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 JUNE 30, 1999
[ ] 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 per share,
outstanding on August 13, 1999 was 5,296,720.
Transitional Small Business Disclosure Format (Check one): Yes ___ No _X_
<PAGE>
SPECTRASCIENCE, INC.
FORM 10-QSB
JUNE 30, 1999
INDEX
PAGE NO.
--------
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheets - June 30, 1999 and December 31, 1998 3
Statements of Operations - Three Months Ended June 30, 1999 and 1998 4
Six Months Ended June 30, 1999 and 1998
Statements of Cash Flows - Six Months Ended June 30, 1999 and 1998 5
Notes to Financial Statements - June 30, 1999 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 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 11
EXHIBIT 10.1: Second Amendment to Restated License Agreement between GV 12
Medical and Massachusetts Institute of Technology, effective
April 26, 1990.
EXHIBIT 10.2 Third Amendment of License Agreement between Massachusetts 13
Institute of Technology and SpectraScience, Inc., effective
October 15, 1993.
EXHIBIT 27: Financial Data Schedule pursuant to Article 5 of 21
Regulation S-X
2
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SPECTRASCIENCE, INC.
FORM 10-QSB
BALANCE SHEETS
June 30, December 31,
1999 1998 (1)
------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 1,418,010 $ 301,970
Inventories 198,669 185,625
Other current assets 55,559 85,253
------------ ------------
Total current assets 1,672,238 572,848
Net property and equipment 232,594 247,531
------------ ------------
TOTAL ASSETS $ 1,904,832 $ 820,379
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 74,872 $ 281,986
Accrued compensation and taxes 149,763 99,263
Accrued expenses 188,317 56,990
Accrued clinical research fees 97,009 162,400
------------ ------------
Total current liabilities 509,961 600,639
Commitments
SHAREHOLDERS' EQUITY
Common stock, $.25 par value:
Authorized shares--10,000,000
Issued and outstanding shares--
5,296,720 on June 30, 1999 and
4,737,804 on December 31, 1998 1,324,180 1,184,451
Additional paid-in capital 47,626,744 45,586,659
Accumulated deficit (47,556,053) (46,551,370)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 1,394,871 219,740
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,904,832 $ 820,379
============ ============
(1) THE BALANCE SHEET ON DECEMBER 31, 1998 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.
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SPECTRASCIENCE, INC.
FORM 10-QSB
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------------- -----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ -- $ -- $ -- $ --
Cost of products sold -- -- -- --
----------- ----------- ----------- -----------
Gross profit -- -- -- --
Operating expenses
Research and development 261,423 604,978 543,447 942,907
Selling, general and
administrative 306,843 220,782 500,350 439,922
----------- ----------- ----------- -----------
Total operating expenses 568,266 825,760 1,043,797 1,382,829
Interest and other
income (expense) 23,876 18,519 39,114 37,729
----------- ----------- ----------- -----------
Net loss $ (544,390) $ (807,241) $(1,004,683) $(1,345,100)
=========== =========== =========== ===========
Net loss per share $ (0.10) $ (0.17) $ (0.20) $ (0.29)
Weighted average common
shares outstanding 5,296,720 4,683,390 5,103,484 4,603,063
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
SPECTRASCIENCE, INC.
FORM 10-QSB
STATEMENTS OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,004,683) $(1,345,100)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation 27,879 126,352
Changes in operating assets
and liabilities:
Decrease in accounts receivable -- --
Increase in inventories (13,044) (120,821)
Decrease in other current assets 29,694 3,335
Decrease in current liabilities (90,678) (80,233)
----------- -----------
Net cash used in operating activities (1,050,832) (1,416,467)
INVESTING ACTIVITIES
Purchase of property and equipment (12,942) (13,240)
----------- -----------
Net cash used in investing activities (12,942) (13,240)
FINANCING ACTIVITIES
Proceeds from issuance of common stock 2,179,814 928,056
----------- -----------
Net cash provided by financing activities 2,179,814 928,056
----------- -----------
Net increase (decrease) in cash and cash
equivalents 1,116,040 (501,651)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 301,970 1,638,173
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 1,418,010 $ 1,136,522
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
SPECTRASCIENCE, INC.
FORM 10-QSB
JUNE 30, 1999
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this Form 10-QSB constitute "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 or the negatives thereof identify forward-looking statements.
Such forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical, currently
anticipated or projected results. We caution you 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 March 31, 1999 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- and six-month periods ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999. These statements should be read in conjunction with the
financial statements and related notes, which are included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1998.
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 was effective for the fiscal year ending
December 31, 1998. For the three- and six-month periods ended June 30, 1999,
there is no difference between basic loss per share under Statement No. 128 and
net loss per share as reported.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(a) BUSINESS
SPECTRASCIENCE, Inc. develops and manufactures innovative,
minimally-invasive spectroscopic systems to facilitate real-time differentiation
and diagnosis of cancerous and diseased tissue by utilizing advanced
spectroscopy, fiber optics, computer hardware and software.
SPECTRASCIENCE, INC. was incorporated in the state of Minnesota on May 4,
1983 as GV Medical, Inc. and is located at 3650 Annapolis Lane, Suite 101,
Minneapolis, Minnesota 55447-5434. Our telephone number is (612) 509-9999, and
our fax number is (612) 509-9805. Our web-site can be
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accessed at http://www.spectrascience.com, and our e-mail address is
[email protected]. The Company's common stock, par value $.25 per share
(the "Common Stock"), is traded on the Over-The-Counter Bulletin Board under the
symbol SPSI.
(b) RESULTS OF OPERATIONS
The Company recorded no revenue for the three and six months ended June
30, 1999 and June 30, 1998.
Research and development expenses for the three and six months ended June
30, 1999 were $261,423 and $543,447, compared to $604,978 and $942,907 for the
same periods in 1998. The decrease of 56.8% for the three months ended June 30,
1999 was primarily due to lower design engineering, consulting, legal and salary
expenses. In addition, the Company had an inventory revaluation which
substantially increased research and development expenses during this same
period in 1998. The decrease was partially offset by increased expenses relating
to ISO certification and research and development contracts. The 42.4% decrease
for the six months ended June 30, 1999 was due to the same reasons stated above.
Selling, general and administrative expenses for the three and six months
ended June 30, 1999 were $306,843 and $500,350, compared to $220,782 and
$439,922 for the same periods in 1998. The 39.0% increase for the three months
ended June 30, 1999 was primarily due to increased legal expenses related to
late billings, and to a lesser extent, increased consulting expenses. This was
partially offset by decreased salary expenses related to the vacant Chief
Financial Officer position and the assumption of Mr. McMahon's duties by Mr.
Sievert. The increase of 13.7% for the six months ended June 30, 1999 was
primarily due to increased legal expenses related to late billings, increased
consulting expenses and an increase in expenses related to the annual
shareholders' meeting. This increase was partially offset by decreases in salary
and investor relations expenses.
Interest and other income for the three and six months ended June 30, 1999
were $23,876 and $39,114, compared to $18,519 and $37,729 for the same periods
in 1998. The increases were primarily due to higher balances in cash and cash
equivalents, even though interest rates during the same periods this year were
less favorable.
As a result of the above, the net loss for the three and six months ended
June 30, 1999 was $544,390 and $1,004,683, compared to a net loss of $807,241
and $1,345,100 for the same periods in 1998. The net loss per share for the
three and six months ended June 30, 1999 was $0.10 and $0.20 compared to $0.17
and $0.29 for the same periods in 1998.
(c) LIQUIDITY AND SOURCES OF CAPITAL
Cash and cash equivalents on June 30, 1999 were $1,418,010, compared to
$301,970 on December 31, 1998. The increase in the cash position from December
31, 1998 to June 30, 1999 was primarily due to warrant exercises and a private
placement of the Company's Common Stock during the first quarter of 1999.
The working capital of the Company on June 30, 1999 was $1,162,277,
compared to ($27,791) on December 31, 1998. The increase in working capital was
primarily due to an increase in the Company's cash position.
Net cash used in operating activities for the six months ended June 30,
1999 was $1,050,832, compared to $1,416,467 for the same period in 1998. This
decrease was primarily due to the lower net loss for the six months ended June
30, 1999 compared to the same period in 1998. The Company also had a larger
inventory build-up during the six months ended June 30, 1998 than it did during
the same period in 1999.
Net cash used in investing activities for the six months ended June 30,
1999 was $12,942, compared to $13,240 for the same period in 1998.
7
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Net cash provided by financing activities for the six months ended June
30, 1999 was $2,179,814, compared to $928,056 for the same period in 1998. The
increase was primarily due to a private placement of the Company's Common Stock
and warrant exercises in the first quarter of 1999.
Management believes that the amount of cash and cash equivalents is
adequate to fund operations at least through December 1999.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about September 4, 1998, the Company was served with a Complaint in
the case of Paul Gibson v. SpectraScience, Inc. (Minn. 4th Jud. Dist.), claiming
that the plaintiff, who was at one time a financial consultant to the Company,
was entitled to receive options for 50,000 shares of Common Stock at an exercise
price of $2.50 per share. Mr. Gibson was retained to successfully complete a
proposed private placement financing. The stock options were to vest upon the
successful closing of the proposed financing on or before December 31, 1994. The
proposed financing did not occur. The Company believes the claim to lack merit
and intends to defend itself vigorously.
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
Reference is made hereby to the Company's definitive proxy statement (Form
DEF 14A) for the Annual Meeting of Shareholders held on June 18, 1999, as filed
with the Securities and Exchange Commission on May 28, 1999, File No. 0-13092.
(a) The Annual Meeting of Shareholders of SPECTRASCIENCE, Inc. (the "Meeting")
was held on June 18, 1999.
Shareholders of record at the close of business on May 27, 1999, (the
"Record Date") were entitled to receive notice of and to vote at the
Meeting and any adjournment thereof. On the Record Date, 5,296,720 shares
of the Company's Common Stock (the "Shares"), were entitled to vote at the
Meeting, of which a total of 2,817,646 Shares, or 53.2% of the total
Shares outstanding, were represented at the Meeting.
(b) The following individuals were elected to serve as directors of the
Company:
Chester E. Sievert, Jr.
Henry M. Holterman
Nathaniel S. Thayer
Johan A.P.M de Hond
8
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The only item submitted to a vote of the shareholders was the proposal to
elect four (4) persons to serve as directors until the next annual meeting of
shareholders or until their respective successors shall be elected and
qualified. All of the nominees for directors were elected by the shareholders.
The final votes for each of the nominees were as follows:
No. of Votes AS % OF TOTAL No. of Votes AS % OF TOTAL
Name FOR SHARES VOTED WITHHELD SHARES VOTED
- --------------------------------------------------------------------------------
Chester E. Sievert, Jr. 2,780,166 98.7% 37,480 1.3%
Henry M. Holterman 2,431,155 86.3% 386,491 13.7%
Nathaniel S. Thayer 2,781,766 98.7% 35,880 1.3%
Johan A.P.M. de Hond 2,782,166 98.7% 35,480 1.3%
There were no broker non-votes for this item.
ITEM 5. OTHER INFORMATION
(a) EXECUTIVE VICE PRESIDENT
Stephen M. Blinn joined the company on August 5, 1999 as Executive Vice
President. His primary duties are in the areas of new business development,
sales and marketing. Mr. Blinn has over 28 years of experience with companies
ranging in size from start-ups to large corporations, all of which have been
involved with medical product or medical device manufacturing and distribution.
Mr. Blinn has been a Director of Sight Resources Corporation since May of 1993.
He served as Executive Vice President and Chief Operating Officer from May 1993
to January 1998, and as President of their SightCare operations from January
1998 to August 1998. He has also served as President and Chief Executive Officer
of Silver Platter Education, Inc., a company providing continuing education
programs for medical providers, since January 1999. Mr. Blinn served as
Executive Vice President, Strategic Marketing Development of Summit Technology,
Inc. from 1991 to May 1993. He also was a co-founder and President of Source
Research, Inc., a distribution company for medical lasers and cardiac
pacemakers, from 1985 to 1987.
(b) YEAR 2000 ISSUE
Many currently installed computer systems and software are coded to accept
only two-digit entries in the date code fields. These date code fields will need
to accept four-digit entries to distinguish 21st century dates from 20th century
dates. This problem could result in system failures or miscalculations causing
disruptions of business operations. As a result, many companies' computer
systems and software will need to be upgraded or replaced in order to comply
with Year 2000 ("Y2K") requirements. The potential global impact of the Y2K
problem is not known, and if not corrected in a timely manner, could affect the
Company in particular and the U.S. and world economy generally.
Our product development process currently contains steps to include Y2K
compliance verification for all current and future products. Our existing
products are Y2K compliant. In addition, we are requesting assurances from our
major and sole or limited source suppliers that they are addressing the Y2K
issue. These actions are intended to help mitigate the possible external impact
of the Y2K problem. The Y2K efforts of third parties are not within our control;
however, their failure to resolve Y2K issues successfully could result in
business disruption and increased costs to the Company. At the present time, it
is not possible to determine whether any such events are likely to occur, or
quantify any potential negative impact they may have on our future results of
operations and financial condition.
We are currently analyzing internal and external Y2K issues. Our internal
and other computer systems are being reviewed to assess and minimize Y2K issues;
this assessment includes our information technology ("IT") and non-IT systems.
Our Y2K compliance program includes the following phases: identifying systems
that may need to be modified or replaced; carrying out modifications to existing
9
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systems or converting to new systems; and conducting validation testing of
various systems and applications to determine their readiness. All internal IT
computer systems and software have been assessed and appear to be Y2K compliant,
with the exception of the accounting software. Computer equipment that we
purchased in 1997 for the purpose of satisfying operational needs is Y2K
compliant. Our accounting software will be replaced during third quarter of
1999. To date, the assessment of our external IT systems has not revealed any
Y2K compliance issues. We believe the assessment of our non-IT systems to be
complete. We estimate that we will complete our Y2K compliance program for all
of our significant internal systems by September 30, 1999.
We estimate the total cost for resolving our Y2K issues will probably be
less than $15,000, of which approximately $1,400 has been spent through August
12, 1999. The estimate of Y2K costs is based on numerous assumptions, and there
can be no assurance that the estimate is correct or that actual costs will not
be materially greater than anticipated.
Although we use computer software and hardware for various operations,
including financial reporting, certain manufacturing and assembly functions, and
in our products, we believe that the Y2K issue will not cause any material
disruptions to our operations. However, if certain critical third-party
providers, such as those that supply electricity, water or telephone service,
experience difficulties resulting in disruption of the services they provide us,
a shutdown of our facility could occur for the duration of the disruption. We
plan to continuously monitor the status of completion of our Y2K plan and, based
upon such information, will develop a contingency plan as necessary.
The most reasonably likely worst-case scenario of failure by the Company
or our suppliers or customers to resolve Y2K issues could potentially be a
temporary slowdown or cessation of operations at our facility, and/or a
temporary inability on our part to timely process orders and to deliver finished
products to customers. Unresolved Y2K issues by the Company, suppliers or
customers could potentially delay the timing of payments from or to the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT 10.1 Second Amendment to Restated License Agreement between GV
Medical and Massachusetts Institute of Technology, effective
April 26, 1990.
EXHIBIT 10.2 Third Amendment of License Agreement between Massachusetts
Institute of Technology and SpectraScience, Inc., effective
October 15, 1993.
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.
10
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SPECTRASCIENCE, INC.
FORM 10-QSB
JUNE 30, 1999
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)
AUGUST 13, 1999 /s/ CHESTER E. SIEVERT, JR.
- --------------------- --------------------------------------
Date CHESTER E. SIEVERT, JR.
Chairman, Chief Executive Officer, and President
(Principal Executive Officer,
Principal Financial and Accounting Officer)
11
EXHIBIT 10.1
LLN/#1: 3938/3939GV.amd
Date: October 29, 1990
SECOND AMENDMENT
This amendment is to the Restated License Agreement for vascular and
cardiovascular applications of diagnostic and therapeutic laser catheters signed
by Massachusetts Institute of Technology on April 24, 1990 and by GV Medical on
April 26, 1990.
The parties thereto agree that the Patent Rights of M.I.T. Case 3938 and
M.I.T. Case 3939 were inadvertently omitted from the listing of the Patent
Rights in Appendix D of the Restated License Agreement. The parties therefore
agree that the following shall be added to Appendix D, effective as of April 26,
1990:
M.I.T. CASE NO. 3938
"Visible Fluorescence Spectral Diagnostic for Laser Angiosurgery"
By Cynthia do los Santos-Pancheco, Leo T. Kenny and Michael S. Feld
U.S. Patent 4,718,417 (Issued 1/12/88)
M.I.T. CASE NO. 3938A
"Catheter System for Imaging"
By Carter Kittrell and Michael S. Feld
U.S.S.N. 439,005 (Filed 11/21/89)
CONTINUATION OF U.S.S.N. 100,714 (Filed 9/24/87 and now abandoned)
Foreign Filing
* PCT/US88/03257 (Filed 9/21/88 designating Japan and EPO) Claiming
priority to U.S. 100,714 (Filed 9/24/87 and now abandoned)
* Canadian patent application 578,286-4 (Filed 9/23/88 and claiming
priority to U.S.S.N. 100,714)
M.I.T. CASE NO. 3939
"Optical Shield for a Laser Catheter"
By Carter Kittrell, Gary B. Hayes and Michael S. Feld
U.S. Patent 4,648,892 (Issued 3/10/87)
No Foreign Filings
Agreed to for:
Massachusetts Institute of Technology GV Medical
By /s/ JOHN T. PRESTON By /s/ JAMES GRABEK
-------------------------------- --------------------
Title Director, Technology Licensing Department Title President/CEO
-------------------------------- --------------------
Date OCTOBER 27, 1990 Date NOVEMBER 12, 1990
-------------------------------- --------------------
EXHIBIT 10.2
1 of 5
THIRD AMENDMENT OF LICENSE AGREEMENT
SpectraScience M.I.T. CONFIDENTIAL (10/13/93 11:38 AM)
- --------------------------------------------------------------------------------
CONFIDENTIAL
THIRD AMENDMENT OF LICENSE AGREEMENT
This is the Third Amendment to License Agreement (the "Third Amendment") with
effective date of October 15, 1993 (the "Effective Date") by and between the
Massachusetts Institute of Technology, with a principal office at 77
Massachusetts Ave., Cambridge, MA 02139 ("M.I.T.") and SpectraScience Inc.
(formerly, before name change, GV Medical, Inc.) with a principal office at 5909
Baker Road, Minnetonka, MN 55345 ("Licensee").
WHEREAS, the parties on even date herewith have duly executed a Settlement and
Reconciliation Agreement; and
WHEREAS, this Third Amendment is necessary to fully implement said Settlement
and Reconciliation Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
1. Paragraph 1.1 is hereby deleted and replaced by the following:
1.1 "Licensee", through change of corporate name, shall mean
SpectraScience, Inc. and any subsidiary of SpectraScience, Inc.
2. Paragraph 1.3 is hereby deleted and replaced by the following:
1.3 "Patent Rights" shall mean the United States and Foreign pending
patent applications set forth in Appendix D attached hereto and made
a part hereof (hereinafter referred to as the "Patent Rights Patent
Applications"), and the United States patents and Foreign patents
set forth in Appendix D, and the U.S. patents and Foreign patents
issuing from said pending United States and Foreign applications or
later-filed foreign applications based upon any of said United
States patents and applications (hereinafter referred to as the
"Patent Rights Patents") and any continuations,
continuations-in-part which are directed to subject matter
specifically described in the Patent Rights Patent Applications and
Patent Rights Patents, divisions, reissues or extensions of any of
the foregoing. Patent Rights also include any patent applications
and the patents issuing therefrom for which Licensee has elected to
acquire a license under the terms of the Research Funding Agreement.
Such patent applications and patents have been and shall be added to
Appendix D hereto and made a part hereof. Appendix D shall be
amended from time to time to list the then current Patent Rights.
3. Paragraph 1.6 is hereby deleted and replaced by the following:
<PAGE>
2 of 5
THIRD AMENDMENT OF LICENSE AGREEMENT
SpectraScience M.I.T. CONFIDENTIAL (10/13/93 11:38 AM)
- --------------------------------------------------------------------------------
1.6 "Field of Use" shall mean vascular and cardiovascular diagnostic
laser catheters, including, but not limited to, laser guide wires.
4. Paragraph 1.8 is hereby deleted and replaced by the following:
1.8 "Catheters" shall mean diagnostic laser catheters for vascular and
cardiovascular applications, which embody technology resulting from
the Research Funding Agreements.
5. Paragraph 6.1 is hereby amended by the addition of the underlined phrase
at the end of the first sentence, "MIT shall apply for, shall seek prompt
issuance of, and maintain during the term of this Agreement the Patent
Rights set forth in Appendix D subject to Paragraph 6.5."
6. Paragraphs 6.2, 6.3 and 6.4 are hereby deleted in their entirety and
following new paragraphs 6.2, 6.3, 6.4, 6.5, 6.6 and 6.7 are hereby added:
6.2 Licensee shall pay to M.I.T. the sum of $75,000 as an initial Annual
Payment for prosecution and maintenance costs for the Patent Rights
for the period beginning October 1, 1993, and ending October 14,
1994, such sum to be payable in equal installments due on the
fifteenth (15th day of each month, commencing with the first payment
due October 15, 1993. Beginning October 15, 1994, and for each
one-year period, (October 15 to October 14) of each subsequent year
through the one-year period ending October 14, 2003, Licensee shall
pay to M.I.T. an Annual Payment of $50,000 which shall be due and
payable in equal monthly installments on the fifteenth (15th) day of
each month. Beginning October 15, 2003, and for each one-year period
(October 15 to October 14) of each subsequent year thereafter,
Licensee shall pay an Annual Payment of $30,000 which shall be due
and payable in equal monthly installments on the fifteenth (15th)
day of each month. The Annual Payments shall be made until the
expiration of the last to expire of the Patent Rights, unless this
Agreement shall be sooner terminated. In the event any installment
of such Annual Payments is not received by M.I.T. within thirty (30)
calendar days of the date due, this License Agreement between M.I.T.
and Licensee shall immediately terminate with no further notice,
subject to Paragraph 6.3 below if such additional monthly
installment provided in Paragraph 6.3 has been paid by Licensee.
6.3 On or before October 15, 1993, and on or before each October 15
thereafter, or whenever Licensee so decides, Licensee may pay an
additional monthly installment of that year's Annual Payment, which
shall be held by M.I.T. and, automatically without notice to
Licensee, credited to any monthly installment for that year which
Licensee shall fail to pay on the 15th of any month. Should Licensee
fail to pay the next installment by the 15th day of the following
month, the License Agreement shall immediately terminate with no
further notice.
<PAGE>
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THIRD AMENDMENT OF LICENSE AGREEMENT
SpectraScience M.I.T. CONFIDENTIAL (10/13/93 11:38 AM)
- --------------------------------------------------------------------------------
6.4 Both the $65,000 payment under Paragraph 1 of the Settlement
and Reconciliation Agreement and the Annual Payments paid by
Licensee shall be creditable against future royalties on the
sale of Licensed Products or Minimum Royalties due M.I.T.
under this License Agreement.
6.5 In consideration of Licensee's Annual Payment, M.I.T. will:
(a) Maintain the issued U.S. Patent Rights, except that if
any issued patent becomes the subject of an
interference, M.I.T. shall have the right, at its sole
discretion, to abandon, subject to Licensee's rights
under (b.) below;
(b) Prosecute the U.S. Patent Rights patent applications
through at least the first office action and thereafter
continue prosecution in a reasonable commercial manner;
appeals to the U.S. District Court or the Court of
Appeals for the Federal Circuit and interference's,
whether defensive or offensive, will be at M.I.T.'s sole
discretion and sole cost, subject to the comment
provision of Paragraph 6.6. In the event M.I.T. decides
not to file such an appeal, or to provoke or defend such
an interference, M.I.T. shall give Licensee written
notice of said decision sixty (60) days prior to the
first date that action must be taken, and Licensee shall
have the right to assume such appeal or interference, at
Licensee's sole expense, subject to a similar credit
against future royalties as described in Paragraph 6.4
above and subject to Paragraph 6.1.
(c) Maintain issued foreign Licensed Patent Rights.
(d) Prosecute the foreign Patent Rights patent applications
through at least the first office action and thereafter
continue prosecution in a reasonable commercial manner,
including where commercially reasonable, prosecution
through any periods of opposition; provided, however,
pending EPO applications for:
3767 (Serial No. 86103432.0),
3767 Div I (Serial No. 93112269.1),
3938A (Serial No. 88909936.2),
4673A (Serial N. 90900642.1), and
5507A (Serial No. 92906273.5)
will be prosecuted only in Germany, France and Great
Britain, and any additional foreign Licensed Patent
Rights filed after the Effective Date (the "Additional
Foreign Patent Rights") will be prosecuted only in
Canada, Germany, France and Great Britain. Should
SpectraScience desire to prosecute such Additional
Foreign Patent Rights in additional countries,
SpectraScience shall so notify M.I.T. in writing. M.I.T.
shall prosecute and maintain such Additional Foreign
Patent Rights at SpectraScience's sole expense and shall
transfer responsibility for such
<PAGE>
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THIRD AMENDMENT OF LICENSE AGREEMENT
SpectraScience M.I.T. CONFIDENTIAL (10/13/93 11:38 AM)
- --------------------------------------------------------------------------------
prosecution and maintenance to SpectraScience's patent
counsel, currently Kevin Raasch of Merchant & Gould.
SpectraScience's patent counsel shall invoice
SpectraScience directly, with information copies to
M.I.T. and SpectraScience shall pay all costs directly
to its patent counsel. Nevertheless, such costs paid by
SpectraScience shall be creditable against future
royalties on the sale of Licensed Products or Minimum
Royalties due M.I.T. under the License Agreement.
6.6 Prior to initiating significant patent activity, M.I.T.'s outside
patent counsel, currently Thomas Hoover of Hamilton, Brook, Smith &
Reynolds, will contact Licensee's designated patent counsel,
currently Kevin Raasch of Merchant & Gould, and provide Licensee's
counsel opportunity to comment, and communicate with such counsel
per Paragraph 6.1 above.
6.7 In the event M.I.T. is successful in licensing a third party to the
Patent Rights in the field of use of therapeutic products, or
licenses the Patent Rights to a third party during the nonexclusive
period of this License Agreement, and such third party as a
condition of license reimburses M.I.T. for a portion or all of
M.I.T.'s patent prosecution and maintenance costs, M.I.T. agrees
that the Annual Payment shall be reduced for the next annual period
after which M.I.T. has received such third-party reimbursement, on a
dollar for dollar basis to the extent such third-party reimbursement
exceeds M.I.T.'s total cumulative out-of-pocket patent costs for the
prosecution and maintenance of the Patent Rights from the date of
disclosure of the first disclosed invention falling within the
Patent Rights through the last day of that Annual Payment period.
7. Paragraph 7.4 is hereby amended by the addition of the underlined language
to read as follows:
7.4 Upon any material breach or default of this Agreement by Licensee,
other than those occurrences set out in Paragraphs 6.2, 6.3, 7.2 and
7.3 hereinabove, which shall always take precedence in that order
over any material breach or default referred to in this Paragraph
7.4, M.I.T. shall have the right to terminate this Agreement and the
rights, privileges and license granted hereunder by ninety (90)
days' notice by certified mail to Licensee. Such termination shall
become effective unless Licensee shall have cured any such breach or
default prior to the expiration of the (90) day period from receipt
of M.I.T.'s notice of termination.
8. "Article XIV - Payments, Notices and Other Communication" is hereby
amended by the following change of address for Licensee:
SpectraScience, Inc. cc: Glenn H. Stevens, Esq.
5909 Baker Road 1050 Walnut St., Suite 212
Minnetonka, MN 55345 Boulder, CO 80302
ATTN: President
<PAGE>
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THIRD AMENDMENT OF LICENSE AGREEMENT
SpectraScience M.I.T. CONFIDENTIAL (10/13/93 11:38 AM)
- --------------------------------------------------------------------------------
9. Appendix D is hereby deleted in its entirety and replaced by the new
Appendix D attached hereto and made a part hereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement the day and
year set forth below.
Massachusetts Institute of Technology SpectraScience, Inc.
By /s/ LITA NELSEN By /s/ DARYL YUREK
-------------------------------- ---------------------
Title Director of Technology Licensing Department Title Chairman of the Board
-------------------------------- ---------------------
Date OCTOBER 14, 1993 Date OCTOBER 17, 1993
-------------------------------- ---------------------
<PAGE>
THIRD AMENDMENT
Appendix D to License Agreement
Patent Rights
M.I.T. CASE NO. 3767
"A Device For Multiple Independent Small Area Exposures to Laser Radiation
Through a Catheter for Use in Medical Applications"
Disclosure Date: February 11, 1983
<TABLE>
<CAPTION>
HBSR# Status Country Appl. No. File Date Patent No. Issue Date Related To
- ----- ------ ------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3767'A ISS USA 410897 09/21/89 5106387 04/21/92 CON 058675
3767'CA PEN USA 827990 01/29/92 CON 420135
3767'C ISS USA 420135 10/11/89 5104392 04/14/92 CON 058675
3767'CAA PEN USA 905101 06/26/92 CON 827,990
3767'E PEN USA 701620 05/14/91 CON 058675
3767'G ISS USA 440100 11/21/89 5125404 06/30/92 CON 058675
3767'GA PEN USA 808001 12/16/91 CON 440100
3767'Z ISS USA 411326 09/22/89 5034010 07/23/91 DIV 058675
HBSR# Status Appl. No. File Date Patent No. Issue Date Related To
- ----- ------ --------- --------- ---------- ---------- ----------
3767 CAN ISS 504731 03/21/86 1279901 02/05/91 PAR N/A
3767 CAN DIV I PEN 615648 02/13/90
3767 CAN DIV II ISS 615649 03/21/86 1317641 05/11/93 DIV 504731
3767 CAN DIV III PEN 615650 03/21/86 DIV 504731
3767 EPO PEN 86103432.0 03/14/86 PAR N/A
3767 EPO DIVI PEN 93112269.1 03/14/86
3767 JAPAN PEN 6466/86 03/22/86 PAR N/A
</TABLE>
M.I.T. CASE NO. 3938
"A Spectral Diagnostic For Distinguishing Atheromatous Plaque From Normal
Artery Wall"
Disclosure Date: August 21, 1984
Sponsor: American Hospital Supply Corporation
<TABLE>
<CAPTION>
HBSR# Status Country Appl. No. File Date Patent No. Issue Date Related To
- ----- ------ ------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3938 ISS USA 715131 03/22/85 4718417 01/12/88 PAR 100714
3938AF3 PEN USA 086253 07/01/93 FWC 773983
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HBSR# Status Appl. No. File Date Patent No. Issue Date Related To
- ----- ------ --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3938A EPO PEN 88909936.2 09/21/88 PCT/US88/03257
3938A CAN PEN 579286-4 09/21/88 PCT/US88/03257
3938A JAPAN PEN 509105/88 09/21/88 PCT/US88/03257
</TABLE>
M.I.T. CASE NO. 4673
"Ultraviolet LIF Spectroscopy of Tissue"
Disclosure Date: April 25, 1988
Sponsor: NIH, Cleveland Clinic Foundation
<TABLE>
<CAPTION>
HBSR# Status Country Appl. No. File Date Patent No. Issue Date Related To
- ----- ------ ------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
4673F2 PEN USA 082342 06/24/93 FWC 920151
4673A PEN USA 720465 11/17/89 NAT'L-PCT/US89/05174
HBSR# Status Appl. No. File Date Patent No. Issue Date Related To
- ----- ------ --------- --------- ---------- ---------- ----------
4673A EPO PEN 90900642.1 11/17/89 PCT/US89/05174
</TABLE>
M.I.T. CASE NO. 4923
"Contour Mapping of Spectral Diagnostics"
Disclosure Date: January 5, 1989
Sponsor: Cleveland Clinic Foundation
<TABLE>
<CAPTION>
HBSR# Status Country Appl. No. File Date Patent No. Issue Date Related To
- ----- ------ ------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
4923' ISS USA 772620 10/04/91 5201318 04/13/93 FWC 342311
4923'Z PEN USA 024674 03/01/93 DIV 772620
</TABLE>
M.I.T. CASE NO. 5507/5507A
"Detection of Atherosclerosis in Human Artery by Mid-Infrared Attenuated
Total Reflectance"
Disclosure Date: January 16, 1991
Sponsor: NIH
<TABLE>
<CAPTION>
HBSR# Status Country Appl. No. File Date Patent No. Issue Date Related To
- ----- ------ ------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
5507 PEN USA 661077 02/26/91 PAR N/A
5507A PEN USA 107854 01/17/92 NAT'L PCT/US92/00420
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HBSR# Status Appl. No. File Date Patent No. Issue Date Related To
- ----- ------ --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
5507A EPO PEN 92906273.5 01/17/92 PCT/US92/00420
5507A CAN PEN Appl. Filed 01/17/92 PCT/US92/00420
5507A JAPAN PEN Appl. Filed 01/17/92 PCT/US92/00420
</TABLE>
M.I.T. CASE NO. 5908
"Diffuse Reflectance from Turbid Media: An Analytical Model of Photon Migration"
Disclosure Date: April 10, 1992
Sponsor: NIH
<TABLE>
<CAPTION>
HBSR# Status Country Appl. No. File Date Patent No. Issue Date Related To
- ----- ------ ------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
5908 PEN USA 920135 07/24/93 PAR N/A
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS SUBMITTED IN THIS QUARTERLY REPORT ON FORM 10-QSB FOR THE
QUARTER ENDED JUNE 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
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