executive compensation.
The above report of the Compensation Committee shall not be deemed to be
incorporated by reference by any general statement incorporating by reference
this Annual Report on Form 10-K into any filing under the Securities Act of 1933
or the Securities Exchange Act of 1934 and shall not otherwise be deemed filed
under such Acts.
Compensation Committee
David W. Dube
Theodore J. Host
Brian G.R. Hughes
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 2001, Mr. Dube, Mr. Host and Mr.
Hughes served on the Compensation Committee. During the 2001 fiscal year, all
executive officer compensation decisions were made by the Compensation Committee
or the full Board of Directors. The Compensation Committee reviews and makes
recommendations regarding the compensation for top management and key employees
of the Company, including salaries and bonuses. No member of the Compensation
Committee during the 2001 fiscal year was an officer of the Company.
Director Compensation
The Company's directors who are not also employees of the Company received cash
compensation for their services in 2001 equal to $1,500 per in-person meeting
and $500 per telephone meeting in addition to reimbursement for travel expenses
incurred in traveling to and from meetings. Effective on January 1, 2002, the
directors who are not employees of the Company will receive cash compensation
for their services equal to $2,000 per month, replacing the prior meeting-based
compensation. On December 1, 1998, directors who were not also employees of the
Company received non-qualified options to purchase 20,000 shares of Common
Stock. Such options are fully vested. The exercise price of such options is
$5.50 per share, the average of the closing bid price of the Common Stock during
the twenty trading days prior to the date of grant of the options, and the
options bear a term of ten years from the date of the grant. In addition, on
December 7, 2000, each non-employee member of the Board of Directors was awarded
an option to purchase 20,000 shares of Common Stock under the Corporation's 2000
Stock Incentive Plan. The exercise price of such options is $2.35 per share, the
average of the closing stock price on the 20 trading days preceding the date of
grant of the options. These options have a term of ten years and vest quarterly
over a two-year period to begin on December 1, 2000; provided, that such vesting
shall cease in the event the Director ceases to be a Director, in which case the
shares vested prior thereto remain vested and exercisable for the remaining
ten-year term. Also, on September 19, 2001, each non-employee member of the
Board of Directors was awarded an option to purchase 25,000 shares of Common
Stock under the Company's 2000 Stock Incentive Plan. The exercise price of such
options is $1.47 per share, the average of the closing stock price on the 20
trading days preceding the date of grant of the options. The options have a term
of ten years and are fully vested.
Mr. Hughes was granted options to purchase 25,000 shares of common stock at an
exercise price of $2.35 per share on December 7, 2000. These options vest on a
quarterly basis over one year commencing December 1, 2000. The Board of
Directors has agreed to pay Mr. Hughes at the rate of $1,200 per day for
consulting services rendered outside the normal duties as a director, effective
October 1, 2001. Mr. Hughes received $8,100 in connection with this consulting
agreement for the period October 1, 2001 to December 31, 2001.
Directors who are employees of the Company or its affiliates do not receive any
compensation for their services as a director. Accordingly, Mr. Carver was not
compensated for his services as a director in 2001.
Employment Contracts
The Company has an employment agreement with Mr. Carver, as CEO and President of
the Company, dated as of June 29, 1999 (the "Employment
Agreement"). The following summary does not purport to be complete and is
subject to and is qualified in its entirety by reference to the Employment
Agreement. A copy of the Employment Agreement has been previously filed with the
Securities and Exchange Commission.
The Employment Agreement expires on June 29, 2002. The Employment Agreement
provides that Mr. Carver is entitled to an annual base salary of $220,000, and
to receive bonuses, in the discretion of the Compensation Committee, based upon
the Company and the executive meeting certain performance targets established by
the Compensation Committee.
Under the terms of the Employment Agreement, if the Company terminates the
executive's employment other than for Cause (as defined in the Employment
Agreement), or the executive terminates his employment because of a material
breach by the Company of his Employment Agreement, then the Company shall
continue to pay such executive his annual base salary in effect at the time of
termination for the duration of the term of the Employment Agreement, to be paid
at the time otherwise due, and any bonus not yet paid to the executive earned in
the year prior to termination, to be paid at the time otherwise to have been
paid, as if his employment had not been terminated.
In the event of termination of the employment of the executive by reason of
death or permanent disability (as defined in the Employment Agreement) of the
executive, the Company shall pay to the executive or his estate or other
successor in interest, at the time otherwise due, his annual base salary and any
benefits due to the executive through the date of termination, but reduced in
the case of permanent disability by any payments received under any disability
plan, program or policy paid for by the Company.
If the Company terminates the employment of the executive for Cause, or the
executive terminates his employment with the Company other than because of a
material breach by the Company of his Employment Agreement, the Company shall
pay the executive his annual base salary and benefits earned through the date of
termination, and the Company shall have no further obligations to the executive
under his Employment Agreement.
Under the terms of the Employment Agreement, the executive is prohibited from
competing with the Company during the periods of his employment with the Company
and for one year following the end of the scheduled term of such employment.
However, in the event of termination of the executive's employment by the
Company other than for Cause, or by the executive because of the material breach
by the Company of his Employment Agreement, the executive is prohibited from
competing with the Company after any such termination only for so long as the
executive is entitled to receive his annual base salary from the Company.
Mr. Carver is also subject to nondisclosure and confidentiality provisions under
the Employment Agreement, which provisions survive any termination of the
Employment Agreement.
Mr. Burns, who became an officer of the Company in January 2000, receives an
annual salary of $200,000 pursuant to an employment letter and has been granted
options whose vesting accelerates in the event of a change of control as defined
in the 2000 Stock Incentive Plan.
The Company has an employment agreement with Dr. Szustkiewicz, as Senior Vice
President of Operations and Development of the Company, dated as of March 18,
2002. The following summary does not purport to be complete and is subject to
and is qualified in its entirety by reference to the employment agreement. A
copy of which is attached as an Exhibit to this Annual Report on Form 10-K.
The employment agreement provides that Dr. Szustkiewicz is entitled to an annual
base salary of $195,000 and an option to purchase 100,000 shares of the
Company's Common Stock with an exercise price equal to the higher of (i) the
closing price of the Common Stock on Dr. Szustkiewicz' starting date or (ii) the
average of the closing price on the twenty trading days preceding Dr.
Szustkiewicz' date of hire. The options vest in equal quarterly installments
over a three-year period; provided that the options will be fully vested upon a
change of control of the Company. Dr. Szustkiewicz will be eligible to receive
additional grants of stock options in the discretion of the Compensation
Committee, based upon the Company and the executive meeting certain performance
targets established by the Compensation Committee.
Under the terms of the employment agreement, the Company may terminate Dr.
Szustkiewicz' employment at any time, provided, that if the Company terminates
Dr. Szustkiewicz' employment other than for Cause (as defined in the employment
agreement), or because of a change of control, then the Company shall pay Dr.
Szustkiewicz a lump sum amount equal to (i) three months salary if his
termination occurs during his first eighteen months of employment, (ii) four
months salary if his termination occurs after eighteen months of employment and
(iii) six months salary if his termination occurs after twenty-four months of
employment.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return to shareholders of
Common Stock of the Company from December 31, 1996 through December 31, 2001 to
cumulative total return of the Nasdaq Stock Market (U.S.) Index and the Nasdaq
Biotechnology Index for the same period of time. The graph assumes $100 is
invested in the Company's stock and in each of the two indexes at the closing
market quotations on December 31, 1996 and that dividends are reinvested. The
performances shown on the graph are not necessarily indicative of future price
performance.
[GRAPHIC REMOVED HERE]
- --------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------------------------------------------------
12/96 12/97 12/98 12/99 12/00 12/01
- --------------------------------------------------------------------------------------------------------------------------
GlycoGenesys, Inc. 100.00 131.82 190.91 422.73 43.20 71.64
- --------------------------------------------------------------------------------------------------------------------------
Nasdaq Stock Market (U.S.) 100.00 122.48 172.68 320.89 193.01 153.15
- --------------------------------------------------------------------------------------------------------------------------
Nasdaq Biotechnology 100.00 99.93 144.18 290.72 357.52 299.62
- --------------------------------------------------------------------------------------------------------------------------
This stock price performance graph shall not be deemed to be incorporated by
reference by any general statement incorporating by reference this Annual Report
on Form 10-K statement into any filing under the Securities Act of 1933, as
amended, or the Exchange Act and shall not otherwise be deemed filed under such
Acts.
ITEM 13. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, to the Company's knowledge, as of April
9, 2002 (unless otherwise noted), the beneficial ownership of the Company's
Common Stock by (i) persons who beneficially own more than 5% of the Company's
Common Stock, (ii) each director, (iii) each of the named executive officers,
and (iv) all directors and executive officers as a group.
- -------------------------------------------------------- Number of
Name and Address Beneficially Percent of
of Beneficial Owner Owned Shares Class/(1)/
- -------------------------------------------------------- ------------- -----------
Britannia Holdings Limited/(2)/ 4,252,427 11.2%
Elan International Services, Ltd./(3)/ 4,276,089 11.2%
David Platt/(4)/ 3,059,550 8.2%
Mitchell P. Kopin/(5)/ 2,777,369 7.2%
Bradley J. Carver/(6)/ 2,751,059 7.4%
Brian G.R. Hughes/(7)/ 1,468,146 3.9%
David W. Dube/(8)/ 60,000 *
Theodore J. Host/(9)/ 87,899 *
John W. Burns/(10)/ 149,405 *
Directors and Executive Officers as a group (5 persons)/(11)/ 4,516,509 11.9%
*Represents less than 1% of the outstanding shares of Common Stock.
(1) The information presented with respect to stock ownership and related
percentage information is based on Common Stock as a percentage of the
aggregate number of shares of Common Stock outstanding. The number of
shares of Common Stock outstanding, 37,064,044, does not include shares
issuable upon the conversion of outstanding preferred stock, exercise
of outstanding warrants or stock options or shares reserved for
issuance pursuant to the 1998 Stock Option Plan and 2000 Stock
Incentive Plan. In determining the percent of class owned by each
stockholder, the numerator includes the number of shares of outstanding
Common Stock held by such stockholders plus all shares of Common Stock
which such stockholder has the right to acquire within 60 days of April
9, 2002, the date on which beneficial ownership is being determined.
The denominator includes the total number of shares of Common Stock
outstanding held by all stockholders plus all shares of Common Stock
which such stockholder has the right to acquire within 60 days of April
9, 2002.
(2) According to information contained in a Schedule 13G/A filing with the
Securities and Exchange Commission on February 1, 2001, Britannia
Holdings Limited has sole voting and sole dispositive power with
respect to 3,277,076 shares of Common Stock and 975,351 shares of
Common Stock issuable upon the exercise of warrants within 60 days of
April 9, 2002. The address of Britannia Holdings Ltd. is
Suites 3 & 4, Pollet House, Le Pollet, St. Peter Port, Guernsey Channel
Islands, GY14LA.
(3) Includes 978,884 shares issuable upon the exercise of warrants within
60 days of April 9, 2002. The business address of Elan International
Services, Ltd. is 102 St. James Court, Flatts, Smith Parish, Bermuda FL
04.
(4) Includes 100,000 shares issuable upon exercise of options within 60
days of April 9, 2002. The home address of Dr. Platt is 12 Appleton
Circle, Newton, MA 02459.
(5) According to information contained in a Schedule 13G filing with the
Securities and Exchange Commission on January 29, 2002, Mr. Kopin has
voting and dispositive power with respect to a total of 1,502,427
shares of Common Stock and 1,274,942 shares of Common Stock issuable
upon the exercise of warrants within 60 days of April 9, 2002 held by
Cranshire Capital, L.P. and EURAM Cap Strat. "A" Fund Limited. The
address of Mr. Kopin is 666 Dundee Road, Suite 1901, Northbrook, IL
60062.
(6) Includes 142,373 shares issuable upon exercise of options within 60
days of April 9, 2002. The business address of Mr. Carver is c/o
GlycoGenesys, Inc., Park Square Building, 31 St. James Avenue, 8th
Floor, Boston, MA 02116.
(7) Includes 522,261 shares issuable upon exercise of warrants and options
within 60 days of April 9, 2002.
(8) Includes 60,000 shares issuable upon exercise of options within 60 days
of April 9, 2002.
(9) Includes 69,783 shares issuable upon exercise of warrants and options
within 60 days of April 9, 2002.
(10) Includes 95,879 shares issuable upon exercise of warrants and options
within 60 days of April 9, 2002.
(11) Includes 890,296 shares issuable upon exercise of warrants and options
within 60 days of April 9, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On January 7, 1994, as amended on April 14, 1999, the predecessor to
the Company entered into a licensing agreement with Dr. Platt, the Company's
former Chief Executive Officer and Chairman of the Board of Directors and a
current 5% stockholder, to pay Dr. Platt a royalty of two percent (2%) of the
net sales of the Company's GCS-100 product. The Company also agreed to pay all
of the costs to procure and maintain any patents granted under that agreement.
The agreement includes a requirement that the royalties paid in the sixth year
of this agreement and all subsequent years meet a minimum threshold of $50,000.
The parties
executed an amendment to the agreement to delay the first year of this minimum
threshold from 1999 to 2002. If this threshold is not met (or if the Company
does not pay Dr. Platt the difference between the amount of actual royalties and
$50,000), Dr. Platt may terminate the agreement and retain the patent rights.
The Company may terminate the agreement on sixty days' notice. The Company has
not made any royalty payments under the agreement.
On June 15, 1999, the Company entered into a transaction whereby Mr.
Salter, its former executive vice president, relinquished an option to purchase
100,000 shares of common stock for a price of $0.01 per share which would have
vested on January 1, 2000 and, in exchange, the Company issued to him a stock
option for 250,000 shares of common stock at an exercise price of $10.70 per
share, the estimated fair market value of the common stock on the date of the
transaction. The option was exercised immediately. The Company loaned Mr. Salter
an amount representing the entire exercise price. The principal balance of this
note is $2,675,000, and accrues interest at 4.92% per annum, compounded
semi-annually. Mr. Salter pledged the 250,000 shares of common stock as
collateral. The note is non-recourse and is secured by the pledged shares. All
outstanding principal, together with accrued interest in the unpaid principal
balance of this note, will be due on June 15, 2004. The balance outstanding at
March 31, 2001 is $2,675,000.
On December 7, 2000, Mr. Hughes was granted options to purchase 25,000
shares of common stock at an exercise price of $2.35 per share in connection
with a consulting arrangement between Mr. Hughes and the Company. These options
vested on a quarterly basis over one year commencing December 1, 2000. In
addition, the Board has agreed to compensate Mr. Hughes for services rendered
beyond his role as a director in the amount of $1,200 per day, effective October
1, 2001, and Mr. Hughes has received $8,100 in connection therewith for the
period October 1, 2001 to December 31, 2001.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
In reliance on Securities and Exchange Commission Release No. 34-45589, the
Company has elected to include unaudited consolidated statement of operations
data for the fiscal year ended December 31, 2001, and unaudited consolidated
balance sheet data as of December 31, 2000. The Company intends to file audited
financial statements for the year ended December 31, 2001 by filing an amendment
to this Annual Report on Form 10-K by May 31, 2002.
(a) The following Financial Statements are contained in Item 8 of this Form
10-K:
1) Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999.
2) Consolidated Statements of Stockholders Equity for the years
ended December 31, 2001, 2000 and 1999.
3) Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999.
4) Notes to Consolidated Financial Statements
(b) Reports on Form 8-K.
1) Current Report on Form 8-K filed with the Securities and
Exchange Commission on December 21, 2001 reporting the
completion of a securities offering.
(c) Exhibits.
The following documents are incorporated herein by reference from the
Registrant's Form 10, as filed with the Securities and Exchange Commission, SEC
file No. 0-26476:
3.1 Articles of Incorporation of Alvarada, Inc.
3.2 Amendment to the Articles of Incorporation dated March 1, 1995.
3.3 Amendment to the Articles of Incorporation dated March 3, 1995.
3.4 Amendment to the Articles of Incorporation dated May 23, 1995
3.5 Bylaws of Alvarada, Inc.
3.6 Articles of Incorporation of International Gene Group.
3.7 Bylaws of the Company of International Gene Group.
3.8 Articles of Incorporation of Agricultural Glycosystems, Inc.
3.9 Bylaws of the Company of Agricultural Glycosystems, Inc.
4.1 Specimen Stock Certificate.
10.1 Agreement and Plan of Reorganization.
10.2 Licensing Agreement with Dr. Platt.
The following documents are incorporated herein by reference from the
Registrant's Form S-8 Registration Statement filed with the Commission on May
14, 1996, SEC file No. 333-04764:
10.5 Incentive Stock Option Plan.
The following documents are incorporated herein by reference from the
Registrant's Registration Statement on Form SB-2, filed with the Commission on
November 20, 1996, SEC file no. 333-16087:
10.10 Warrant Agreement with James C. Czirr.
The following documents are incorporated herein by reference from the
Registrant's Form 10-K for the period ending December 31, 1997:
10.12 Licensing Agreement with Agrogene Ltd.
99.1 Office Lease
The following documents are incorporated by reference from the Registrant's Form
8-K filed on April 7, 2000:
10.1 Securities Purchase Agreement by and among GlycoGenesys, Inc.,Strong
River Investments, Inc. and Montrose Investments Ltd., dated March 19,
2000.
10.2 Form of Closing Warrants dated March 29, 2000.
10.3 Form of Adjustable Warrants dated March 29, 2000.
10.4 Registration Rights Agreement by and among GlycoGenesys, Inc., Strong
River Investments, Inc. and Montrose Investments Ltd. dated March 29,
2000.
10.5 Letter of Agreement by and among GlycoGenesys, Inc., Strong River
Investments, Inc. and Montrose Investment Ltd. dated March 29, 2000.
The following documents are incorporated herein by reference from the
Registrant's Form 10-Q for the quarter ending September 30, 2000:
10.22 Employment Agreement between GlycoGenesys, Inc. and Bradley J. Carver
dated June 29, 1999.
10.23 1998 Stock Option Plan
10.24 2000 Stock Incentive Plan
The following document is incorporated herein by reference from the Registrant's
Form 8-K filed on January 3, 2001:
10.1 License Agreement by and among SafeScience, Inc., Wayne State University
and the Barbara Ann Karmanos Cancer Institute dated January 26, 2001.
The following document is incorporated herein by reference from the Registrant's
Form 10-K for the period ending December 31, 2000:
10.18 Product Formula between SafeScience, Inc. and Delta-Omega Technologies,
Inc. dated January 5, 2001.
The following document is incorporated herein by reference from the Registrant's
Form 8-K filed on May 23, 2001:
10.1 Amendment No. 1 dated May 14, 2001 to the License Agreement by and among
SafeScience, Inc., Wayne State University and the Barbara Ann Karmanos
Cancer Institute dated January 26, 2001.
The following documents are incorporated herein by reference from the
Registrant's Form 8-K filed on June 29, 2001:
10.1 Securities Purchase Agreement dated June 22, 2001 between SafeScience,
Inc. and Elan International Services, Ltd.
10.2 Subscription, Joint Development and Operating Agreement dated as of June
29, 2001 among Elan Corporation, plc, Elan International Services, Ltd.,
SafeScience, Inc. and SafeScience Newco, Ltd.
10.3 SafeScience License Agreement dated as of June 29, 2001 between
SafeScience, Inc. and SafeScience Newco Ltd.
10.4 Elan License Agreement dated as of June 29, 2001 between Elan
Corporation, plc and SafeScience Newco, Ltd.
10.5 SafeScience Registration Rights Agreement dated as of June 29, 2001
between SafeScience, Inc. and Elan International Services, Ltd.
10.6 SafeScience Newco Registration Rights Agreement dated as of June 29, 2001
among SafeScience Newco, Ltd. SafeScience, Inc. and Elan International
Services, Ltd.
The following documents are incorporated herein by reference from the
Registrant's Form 10-Q for the quarter ending June 30, 2001:
4.1 Certificate of Designations, Preferences and Rights of Series A, Series B
and Series C Preferred Stock of SafeScience, Inc.
10.7 Warrant dated July 10, 2001 issued to Elan International Services, Ltd.
The following documents are incorporated herein by reference from the
Registrant's Form 10-Q for the quarter ending September 30, 2001:
4.1 Certificate of Amendment to the Articles of Incorporation of the Company
filed on October 31, 2001.
10.1 Amendment No. 2 dated November 7, 2001 to the License Agreement by and
among GlycoGenesys, Inc., Wayne State University and the Barbara Ann
Karmanos Cancer Institute dated January 26, 2001.
The following documents are an exhibit hereto:
10.1 Employment Agreement between GlycoGenesys, inc. and Chris Szustkiewicz,
PhD. Dated March 18, 2002, as amended on March 22, 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, in Boston,
Massachusetts on this 16th day of April 2002.
GLYCOGENESYS, INC.
(formerly known as SafeScience, Inc.)
BY:
/s/ Bradley J. Carver
Bradley J. Carver, President and
Treasurer
/s/ John W. Burns
John W. Burns, Senior Vice President,
Chief Financial Officer and Secretary
/s/ Patrick J. Joyce
Patrick J. Joyce, Principal Accounting
Officer
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears below
constitutes and appoints Bradley J. Carver, as true and lawful attorney-in-fact
and agent, with full power of substitution, for his and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Report
on Form 10-K, and to file the same, therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying the confirming all that said
attorney-in-fact and agent, or any substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
on Form 10-K has been signed by the following persons in the capacities and on
the dates indicated:
Signatures Title Date
/s/ Bradley J. Carver President, Treasurer and
Bradley J. Carver a member of the Board
of Directors April 16, 2002
/s/ John W. Burns SVP, CFO and Secretary April 16, 2002
John W. Burns
/s/ Patrick J. Joyce Principal Accounting Officer April 16, 2002
Patrick J. Joyce
/s/ David W. Dube
David W. Dube Director April 16, 2002
/s/ Theodore J. Host
Theodore J. Host Director April 16, 2002
/s/ Brian G. R. Hughes
Brian G.R. Hughes Chairman of the
Board of Directors April 16, 2002