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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, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________.
Commission file number 0-26476
SAFESCIENCE, INC.
(Formerly, IGG International, Inc.)
(Exact name of registrant as specified in its charter)
Nevada 33-0231238
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Park Square Building
31 St. James Avenue, Suite 520
Boston, Massachusetts 02116
(Address of principal executive offices) Zip Code
(Registrant's telephone number, including area code) (617) 621-3133
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Common Stock
Securities registered pursuant to Section 15(d) of the Act:
Title of each class
None
Indicate by check mark whether the Registrant (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 Registrant 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 number of shares outstanding each of the Registrant's classes
of Common Stock, as of December 31, 1997 was 11,991,778.
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PART I
ITEM 1. BUSINESS.
General
SafeScience, Inc. ("SafeScience"), formerly IGG International,
Inc., is a biotechnology company whose research efforts are directed
at products to improve plant health, the treatment of human cancer
and infectious diseases. The Company has two wholly-owned
subsidiaries, Agricultural Glycosystems, Inc. ("AGI"), which operates
an agrichemical and plant health business, and International Gene
Group, Inc. ("IGG"), which operates a human therapeutic business.
SafeScience, AGI and IGG are referred to collectively as the
"Company."
The Company is presently researching several products, nearly all
of which are derived from naturally occurring substances: AGI's
principal products are Greenleaf Plant Defense Booster ("Greenleaf
PDB", formerly ELEXA), an inhibitor of plant fungus [which was
recently granted approval by the Environmental Protection Agency
("EPA")]; SAF-711, a second fungicide product derived from natural
carbohydrates extracted from a plant ("SAF-711"); and Dentamet, a
third fungicide which has the potential of working as a fumigant; and
a line of non-toxic fertilizer products. IGG's principal products
are GBC 590, a complex carbohydrate glycoprotein which inhibits human
melanoma cancer cells; CAN-296, a natural antifungal agent which
inhibits infections such as Candida, and Microorganism Substance
(MMS-1). Patents for MMS-1, Dentamet and the fertilizers have been
issued and all other patents are currently pending for all products.
In addition in October 1997, the Company announced that AGI had
entered into an agreement with an Israeli biotechnology company,
Leket-Bar Ltd., to acquire a worldwide, exclusive license to all
Leket-Bar's products. These products consist of a series of patented
products, including several modified carbohydrate compounds for use
as fertilizers and fungicides. The products acquired in this
transaction have been approved and marketed for several years in
Israel and six other countries. Several of the products acquired are
carbohydrate-based fertilizers which do not require registration with
the EPA to be sold in the United States.
On April 1997, the Company announced that AGI had entered into an
exclusive, worldwide licensing agreement with Agrogene, Ltd., an
Israeli-based biotechnology company specializing in products for
agriculture. AGI acquired the rights to commercialize the compounds
derived from a collection of natural carbohydrates identified and
patented by Agrogene. The first compound which is under development,
a fungicide known as SAF-711, has shown in field and greenhouse
studies an ability to kill a broad range of fungi on plants such as
downy mildews, late blight, powdery mildews and rusts.
In December 1997, the Company entered into two agreements for the
distribution of the Company's agricultural products. The first
agreement provides for exclusive distribution rights in the United
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Arab Emirates, the Sultanate of Oman, Bahrain, Qatar and the Kingdom
of Saudi Arabia. The second agreement provides for exclusive
distribution rights in New Zealand and Australia. The Company
received payments of $10,000 from each distributor, to be credited
toward amounts subsequently payable under the agreements. In
addition, in March 1998, the Company entered into another agreement
providing for exclusive distribution rights in Argentina and Uruguay.
No advance payment was received in connection with such agreement.
The Company has also acquired the trademark rights to the name
"Greenleaf", which is the brand name that the Company has begun using
to market its non-toxic products, including the products acquired
from Leket-Bar. Greenleaf is a registered United States trademark.
Potential risks associated with the development of the Company's
products are: 1) some of the products referred to herein may never be
developed; 2) anticipated future losses due to the cost of research
and development; 3) the timing and cost associated with governmental
regulation and approval; 4) absence of patent protection; 5) the risk
of product liability claims; and 6) the uncertainty that the Company
will ever operate profitably. For all of the foregoing reasons, an
investment in the Company's securities is risky and purchasers should
be aware that they might lose their entire investment.
Prior to marketing certain of its products, the Company must
obtain regulatory approval from the United States Food and Drug
Administration ("FDA") and/or the EPA. The Company announced on
November 6, 1997, that it had received EPA approval of Greenleaf PDB.
The Company has financed itself during 1996 and 1997 by a series
of private placement financings. In the Company's estimation these
financings have sufficiently funded the Company to continue its
product development agenda, pursue regulatory approvals of products
and begin to market its existing products. However, the Company has
to obtain and will continue to seek additional financing through the
private sale of restricted securities to investors, and will attempt
to enter into joint venture, licensing or similar arrangements with
large chemical and/or pharmaceutical companies to provide additional
funding.
To date, the Company's activities have consisted primarily of
research, development and testing. Such activities have resulted in
accumulated losses through the end of the Company's most recent
fiscal year. The Company anticipates that it will also incur losses
in 1998 as a result of its continued research.
Business Objective
SafeScience has embarked on a mission to build a world brand. As
a starting position, the Company has developed carbohydrate based
products in both the areas of agriculture and human therapeutics.
The Company will market and distribute the SafeScience "Greenleaf"
brand of agricultural products in 1998. In addition, new products
and technologies will be developed that will bolster "SafeScience,
Inc." as a world standard for product safety.
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Glossary of Terms
Antigen A substance or entity, usually a protein, that
induces the production of antibodies. The
antigenicity of a compound depends on its
structure and molecular weight.
Auto-immune disease A disease in which auto-immunity is one of the
contributory factors. Such disease includes
Addison's disease and rheumatoid arthritis.
Cutaneous lesions Skin lesions.
Extravasate The process of passing out of a vessel into
tissue.
Glycopeptide A compound formed from a peptide covalently
linked to a carbohydrate.
Glycoprotein Compounds in which carbohydrate side chains are
covalently linked to a protein. Common side
chains include D-galactose, D-mannose and
N-acetyl-D-glucosamine. Cell surface
glycoproteins play a role in cell recognition.
Other biologically important glycoproteins
include enzymes, hormones and antigens.
Granulomas Nodular inflammatory lesions.
Homocytotropic
Antibodies Cells that have an affinity to like cells.
Humoral Relating to extra cellular fluids in the body.
Ig (immunoglobulin) A protein of globulin type (usually
gamma-globulin) that possesses antibody activity.
Immune response The events that occur in humans and other
vertebrate animals when the body is invaded by
foreign protein. It is characterized by the
production of antibodies and may be stimulated by
an infectious organism or parasite (bacteria,
yeast, fungi, protozoa, etc.), transplanted
material, vaccine, sperm or even the host's own
tissue.
Immunegenecity The study of genetic aspects of the type and
formation of immunoglobulins (antibodies).
Interferon-gammma Glycoprotein induced in different cell sites and
appropriate stimulus.
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Interleukin-12 A protein synthesized and secreted by activated
macrophages that stimulates both immune and
inflammatory responses.
Lymphocyte A white cell arising from tissue of the lymphoid
systems. There are two types of lymphocytes: B
cells and T cells. These cells are capable of
being stimulated by an antigen to produce a
specific antibody to that antigen and to
proliferate to produce a population of such
antibody-producing cells.
Lymphokine Any of a number of soluble physiologically active
factors produced by T lymphocyctes in response to
specific antigens. Important in cell mediated
immunity, lymphokins include interferon,
macrophage arming factor, lymphocyte inhibition
factor, macrophage inhibition factor, chemotactic
factor and various cytotoxic factors.
Macrophage A motile white cell type found in vertebrate
tissue, including connective tissue, the spleen,
lymph nodes, liver, adrenal glands and pituitary,
as well as, in the endothelial lining of blood
vessels and the sinusoids of bone marrow, and in
the monocytes. They display phagocytic activity
and process antigens for presentation to
lymphocytes, which then prepare antigen-specific
antibodies.
Malignant Cancerous tumor.
MAP Kinase protein An enzyme that breaks down Microtubule Associate
Protein (protein that is inside cells - building
material).
Microbes Members of one of the following classes:
bacteria, fungi, algae, protozoa or viruses.
Microbial Relates to microbes.
Neoplastic Pertains to neoplasm (new tumor growth).
Nucleic acids Either of two types of macromolecule (DNA or RNA)
formed by polymerization of neuleotides. Neuleic
acids are found in all living cells and contain
the information (genetic code) for transfer of
genetic information from one generation to the
next, as well as, for the expression of this
information through protein synthesis.
Nude mice Mice lacking an immune system.
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Pathogenic Descriptive of a substance or organism that
produces a disease.
Phosphate A chemical group containing atoms of phosphorus
and oxygen.
Placebo An indifferent substance in the form of a
medicine given for the suggestive effect.
Polyclonal antibody An antibody produced in the normal immune
response to an antigen consisting of a number of
closely related, but not identical, proteins.
The variation in Polyclonal antibodies reflects
the facts that they are formed by a number of
different lymphocytes, in contrast to monoclonal
antibodies which are formed by a clone of
identical cells. Compare monoclonal antibody.
T-Cell A type of lymphocyte that matures in the thymus
gland. These cells are responsible for the
cellular immunity processes, such as direct cell
binding to an antigen, thus destroying it. T
lymphocytes also act as regulators of the immune
response as helper T cells, or suppressor T
cells.
Tyrosine One of the 20 common amino acids that occur in
proteins. Tyrosine is a precursor of
noradrenaline, adrenaline, melanin, thyroid
hormone and various alkaloids.
International Gene Group, Inc.
Human Therapeutic Subsidiary
Technical Background
The following is a summary of certain theories related to the
Company's product development activities which are recognized in the
scientific community.
Cell Recognition and Adhesion
Cells recognize one another through pairs of complementary
structures on their surface. A structure on one cell carries encoded
biological information that a structure on another cell can decipher.
Previously, nucleic acids and proteins were recognized as the major
classes of biological materials involved in cell recognition.
Carbohydrates were not considered to be important in this
intercellular interaction. Recently, however, it has been theorized
that the majority of a cell's surface components contain carbohydrate
structures on the cell which change characteristics as the cell
develops, differentiates and sickens. While to the foregoing has
been theorized, it has not been scientifically established that the
foregoing is correct and there is no assurance that the foregoing
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will ever be scientifically established. The importance of
carbohydrates in cellular activity is underscored by studies showing
that lectins (a class of proteins found on cancer cells) can combine
with carbohydrates rapidly and selectively on the cell's surface
membrane.
The adhesive capabilities of carbohydrates and lectins to bind
together were proven in a microbial adhesion study which serves as a
model for other forms of carbohydrate mediated cell recognition.
Because bacterial adhesion is so crucial to infection, medical
researchers are studying carbohydrates that may selectively inhibit
adhesion and act as molecular decoys, intercepting and binding to
pathogenic bacteria before they reach their tissue target. In 1990,
M. Mouricout showed that injections of glycopeptides taken from the
blood plasma of cows can protect newborn calves from lethal doses of
E. coli. The glycopeptides contain carbohydrates for which the E.
coli bacteria have affinities. The E. coli bacteria attach
themselves to the injected glycopeptides. The adhesion capabilities
of the E. coli bacteria is greatly reduced once the adhesion
molecules on the E. coli cell surface attach to the glycopeptides.
This results in a measurable decrease in the ability of the bacteria
to attach to the intestines of treated animals.
IGG has incorporated the foregoing theory into its research on
cell adhesion molecules and believes that cell adhesion plays a key
role in other diseases as well, such as the spread of cancer cells
throughout the body beginning at the primary tumor. For example, the
carbohydrates recognized by a specific lectin appear on the cells of
diverse tumors. It is theorized that some malignant cells recruit
the adhesion molecules that are part of the body's natural defense
mechanism to promote their own metastasis. If so, anti-adhesive
drugs will also be anti-metastatic drugs. While the foregoing has
been theorized by IGG, it has not been scientifically established
that the foregoing is correct and there is no assurance that the
foregoing will ever be scientifically established.
Cancer Metastasis
Metastasis is the transfer of neoplastic disease from one organ to
another not directly connected with it. This is the process by which
cancer spreads. Metastasis is the main cause of death for cancer
patients. Surgical removal of the primary cancer tumor does not
eliminate the threat of metastasis or the formation of additional
cancer tumors. Surgical process may cause the release of metastatic
cells into the blood stream.
The process of metastasis is initiated by the detachment of tumor
cells from the primary growth cell and is followed by their invasion
of surrounding tissues via the blood vessels. Once in blood
circulation, the tumor cells can travel to any and all of the body's
distant organs where they can arrest, extravasate, and proliferate to
form new tumor colonies. It is accepted that the metastatic ability
of tumor cells is determined by unique cell properties and the
ability to interact with other tissue and blood cells.
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A single isolated cancer tumor can be surgically removed.
However, once the cancer spreads to various organs, removal becomes
difficult or impossible. IGG believes by preventing the ability of
the cancer to metastasize, aggregate and form new tumor colonies, the
number of cancer deaths can be reduced. The foregoing is based upon
theory and there is no scientific evidence to support such theory.
Moreover, since different types of cancer cells appear to share
common "markers" which facilitate adhesion of infected cells, it is
possible that a treatment which prevents cellular adhesion in one
type of cancer (such as highly metastatic melanoma) could prove
ineffective in other types of cancer.
Products
Complex Carbohydrate Substance (GBC 590)
Intracellular interactions play a key role in various steps of the
metastatic process. IGG has designed a natural complex carbohydrate
glycoprotein (GBC 590). The GBC 590 compound is designed to
recognize specific lectins which appear only on metastatic cells.
The substance acts as a molecular decoy, which attaches to the
metastatic cell and prevents the aggregation of the metastatic cells.
Following the elimination of the ability of the metastatic cells to
create an emboli, only single metastatic cells remain in the blood
circulation. These individual cells marked with the carbohydrate
molecule can then be destroyed by the body's immune system.
The GBC 590 substance was used in a controlled experiment, the
results of which were published in the Journal of the National Cancer
Institute. The experiment resulted in a complete inhibition of
metastatic mice melanoma cells in mice. Human melanoma cancer cells
can also be inhibited by the GBC 590. No/No nude mice, which lack an
immune system and can not reject human cells, were injected with
metastatic human melanoma cells. The mice were subsequently injected
with the GBC 590. One control group was injected with a placebo and
the other with only the human melanoma cells. The results from the
experiment showed no evidence of the presence of melanoma cancer or
metastasis in the mice injected with the GBC 590 and human melanoma
cells. The control mice injected only with the melanoma cells showed
significant metastasis and numerous tumor colonies in the lungs. The
tests were performed at the Michigan Department of Public Health in
Lansing, Michigan.
On January 13, 1997, the Company announced that IGG's lead
therapeutic compound, GBC-590, had been cleared by the Food and Drug
Administration to begin human testing in patients with cancer at the
M.D. Anderson Medical Center in Texas and the Graduate Hospital in
Philadelphia. The Company announced the commencement of such testing
on March 26, 1997. The study is continuing on schedule.
In February 1995, in independent research paper was published in
the JNCI. The study used a compound similar to IGG's GBC 590
substance. The study showed almost 100% elimination of prostate
cancer metastases in rats. These independent scientific results
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indicates that many forms of cancer may produce metastatic cells with
the same markers to which IGG's substance derived from the complex
carbohydrate attaches. As a result, while the substance has only
been tested on melanoma and prostate cancer in animals, the product
may or may not have an application in treating other cell lines as
well.
There are no assurances that injection with IGG's GBC 590
substance will prove effective in reducing or eliminating the spread
of cancer and that there have not been any studies or tests conducted
to support such intended effect.
Micro-organism (MMS-1)
MMS-1 has demonstrated the ability to inhibit metastasis in No/No
nude mice (Mice without an active immune system so they will not
reject human cells) injected with human melanoma cells. The test was
performed according to a research article in the International
Journal Cancer, 1992. Two groups of mice were injected intravenously
with melanoma human cancer cells. The test group was injected twice
a week with MMS-1. After 35 days group 1 was compared to test group
2 with respect to tumor growth using the Wilcoxon Rank Sum Text.
Multiple comparisons were made across 5 days using Bonferroni's rule.
The test was conducted at an overall significance level of 0.05.
MMS-1 significantly reduced the amount of cancer cells in the mice's
lungs.
IGG is studying the results of its laboratory experiments to
determine the reason for the unique immunological response triggered
in these animals studies. However, there are no assurances that
injection with IGG's GBC 590 substance will prove effective in
reducing or eliminating the spread of cancer and that there have not
been any studies or tests conducted to support such intended effect.
CAN-296
IGG has developed a new type of antifungal agent, derived from a
naturally occurring complex carbohydrate, which has been named "CAN-
296". CAN-296 demonstrates an excellent in vitro inhibitory
antifungal and fungicidal spectrum, including azole-resistant
Candida. Candida is a species of fungus which is a common infection.
Candida is divided into two types of disease: superficial and deep
seated. Superficial infections are characterized by common ailments
such as athlete's foot, superficial skin infections and vaginitis.
Deep seated infections with Candida often occur against the
background of immune suppression such as bone marrow transplantation,
leukemia or HIV infection. Current therapies for Candida are
confined to a series of agents, many of which have been in the market
place for some 20-30 years. Existing therapies have a limited
efficacy and, when administered systemically, have serious side
effects. Although recent advances in the adverse reaction profile
from some of these agents has occurred with the liposomal products,
no fundamental advances have occurred in terms of the efficacy of
agents against this disease. When it occurs in a deep seated
infection, Candida may be life threatening.
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IGG believes that the mechanism of action of its carbohydrate
product CAN-296 is fundamentally different from existing products
against fungal disease. IGG has developed data with CAN-296 to
suggest that it is efficacious in pre-clinical experiments in which
these other standard agents have failed. There is immediate and
dramatic killing of Candida in vitro in comparison to other
commercially available agents. IGG has developed one formulation for
study and plans to study additional formulations before entering the
clinic for further testing of the agent. IGG hopes that the broad
spectrum of anti-Candida activity together with the rapid fungicidal
effect may make CAN-296 a promising agent for clinical use.
Research
Research efforts will continue on all substances to establish
efficacy, and identify the processes involved in carbohydrate based
cellular interactions. Additional research needs include experiments
to complete the structural identification of IGG's products and to
gain a better understanding of the responses triggered by the
substances.
IGG is presently conducting research on a contract or
collaboration basis with many institutions throughout the world. IGG
intends to continue research in select areas on a contract basis. In
doing so, it will be able to consult with experts in particular
fields who have state of the art facilities and trained
personnel. All such research will continue to be conducted under
strict confidentiality agreements which prohibit use and disclosure
of IGG's products and prohibit publication of findings without the
consent of IGG.
Agricultural Glycosystems, Inc.
Plant Health Subsidiary
Technical Background
AGI is commercializing products designed to improve a plant's
natural ability to resist disease. This approach is innovative in
contrast with the traditional fungicide chemicals which are toxins
that function as agents to kill fungus directly. These new
carbohydrate compounds are favorable since they are known to have low
toxicity and have very little impact on the environment.
AGI's lead product, Greenleaf PDB, has been designed to inhibit
fungal infections in a variety of plant species. Greenleaf PDB is a
complex carbohydrate that has significantly reduced fungal infection
in greenhouse and field studies without adversely impacting the plant
under test. On November 6, 1997, the Company announced that
Greenleaf PDB had been approved by the EPA.
Results from greenhouse experiments demonstrate that Greenleaf PDB
is highly effective in controlling fungal diseases on cucumber, rice,
potato and tomato plants. AGI has also initiated multiple field
tests on grapes, strawberries, tomatoes, potatoes, rice and other
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vegetable crops to confirm Greenleaf PDB's efficacy under normal
growing conditions. Preliminary results demonstrated very
encouraging protection levels on grapes, strawberries and cucumbers.
The results of field trials on grapes in particular showed that
Greenleaf PDB can provide a level of protection against fungal
infestation equal to or greater than that provided by a commonly used
commercial fungicide. Approval of the fungicide registration for
Greenleaf PDB by the EPA was announced in November 1997. AGI's
second and third products, SAF-711 and Dentamet, will begin field
testing and EPA registration in 1998.
Fungicides are used to control fungi appearance and damage to
foliage, crops, plants, roots and in post-harvest storage of fruits
and vegetables. The world market for fungicides is estimated to be
approximately $5.4 billion.
Greenleaf PDB is the result of research conducted by AGI, together
with the Governmental of Israel (Volcani Institute), which identified
a specific carbohydrate compound that induces the natural response
that allows a plant to resist disease. This proprietary and patent
pending technology has significance for the following reasons:
* it is effective without toxic effects to the plant;
* many plants have developed resistance to current chemical
fungicides;
* because it stimulates the plant, resistance should be minimized;
* many existing chemical fungicides have potential toxic effects.
This proprietary technology induces the plants' defense responses,
which include:
* the synthesis and accumulation of anti-microbial phytoalexins;
* the production of enzymes capable of attacking surface polymers
of pathogens;
* the synthesis of proteins that inhibit degradative enzymes
produced by pathogens;
* the modification of plant cell walls.
The active components which induce defense responses in plants are
commonly referred to as "elicitors." Greenleaf PDB is a
"carbohydrate elicitor" capable of inducing one or more plant defense
responses.
The mechanisms by which Greenleaf PDB induces the various defense
responses in plant cells remain partially unknown. Recent research
has demonstrated that Greenleaf PDB induces several rapid responses
at the plant cell surface that may be part of the signal transduction
pathway.
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AGI has an agreement with the Volcani Institute to co-develop new
agricultural products such as naturally derived, non-toxic
insecticides, as well as, safe and effective products for the home
and garden. AGI believes that Greenleaf PDB has the potential to
achieve a strong position in both the post-harvest and home and
garden markets in the light of preliminary data which suggest that
the product controls fungal disease on post-harvest applications. In
addition, Greenleaf PDB will have appeal to consumers who are
demanding less toxic products for their home and garden use.
Greenleaf PDB (previously ELEXA)
AGI's lead product, Greenleaf PDB, which has been approved by the
EPA, is a complex carbohydrate which has been developed in
conjunction with the Israeli Government's Agricultural Research
Organization Volcani Institute to inhibit fungal infections in a
variety of plants, fruits and vegetables. A number of field studies
have been undertaken in which the compound has been shown to be
effective in controlling disease without adversely impacting the
plants.
The result of additional studies conducted by the Volcani
Institute were announced in September 1996. Undertaken in greenhouse
conditions, they demonstrated that Greenleaf PDB was highly effective
in controlling fungal diseases on cucumber, potato and tomato plants.
Seven days after treatment with a 0.1 per cent solution of Greenleaf
PDB, approximately 80 per cent of the crops were free of disease
compared with zero per cent for the non-treated control plants.
Greenleaf PDB was successfully tested against botrytis cinerea, downy
mildew, phytophthora infestans, coletotrichum spp. and pythium spp.
In January 1997, the Company announced results of several recently
completed independent field tests conducted on Greenleaf PDB. The
results suggested that Greenleaf PDB can control damaging fungal
diseases on several crops. The studies also demonstrated the
Greenleaf PDB can provide a level of protection against fungal
infestation comparable with the protection provided by a commonly
used commercial chemical fungicide.
The independent field test on grapes, the results of which were
published in October 1996, demonstrated Greenleaf PDB's efficacy in
preventing fungal attack on treated grape vines in a commercial
Californian vineyard. In this study, conducted under EPA Good
Laboratory Practice Standards, one-third of the grape vines were
treated with a 0.1 per cent concentration of Greenleaf PDB, one-third
were treated with a commercial fungicide frequently used to protect
grapes from fungal attack, and one-third remained untreated. After
treatment, about 10.4 per cent of the untreated grapes showed
botrytis infection, a serious fungal disease, compared with only 1.6
per cent of the vines treated with Greenleaf PDB. About 2.5 per cent
of the vines treated with the commercial chemical fungicide were
infected with botrytis. This study demonstrated that Greenleaf PDB
can provide a level of protection against fungal infestation equal to
the protection provided by a commonly used commercial chemical
fungicide.
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On April 18, 1997 the Company announced the results of two
recently completed studies of Greenleaf PDB. Greenleaf PDB
demonstrated efficacy in preventing fungal diseases equal to the
protection provided by two commonly used commercial chemical
fungicides on treated tomato fruit in a commercial field study
conducted in Chile. In the other study, a greenhouse study conducted
by a leading university apple research center in the United States,
Greenleaf PDB combined with a commercial adjuvant also provided a
four-fold reduction of apple powdery mildew on apple seedlings. On
July 24, 1997, the Company announced the result of independent
studies showing that Greenleaf PDB, in combination with commercial
adjuvant, was as successful at preventing fungal damage to chardonnay
grapes as the leading synthetic fungicides. The studies were
performed by independent researchers at U.C.-Davis and the U.C.
Cooperative Extension. The Company also announced the results of a
recent toxicology study showing that, even at the highest oral
concentrations, Greenleaf PDB has very low mammalian toxicity, does
not cause any eye or skin irritation and does not elicit any
allergenic reactions.
In January 1996, AGI entered into an exclusive worldwide licensing
agreement with the Volcani Institute to commercialize Greenleaf PDB.
Production procedures have been scaled-up to meet the demands
projected for the next few years.
Other products
In October 1997, the Company announced it had licensed from an
Israeli biotechnology company known as Leket-Bar, Ltd. of an
extensive line of fertilizers as well as Dentamet, an effective
fungicide which has the potential of working as a fumigant. The
Volcani Institute in Israel has conducted an evaluation of the anti-
fungal and anti-bacterial effectiveness of the fungicide product.
The fertilizers display no phytotoxity and convey nutrients with
specific adaptations to a variety of crops, environmental conditions
and cropping systems. These fertilizers have been successfully
introduced in several markets including Israel as well as South and
Latin America.
On April 29, 1997, the Company announced that AGI had entered into
an exclusive, worldwide licensing agreement with Agrogene, Ltd., an
Israeli-based biotechnology company specializing in products for
agriculture. AGI acquired the rights to commercialize the compounds
derived from a collection of natural carbohydrates identified and
patented by Agrogene. The carbohydrates have been extracted from a
Mediterranean plant that has unique resistance and defense
attributes. The first compound which is under development, a
fungicide known as SAF-711, has shown in field and greenhouse studies
an ability to kill a broad range of fungi on plants such as downy
mildews, late blight, powdery mildews and rusts. The plant grows
abundantly and is harvested twice a year, which should allow for the
preparation of the product on a commercial scale.
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Manufacturing
AGI intends to retain exclusive responsibility for product
manufacturing in order to protect the integrity of the products and
to generate additional revenue, regardless of whether the products
are licensed or distributed directly by AGI. AGI has identified
several contract manufacturers as having suitable facilities for
manufacturing large quantities of all its products.
The raw materials used to manufacture all products are naturally
occurring, inexpensive and commercially available in abundant supply,
both nationally and internationally. The manufacturing process used
to produce these products involves a series of processing steps and
separations.
AGI has not entered into any manufacturing agreement for any of
its compounds, and there is no assurance that any agreements will be
entered into in the future. The contract manufacturers schedule time
in their plant upon notice from AGI of needed production.
Government Regulation
The Company's activities are subject to extensive federal, state,
county and local laws and regulations controlling the development,
testing, manufacture and distribution of pesticide and pharmaceutical
products. Some of the Company's products will be subject to
regulation as therapeutics by the United States Food and Drug
Administration ("FDA"), as pesticides by the Environmental Protection
Agency ("EPA"), as well as varying degrees of regulation by a number
of foreign governmental agencies. To comply with the FDA and EPA
regulations regarding the manufacture and marketing of the Company's
products, the Company may incur substantial costs relating to laboratory
and clinical testing of new products and for the preparation and filing
of documents in the formats required by the FDA. There are no
assurances that the Company will receive FDA approval necessary to
commercially market its pharmaceutical products.
Food and Drug Administration Regulation
The FDA approved process consists of four steps that all new
drugs, antibiotics and biologicals must follow, they are:
1. investigational new drug application (IND)
2. clinical trials
3. new drug application (review and approval)
4. post-marketing surveys
On January 11, 1993, the FDA approved new procedures to accelerate
the approval of certain new drugs and biological products directed at
serious or life-threatening illnesses. These new procedures will
expedite the approvals for patients suffering from terminal illness
15
when the drugs provide a therapeutic advantage over existing
treatment. The Company believes that its products will fall under
the FDA guidelines for accelerated approval for drugs and biological
products directed at serious and life threatening disease because the
Company's products are targeted as potential treatments for cancer
metastasis and primary tumors.
Clinical trials are conducted in three phases, normally involving
progressively larger numbers of patients. Phase I clinical
trials are concerned primarily with learning more about the safety of
the drug, though they may also provide some information about the
drugs effectiveness. The principal objective is to determine the
drugs' toxicity. Phase I trials generally involve 20-40 people at an
estimated cost of $10,000 per patient, taking one to two years to
complete.
Assuming the results of Phase I testing present no toxic or
unacceptable safety problems, Phase II trials may begin. In many
cases Phase II trials may commence before all the Phase I trials are
completely evaluated if the disease is life threatening and
preliminary toxicity data in Phase I shows no toxic side effects. In
life threatening disease, Phase I and Phase II trials are sometimes
combined to show initial toxicity and efficacy in a shorter period of
time. The primary objective of this stage of clinical testing is
designed to show whether the drug is effective in treating the
disease or condition for which it is intended. Phase II studies may
take several months or longer and involve a few hundred patients in
randomized controlled trials that also attempt to disclose short-term
side effects and risks in people whose health is impaired. A number
of patients with the disease or illness will receive the treatment
while a control group will receive a placebo. The cost per patient
is estimated at $10,000.
At the conclusion of Phase II trials, the FDA and the Company will
have a clear understanding of the short-term safety and effectiveness
of the drugs and their optimal dosage levels. Phase III clinical
trials will generally begin after the results of Phase II are
evaluated. The objective of Phase III is to develop information that
will allow the drug to be marketed and used safely. Phase III trials
will involve hundreds, and sometimes thousands, of people with the
objective of expanding on the research carried out in Phase II. An
objective would be to discover optimum dose rates and schedules, less
common or even rare side effects, adverse reactions, and generate
information that will be incorporated into the drugs' professional
labeling, as well as, the FDA-approved guidelines to physicians and
others about how to properly use the drug.
Patient estimates for each phase of the clinical trial process are
as follows:
16
Application Phase I Phase II Phase III
Cancer
GBC 590 36 200 1,000
Fungal Disease
CAN-296 20 200 1,000
TOTAL 56 400 2,000
The third step that is necessary prior to marketing a new drug is
the New Drug Application (NDA) submittal and approval. In this step,
all the information generated by the clinical trials will be received
and if successful, the drug will be approved for marketing.
The final step is the random surveillance or surveys of patients
being treated with the drug to determine its long-term effects. This
has no effect on the marketing of the drug unless highly toxic
conditions arise. The time required to complete the above procedures
averages seven years, however, there is no assurance that the Company
will ever receive FDA approval of any of its products.
Environmental Protection Agency Approval
The Company, through its agricultural subsidiary, AGI, is required
to obtain the approval of the EPA before beginning to sell products
which constitute fungicides.
The EPA approval process begins with the design and initiation of
tests to determine the chemistry of the compound being submitted and
its toxicity in animals. In addition, the manufacturing procedures
must be clearly defined and submitted with the registration.
The regulatory process for Greenleaf PDB has been completed. The
testing and documentation required by the EPA to market this product
was submitted in December 1996 and marketing approval was granted in
November 1997.
The Company's other fungicide products, including those acquired
from Leket-Bar, Ltd. (Dentamet) and Agrogene (SAF-711), require EPA
approval. The process will commence in 1998. The Company's other
products are fertilizers and thus do not require EPA approval.
Competition
The Company will encounter significant competition from firms
currently engaged in the biotechnology and agrichemical industries.
The majority of these companies will be substantially larger than the
Company, and have substantially greater resources and operating
histories. The Company is aware of other competitors seeking
treatments for human and plant diseases, however, the Company is not
aware of any competitors seeking to produce the same products as the
Company.
17
Product Liability Exposure
Because many of the Company's products may be used on food
products or human patients, the Company may be exposed to product
liability claims. The Company has purchased product liability
insurance for all its products. There can be no assurance that
available amounts of coverage will be sufficient to adequately
protect the Company in the event of a successful product liability
claim.
Patent Status and Protection of Proprietary Technology
The Company will own or license patent rights with respect to all
its products. With respect to MMS-1 and GBC-590, Dr. Platt has
granted an exclusive, world-wide, license to IGG to make, use, have
made, sell, lease or otherwise transfer products covered by the
patent or patent applications. Further, Dr. Platt granted to IGG the
right to issue sublicenses. Dr. Platt is entitled to a royalty of 2%
of the net selling price of GBC 590 and MMS-1. The license may be
terminated by Dr. Platt in the sixth year if total royalty payments,
in any calendar year are less than $50,000. However, the Company has
the right to pay Dr. Platt $50,000 to maintain the license in the
sixth year. Further, IGG is responsible for payment of all costs
connected with obtaining the patents.
Greenleaf PDB patents are owned by Volcani Institute, which
granted an exclusive license to AGI, a subsidiary of the Company.
Patents for all the Company's products, other than MMS-1, are
pending. In addition, the products which the Company acquired from
Leket-Bar and Agrogene are all covered by United States patent laws
which have been issued or are pending, as well as options to extend
the patent coverage to an international level. The Company will
continue to pursue these patents. There can be no assurance that the
technology of the Company will be granted patent protection, or will
not infringe on patents owned by others. To the extent that the
Company currently relies upon unpatented, proprietary technology,
processes and know-how and the protection of such intellectual
property by confidentially agreements, there can be no assurance that
others may not independently develop similar technology and know-how
or that confidentiality will not be breached. There is no assurance
that any patents will ever be granted.
Dependence Upon Key Personnel
The Company relies greatly in its efforts on the services and
expertise of its current senior officers: David Platt, Ph.D., CEO,
Secretary and Chairman of the Board of the Company; Bradley J.
Carver, President, Chief Financial Officer, Treasurer and a member of
the Board of Directors of the Company; Richard A. Salter, Senior Vice
President of the Company; and Robert Alvarez, Vice President - Sales.
The operation and future success of the Company would be adversely
affected in the event that Dr. Platt, Mr. Carver, Mr. Salter or Mr.
Alvarez were incapacitated or the Company were otherwise to lose
their services.
18
Uncertainties Associated with Research and Development Activities
The Company intends to continue its research and development
activities on its products and begin marketing them in 1998.
Research and development activities, by their nature, preclude
definitive statements as to the time required and costs involved in
reaching certain objectives. If research and development requires more
funding than anticipated, the Company will have to achieve the necessary
levels of sales to continue to support research and development
expenses or will have to reduce product development efforts or seek
additional financing. There can be no assurance that the Company
would be able to secure any necessary additional financing or that
such financing would be available on favorable terms.
Marketing
SafeScience's marketing efforts are focused on entering the
consumer home and garden market and the commercial growers' markets
in the third quarter of 1998. The Company's product line will
include its "Plant Defense Booster", formerly called ELEXA, as well
as an extensive line of specialty fertilizers. All of these products
will be marketed under the brand name Greenleaf in the United
States. The packaging will introduce a unique double brand approach
using both the SafeScience and Greenleaf trademarks to communicate
the product's natural and environmentally friendly profile. The
company has had the phrase SafeScience cleared by Thompson and
Thompson as a world brand and has already begun formalizing trademark
application in every major market including China, Europe, South
America, Mexico, and Canada. The Company will be extending its line
of agricultural products for both home/garden and commercial use
through acquisitions, in-licensing, as well as continued research and
development. As of the date hereof, the Company has not sold any
products and there is no assurance that it will sell any products in
the future.
Distribution
The Company plans to distribute its agricultural products through
independent distributors throughout the world. In December 1997, the
Company entered into two distribution agreements for its agricultural
products. The first agreement provides for exclusive distribution
rights in the United Arab Emirates, the Sultanate of Oman, Bahrain,
Qatar and the Kingdom of Saudi Arabia. The second agreement provides
for exclusive distribution rights in New Zealand and Australia. At
the time of signing the agreements, the Company received payments of
$10,000 from each distributor, to be credited toward amounts
subsequently payable under the agreements. In March 1998, the
Company entered into a distribution agreement with Lanafil SA,
located in Montevideo, Uruguay. This agreement provides for
exclusive distribution rights for Uruguay and Argentina.
19
Company's Offices
The Company's offices are located at the Park Square Building,
Suite 520, 31 St. James Avenue, Boston, Massachusetts 02116 and its
telephone number is (617) 621-3133. The Company leases 2,968 square
feet of space. The annual base rental is $76,600.00 and the
remaining term of the lease is five years. Research is being
conducted at various institutions. See "ITEM 1. Business." The
Company believes that the existing offices and research and
productive capacity of the facilities are suitable and adequate for
the Company's operations.
Employees
The Company is a development stage company and currently has six
employees including than its Officers and Directors. See
"Management." Management of the Company will continue to hire
employees, consultants, attorneys and accountants as necessary.
ITEM 2. PROPERTIES.
The Company owns no properties.
ITEM 3. LEGAL PROCEEDINGS.
No material legal proceedings are pending or threatened to which
the Registrant or any of its officers or directors is a party or of
which any of Registrant's property is the subject matter other than
as described below:
During the third quarter of 1997, the Company settled litigation
which had been initiated by E.R. Butts International, Inc. ("Butts").
E.R. BUTTS INTERNATIONAL, INC. V. IGGI INTERNATIONAL, INC. AND
AGRICULTURAL GLYCOSYSTEMS, INC., Civil Action No. 97-3121,
Commonwealth of Massachusetts, Middlesex Superior Court was initiated
in 1997 wherein Butts alleged that the Company breached the terms of
its professional service agreement. The settlement was as follows:
mutual releases were exchanged; no liability was admitted by either
party; the Company agreed to pay Butts approximately $1,000 in cash;
the Company agreed to issue Butts 8,587 "unrestricted" shares of
common stock at the time of signing of the settlement agreement; and
the Company agreed to issue an additional 10,000 in four installments
of 2,500 shares per month. The Company also agreed to grant Butts
3,500 "restricted" shares in the event the Company received EPA
registration of Greenleaf PDB (which registration was obtained and
which shares were issued in December 1997) and an additional 500
"restricted" shares in the event the Company entered into certain
distribution agreements in Chile. The discussion of such settlement
in the Company's previously filed Form 10-Q did not mention the first
8,587 shares, which had already been included in the Company's
financial statements as consulting expenses at the time they were
billed. The 3,500 shares which were to be granted upon registration
20
were not included in such third quarter Form 10-Q because the right
to receive such shares did not accrue until registration was granted
in the fourth quarter.
A lawsuit was filed in the United States District Court for the
Southern District of Florida, Case No. 97-838 CIV-ZLOCH, captioned
RALPH I. FREUDENTHAL, PLAINTIFF VS. IGG INTERNATIONAL, INC. AND
AGRICULTURAL GLYCOSYSTEMS, INC., Defendants. The suit sets forth
causes of action for specific performance and breach of contract
alleging that the Company failed to perform the terms of certain
agreements between Freudenthal and the Company and as a result
thereof Freudenthal was entitled to receive 21,330 shares of the
Company's Common Stock. At the time of the transaction, Freudenthal
alleged the value of the stock was $133,312. Further, Freudenthal
prayed additional monetary damages based upon the diminution in value
of those shares, together with interest, court costs and attorney's
fees. The Company denied the foregoing and counterclaimed against
Freudenthal for breach of contract, negligence, breach of fiduciary
duty, rescission and libel. The foregoing case was settled in 1998.
The settlement agreed upon was as follows: mutual releases were
exchanged; no liability was admitted by either party; the Company
agreed to pay $25,000 in cash; and the Company agreed to issue a
number of shares of "unrestricted" common stock which comprise an
aggregate market value of $91,250. Such stock may be issued in one
or more installments, at the Company's option and at such times
during a 90-day period following the date of settlement as may be
determined by the Company; provided that all shares will be valued as
of the close of business on the day prior to that on which they are
issued; and also provided that the Company is required to issue at
least $15,000 worth of shares during the first thirty-day period
following the settlement, and $5,000 worth of shares during the next
two-week period, and $20,000 worth of shares during the succeeding
two weeks, until all the shares have been issued or against any of
the Company's officers or directors.
No legal proceedings are known to be contemplated by governmental
authorities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of the
calendar year covered by this report to a vote of security holders.
21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS.
(a) Market Information
The Registrant's securities are traded over-the-counter on the
Bulletin Board operated by the National Association of Securities
Dealers, Inc. under the symbol IGGI. The table shows the high and
low bid of Registrant's Common Stock since August 14, 1995, when the
Registrant's securities began trading.
QUARTER ENDED BID
1996
March 31 4 7/8 3 1/2
June 30 4 2 1/2
September 30 3 1/2 1 3/4
December 31 3 7/8 2 3/4
1997
March 31 6 1/4 3 3/8
June 30 4 7/8 4 5/8
September 30 6 1/4 5 7/8
December 31 4 3 5/8
(b) Holders
As of December 31, 1997, the company has 326 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 1,800.
(c) Dividends
The Registrant 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 Registrant intends to
retain any earnings which it may realize in the foreseeable future to
finance its operations. Future dividends, if any, will depend on
earnings, financing requirements and other factors.
ITEM 6. SELECTED FINANCIAL DATA
Selected Consolidated Financial Data
The selected financial data presented below has been derived from
the financial statements of the company. The following table
summarizes certain financial information and should be read in
conjunction with "Management's Discussion and Analysis of Results of
Operations and Financial condition" and the Financial Statements and
related notes included elsewhere in this Registration Statement. The
information shown below may not be indicative of the Company's future
results of operations.
22
December 31,
1997 1996 1995 1994
[S] [C] [C] [C] [C]
Statement of Operations Data:
Revenue $ 0 $ 0 $ 0 $ 0
Operating Expenses $ 4,818,093 $ 2,213,152 $ 646,821 $ 168,139
Net Loss $(4,734,475) $(2,300,147) $(675,833) $(168,347)
Basic and Diluted
Net Loss per Share $ (0.43) $ (0.26) $ (0.09) $ (0.03)
Balance Sheet Data:
Working Capital $ 2,180,775 $ 272,315 $(289,948) $(102,338)
Total Assets $ 2,906,737 $ 488,839 $ 308,337 $ 23,278
Stockholders' Equity
(Deficit) $ 2,443,120 $ 298,091 $(270,941) $ (98,452)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto appearing
elsewhere in this report.
Results of Operations: December 31, 1997 versus December 31, 1996
As a development stage enterprise from the date of its inception,
the Company has not commenced production of any products nor derived
any product sales or net income. The Company's business activities
through December 31, 1997 have consisted principally of research,
product development and testing and raising capital to sustain
business activities.
General and administrative expenses increased from $1,118,125 in
1996 to $2,428,072 in 1997, an increase of $2,309,947 or 117.2%.
This increase was principally attributable to a combination of
additional administrative compensation costs and related employee
benefits expenses resulting from the Company's increased research and
development activities, compensation payments to various consultants
and advisors of $1,141,750 resulting from the issuance of stock
grants, stock options and warrants to purchase common stock, and
additional costs associated with shareholder and public relations.
Research and development costs for consultants, supplies and
testing increased from $1,095,027 in 1996 to $2,390,021 in 1997, an
increase of $1,294,994 or 118.3%. This increase was principally
attributable to a combination of increasing and expanding research
efforts on complex carbohydrate and micro-organism substances,
conducted on both subcontracted and collaboration bases, regulatory
costs incurred in connection with obtaining approval for various of
the Company's planned products, initial research and testing costs
for new processes or development products introduced during 1997,
costs associated with the procurement of overseas distribution
agreements, and the issuance of stock for minority interest valued at
$719,142. Included in research and develoment costs is $240,710
resulting from the issuance of stock grants, and stock options and
warrants to purchase common stock.
23
Interest income increased from $18,289 in 1996 to $83,618 in 1997,
an increase of $65,329. This increase was attributable to the
temporary investment of cash proceeds received from the two private
placements of the company's securities during 1997.
Other than the foregoing, the Company knows of no trends, demands,
commitments, events or uncertainties that will result in or are
reasonably likely to result in a change to the Company's operations.
Results of Operations: December 31, 1996 versus December 31, 1995
General and administrative expenses increased from $492,326 in
1995 to $1,118,125 in 1996, an increase of $625,799 or 127.1%. This
increase was principally attributable to a combination of additional
administrative compensation costs and administrative costs resulting
from the Company's increased research and development activities,
payments to various consultants and advisors and additional costs
associated with shareholder and public relations.
Research and development costs for consultants, supplies and
testing increased from $154,495 in 1995 to $1,095,027 in 1996, an
increase of $940,532 or 608.8%. This increase was principally
attributable to a combination of toxicity studies, clinical testing
and additional field testing on products under development.
Interest expense increased from $35,970 in 1995 to $103,517 in
1996, an increase of $67,547 or 187.8%. This increase was
attributable to 80,000 shares of stock which were issued to
noteholders as a condition of extending the maturity dates of their
notes. The shares were valued at $1.25 per share and treated as
additional interest expense.
Interest income increased from $6,958 in 1995 to $18,289 in 1996,
an increase of $11,331. This increase was attributable to the
temporary investment of cash proceeds received from a private
placement of the Company's securities during 1996.
Liquidity and Capital Resources
Since inception, the Company has funded its operations primarily
with the proceeds from debt and equity securities totaling
approximately $7,700,000. For the year ended December 31, 1997, the
Company's operations utilized cash of $2,376,000 primarily to fund
the operating loss and the Company loaned stockholders $90,000.
These uses of cash were offset by equity financings that resulted in
net proceeds of $4,778,000 to the Company.
The Company has no significant commitments for the purchase of
equipment, product manufacturing or marketing efforts at present.
The Company leases office facilities under an operating lease that
ends in May 2002. The space is necessary to meet current and future
expansion needs. Annual rent expense will be approximately $80,000.
24
As discussed in Note 9, the Company has entered into various
licensing agreements that require future cash payments. Aggregate
future payments under licensing agreements are approximately
$1,764,000 of which approximately $564,000 is payable in 1998.
The Company's audited financial statements for the years ended
December 31, 1997 and 1996 indicated that there was an uncertainty as
to the Company's ability to continue as a going concern. As of
December 31, 1997, the Company's accumulated deficit was $7,916,884
and cash balances were $2,594,000. The Company has no bank lines of
credit or other commercial financing sources at present and does not
expect to obtain any. It is not known whether additional funds could
be borrowed from stockholders or other sources.
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. The Company believes that its existing funds will
be sufficient to fund its operating expenses and capital requirements
as currently planned through mid-1998. The Company is currently
seeking to complete a private equity placement. There can be no
assurance that the Company will be able to obtain the additional
funding that it will require on acceptable terms, if at all.
Impact of Year 2000 Issue
The Company has reviewed its internal computer systems and
products and their capability of recognizing the year 2000 and years
thereafter. The Company expects that any costs relating to enuring
such systems to be a year 2000 compliant will not be material to the
financial condition or results of operations of the Company.
Inflation and Changing Prices
To date, the impacts of inflation and changing prices on the
Company's operations have been minimal. The Company is currently
testing its processes and products in the United States and Israel in
accordance with royalty and research agreements that are already in
effect. During the research, development and testing phases of
operations to satisfy regulatory requirements for the products under
development, the Company expects inflationary pressures in both
countries will be minimal and, hence, not have a material impact on
operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENT DATA.
Financial Statements and Supplementary Data begin on the following
page.
25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SafeScience, Inc.
We have audited the accompanying balance sheets of SafeScience, Inc.
(formerly IGG International, Inc., a Nevada corporation in the
development stage) as of December 31, 1997, and the related
statements of operations, stockholders' equity and cash flows for the
year then ended and for the period from inception (December 8, 1992)
to December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We did not audit the financial statements of SafeScience, Inc. for
the period from inception to December 31, 1996. Such statements are
included in the cumulative inception to December 31, 1997 totals of
the statements of operations and cash flows and reflect total net
loss of 40 percent of the related cumulative total. Those statements
were audited by other auditors whose reports have been furnished to
us and included herein and our opinion, insofar as it relates to
amounts for the period from inception to December 31, 1996, included
in the cumulative totals, is based solely upon the reports of the
other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
SafeScience, Inc. as of December 31, 1997, and the results of its
operations and its cash flows for the year then ended and for the
period from inception (December 8, 1992) to December 31, 1997, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in
Note 1 to the financial statements, the Company has suffered
recurring losses from operations that raise substantial doubt about
its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
Arthur Andersen LLP
Boston, Massachusetts
February 20, 1998
26
Board of Directors
IGG International, Inc.
Cambridge, Massachusetts
Independent Auditor's Report
We have audited the accompanying consolidated balance sheet of IGG
International, Inc. (a development stage enterprise) as of December
31, 1996, and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows for the years ended
December 31, 1995 and 1996. We have also audited the consolidated
statement of operations shareholders equity and cash flows and for
the period from December 8, 1992 (inception) through December 31,
1996, not included herein. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of IGG International, Inc. as of December 31, 1996 and the
results of its operations and its cash flows for the years ended
December 31, 1995 and 1996, and for the period ended December 8, 1992
(inception) through December 31, 1996, in conformity with generally
accepted accounting principles.
The consolidated financial statements as of Decmeber 31, 1996 have
been prepared assuming that the Company will continue as a going
concern. As shown in the consolidated financial statements, the
Company incurred a net loss of $2,300,147 during the year ended
December 31, 1996. As discussed in Note 1, this condition raises
substantial doubt that the Company will be able to continue as a
going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Williams & Webster, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
March 27, 1997
F-1
27 SAFESCIENCE, INC.
(f/k/a IGG INTERNATIONAL, INC.)
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, December 31,
1997 1996
Current assets:
Cash and cash equivalents $2,594,312 $ 444,661
Prepaid expenses 31,680 6,134
Other 18,400 12,268
---------- ----------
Total current assets 2,644,392 463,063
---------- ----------
Property and equipment, net
of accumulated depreciation 47,646 23,987
---------- ----------
Other assets:
Notes receivable - stockholders 89,233 -
Deposits 6,328 1,789
Restricted cash 119,138 -
---------- ----------
Total other assets 214,699 1,789
---------- ----------
$2,906,737 $ 488,839
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 148,854 $ 62,648
Accrued liabilities 304,763 128,100
Deferred revenue 10,000 -
---------- ----------
Total current liabilities 463,617 190,748
---------- ----------
Stockholders' equity:
Preferred stock, $.01 par value,
5,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, $.01 par value,
25,000,000 shares authorized;
12,098,576 shares and 9,462,641
shares issued and outstanding
at December 31, 1997 and
1996, respectively 120,986 94,626
Additional paid-in capital 10,239,018 3,385,874
Deficit accumulated during
development stage (7,916,884) (3,182,409)
---------- ----------
Total stockholders' equity 2,443,120 298,091
---------- ----------
Total liabilities and
stockholders' equity $2,906,737 $ 488,839
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
28
SAFESCIENCE, INC.
(f/k/a IGG INTERNATIONAL, INC.)
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
Period from
December 8, 1992
(Inception)
through
Years Ended December 31, December 31,
1997 1996 1995 1997
Revenues $ - $ - $ - $ -
General and administrative
expenses 2,428,072 1,118,125 492,326 4,231,056
Research and development
expenses 2,390,021 1,095,027 154,495 3,653,231
----------- ----------- ---------- -----------
Operating loss (4,818,093) (2,213,152) (646,821) (7,884,287)
----------- ----------- ---------- -----------
Other income (expense):
Interest expense - (103,517) (35,970) (139,712)
Interest income 83,618 18,289 6,958 108,882
Loss on disposal
of assets - (1,767) - (1,767)
----------- ----------- ----------- -----------
Total other income
(expense) 83,618 (86,995) (29,012) (32,597)
----------- ----------- ----------- -----------
Net loss $(4,734,475) $(2,300,147) $ (675,833) $(7,916,884)
=========== =========== =========== ===========
Basic and diluted
net loss per
common share $ (0.43) $ (0.26) $ (0.09)
========== =========== ===========
Weighted average number
of common shares
outstanding 11,022,577 8,700,146 7,290,615
=========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
29
(In order to transmit these documents to the SEC via EDGAR,
SafeScience, Inc., a development stage enterprise, Consolidated
Stockholders' Equity has been formatted to fit across two pages. This
is page 1 of 2.)
SAFESCIENCE, INC.
(f/k/a IGG INTERNATIONAL, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Period from Inception (December 8, 1992)
to December 31, 1997
Common Stock
---------------- Additional
Number Paid-in
of Shares Amount Capital
Balance - December 8, 1992 - $ - $ -
Issuance of shares to officers
in consideration of services
provided and additional cash
contributed during 1993, net
average cost of $.076 per share 578,165 5,782 37,905
Net loss - - -
--------- ------- --------
Balance - December 31, 1993 578,165 5,782 37,905
Common stock issued for cash
at $.244 per share 40,916 409 9,591
Common stock issued for
recruiting a director with
cash paid of $.0l per share 200,134 2,001 (1,801)
Cash paid by stockholders for
a minority interest in
International Gene Group,
Inc. prior to the reverse
acquisition of Alvarada, Inc. - - 52,500
Shares issued in 9-for-1 stock
dividend to stockholders
as of January 1, 1994 5,001,871 50,019 (50,019)
Additional paid-in capital
from original stockholders - - 1,590
Net loss - - -
--------- ------- --------
Balance - December 31, 1994 5,821,086 $58,211 $ 49,766
--------- ------- --------
The accompanying notes are an integral part of these consolidated
financial statements.
F-4a
30
(In order to transmit these documents to the SEC via EDGAR,
SafeScience, Inc., a development stage enterprise, Consolidated
Stockholders' Equity has been formatted to fit across two pages. This
is page 2 of 2.)
SAFESCIENCE, INC.
(f/k/a IGG INTERNATIONAL, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Period from Inception (December 8, 1992)
to December 31, 1997
Deficit
Accumulated Total
During the Stockholders'
Development Equity
Stage (Deficit)
Balance - December 8, 1992 $ - $ -
Issuance of shares to officers
in consideration of services
provided and additional cash
contributed during 1993, net
average cost of $.076 per share - 43,687
Net loss (38,082) (38,082)
---------- ---------
Balance - December 31, 1993 (38,082) 5,605
Common stock issued for cash
at $.244 per share - 10,000
Common stock issued for
recruiting a director with
cash paid of $.0l per share - 200
Cash paid by stockholders for
a minority interest in
International Gene Group,
Inc. prior to the reverse
acquisition of Alvarada, Inc. - 52,500
Shares issued in 9-for-1 stock
dividend to stockholders
as of January 1, 1994 - -
Additional paid-in capital
from original stockholders - 1,590
Net loss (168,347) (168,347)
---------- ---------
Balance - December 31, 1994 $ (206,429) $ (98,452)
---------- ---------
F-4b
31
(In order to transmit these documents to the SEC via EDGAR,
SafeScience, Inc., a development stage enterprise, Consolidated
Stockholders' Equity has been formatted to fit across two pages. This
is page 1 of 2.)
SAFESCIENCE, INC.
(f/k/a IGG INTERNATIONAL, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Period from Inception (December 8, 1992)
to December 31, 1997
Common Stock
---------------- Additional
Number Paid-in
of Shares Amount Capital
Recapitalization of the Company
through the reverse acquisition
of Alvarada, Inc. 1,349,914 $13,499 $ (17,321)
Common stock issued for cash at
$2.50 per share, net of costs
of $7,500 88,200 882 212,118
Common stock issued for cash at
$1.19 to $1.25 per share, net
of costs of $2,500 248,291 2,483 291,683
Net loss - - -
--------- ------- ----------
Balance - December 31, 1995 7,507,491 75,075 536,246
--------- ------- ----------
Common stock issued for the
conversion of notes payable
at $1.25 per share, including
accrued interest 272,596 2,726 338,020
Common stock issued to extend
notes payable at one share
per $5.00 of note, valued
at $1.25 per share 80,000 800 99,200
Common stock issued for services
valued at $2.00 per share 2,400 24 4,776
Common stock issued for cash at
$1.25 to $2.50 per share,
net of costs of $60,826 1,142,431 11,424 1,513,157
Common stock issued as part of
a Private Placement at $2.50 per
share with warrants attached 190,000 1,900 473,100
Common stock issued for common
stock of International Gene
Group, Inc. minority interests 173,449 1,734 (1,734)
Common stock issued for adjustment
in share prices 33,774 338 (338)
Stock options for 215,206 shares
of common stock issued for consulting
and professional services valued
at $1.50 to $2.69 per share - - 424,052
Stock options exercised 60,500 605 (605)
Net loss - - -
--------- ------- ----------
Balance - December 31, 1996 9,462,641 $94,626 $3,385,874
--------- ------- ----------
The accompanying notes are an integral part of these consolidated
financial statements.
F-5a
32
(In order to transmit these documents to the SEC via EDGAR,
SafeScience, Inc., a development stage enterprise, Consolidated
Stockholders' Equity has been formatted to fit across two pages. This
is page 2 of 2.)
SAFESCIENCE, INC.
(f/k/a IGG INTERNATIONAL, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Period from Inception (December 8, 1992)
to December 31, 1997
Deficit
Accumulated Total
During the Stockholders'
Development Equity
Stage (Deficit)
Recapitalization of the Company
through the reverse acquisition
of Alvarada, Inc. $ - $ (3,822)
Common stock issued for cash at
$2.50 per share, net of costs
of $7,500 - 213,000
Common stock issued for cash at
$1.19 to $1.25 per share, net
of costs of $2,500 - 294,166
Net loss (675,833) (675,833)
----------- ----------
Balance - December 31, 1995 (882,262) (270,941)
----------- ----------
Common stock issued for the
conversion of notes payable
at $1.25 per share, including
accrued interest - 340,746
Common stock issued to extend
notes payable at one share
per $5.00 of note, valued
at $1.25 per share - 100,000
Common stock issued for services
valued at $2.00 per share - 4,800
Common stock issued for cash at
$1.25 to $2.50 per share,
net of costs of $60,826 - 1,524,581
Common stock issued as part of
a Private Placement at $2.50
per share with warrants attached - 475,000
Common stock issued for common
stock of International Gene
Group, Inc. minority interests - -
Common stock issued for adjustment
in share prices - -
Stock options for 215,206 shares
of common stock issued for consulting
and professional services valued
at $1.50 to $2.69 per share - 424,052
Stock options exercised - -
Net loss (2,300,147) (2,300,147)
----------- ----------
Balance - December 31, 1996 $(3,182,409) $ 298,091
----------- ----------
F-5b
33
(In order to transmit these documents to the SEC via EDGAR,
SafeScience, Inc., a development stage enterprise, Consolidated
Stockholders' Equity has been formatted to fit across two pages. This
is page 1 of 2.)
SAFESCIENCE, INC.
(f/k/a IGG INTERNATIONAL, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Period from Inception (December 8, 1992)
Common Stock
---------------- Additional
Number Paid-in
of Shares Amount Capital
Common stock issued for cash at
$2.00 to $3.00 per share with
warrants attached, net of costs
of $175,000 750,000 $ 7,500 $ 1,567,500
Common stock issued as part of
a Private Placement at $2.50
per share with warrants attached,
net of costs of $63,375 463,000 4,630 1,076,995
Common stock issued as part of a
Private Placement at $3.00 per
share with warrants attached 533,867 5,339 1,596,478
Common stock issued for common
stock of International Gene
Group, Inc. minority interests 205,469 2,055 717,087
Common stock issued for consulting
services and wages valued at
$2.00 to $5.81 per share 195,800 1,958 822,300
Stock options for 141,426 shares
of common stock issued for
consulting and professional
services valued at $2.90 to
$5.83 per option - - 557,662
Stock options exercised 187,799 1,878 (1,878)
Warrants exercised 300,000 3,000 517,000
Net loss - - -
---------- -------- -----------
Balance - December 31, 1997 12,098,576 $120,986 $10,239,018
========== ======== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
F-6a
34
(In order to transmit these documents to the SEC via EDGAR,
SafeScience, Inc., a development stage enterprise, Consolidated
Stockholders' Equity has been formatted to fit across two pages. This
is page 2 of 2.)
SAFESCIENCE, INC.
(f/k/a IGG INTERNATIONAL, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Period from Inception (December 8, 1992)
to December 31, 1997
Deficit
Accumulated Total
During the Stockholders'
Development Equity
Stage (Deficit)
Common stock issued for cash at
$2.00 to $3.00 per share with
warrants attached, net of costs
of $175,000 $ - $ 1,575,000
Common stock issued as part of
a Private Placement at $2.50
per share with warrants attached,
net of costs of $63,375 - 1,081,625
Common stock issued as part of a
Private Placement at $3.00 per
share with warrants attached - 1,601,817
Common stock issued for common
stock of International Gene
Group, Inc. minority interests - 719,142
Common stock issued for consulting
services and wages valued at
$2.00 to $5.81 per share - 824,258
Stock options for 141,426 shares
of common stock issued for
consulting and professional
services valued at $2.90 to
$5.83 per option - 557,662
Stock options exercised - -
Warrants exercised - 520,000
Net loss (4,734,475) (4,734,375)
------------ -----------
Balance - December 31, 1997 $ (7,916,884) $ 2,443,120
============ ===========
F-6b
35
(In order to transmit these documents to the SEC via EDGAR,
SafeScience, Inc., a development stage enterprise, Consolidated
Statements of Cash Flows has been formatted to fit across two pages.
This is page 1 of 2.)
SAFESCIENCE, INC.
(f/k/a IGG INTERNATIONAL, INC.)
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
1997 1996
Cash flows from operating activities:
Net loss $(4,734,475) $(2,300,147)
Adjustments to reconcile net loss to
net cash used in operating activities:
Operating expenses paid in common stock
and options 1,382,460 559,598
Issuance of stock for minority interest 719,142 -
Depreciation and amortization 15,545 10,740
Loss on disposal of assets - 1,767
Decrease (increase) in prepaid expenses (25,546) 21,918
Increase in other assets (6,132) (1,480)
Increase in accounts payable 86,206 45,440
Increase (decrease) in accrued liabilities 176,663 (33,970)
Increase in deferred revenue 10,000 -
----------- -----------
Net cash used in operating activities (2,376,137) (1,696,134)
----------- -----------
Cash flows from investing activities:
Purchase of equipment (39,744) (19,684)
Loans to stockholders (90,000) -
Repayment of stockholders' loans 767 -
Deposits paid, net (4,539) 408
Net cash used in acquisition - -
Increase in restricted cash (119,138) -
----------- -----------
Net cash used in investing activities (252,654) (19,276)
----------- -----------
Cash flows from financing activities:
Short-term borrowing - -
Payments on short-term borrowing - (90,000)
Proceeds from issuance of common stock 4,778,442 1,999,581
Capital contributed by stockholders - -
Debt issuance costs - -
----------- -----------
Net cash provided by financing activities 4,778,442 1,909,581
----------- -----------
Net increase in cash 2,149,651 194,171
Cash and cash equivalents, beginning balance 444,661 250,490
----------- -----------
Cash and cash equivalents, ending balance $ 2,594,312 $ 444,661
=========== ===========
Supplemental disclosure of non-cash
financing activities
Conversion of notes payable into equity $ - $ -
=========== ===========
Supplemental disclosure of cash
flow information
Cash paid for interest $ - $ 3,517
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
F-7a
36
(In order to transmit these documents to the SEC via EDGAR,
SafeScience, Inc., a development stage enterprise, Consolidated
Statements of Cash Flows has been formatted to fit across two pages.
This is page 2 of 2.)
SAFESCIENCE, INC.
(f/k/a IGG INTERNATIONAL, INC.)
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from
12/08/92
(Inception)
Years Ended through
12/31/95 12/31/97
Cash flows from operating activities:
Net loss $(675,833) $(7,916,884)
Adjustments to reconcile net loss to
net cash used in operating activities:
Operating expenses paid in common stock
and options - 1,941,060
Issuance of stock for minority interest - 719,142
Depreciation and amortization 36,898 66,686
Loss on disposal of assets - 1,767
Decrease (increase) in prepaid expenses (28,052) (31,680)
Increase in other assets (8,527) (17,139)
Increase in accounts payable 23,578 148,854
Increase (decrease) in accrued
liabilities 33,970 304,763
Increase in deferred revenue - 10,000
--------- -----------
Net cash used in operating activities (617,966) (4,773,431)
--------- -----------
Cash flows from investing activities:
Purchase of equipment (16,125) (82,404)
Loans to stockholders (40,000) (130,000)
Repayment of stockholders' loans 40,000 40,767
Deposits paid, net (2,197) (6,328)
Net cash used in acquisition (3,822) (3,822)
Increase in restricted cash - (119,138)
--------- -----------
Net cash used in investing activities (22,144) (300,925)
--------- -----------
Cash flows from financing activities:
Short-term borrowing 398,000 398,000
Payments on short-term borrowing - (90,000)
Proceeds from issuance of common stock 507,166 7,391,036
Capital contributed by stockholders - 1,329
Debt issuance costs (31,697) (31,697)
--------- -----------
Net cash provided by financing activities 873,469 7,668,668
--------- -----------
Net increase in cash 233,359 2,594,312
Cash and cash equivalents, beginning balance 17,131 -
--------- -----------
Cash and cash equivalents, ending balance $ 250,490 $ 2,594,312
========= ===========
Supplemental disclosure of non-cash
financing activities
Conversion of notes payable into equity $ 310,000 $ 310,000
========= ===========
Supplemental disclosure of cash flow
information
Cash paid for interest $ 2,000 $ 5,742
========= ===========
37 SAFESCIENCE, INC.
(f/k/a IGG INTERNATIONAL, INC.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
SafeScience, Inc. (f/k/a IGG International, Inc., the Company,
formerly Alvarada, Inc., a Nevada corporation), is a successor by
reverse acquisition (Note 9) to International Gene Group, Inc., a
Michigan corporation. The Company is a development stage enterprise
formed for the research and development of pharmaceutical products
based on carbohydrate chemistry. The Company has two wholly-owned
subsidiaries, International Gene Group, Inc. and Agricultural
Glycosystems, Inc. Agricultural Glycosystems, Inc. is developing
agricultural applications for products that are also based upon
carbohydrate chemistry and these products will be either licensed
from or jointly developed with the Government of Israel's
Agricultural Research Organization. SafeScience, Inc., International
Gene Group, Inc., and Agricultural Glycosystems, Inc. maintain an
office in Boston, Massachusetts.
The Company is in the development stage and is devoting substantially
all of its efforts toward product research and development and
raising capital. Management anticipates that all future revenues
will be derived from products under development or those developed in
the future. Principal risks to the Company include the successful
development and marketing of products to obtain profitable
operations, dependence on collaborative partners, the ability to
obtain adequate financing to fund future operations, United States
Food and Drug Administration clearance and regulation, dependence on
key individuals and competition from substitute products and larger
companies.
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
revenue and expenses during the reporting period. Actual results
could differ from those estimates.
The consolidated financial statements of the Company have been
prepared assuming that the Company will continue as a going concern.
Given the uncertainty regarding the Company's ability to obtain
additional capital or adequate financing to fund operations, there is
substantial doubt about the Company's ability to continue as a going
concern. The Company is making presentations to various venture
capital sources to raise additional capital. The Company is also
pursuing possible strategic partnerships or collaborations with other
companies interested in its products under development. No
adjustments have been made to the financial statements as a result of
this uncertainty.
F-8
38
SAFESCIENCE, INC.
(f/k/a IGG INTERNATIONAL, INC.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.continued
Principles of Consolidation
The Company's financial statements include the accounts of the
Company and its wholly-owned subsidiaries, International Gene
Group, Inc., and Agricultural Glycosystems, Inc. All material
intercompany transactions and accounts have been eliminated in the
consolidated financial statements.
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, 1997
includes $230,000, which is held by a single bank and $2,450,000
held in an investment account, and could represent concentrations
of credit risk. Cash and cash equivalents at December 31, 1996
includes approximately $397,000 held by a single bank. The
Company's management believes such a risk is minimal since these
funds are in a "sweep" account which is reinvested daily in
government securities funds. Restricted cash represents funds
held under an irrevocable standby letter of credit. The letter of
credit serves as security for the Company's facility lease. The
funds are being held in an investment account.
Property and Equipment
Equipment is carried at cost. Depreciation is calculated on
straight line methods over estimated useful lives ranging from 5
to 7 years.
Research and Development
Research and development costs, which consist primarily of
expenses for consultants, supplies and testing, are charged to
operations as incurred.
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 options and
warrants would be antidilutive.
F-9
39
SAFESCIENCE, INC.
(f/k/a IGG INTERNATIONAL, INC.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.continued
Stock Split
In March 1995, the Company effected a 78.14-for-1 reverse
stock split for all shares outstanding at that date. The
stock split has been retroactively restated in the
accompanying financial statements.
Income Taxes
The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. As of December
31, 1997, the Company had accumulated net operating losses
of approximately $4,500,000 and credit carryforwards of
approximately $274,000. These losses and credit
carryforwards are available to reduce taxable income and
future income taxes. These losses may be carried forward
for fifteen years, with expiration beginning in 2008.
The Company has recorded a full valuation allowance against
its deferred tax asset of $2,250,000 due to the uncertainty
surrounding the realizability of this asset. The Company's
deferred tax asset as of December 31, 1996 was approximately
$460,000. The principal components of the tax asset are net
operating loss and credit carryforwards.
Minority Interest
At December 31, 1996, minority stockholders held an
approximate three percent interest in International Gene
Group, Inc. During 1997, these minority stockholders
converted their shares in International Gene Group, Inc.
into 205,469 shares of common stock. The Company recorded
the fair value of the shares issued as research and
development expense in the year ended December 31, 1997.
2. NOTES RECEIVABLE - STOCKHOLDERS
Notes receivable from stockholders represents promissory
notes from two officers/ stockholders of the Company. The
loans are payable in monthly installments of $375 and $160,
including interest at 5.66% and 6.65%, with final payments
of $60,601 due on March 11, 2002, and $23,603 due on June
20, 2002.
F-10
40
SAFESCIENCE, INC.
(f/k/a IGG INTERNATIONAL, INC.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. PROPERTY AND EQUIPMENT, NET
The Company's property and equipment at December 31, 1997
and 1996 consists of the following:
1997 1996
Computer, office equipment
and improvements $79,566 $39,822
Less: accumulated depreciation (31,920) (15,835)
------- -------
Total $47,646 $23,987
======= =======
4. NOTES PAYABLE
In March 1995, the Company raised $400,000 from a private
placement offering of eight "investment units" from
accredited investors. This offering was intended to provide
a "bridge" loan for the research and development activities
of the Company, and was contingent on the completion of the
reverse acquisition (Note 7). Each investment unit
consisted of a $50,000 promissory note and 25,000 shares of
common stock. The promissory notes, which paid ten percent
interest per annum, had a maturity date of January 1, 1996,
although this date was extended at the Company's option for
an additional year.
In January 1996, promissory noteholders converted $310,000
of the aforementioned promissory notes at the rate of $1.25
per common share into 248,000 shares of common stock. The note
holders also converted $30,746 in accrued interest at the rate
of $1.25 per common share into 24,507 shares. During 1996, the
Company repaid $90,000 of the remaining promissory notes
including interest.
As a condition of extending the notes, the Company issued an
additional 80,000 shares of common stock to the noteholders.
The 80,000 shares were valued at $1.25 per share for an
aggregate expense of $100,000. This expense was recorded as
additional interest expense during 1996.
Expenses associated with the private placement offering
totaled $31,697. These charges were capitalized and
amortized over the original period of the loans. These
expenses include legal and promotional costs associated with
the debt offering and related reverse acquisition of
Alvarada, Inc. As discussed in Note 7.
F-11
41
SAFESCIENCE, INC.
(f/k/a IGG INTERNATIONAL, INC.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. STOCKHOLDERS' EQUITY
International Gene Group, Inc. was incorporated on December 8, 1992.
The Company did not begin its activities or issue stock until early
1993. In 1993, the original stockholders received common stock for
services provided and contributed $43,687 in cash. In 1994, these
stockholders contributed an additional $1,590 cash. During 1994, the
Company sold common stock by subscription agreements for a total of
$62,700.
In March 1995, the majority stockholders of International Gene Group,
Inc., controlling 19,633 shares of common stock, acquired eighty-one
percent control of Alvarada, Inc. through a reverse acquisition in
exchange for their stock. The investment of the remaining
stockholders, controlling 1,278 shares of International Gene Group,
Inc. was recorded as minority interest in this subsidiary.
The acquisition was accounted for as a reverse acquisition and the
subsequent capital structure of the continuing entity includes the
restated stock of Alvarada, Inc. at $.01 par value and a combination
of the Companies' paid-in capital. After the reverse stock split in
1995, the authorized capital stock of Alvarada, Inc., subsequently
known as IGG International, Inc. and SafeScience, Inc., was amended
to include 30,000,000 authorized shares of stock, consisting of
25,000,000 shares of common stock with a par value of $.01, and
5,000,000 shares of preferred stock with a par value of $.01.
Additional capital raised by the Company in 1995 includes a $271,666
payment on a subscription for 684,874 shares of common stock with a
total subscription price of $815,000. The balance of this agreement
amounting to $543,334 was paid during 1996.
Private Placement Offerings
In November 1996, the Company began a Private Placement Offering of
common stock. As of December 31, 1996, 190,000 shares had been sold
at $2.50 per share. In 1997, the Company sold an additional 457,850
shares at $2.50 per share. These shares included an attached warrant
to purchase one share of common stock for $3.50 for every four shares
of common stock purchased. As of December 31, 1997, 161,963 warrants
were outstanding.
F-12
42
SAFESCIENCE, INC.
(f/k/a IGG INTERNATIONAL, INC.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. STOCKHOLDERS' EQUITY.continued
Private Placement Offerings.continued
In 1997, the Company completed a private placement offering of common
stock in which the Company sold 533,867 shares at $3.00 per share.
These shares included an attached warrant to purchase one share of
common stock for $4.75 per share for every four shares of common
stock purchased. As of December 31, 1997, warrants to purchase
133,467 shares of common stock at $4.75 per share were outstanding.
Regulation S Stock Sales
In January 1997, the Company completed a sale of 500,000 shares of
common stock for $900,000 under regulation S of the Securities and
Exchange Commission's regulations. These shares also included an
attached warrant to purchase one share of common stock for $3.50 for
every four shares of common stock purchased. As of December 31,
1997, warrants to purchase 125,000 shares of common stock at $3.50
per share were outstanding.
In September 1997, the Company completed an additional sale of
250,000 shares of common stock for $675,000 under regulation S of the
Securities and Exchange Commission's regulations. These shares also
include an attached warrant to purchase one share of common stock for
$4.75 for every four shares of common stock purchased. As of
December 31, 1997, warrants to purchase 62,500 shares of common stock
at $4.75 per share were outstanding.
Warrants and Options
The Company has a Nonqualified Stock Option Plan and has registered
500,000 shares of common stock with the Securities and Exchange
Commission for the issuance under option agreements. The exercise
price of each option will be determined by the Board of Directors and
must be exercised within ten years from May 1, 1996. The Company may
issue these options to its officers, directors, employees and
consultants. As of December 31, 1997, options to purchase 335,659
shares were available for future grant. The Company has entered into
agreements with various employees and consultants for the grant of
stock options, warrants and shares of common stock at $.01 per share.
During 1997 and 1996, the Company granted options, warrants and
shares totaling 337,226 and 215,206 shares and recorded charges to
operations of approximately $1,382,000 and $424,000 relating to these
grants. The charge to operations represented the fair market value
of the underlying common stock, option or warrant.
F-13
43
SAFESCIENCE, INC.
(f/k/a IGG INTERNATIONAL, INC.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. STOCKHOLDERS' EQUITY.continued
Warrants and Options.continued
The following table summarizes stock option activity to
employees and consultants for services and all warrant
activity in connection with equity financings as of December
31, 1997:
Stock Options Warrants
Weighted Weighted
Average Average
Exercise Exercise
Number of Price Per Number of Price Per
Shares Share Shares Share
Balance, January 1, 1995 - $ - - $ -
Granted - - 100,000 0.10
-------- ------ -------- -----
Balance, December 31, 1995 - - 100,000 0.10
Granted 215,206 0.01 647,500 4.13
Exercised (60,500) 0.01 - -
-------- ------ -------- -----
Balance, December 31, 1996 154,706 0.01 747,500 3.59
Granted 171,926 0.01 445,930 4.06
Exercised (218,299) 0.01 (300,000) 1.73
Canceled - - (400,000) 5.00
-------- ------ -------- -----
Balance, December 31, 1997 108,333 $ 0.01 493,430 $4.00
======== ====== ======== =====
As of December 31, 1997, 108,333 options to purchase shares
were outstanding with an exercise price of $.01 per share,
290,463 warrants to purchase shares were outstanding with an
exercise price of $3.50 per share, and 195,967 warrants to
purchase shares were outstanding with an exercise price of
$4.75 per share. All options and warrants outstanding at
December 31, 1997 are exercisable.
As of December 31, 1997, the Company had committed to grant
options to purchase 290,500 shares of common stock at $.01
per share upon the attainment of future milestones.
F-14
44
SAFESCIENCE, INC.
(f/k/a IGG INTERNATIONAL, INC.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. STOCKHOLDERS' EQUITY.continued
Warrants and Options.continued
In October 1995 the financial Accounting Standards Board
issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS requires the measurement of the fair
value of stock options, warrants and stock grants to be
included in the financial statements or disclosed in the
notes to financial statements. The Company has determined
that it will continue to account for stock-based
compensation in accordance with Accounting Principles Board
Opinion No. 25 and will elect the disclosure-only provisions
under SFAS No. 123. The effect of valuing options, warrants
and stock grants under SFAS No. 123 is not different than under
APB No. 25 as options and warrants granted to employees and
consultants for services were granted at $.01 per share and were
recorded under APB No. 25 at the fair market value of the
underlying stock. All warrants issued in connection with equity
financings were not separately valued.
Acquisition of Minority Interest in Subsidiary
In 1997, the Company acquired the remaining minority
interest in its subsidiary, International Gene Group, Inc.
by issuing 205,469 shares of restricted stock in exchange
for the outstanding shares in the subsidiary. Research and
development costs have been charged for $719,142, which
represented the fair market value of the shares issued.
6. RELATED PARTY TRANSACTIONS
In January 1994, the Company agreed that its founder, Dr.
David Platt, would receive a royalty of two percent of net
sales, in exchange for the licensed patent rights on certain
products being developed. The Company has agreed to pay all
of the costs to procure and maintain any patents granted
under this agreement.
The agreement includes a requirement that the royalties paid
in the sixth year of this agreement and all subsequent years
meet a minimum requirement of $50,000. If this requirement
is not met, Dr. Platt may terminate the agreement and retain
the patent rights. The Company may terminate the agreement
on sixty days' notice. The Company has not made any royalty
payments under the agreement.
F-15
45
SAFESCIENCE, INC.
(f/k/a IGG INTERNATIONAL, INC.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. ACQUISITION AND RECAPITALIZATION
On March 7, 1995, Alvarada, Inc. acquired International Gene
Group, Inc. by exchanging 5,821,086 shares of its issued and
outstanding common stock for 19,633 issued and outstanding
shares of International Gene Group, Inc. As a result of
this exchange, Alvarada, Inc. acquired approximately 94% of
the outstanding common stock of International Gene Group,
Inc. In the reverse acquisition, no adjustment of assets of
either company to "fair value" has been made, and goodwill
has not been recognized as a result of the acquisition.
Prior to the acquisition of International Gene Group, Inc.,
Alvarada, Inc. had approximately 1,349,860 shares of common
stock issued and outstanding. As shares were reissued from
the stock split and acquisition, any fractional shares were
rounded upward in accordance with the agreements. As of
March 28, 1995, Alvarada, Inc. changed its name to IGG
International, Inc.
8. LEASES
The Company leases office space in Boston, Massachusetts,
under an operating lease expiring in May 2002.
Minimum future rental payments under the non-cancelable
operating lease as of December 31, 1997 for each of the next
five calendar years are as follows:
Years ending December 31,
1998 $87,000
1999 79,000
2000 77,000
2001 77,000
2002 32,000
---------
$352,000
=========
Rent expense in the accompanying consolidated statements of
operations was $45,700, $54,500, and $21,000 in 1997, 1996,
and 1995, respectively.
F-16
46
SAFESCIENCE, INC.
(f/k/a IGG INTERNATIONAL, INC.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. LICENSING AGREEMENTS
On December 29, 1995, the Company's subsidiary Agricultural
Glycosystems, Inc. (AGI) entered into a licensing agreement
with the Government of Israel's Agricultural Research
Organization concerning shared technology. The licensing
agreement requires that AGI pay a three percent (3%) royalty
on the net selling price of any licensed products developed
from the shared technology. As an additional condition of
this agreement, AGI will fund a research and development
program requiring payments over the next five years totaling
$1,573,000. In the first year of the licensing agreement,
AGI is obligated to pay $327,000 followed by successive
annual payments of $332,000, $314,000, $300,000 and
$300,000, respectively. This agreement will be effective
until the patents concerning the licensed technology have
expired or the agreement is terminated by the parties
involved. The Company paid $30,000 of the first year's
payment in 1995, and in 1996 the Company paid $297,000. The
Company paid $332,000 during 1997.
On April 29, 1997, Agricultural Glycosystems, Inc., signed
an exclusive, worldwide licensing agreement with Agrogene
Ltd. to commercialize carbohydrate compounds derived from a
collection of natural carbohydrates identified and patented
by Agrogene Ltd. Agrogene Ltd. is an Israeli based
biotechnology company specializing in products for
agriculture. AGI will fund the research and development of
this product and future generation products for 5 years at
$150,000 per year. The Company made three payments of
$25,000 during 1997. A fourth payment of $25,000 was due
and paid in January 1998.
In October 1997, the Company entered into an agreement to
license certain patented technology from Leket-Bar
Chemicals, Ltd. The Company is required to pay license fees
totaling $400,000 over the next four years and royalties on
future product sales.
F-17
47
ITEM 9. CHANGE IN CERTIFYING ACCOUNTANT.
(a) At its board meeting on May 7, 1997, the Board of Directors
of the Registrant engaged Arthur Andersen, LLP, Certified Public
Accountants, as its independent auditor for 1997. The work of
Williams & Webster, P.S. was terminated after the Form 10-K report
for December 31, 1996 was filed with the SEC on April 4, 1997.
(b) The accounting firm of Williams & Webster, P.S. was replaced
as a result of the engagement of Arthur Anderson. There were no
disagreements with Williams & Webster, P.S. on any matter of
accounting principles or practices, financial disclosure, or auditing
scope or procedure or any reportable events.
(c) Since inception of the Registrant, Williams & Webster's
reports on the financial statements have contained no adverse opinion
or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles, except the
disclosure of substantial doubt that the Company would continue as a
going concern.
(d) Williams & Webster, P.S. has provided a letter addressed to
the Securities and Exchange Commission stating it agrees with the
statements contained in the Form 8-K\A. A copy of which is filed as
"Exhibit 16" to this Form 8-K\A.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The officers and directors of the Company are as follows:
Name Age Position
David Platt, Ph.D. 42 Chief Executive Officer, Secretary and
Chairman of the Board of Directors
Bradley J. Carver 36 President, Chief Financial Officer,
Treasurer and a member of the Board of
Directors
Richard A. Salter 54 Senior Vice President
Robert Alvarez 49 Vice President of Sales
All directors hold office until the next annual meeting of
shareholders and until their successors have been elected and
qualified. The Company's officers are elected by the Board of
Directors at the annual meeting after each annual meeting of the
Company's shareholders and hold office until their death, or until
they resign or have been removed from office.
48
David Platt, Ph.D. - Chief Executive Officer, Secretary and Chairman
of the Board of Directors
Dr. Platt has been the Chief Executive Officer, Secretary and
Chairman of the Board of Directors of SafeScience since March 1995
and has been the Chief Executive Officer, Secretary and the Chairman
of the Board of Directors of IGG since December 1992. Dr. Platt has
been Chief Executive Officer, Secretary and Chairman of the Board of
Directors of AGI since its inception on June 23, 1995. From January
1991 to November 1992, Dr. Platt was a research scientist with the
Department of Internal Medicine at the University of Michigan, Ann
Arbor, Michigan. From October 1989 to November 1991, Dr. Platt was a
research fellow with Dr. A. Raz. at the Michigan Cancer Foundation,
Detroit Michigan. From January 1989 to August 1989, Dr. Platt was a
research fellow under Dr. M. Wilcheck, Weizmann Institute of Science,
Rehovot, Israel. Dr. Platt received a Doctor of Philosophy degree
(1989), Masters of Science degree (1983), and Bachelor of Science
degree (1978) from the Hebrew University of Jerusalem, Israel and a
Bachelor of Engineering degree (1980) from Technion, Haifa, Israel.
Bradley J. Carver - President, Chief Financial Officer, Treasurer and
a member of the Board of Directors
Mr. Carver has been President, Chief Financial Officer, Treasurer
and a member of the Board of Directors of SafeScience since March
1995 and has been the President, Chief Financial Officer, Treasurer
and a member of the Board of Directors of IGG since February 1993.
Mr. Carver has been President, Chief Financial Officer, Treasurer and
a member of the Board of Directors of AGI since its inception on June
23, 1995. In addition to his association with the Company beginning
in February 1993, from June 1992 to October 1994, Mr. Carver has been
a consultant with Cyrowski and Associates, which is engaged in the
business of commercial real estate. From March 1991 to October 1994,
Mr. Carver has been a consultant with Circuit Master, Inc., a
Michigan corporation, which is a electronics design and engineering
firm engaged in the production of audio power amplifiers. From June
1991 to September 1993, Mr. Carver was a consultant with EPI Medical
Products, a Michigan corporation, which is engaged in the production
and licensing of a patented device for disposal of hazardous medical
waste and surgical products. From January 1991 to March 1993, Mr.
Carver was a consultant with Capital Networks, Inc., a Michigan
corporation, which is a consulting firm for small business. From
January 1989 to March 1991, Mr. Carver was a consultant with Lincoln
Technical Services, Inc., a Michigan corporation, which is engaged in
the selection and management of engineers for automotive clients.
From December 1988 to December 1990, Mr. Carver was the founder of
Carver Nutritional Products, which was engaged in production and sale
of sports nutrition products sold to professional and college sports
teams. Mr. Carver received a Bachelor of Arts degree in management
from Michigan State University in 1983.
49
Richard A. Salter - Senior Vice President
Mr. Salter has been Senior Vice President of SafeScience since
February 1997. Prior thereto, Mr. Salter was Vice President -
Corporate Development of the Company from July 1996 through January
1997 and served SafeScience as a consultant from June 1996 through
July 1997. Prior to joining the Company, Mr. Salter was an
independent business consultant.
Robert Alvarez - Vice President - Sales
Since January 1998, Mr. Alvarez has been Vice President of Sales.
Since February 1994, Mr. Alvarez has been Business Manager of Biosys,
Inc. of Columbus, Maryland which is engaged in the business of
biological and botanical insect control. From May 1992 to February
1994, Mr. Alvarez was National Director of Sales and Marketing of
Clinton Nursery Products of Clinton, Connecticut. From May 1989 to
May 1992, Mr. Alvarez was Director of Sales for Commerce Corporation
of Linthieum, Maryland, a national lawn and garden specialty
distributor. Mr. Alverez holds a BSBA from John Carroll University,
Cleveland, Ohio.
Indemnficiation
The Company's Bylaws provide that the Company's directors and
officers will be indemnified to the fullest extent permitted by the
Nevada Corporation Code, however, such indemnification shall not
apply to acts of intentional misconduct; a knowing violation of law;
or, any transaction where an officer or director personally received
a benefit in money, property, or services to which to the director
was not legally entitled.
The Company has been advised that in the opinion of the
Securities and Exchange Commission indemnification is against public
policy as expressed in the Securities Act of 1933, as amended, and
is, therefore, unenforceable.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities and Exchange Act of 1934 requires
certain defined persons to file reports of and changes in beneficial
ownership of a registered security with the Securities and Exchange
Commission in accordance with the rules and regulations promulgated
by the Commission to implement the provisions of Section 16. Under
the regulatory procedure, officers, directors and persons who own
more than ten percent of a registered class of a company's equity
securities are also required to furnish the Company with copies of
all Section 16(a) forms they file.
Based solely on review of the copies of Forms 3, 4 and 5 furnished
to the Company for transactions occurring between January 1, 1997 and
December 31, 1997, or with respect to transactions which occurred
between January 1, 1997 and December 31, 1997, all reports which were
required to be filed under Section 16(a) of the Exchange Act were in
fact so filed with the exception of the following:
50
Robert Alvarez, the Company's Vice President, failed to file a
Form 3 with the Commission.
Richard Salter, the Company's Senior Vice President, failed to
file a Form 3 with the Commission upon becoming an affiliate of the
Company. Further, Mr. Salter has not filed any Form 4s or Form 5s
with respect to purchases and sales of the Company's securities.
ITEM 11. EXECUTIVE COMPENSATION.
(a) Cash Compensation.
The Company anticipates entering into employment agreements with
its officers in the near future. Directors do not receive
compensation for their services as directors and are not reimbursed
for expenses incurred in attending board meetings. The Company paid
the following salaries to its Officers:
1997 1996 1995
David Platt, Ph.D. $ 106,000 $96,000 $64,000
Bradley Carver $ 104,000 $80,000 $51,000
Richard Salter $ 139,781 [1] 0 0
[1] Mr. Salter's salary was paid in the form of 30,000 shares of
Common Stock of the Company valued at $139,781. Mr. Salter did
not receive any cash compensation from the Company. In
addition, prior to becoming an employee of the Company, he
received 30,000 shares of Common Stock as a consultant and
exercised options to purchase 57,500 shares of Common Stock at
$0.01 per share which were granted in 1996. The value of the
87,500 shares issued to Mr. Salter as a consultant during 1997
totaled $281,938.
and anticipates paying the following salaries in 1998:
David Platt, Ph.D. $ 120,000
Bradley Carver $ 120,000
Richard Salter $ 640,000 [2]
Robert Alvarez $ 85,000
[2] Mr. Salter's salary will be paid in the form of 60,000 shares of
Common Stock of the Company, plus an additional 100,000 shares
granted in January 1998. Mr. Salter does not receive any cash
compensation from the Company.
Further, Dr. Platt will receive a royalty of 2% of net sales of
GBC 590 and MMS-1 by the Company. Mr. Alvarez will receive options
to purchase 1,000 shares of Common Stock at the end of each quarter
that he remains employed with the Company.
Richard Salter, the Company's Senior Vice President, receives a
salary which is paid entirely in options to purchase Common Stock of
the Company. Mr. Salter receives options to purchase 5,000 shares
for each month of employment, of which 2,500 relate to so-called
"restricted" shares and the remaining 2,500 are registered on Form S-
51
8. In addition in January 1998, the Company granted Mr. Salter
options to purchase 100,000 shares of "restricted" Common Stock for a
purchase price of $0.01 per share, for each of the three years 1998,
1999 and 2000 at the commencement of which Mr. Salter remains with
the Company.
(b) Compensation Pursuant to Plans.
The Registrant has no retirement, pension, profit sharing,
insurance and medical reimbursement plans covering its Officers or
Directors other than a non-qualified incentive stock option plan
filed on Form S-8 Registration Statement with the Commission. As of
December 31, 1997, options to purchase 164,341 shares have been
issued and 158,500 shares exercised.
(c) Other Compensation.
Officers and Directors of the Registrant did not receive any other
compensation during the fiscal year ended December 31, 1997.
(d) Compensation of Directors.
The Registrant's Directors receive no compensation for their
services; however, they are reimbursed for travel expenses incurred
in serving on the Board of Directors.
(e) Termination of Employment and Change of Control Arrangements.
No compensatory plan or arrangement exists between the Registrant
and any Executive Officer, except as discussed herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth the Common Stock ownership, at
December 31, 1997 of each person known by the Company to be the
beneficial owner of five percent or more of the Company's Common
Stock, each director individually and all officers and directors of
the Company as a group. Each person has sole voting and investment
power with respect to the shares of Common Stock shown, and all
ownership is of record and beneficial.
52
Name and address Number of Percent
of owner Shares Position of Class
David Platt, Ph.D. 2,964,950 Chief Executive Officer, 24.7%
Park Square Building Secretary and Chairman
Suite 520 of the Board of Directors
31 St. James Avenue
Boston, MA 02116
Bradley J. Carver 2,583,086 President, Chief Financial 21.5%
Park Square Building Officer, Treasurer and
Suite 520 member of the Board
31 St. James Avenue
Boston, MA 02116
Richard A. Salter 150,000 Senior Vice President 1.3%
Park Square Building
Suite 520
31 St. James Avenue
Boston, MA 02116
Robert Alvarez 0 Vice President of Sales 0.0%
Park Square Building
Suite 520
31 St. James Avenue
Boston, MA 02116
ALL OFFICERS AND 5,698,036 47.5%
DIRECTORS AS A
GROUP (4 persons)
Britannia Holdings
Limited. 750,000 6.3%
Kings House - The Grange
St. Peter Port
Guersey, Channel Island GY1 2QJ
George
Strawbridge, Jr. 684,873 5.7%
3801 Kenneth Pike
Building B-100
Wilmington, DE 19807
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On January 7, 1994, IGG entered into a licensing agreement with
Dr. Platt, the Company's Chief Executive Officer and a member of the
Board of Directors to pay Dr. Platt a royalty of two percent (2%) of
the net sales of the Company's products. See "Business - Patent
Status and Protection of Proprietary Technology."
53
In June 1994, the Company issued 20,000,000 "restricted" shares of
Common Stock to Crosby Enterprises, Inc. in consideration of $20,000;
10,000,000 "restricted" shares of Common Stock to Howard Crosby in
consideration of services rendered; and, 10,000,000 "restricted"
shares of Common Stock to Robert Jorgensen for service rendered.
In March 1995, the Company effected a 1 for 78.14 reverse stock
split of its common shares. Reference hereinafter is to post-split
shares.
On March 7, 1995, the Company issued 5,821,086 "restricted" shares
of Common Stock in exchange for 19,633 shares of IGG, which
constituted 93.9% of the outstanding shares of IGG. There was no
relationship between Alvarada, Inc. and International Gene Group,
Inc. prior to this transaction. Included therein were 2,964,950
shares issued to David Platt and 2,583,096 shares issued to Brad
Carver.
On March 30, 1995, the Company entered into an agreement with Mr.
James C. Czirr, a former member of the Board of Directors of the
Company and Vice President, to pay Mr. Czirr a consulting fee of
$8,000 per month. The Company has paid a total of $15,000 to Mr.
Czirr and terminated the consulting agreement.
On June 23, 1995, the shareholders removed Mr. James Czirr as a
member of the Board of Directors and the Board of Directors voted not
to fill his vacancy. Further, on June 23, 1995, Mr. Czirr was
terminated as Vice President of the Company. The Company has since
retained Mr. Czirr as a consultant to the Company.
During 1997, the Company issued 1,283,867 shares of Common Stock
for cash consideration of $3,351,817 less associated expenses of
$175,000. These shares include 750,000 shares issued pursuant to two
Regulation S offerings: 500,000 shares issued in the first quarter
for a total of $1,000,000, and 250,000 shares issued in the third
quarter for a total of $750,000. Also included in this amount is
533,867 shares issued as part of a private placement which commenced
in August 1997 of up to 500,000 shares of "restricted" stock, which
private placement was subsequently extended to up to 1,000,000
shares. The Company received $1,601,817 for these 533,867 shares.
An additional 457,850 shares were sold in the first quarter of 1997,
for an aggregate purchase price of $1,145,000, in a private placement
commenced in the fall of 1996, which private placement resulted in
the issuance of a total (during 1996 and early 1997) of 647,850
shares of Common Stock for total consideration of $1,556,250, net of
expenses. The stock offered in each private placement has warrants
attached allowing the purchaser to purchase one additional share, for
a purchase price $3.50 in the case of the first private placement,
and a purchase price of $4.75 in the case of the second private
placement, for every four shares purchased. All such warrants expire
five years from the date of issue.
54
In 1996, the Company adopted a Nonqualifying Stock Option Plan and
registered, pursuant to a Form S-8 Registration Statement 500,000
shares of stock for the compensation of directors, consultants and
employees as per the agreement. During 1997, the Company issued
86,841 shares qualifying as these S-8 shares. The Company had other
stock for services agreements which resulted in restricted shares
being issued. The Company issued 250,385 other shares for services
in 1997. The value of stock options and stock grants was
approximately $1,382,000 for the year ended December 31, 1997.
The Company also issued 205,469 shares in 1997 to the minority
shareholders of its subsidiary International Gene Group, Inc.,
thereby increasing its ownership of this subsidiary to 100%. The
Company valued the purchase of the remaining minority interest at
approximately $719,000. The value of the purchase was recorded as a
charge to operations for the year ended December 31, 1997.
In April 1996, the Company granted to Trinity American Corporation
warrants for up to a year (or 100 days after the Securities and
Exchange Commission declares the registration effective) to subscribe
for 500,000 new shares of Common Stock at $5.00 per share. 100,000
of these warrants were exercised in 1997, resulting in aggregate
proceeds to the Company of $500,000, and the remainder of the
warrants have expired.
Effective July 7, 1997, the Company hired Richard Salter as its
Vice President for Business Development, for a period of two years.
Mr. Salter had served the Company as a consultant from June 1996
through July 7, 1997, during which period he received options to
purchase a total of approximately 110,000 shares of Common Stock. In
exchange for his services beginning in July 1997, Mr. Salter receives
options to purchase 5,000 shares of Common Stock (of which 2,500
shares will be issued under Form S-8 and the remaining 2,500 shares
will either be restricted shares or, at the Company's option, will be
issued under Form S-8), for each month that he serves the Company.
In January 1998, the Company granted Mr. Salter options to purchase
100,000 shares of "restricted" Common Stock for a purchase price of
$0.01 per share, for each of the three years 1998, 1999 and 2000 at
the commencement of which Mr. Salter remains with the Company.
Keith Greenfield has also rendered consulting services in
corporate strategy to the Company. In exchange for his services, the
Company granted Mr. Greenfield options to purchase 58,000 shares of
Common Stock during 1996, all of which were exercised during 1997.
Both Mr. Salter and Mr. Greenfield are reimbursed for their
reasonable expenses but do receive any cash compensation; each will
only receive Common Stock, or options to purchase Common Stock, of
the Company, as described above. All options will be exercisable for
a term of ten years from the date of grant and will bear an exercise
price of $0.01 per share. During the period ended December 31, 1997,
warrants were similarly granted to Mr. David Sandberg, exercisable at
$0.01 per share, for an aggregate of 15,585 shares, in consideration
of legal services.
55
On September 30, 1996, warrants granted by the Company to James C.
Czirr, a former director, to subscribe for up to 200,000 shares of
Common Stock at $0.01 per share. As of December 31, 1997, all
warrants were exercised.
In May 1997, the Company and Enrico Petrillo, trading as
Michaelangelo executed an agreement pursuant to which Michaelangelo
will receive options to purchase 120,000 shares of Common Stock at
$0.01 per share, exercisable immediately, and options to purchase up
to an additional 40,000 shares, vesting upon the achievement by the
Company of certain milestones.
John Pool was formerly the Company's director of European
operations. The Company notified Mr. Pool in March 1998 that it was
terminating its agreement with him pursuant to its terms. Prior to
this termination, Mr. Pool had received options to purchase 20,000
shares of Common Stock in exchange for his services rendered to the
Company, which options have not been exercised. The Company has no
further obligations to issue additional options or shares to Mr.
Pool.
On December 6, 1996, David Platt, Ph.D., the Company's Chairman of
the Board of Directors, signed a Confidentiality and Invention
Agreement with the Company. The Agreement provides that Dr. Platt
assigns all his rights, title and interest in any invention, data or
idea, made or conceived or reduced to practice either alone or
jointly with other to the Company. Further, that all rights thereto
shall remain the sole property of the Company and Dr. Platt agreed
not to disclose any information about the Company's confidential
information.
In connection with the Company's private placement of Common Stock
during late 1996 and early 1997, Dr. David Platt, the Company's Chief
Executive Officer, Secretary and Chairman of the Board of Directors,
and Bradley Carver, the Company's President, Chief Financial Officer,
Treasurer and Director, entered into an agreement with the purchasers
of Common Stock in such offering pursuant to which Mr. Carver and Dr.
Platt each agreed that he will not, without the consent of the
holders of 50% of the shares of Common Stock purchased in the private
placement, sell during any fiscal quarter prior to the Transfer Date
(as defined below) a number of shares of Common Stock held by him in
excess of (a) 25,000 shares in the case of public sales or (b)
100,000 shares in the case of private sales. "Transfer Date" is
defined as the first to occur of (i) January 1, 1998, (ii) the
effective date of a Registration Statement filed by the Company with
respect to its Common Stock or (iii) the date upon which the average
bid price for the Common Stock has been not less than $7.50 per share
for any thirty consecutive trading days.
56
In November 1996, the Company began a Private Placement Offering
of common stock. As of December 31, 1996, 190,000 shares had been
sold at $2.50 per share. In 1997, the Company sold an additional
457,850 shares at $2.50 per share. These shares included an attached
warrant to purchase one share of common stock for $3.50 for every
four shares of common stock purchased. As of December 31, 1997,
161,963 warrants were outstanding.
In 1997, the Company completed a private placement offering of
common stock in which the Company sold 533,867 shares at $3.00 per
share. These shares included an attached warrant to purchase one
share of common stock for $4.75 per share for every four shares of
common stock purchased. As of December 31, 1997, warrants to
purchase 133,467 shares of common stock at $4.75 per share were
outstanding.
In January 1997, the Company completed a sale of 500,000 shares of
common stock for $900,000 under regulation S of the Securities and
Exchange Commission's regulations. These shares also included an
attached warrant to purchase one share of common stock for $3.50 for
every four shares of common stock purchased. As of December 31,
1997, warrants to purchase 125,000 shares of common stock at $3.50
per share were outstanding.
In September 1997, the Company completed an additional sale of
250,000 shares of common stock for $675,000 under regulation S of the
Securities and Exchange Commission's regulations. These shares also
include an attached warrant to purchase one share of common stock for
$4.75 for every four shares of common stock purchased. As of
December 31, 1997, warrants to purchase 62,500 shares of common stock
at $4.75 per share were outstanding.
In January 1998, the Company changed its name from IGG
International, Inc. to SafeScience, Inc.
It is currently contemplated that all the Company's employees and
consultants who receive all or a portion of their compensation in
Common Stock will enter into agreements with the Company which
restrict their ability to transfer more than a fixed number of shares
during each calendar quarter.
The foregoing agreements and transactions were as favorable as
could have been obtained from an unaffiliated third party in a
similar transaction.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a) Financial Statements are contained in Item 8 of this Form 10.
57
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of
the year ended in regard to this report.
(c) Exhibits.
The following documents are incorporated herein by reference from
the Registrant's Form 10, as filed with the Securities and Exchange
Commission, SEC File No. 0-26476.
Exhibit
No. Description
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.
10.4 Licensing Agreement with The Government of Israel.
The following documents are incorporated herein by reference from
the Registrant's Form S-8 Registration Statement filed with the
Commission on May 14, 1996, SEC file No. 333-04764:
10.1 Nonqualifying Stock Option Plan.
58
The following documents are incorporated herein by reference from
the Registrant's Form SB-2 Registration Statement filed with the
Commission on November 20, 1997, SEC file No. 333-16087:
10.6 Warrant Agreement with Trinity American Corporation.
10.7 Consulting Agreement with Richard Salter and Amendment
thereto.
10.8 Consulting Agreement with Keith Greenfield.
10.9 Consulting Agreement with James C. Czirr.
10.10 Warrant Agreement with James C. Czirr.
The following documents are an exhibit hereto:
10.11 Amendment to Consulting Agreement with Keith Greenfield,
dated May 1997.
10.12 Licensing Agreement with Agrogene Ltd.
10.13 Trademark Sales and License Agreement with Elk Mound Feed and
Farm Supply, Inc.
10.14 Consulting Agreement with Michelangelo, LLC., dated May 1997.
10.15 Consulting Agreement with Michelangelo, LLC., dated September
1997.
10.16 Agreement with Leket-Bar Chemicals, Ltd., dated October 1997.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of William & Webster, P.S.
27 Financial Data Schedule.
99.1 Office Lease.
All other schedule and exhibit are omitted, as the required
information is not applicable or is not present in an amount
sufficient to require submission of the schedule or because the
information required is included in the financial statements and
notes thereto.
59
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized,
in Cambridge, Massachusetts, on this 27th day of March, 1998.
SAFESCIENCE, INC.
(Formerly, IGG International, Inc.
BY: /s/ Bradley J. Carver, President and Chief
Financial Officer
KNOW ALL MEN BY THESE PRESENT, that each person whose signature
appears below constitutes and appoints Bradley J. Carver, as true and
lawful attorney-in-fact and agent, with full power of substitution, for
his and in his name, place and stead, in any and all capacities, to
sign any and all amendments to this registration statement, and to file
the same, therewith, with the Securities and Exchange Commission, and
to make any and all state securities law or blue sky filings, granting
unto said attorney-in-fact and agent, full power and authority to do
and perform each and every act and thing requisite or necessary to be
done in about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying the confirming all that
said attorney-in-fact and agent, or any substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Form 10-K has been signed by the following persons in the
capacities and on the dates indicated:
Signatures Title Date
/s/ David Platt Chief Executive Officer, March 27, 1998
David Platt, Ph.D Secretary and Chairman of
the Board of Directors
/s/ Bradley J. Carver President, Chief Financial March 27, 1998
Bradley J. Carver Officer, Treasurer and a member
of the Board of Directors
/s/ Richard A. Salter Senior Vice President March 27, 1998
Richard A. Salter
/s/ Robert Alvarez Vice President - Sales March 27, 1998
Robert Alvarez
60
EXHIBIT INDEX
The following documents are incorporate herein:
10.11 Amendment to Consulting Agreement with Keith Greenfield, dated
May 1997.
10.12 Licensing Agreement with Agrogene Ltd.
10.13 Trademark Sales and License Agreement with Elk Mound Feed and
Farm Supply, Inc.
10.14 Licensing Agreement with Michelangelo, LLC., dated May 1997.
10.15 Licensing Agreement with Michelangelo, LLC., dated September
1997.
10.16 Agreement with Leket-Bar Chemicals, Ltd., dated October 1997.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of William & Webster, P.S.
27 Financial Data Schedule.
99.1 Office Lease.
All other schedule and exhibit are omitted, as the required
information is not applicable or is not present in an amount sufficient
to require submission of the schedule or because the information
required is included in the financial statements and notes thereto.