U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report under section 13 or 15(d) of the Securities Exchange Act of
1934 For the period ended SEPTEMBER 30, 1995
or
[ ] Transition report under section 13 or 15(d) of the Securities Exchange Act
of 1934 For the Transition period from __________ to __________
Commission file number O-13092
SPECTRASCIENCE, INC.
(Exact name of small business issuer as specified in its charter)
MINNESOTA 41-1448837
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
5909 BAKER ROAD, SUITE 580
MINNEAPOLIS, MINNESOTA 55345
(Address of principal executive offices) (Zip Code)
(612) 931-9000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
There were 2,923,348 shares outstanding of the issuer's $.25 par value common
stock, as of November 13, 1995.
This Form 10-QSB consists of 9 pages (including exhibits).
<TABLE>
<CAPTION>
BALANCE SHEETS
(UNAUDITED)
SPECTRASCIENCE, INC.
ASSETS
SEPTEMBER 30, DECEMBER 31,
1995 1994
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $773,756 $58,298
Accounts receivable - net 170,834 781
Inventory 201,511 200,468
Other current assets 93,625 78,245
Total current assets 1,239,726 337,792
EQUIPMENT 574,862 973,781
Less accumulated depreciation (507,434) (870,328)
67,428 103,453
OTHER ASSETS --- 37,444
$1,307,154 $478,689
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $86,317 $139,890
Accrued compensation & taxes 42,430 29,337
Accrued expenses 75,317 122,836
Deferred income --- 26,000
Notes payable --- 300,000
Total current liabilities 204,064 618,063
STOCKHOLDERS' EQUITY (DEFICIT)
Convertible preferred stock, $1.00 par value --
authorized 20,000,000 shares;
shares issued and outstanding --
September 30, 1995 -- 675,000 675,000
December 31, 1994 -- none ---
Common stock, $.25 par value --
authorized 4,000,000 shares;
shares issued and outstanding --
September 30, 1995 -- 2,873,348
December 31, 1994 -- 2,785,348 718,337 696,337
Additional paid-in capital 40,262,157 38,765,897
Accumulated deficit (40,552,404) (39,601,608)
Total stockholders' equity (deficit) 1,103,090 (139,374)
$1,307,154 $478,689
</TABLE>
See accompanying notes to the financial statements
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
SPECTRASCIENCE, INC.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net Sales $18,563 $-0- $184,652 $-0-
Costs and Expenses:
Cost of products sold $16,768 $-0- $124,913 $-0-
Research and
development $240,095 $155,270 $559,706 $705,412
Selling, general and
administrative $154,969 $113,609 $452,298 $570,878
Interest and other
(income) expense ($7,134) $9,458 ($1,468) ($61,895)
$404,698 $278,337 $1,135,449 $1,214,395
Net income (loss) ($386,135) ($278,337) ($950,797) ($1,214,395)
Net income (loss) per share ($0.13) ($0.10) ($0.33) ($0.44)
Weighted average common
shares outstanding 2,873,348 2,750,348 2,841,553 2,750,348
</TABLE>
See accompanying notes to the financial statements
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOW
(UNAUDITED)
SPECTRASCIENCE, INC.
NINE MONTHS ENDED
SEPTEMBER 30
1995 1994
<S> <C> <C>
OPERATING ACTIVITIES
Net profit (loss) ($950,797) ($1,214,395)
Adjustments to reconcile net cash
used in operating activities:
Depreciation 37,828 41,632
Recognition of deferred income (26,000) ---
Non-cash interest expense 3,260 ---
Disposal of other assets 37,444 ---
Gain on sale of equipment (300) (18,232)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (170,053) 28,197
(Increase) in inventories (1,043) ---
(Increase) decrease in other current assets (15,380) 23,411
(Decrease) in current liabilities (87,999) (61,451)
Net cash used in operating activities (1,173,040) (1,200,838)
INVESTING ACTIVITIES
Purchase of fixed assets (1,802) (16,401)
Proceeds from sale of fixed assets 300 46,339
Net cash used in investing activities (1,502) 29,938
FINANCING ACTIVITIES
Proceeds from issuance of notes payable 225,000 300,000
Proceeds from issuance of common stock 225,000 ---
Net proceeds from issuance of convertible preferred stock 1,440,000 ---
Net cash provided by financing activities 1,890,000 300,000
Net increase (decrease) in cash and
short term investments 715,458 (870,900)
CASH AND SHORT-TERM
INVESTMENTS AT BEGINNING OF PERIOD 58,298 1,250,686
CASH AND SHORT-TERM
INVESTMENTS AT END OF PERIOD $773,756 $379,786
SUPPLEMENTAL DISCLOSURE:
$525,000 of notes payable were converted into stockholders' equity in the first quarter of 1995
</TABLE>
See accompanying notes to the financial statements
NOTES TO FINANCIAL STATEMENTS
SpectraScience, Inc.
NOTE A - BASIS OF PRESENTATION
The financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, which consist of normal recurring
items, considered necessary for a fair presentation of results have been
included. For further information refer to the financial statements and notes
thereto included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1994.
ITEM 2.
Management's Discussion and Analysis
Financial Conditions and Results of Operations
The Company is a publicly-held company headquartered in Minnetonka, Minnesota.
From its inception on May 4, 1983 until mid 1993, the Company, then named GV
Medical, Inc., was engaged in the laser angioplasty business. In May, 1993, the
Company's name was changed to SpectraScience, Inc. to reflect the Company's new
focus on design, development, manufacturing and marketing of laser enhanced
spectroscopic diagnostic systems for the detection of atherosclerosis, thrombus
and normal healthy tissue; and also pre-cancerous and cancerous tissues in
various areas of the body. The Company has 8 full-time employees. Its executive
offices are located at 5909 Baker Road, Suite 580, Minnetonka, Minnesota 55345.
Its telephone number is (612) 931-9000 and its fax number is (612) 933-9090.
Results of Operations
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenue $18,563 $-0- $184,652 $-0-
% Change 100% 100%
Cost of products sold $16,768 $-0- $124,913 $-0-
% Change 100% 100%
</TABLE>
The Company recorded revenues of $18,563 for the quarter ended September 30,
1995, compared to $0 for the quarter ended September 30, 1994. Revenues in the
current year reflect the first international sales of the Company's
Spectroscopic Guidwire(TM) Systems and disposable products.
Cost of products sold during the second quarters of 1995 and 1994, were $16,768
and $0, respectively. As a result, the Company reported a Gross Profit of $1,795
for the quarter ended September 30, 1995 and $0 for the quarter ended September
30, 1994.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Research/development $240,095 $155,270 $559,706 $705,412
% Change 54.63% -20.66%
Selling, General and $154,969 $113,609 $452,298 $570,878
Administrative
% Change 36.41% -20.77%
Operating Expenses $395,064 $268,879 $1,012,004 $1,276,290
% Change 46.93% -20.71%
</TABLE>
Research and Development Expenses in the quarter ended September 30, 1995 of
$240,095 represent an increase of 55% from those expenses incurred in the
quarter ended September 30, 1994. This increase is due to a clinical research
contract signed between the Company and Massachusetts General Hospital, located
at Fruit Street, Boston, MA 02114, which calls for the payment of certain costs
to the hospital. Research and Development Expenses for the nine months ended
September 30, 1995 of $599,706 represent a decrease of 21% from those expenses
incurred in the same nine months in 1994. The decrease in the nine months ended
September 30, 1995 is primarily due to the Company incurring lower salary
expenses, in the development of the Spectroscopic Guidewire(TM) System, compared
to the prior year.
Selling, General and Administrative expenses of $154,969 for the quarter ended
September 30, 1995 increased 36% from those expenses incurred in the quarter
ended September 30, 1994 primarily due to expenses associated with the annual
shareholders meeting held on June 29, 1995 and an increase in consultant
expenses. Selling, General and Administrative expenses for the nine months ended
September 30, 1995 of $452,298 declined 21% from those expenses incurred in the
nine months ended September 30, 1994. The decrease for the nine months ended
September 30, 1995 occurred in salary and travel expenses as a result of a
decrease in the number of employees in 1995 compared to 1994.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Interest and other (income) ($7,134) $9,458 ($1,468) ($61,895)
expense
% Change -175.43% -97.63%
</TABLE>
Interest and other income of $7,134 were 175% higher in the quarter ended
September 30, 1995 than in the quarter ended September 30, 1994. This is the
result of higher interest income on a larger cash balance which was achieved
through a private placement closed on June 29, 1995, and the conversion of
$300,000 Notes Payable to Preferred Stock. Interest and other income of $1,468
for the nine months ended September 30, 1995 were 98% lower than in 1994. The
reduction in the nine months ended September 30,1995 is due to lower interest
income and fewer gains on the sale of assets in 1995 compared to 1994.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net Profit (Loss) ($386,135) ($278,337) ($950,797) ($1,214,395)
% Change 38.73% -21.71%
</TABLE>
As a result of all the above factors, the Company reported a net loss for the
quarter ended September 30, 1995, of $386,135, which is a 39% increase from the
$278,337 loss reported for the quarter ended September 30, 1994. This is
primarily due to higher research and development expenses associated with
clinical studies. Nine-month losses for 1995 are 22% lower than 1994, primarily
due to lower employment expenses in 1994 and revenue recognized in 1995.
Liquidity and Capital Resources
Cash and short-term investments increased from $58,298 at December 31, 1994 to
$613,611 at June 30, 1995 and $773,756 at September 30, 1995. The increase is
attributable to the receipt of the remaining funds receivable from the private
placement offering of the Company's Convertible Preferred Stock completed on
June 29, 1995.
The Company intends to apply the net proceeds of the private placement to
accelerate product development, to finalize its IDE clinical studies required to
obtain FDA approval in the United States, to conduct its clinical feasibility
studies targeting additional medical applications of its spectroscopic
technology, to expand the scope of its international and future domestic sales
and marketing activities and for general corporate purposes, including working
capital.
Management believes the Company has sufficient resources to satisfy its minimum
cash requirements through March 31, 1996. However, the Company will seek to
raise additional funds to satisfy the longer-term requirements of the Company's
business plan and for other prudent business reasons.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS ON THIS FORM 10-QSB
Exhibit 27 - Financial Data Schedule (for SEC use only)
b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the
quarter covered by this report.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: NOVEMBER 13, 1995 SPECTRASCIENCE, INC.
(Registrant)
/s/ Brian T. McMahon
BRIAN T. MCMAHON
President and Chief Executive Officer
(Principal Executive Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 773,756
<SECURITIES> 0
<RECEIVABLES> 170,834
<ALLOWANCES> 0
<INVENTORY> 295,136
<CURRENT-ASSETS> 1,239,726
<PP&E> 574,862
<DEPRECIATION> 507,434
<TOTAL-ASSETS> 1,307,154
<CURRENT-LIABILITIES> 204,064
<BONDS> 0
<COMMON> 718,337
0
675,000
<OTHER-SE> (290,247)
<TOTAL-LIABILITY-AND-EQUITY> 1,307,154
<SALES> 18,563
<TOTAL-REVENUES> 18,563
<CGS> 16,768
<TOTAL-COSTS> 16,768
<OTHER-EXPENSES> 395,064
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (7,134)
<INCOME-PRETAX> (386,135)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (386,135)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> 0
</TABLE>
