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 SEPTEMBER 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)
14405 21ST AVENUE N, SUITE 111
--------------------------------------
MINNEAPOLIS, MINNESOTA 55447
(Address of principal executive offices)
(612) 745-4120
---------------------------
(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 November 12, 1999 was 5,321,720. Transitional Small Business
Disclosure Format (Check one): Yes _____ No __X__
<PAGE>
SPECTRASCIENCE, INC.
FORM 10-QSB
SEPTEMBER 30, 1999
INDEX
PAGE NO.
--------
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheets -- September 30, 1999 and December 31, 1998 3
Statements of Operations -- Three Months Ended September 30, 1999 and 1998
Nine Months Ended September 30, 1999 and 1998 4
Statements of Cash Flows -- Nine Months Ended September 30, 1999 and 1998 5
Notes to Financial Statements -- September 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 8
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 8
SIGNATURES 9
EXHIBIT 27: Financial Data Schedule pursuant to Article 5 of Regulation S-X 10
2
<PAGE>
SPECTRASCIENCE, INC.
FORM 10-QSB
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998(1)
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 832,123 $ 301,970
Inventories 189,939 185,625
Other current assets 76,294 85,253
------------- -------------
Total current assets 1,098,356 572,848
Net property and equipment 224,234 247,531
------------- -------------
TOTAL ASSETS $ 1,322,590 $ 820,379
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 95,533 $ 281,986
Accrued compensation and taxes 124,150 99,263
Accrued expenses 180,154 56,990
Accrued clinical research fees 95,564 162,400
------------- -------------
Total current liabilities 495,401 600,639
SHAREHOLDERS' EQUITY
Common stock, $.25 par value:
Authorized shares--10,000,000
Issued and outstanding shares--
5,296,720 on September 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 (48,123,735) (46,551,370)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 827,189 219,740
------------- -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,322,590 $ 820,379
============= =============
</TABLE>
(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.
3
<PAGE>
SPECTRASCIENCE, INC.
FORM 10-QSB
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------------- -------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ -- $ -- $ -- $ --
Cost of products sold -- -- -- --
------------- ------------- ------------- -------------
Gross profit -- -- -- --
Operating expenses
Research and development 322,665 344,005 866,112 1,286,912
Selling, general and
administrative 260,339 170,309 760,689 610,231
------------- ------------- ------------- -------------
Total operating expenses 583,004 514,314 1,626,801 1,897,143
Interest and other
income (expense) 15,322 13,403 54,436 51,132
------------- ------------- ------------- -------------
Net loss $ (567,682) $ (500,911) $ (1,572,365) $ (1,846,011)
============= ============= ============= =============
Net loss per share $ (0.11) $ (0.11) $ (0.30) $ (0.40)
Weighted average common
shares outstanding 5,296,720 4,714,627 5,168,604 4,640,659
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
SPECTRASCIENCE, INC.
FORM 10-QSB
STATEMENTS OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-------------------------------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,572,365) $ (1,846,011)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation 41,654 137,908
Changes in operating assets and liabilities:
Decrease in accounts receivable -- --
(Increase) decrease in inventories (4,314) (118,374)
Decrease (Increase) in other current assets 8,959 (30,519)
(Decrease) in current liabilities (105,238) (63,478)
------------- -------------
Net cash used in operating activities (1,631,304) (1,920,474)
INVESTING ACTIVITIES
Purchase of property and equipment (18,357) (18,968)
------------- -------------
Net cash used in investing activities (18,357) (18,968)
FINANCING ACTIVITIES
Proceeds from issuance of common stock 2,179,814 978,062
------------- -------------
Net cash provided by financing activities 2,179,814 978,062
------------- -------------
Net increase (decrease) in cash and cash equivalents 530,153 (961,380)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 301,970 1,638,173
------------- -------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 832,123 $ 676,793
============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
SPECTRASCIENCE, INC.
FORM 10-QSB
SEPTEMBER 30, 1999
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained 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 nine-month periods ended September 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 incorporated by reference in
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998.
NOTE B NET LOSS PER SHARE
Basic earnings per share is based upon the weighted average number
shares outstanding and excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share for the Company is the same
as basic earnings per share because the effect of options and warrants is
anti-dilutive.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(a) BUSINESS
SPECTRASCIENCE, Inc. (the "Company" or "SPECTRASCIENCE") develops and
manufactures innovative, Laser Induced Fluorescence systems capable of
determining whether tissue is normal, potentially cancerous or cancerous. The
"Virtual BiopsyTM System" is presently pending an FDA panel review and is
SpectraScience's first fully developed product to incorporate its proprietary
Laser Induced Fluorescence technology.
The Company's corporate offices are located at 14405 21st Avenue N,
Suite 111, Minneapolis, Minnesota 55447. The Company's telephone number is (612)
745-4120, its fax number is (612) 745-4126,
6
<PAGE>
and its e-mail address is [email protected]. The Company also has a
web-site that can be accessed at http://www.spectrascience.com. The Company's
Common Stock is traded on the Over-The-Counter Bulletin Board under the symbol
SPSI.
(b) RESULTS OF OPERATIONS
The Company recorded no revenues for the three and nine months ended
September 30, 1999 and September 30, 1998.
Research and development expenses for the three and nine months ended
September 30, 1999 were $322,665 and $866,112 compared to $344,005 and
$1,286,912 for the same periods in 1998. The decrease of 6.2% for the three
months ended September 30, 1999 was primarily due to a decrease in expenses
related to clinical trial agreements. This was offset in part by an increase in
salary expense, and an increase in expenses related to obtaining ISO
certification. The 32.7% decrease for the nine months ended September 30, 1999
was primarily due to decreased expenses related to clinical trial agreements,
decreased consulting expenses, and decreased legal fees for patent related
matters. In addition, the Company had an inventory revaluation which
substantially increased research and development expenses during this same
period in 1998.
Selling, general and administrative expenses for the three and nine
months ended September 30, 1999 were $260,339 and $760,689 compared to $170,309
and $610,231 for the same periods in 1998. The 52.8% increase for the three
months ended September 30, 1999 was due to increased consulting expenses related
to the finance and administration function, increased legal expenses related to
the filing of the Form S-3 Registration Statement, and increased salary expense
related to the hiring an Executive Vice President. The increase of 24.7% for the
nine months ended September 30, 1999 was primarily due to increased legal and
shareholders expenses which were partially offset by reduced investor relations
expenses, and an increase in consulting expenses mostly offset by a reduction in
salary expense.
Interest and other income for the three and nine months ended September
30, 1999 were $15,322 and $54,436 compared to $13,403 and $51,132 for the same
periods in 1998. These increases were due to slightly higher balances in cash
and cash equivalents.
As a result of the above, the net loss for the three and nine months
ended September 30, 1999 was $567,682 and $1,572,365 compared to a net loss of
$500,911 and $1,846,011 for the same periods in 1998. The net loss per share for
the three and nine months ended September 30, 1999 was $0.11 and $0.30 compared
to $0.11 and $0.40 for the same periods in 1998.
(c) LIQUIDITY AND SOURCES OF CAPITAL
Cash and cash equivalents on September 30, 1999 were $832,123 compared
to $301,970 on December 31, 1998. The increase in the cash position from
December 31, 1998 to September 30, 1999 was the result of warrant exercises and
a private placement of the Company's Common Stock during the first quarter of
1999, offset by the net loss during the nine-month period that ended September
30, 1999.
The working capital of the Company on September 30, 1999 was $602,955
compared to ($27,791) on December 31, 1998. This increase was primarily due to a
higher cash position and a lower net loss.
Net cash used in operating activities for the nine months ended
September 30, 1999 was $1,631,304 compared to $1,920,474 for the same period in
1998. This decrease was primarily due to the lower net loss for the nine months
ended September 30, 1999 compared to the same period in 1998.
Net cash used in investing activities for the nine months ended
September 30, 1999 was $18,357 compared to $18,968 for the same period in 1998.
The cash was used to purchase additional property and equipment in 1999.
7
<PAGE>
Net cash provided by financing activities for the nine months ended
September 30, 1999 was $2,179,814 compared to $978,062 for the same period in
1998. The increase was primarily due to warrant exercises and a private
placement of the Company's Common Stock during 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. The Company has
circulated a private placement memorandum in an effort to raise between
$2,500,000 and $5,250,000 in additional capital. The offering period expires
January 14, 2000.
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, had a contract that entitled him to receive options for 50,000 shares
of Common Stock at an exercise price of $2.50 per share. On November 3, 1999,
the court issued an order holding that Mr. Gibson was entitled to enforce the
contract relating to such options. No final judgment or order has been entered
in the case, and the company has not yet issued Mr. Gibson any stock.
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) MOVING OF COMPANY HEADQUARTERS
On October 2, 1999, the Company moved from its previous location at
3650 Annapolis Lane, Suite 101, Minneapolis, Minnesota 55447, to a new facility
located at 14405 21st Avenue N, Suite 111, Minneapolis, Minnesota 55447. The new
telephone number is (612) 745-4120 and the new fax number is (612) 745-4126. The
Company entered into a three-year sublease agreement for this approximately
13,000 square foot facility. Monthly lease expense for the current facility,
including taxes and maintenance, is $11,943, compared to $6,045 for the previous
facility.
(b) OPTION EXERCISE
In November 1999, stock options to purchase 25,000 shares of Common
Stock were exercised. This resulted in net proceeds to the Company of $75,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT 27: Financial Data Schedule pursuant to Article 5 of Regulation S-X.
(b) FORM 8-K: No reports on Form 8-K were filed by the Company during the
quarter covered by this report.
8
<PAGE>
SPECTRASCIENCE, INC.
FORM 10-QSB
SEPTEMBER 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)
NOVEMBER 15, 1999 /S/ CHESTER E. SIEVERT, JR.
- --------------------------- --------------------------------------
Date CHESTER E. SIEVERT, JR.
Chairman and Chief Executive Officer
(Principal Financial and Accounting Officer)
NOVEMBER 15, 1999 /S/ STEPHEN M. BLINN
- --------------------------- --------------------------------------
Date STEPHEN M. BLINN
Executive Vice President
9
<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 SEPTEMER 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 832,123
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 189,939
<CURRENT-ASSETS> 1,098,356
<PP&E> 825,826
<DEPRECIATION> (601,592)
<TOTAL-ASSETS> 1,322,590
<CURRENT-LIABILITIES> 495,401
<BONDS> 0
<COMMON> 1,324,180
0
0
<OTHER-SE> (496,991)
<TOTAL-LIABILITY-AND-EQUITY> 1,322,590
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 583,004
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (15,322)
<INCOME-PRETAX> (567,682)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (567,682)
<EPS-BASIC> (0.11)
<EPS-DILUTED> 0
</TABLE>
