U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-13092
SPECTRASCIENCE, INC.
(Exact name of small business issuer
as specified in its charter)
MINNESOTA 41-1448837
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
3650 ANNAPOLIS LANE, SUITE 101,
MINNEAPOLIS, MINNESOTA 55447
(Address of principal executive offices)
(612) 509-9999
(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 __
The number of shares of the Registrant's common stock, par value $.25,
outstanding on May 12, 1997 was 4,480,379.
Transitional Small Business Disclosure Format (Check one): Yes ___ No _X_
SPECTRASCIENCE, INC.
FORM 10-QSB
MARCH 31, 1997
<TABLE>
<CAPTION>
INDEX
PAGE NO.
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<S> <C>
PART I -- FINANCIAL INFORMATION
3
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) 3
Balance Sheets - March 31, 1997 and December 31, 1996 3
Statements of Operations - Three Months Ended March 31, 1997 and 1996 4
Statements of Cash Flows - Three Months Ended March 31, 1997, and 1996 5
Notes to Financial Statements - March 31, 1997 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 6
PART II -- OTHER INFORMATION
8
ITEM 1. LEGAL PROCEEDINGS 8
ITEM 2. CHANGES IN SECURITIES 8
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 8
ITEM 5. OTHER INFORMATION 8
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURES 10
EXHIBIT 27: Financial Data Schedule pursuant to Article 5 of Regulation S-X 11
</TABLE>
PART I -- FINANCIAL INFORMATION
SPECTRASCIENCE, INC.
FORM 10-QSB
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,666,157 $ 3,047,182
Inventory 187,919 192,151
Other current assets 94,182 103,736
------------ ------------
Total current assets 2,948,258 3,343,069
Net fixed assets 192,592 207,520
------------ ------------
TOTAL ASSETS $ 3,140,850 $ 3,550,589
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 104,154 $ 107,866
Accrued compensation and taxes 26,436 97,735
Accrued expenses 301,418 187,016
------------ ------------
Total current liabilities 432,008 392,617
Commitments
SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00 per share
Authorized shares--20,000,000
Convertible preferred stock, Series A:
Authorized shares--5,000,000
Issued and outstanding shares--66,667 in 1996 66,667
Convertible preferred stock, Series B:
Authorized shares--1,000,000
Issued and outstanding shares--792,500 in 1996 792,500
Common stock, $.25 par value:
Authorized shares--10,000,000
Issued and outstanding shares--
4,480,379 on March 31, 1997 and
3,621,212 on December 31, 1996 1,120,095 905,303
Additional paid-in capital 44,531,314 43,886,939
Accumulated deficit (42,942,567) (42,493,437)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 2,708,842 3,157,972
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 3,140,850 $ 3,550,589
============ ============
</TABLE>
NOTE: THE BALANCE SHEET ON DECEMBER 31, 1996 HAS BEEN DERIVED FROM THE
AUDITED FINANCIAL STATEMENTS AT THAT DATE BUT DOES NOT INCLUDE ALL OF
THE INFORMATION AND FOOTNOTES REQUIRED BY GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES FOR COMPLETE FINANCIAL STATEMENTS.
SEE NOTES TO FINANCIAL STATEMENTS.
SPECTRASCIENCE, INC.
FORM 10-QSB
STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED
MARCH 31
----------------------------
1997 1996
---- ----
Revenue $ -- $ --
Cost of products sold -- --
----------- -----------
Gross profit -- --
Operating expenses
Research and development 264,058 235,895
Selling, general and
administrative 223,837 199,137
----------- -----------
Total operating expenses 487,895 435,032
Interest and other income 38,765 50,668
----------- -----------
Net loss $ (449,130) $ (384,364)
=========== ===========
Net loss per common share $ (0.10) $ (0.13)
Weighted average common
shares outstanding 4,408,972 2,944,308
SEE NOTES TO FINANCIAL STATEMENTS.
SPECTRASCIENCE, INC.
FORM 10-QSB
STATEMENTS OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (449,130) $ (384,364)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation 17,864 16,565
Changes in operating assets
and liabilities:
Decrease in accounts receivable -- 100,319
Decrease (increase) in inventories 4,232 (71,613)
Decrease in other current assets 9,554 20,946
Increase in current liabilities 39,391 12,521
----------- -----------
Net cash used in operating activities (378,089) (305,626)
INVESTING ACTIVITIES
Purchase of fixed assets (2,936) (60,887)
----------- -----------
Net cash used in investing activities (2,936) (60,887)
FINANCING ACTIVITIES
Proceeds from issuance of common stock -- 132,625
----------- -----------
Net cash provided by financing activities -- 132,625
----------- -----------
Net decrease in cash and cash equivalents (381,025) (233,888)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 3,047,182 4,123,326
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,666,157 $ 3,889,438
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS
Series A and B preferred stock converted into
common stock $ 859,167
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
SPECTRASCIENCE, INC.
FORM 10-QSB
MARCH 31, 1997
- --------------------------------------------------------------------------------
THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
WORDS OR PHRASES SUCH AS "MAY," "EXPECTS," "WILL CONTINUE," "IS ANTICIPATED,"
"MANAGEMENT BELIEVES," "ESTIMATE," "PROJECTS," "HOPE" OR EXPRESSIONS OF A
SIMILAR NATURE ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE ACT. THE COMPANY WISHES TO CAUTION READERS NOT TO PLACE UNDUE
RELIANCE ON FORWARD-LOOKING STATEMENTS. PLEASE REFER TO EXHIBIT 99 OF THE
COMPANY'S QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 1996,
FOR CERTAIN IMPORTANT CAUTIONARY FACTORS, RISKS AND UNCERTAINTIES RELATED TO
FORWARD-LOOKING STATEMENTS.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE A BASIS OF PRESENTATION
The accompanying unaudited financial statements of SPECTRASCIENCE, Inc.
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Article 10 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 (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1997. These statements should be read in conjunction with the financial
statements and related notes which are incorporated by reference in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996.
NOTE B NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
common shares outstanding during the period. Common equivalent shares from stock
options and warrants are excluded from the computation as their effect is
anti-dilutive. In February 1997, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 128, "EARNINGS PER SHARE." This Statement replaces the
presentation of primary earnings per share (EPS) with basic EPS and also
requires dual presentation of basic and diluted EPS for entities with complex
capital structures. This Statement is effective for the fiscal year ending
December 31, 1997. For the quarter ended March 31, 1997, there is no difference
between basic earnings per share under Statement No. 128 and primary net loss
per share as reported.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(a) BUSINESS
SPECTRASCIENCE, Inc. (the "Company" or "SPECTRASCIENCE") utilizes its
expertise in spectroscopy, fiber optics, computer software and hardware, and
minimally-invasive medical delivery systems to design, develop, manufacture and
market medical products that are used to diagnose and to facilitate the
treatment of a broad range of human diseases. The Company currently has two
products that are in the testing and development stages: the Optical BiopsyTM
System, which is targeted for the detection and differentiation of cancerous,
pre-cancerous and healthy tissues; and the Spectroscopic GuidewireTM System,
which is targeted for the detection of intracoronary thrombus and
differentiation of atherosclerotic plaque.
The Company was incorporated in the State of Minnesota on May 4, 1983
as GV Medical, Inc. The Company changed its name to SPECTRASCIENCE, Inc. on
October 16, 1992. The Company's common stock, par value $.25 (the "Common
Stock"), is currently traded on the NASDAQ Small-Cap Market under the symbol
SPSI.
(b) RESULTS OF OPERATIONS
The Company recorded no revenue for the three months ended March 31,
1997 and March 31, 1996. As a result, the cost of products sold and gross profit
for the three months ended March 31, 1997 and March 31, 1996 were zero.
Research and development expenses for the three months ended March 31,
1997 were $264,058 compared to $235,895 for the same period in 1996. The
increase of 11.9% for the three months ended March 31, 1997 was primarily due to
an increase in salary expenses related to the hiring of a Vice President of
Development and a Director of Regulatory Affairs. The Company also experienced
increased legal expenses associated with patent protection.
Selling, general and administrative expenses for the three months ended
March 31, 1997 were $223,837 compared to $199,137 for the same period in 1996.
The increase of 12.4% for the three months ended March 31, 1997 was primarily
due to increases in wage, insurance and legal expenses.
Interest and other income for the three months ended March 31, 1997 was
$38,765 compared to $50,668 for the same period in 1996. The decrease was
primarily due to lower balances in cash and cash equivalents.
As a result of the above, the net loss for the three months ended March
31, 1997 was $449,130 compared to a net loss of $384,364 for the same period in
1996. The net loss per share for the three months ended March 31, 1997 was $.10
compared to $.13 for the same period in 1996.
(c) LIQUIDITY AND SOURCES OF CAPITAL
Cash and cash equivalents on March 31, 1997 were $2,666,157 compared to
$3,047,182 on December 31, 1996. The decrease in the cash position from December
31, 1996 to March 31, 1997 was the result of the net loss during the three month
period that ended March 31, 1997.
The working capital of the Company on March 31, 1997 was $2,516,250
compared to $2,950,452 on December 31, 1996. This decrease was primarily due to
a reduction of the cash position.
Net cash used in operating activities for the three months ended March
31, 1997 was $378,089 compared to $305,626 for the same period in 1996. This
increase was primarily due to the higher net loss in 1997 compared to 1996.
Net cash used in investing activities for the three months ended March
31, 1997 was $2,936 compared to $60,887 for the same period in 1996. This
decrease was due to lower purchases of fixed assets in 1997.
Net cash provided by financing activities for the three months ended
March 31, 1997 was $0 compared to $132,625 for the same period in 1996. While
all the outstanding shares of series A and B preferred stock were converted to
common stock in the first quarter of 1997, these were non-cash conversions. In
the first quarter of 1996 there were stock option exercises for 43,200 shares of
common stock.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material on-going or pending legal proceedings which
involve the Company.
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
(a) PATENT ISSUANCE
On February 11, 1997, the Company was informed by the United States
Patent and Trademark Office that its patent "System for Diagnosing Tissue with
Guidewire" was issued under Patent Number 5,601,087.
(b) INSIDER TRADING
On March 20, 1997, Mr. Brian T. McMahon, President and Chief Executive
Officer of the Company, acquired 15,000 shares of common stock of the Company on
the open market at a price of $3.75 per share. As of March 31, 1997, Mr. McMahon
beneficially owns 431,666 shares of the common stock of the Company, of which
416,666 are stock options that are exercisable within 60 days of March 31, 1997.
(c) CONVERSION OF PREFERRED STOCK TO COMMON STOCK
During the three months ended March 31, 1997, all of the remaining
issued and outstanding shares of series A and B preferred stock were converted
to an equivalent number of shares of issued and outstanding common stock.
(d) CLINICAL STUDIES
During the three months ended March 31, 1997, pilot testing and
clinical studies on the Company's Optical BiopsyTM System began at one of three
clinical sites.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT 27: Financial Data Schedule pursuant to Article 5 of Regulation S-X.
FORM 8-K: No reports on Form 8-K were filed by the Company during the quarter
covered by this report.
SPECTRASCIENCE, INC.
FORM 10-QSB
MARCH 31, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPECTRASCIENCE, INC.
--------------------
(Registrant)
MAY 13, 1997 /S/ BRIAN T. MCMAHON
------------ --------------------
Date BRIAN T. MCMAHON
President and Chief Executive Officer
(Principal Executive Officer)
MAY 13, 1997 /S/ CHING-MENG CHEW
------------ -------------------
Date CHING-MENG CHEW
Vice President of Finance and Administration
Chief Financial Officer, Treasurer and
Corporate Secretary
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS SUBMITTED IN THIS QUARTERLY REPORT ON FORM 10-QSB FOR
THE QUARTER ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,666,157
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 187,919
<CURRENT-ASSETS> 2,948,258
<PP&E> 800,880
<DEPRECIATION> 608,288
<TOTAL-ASSETS> 3,140,850
<CURRENT-LIABILITIES> 432,008
<BONDS> 0
0
0
<COMMON> 1,120,095
<OTHER-SE> 1,588,747
<TOTAL-LIABILITY-AND-EQUITY> 3,140,850
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 487,895
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (38,765)
<INCOME-PRETAX> (449,130)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (449,130)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> 0
</TABLE>
