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, 2000
[ ] 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)
(763) 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 8, 2000 was 6,804,227.
Transitional Small Business Disclosure Format (Check one): Yes _____ No __X__
Page 1
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SPECTRASCIENCE, INC.
FORM 10-QSB
SEPTEMBER 30, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
NO.
<S> <C>
Part I -- Financial Information.......................................................3
ITEM 1. Financial Statements................................................3
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.................................................11
</TABLE>
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPECTRASCIENCE, INC.
FORM 10-QSB
BALANCE SHEETS
September 30, December 31,
2000 1999(1)
------------ ------------
(UNAUDITED) (AUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 3,415,330 $ 4,362,120
Inventories 158,629 143,660
Other current assets 61,816 128,578
------------ ------------
Total current assets 3,635,775 4,634,358
Net property and equipment 267,929 293,746
------------ ------------
TOTAL ASSETS 3,903,704 $ 4,928,104
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 130,704 $ 216,203
Note payable to related party -- 600,005
Accrued compensation and taxes 193,870 162,457
Accrued expenses 53,446 90,158
Accrued clinical research fees 65,399 47,399
------------ ------------
Total current liabilities 443,419 1,116,222
Long-term portion of lease commitment 4,566 45,660
SHAREHOLDERS' EQUITY
Common stock, $.25 par value:
Authorized shares--17,000,000
Issued and outstanding shares--
6,781,821 on September 30, 2000 and
6,420,705 shares on December 31, 1999 1,695,455 1,605,176
Additional paid-in capital 52,198,447 50,892,249
Accumulated deficit (50,438,183) (48,731,203)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 3,455,719 3,766,222
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 3,903,704 $ 4,928,104
============ ============
(1) THE BALANCE SHEET ON DECEMBER 31, 1999 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.
<PAGE>
SPECTRASCIENCE, INC.
FORM 10-QSB
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------------------- --------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ - $ - $ - $ -
Cost of products sold - - - -
----------------- ----------------- ----------------- -----------------
Gross profit - - - -
Operating expenses
Research and development 365,130 322,665 1,101,135 866,112
Selling, general and
administrative 238,561 260,339 767,585 760,689
----------------- ----------------- ----------------- -----------------
Total operating expenses 603,691 583,004 1,868,720 1,626,801
Interest and other
income (expense) 54,114 15,322 161,740 54,436
----------------- ----------------- ----------------- -----------------
Net loss $(549,577) $(567,682) $(1,706,980) $(1,572,365)
================= ================= ================= =================
Net loss per share $ (0.08) $ (0.11) $ (0.26) $ (0.30)
Weighted average common
shares outstanding 6,835,808 5,296,720 6,522,224 5,168,604
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
SPECTRASCIENCE, INC.
FORM 10-QSB
STATEMENTS OF CASH FLOW
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------
2000 1999
---- ----
OPERATING ACTIVITIES
Net loss $(1,706,980) $(1,572,365)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation 50,571 41,654
Changes in operating assets
and liabilities:
Decrease in accounts receivable -- --
Increase in inventories (14,969) (4,314)
Decrease in other current assets 66,762 8,959
Decrease in current liabilities (672,802) (105,238)
----------- -----------
Net cash used in operating activities (2,277,418) (1,631,304)
INVESTING ACTIVITIES
Purchase of property and equipment (24,754) (18,357)
Decrease in long term commitment (41,094) --
----------- -----------
Net cash used in investing activities (65,848) (18,357)
FINANCING ACTIVITIES
Proceeds from issuance of common stock 1,396,476 2,179,814
----------- -----------
Net cash provided by financing activities 1,396,476 2,179,814
----------- -----------
Net increase (decrease) in cash and cash
equivalents (946,790) 530,153
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 4,362,120 301,970
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 3,415,330 $ 832,123
=========== ===========
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
SPECTRASCIENCE, INC.
FORM 10-QSB
SEPTEMBER 30, 2000
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 similar
expressions 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 Annual
Report on Form 10-KSB for the year ended December 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.
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B. 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 nine month period
ended September 30, 2000 are not necessarily indicative of the results that may
be expected for the year ended December 31, 2000. These statements should be
read in conjunction with the financial statements and related notes which are
included in SPECTRASCIENCE's Annual Report on Form 10-KSB for the year ended
December 31, 1999.
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" (the "Statement"). The
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. The Statement was effective for the
fiscal year ending December 31, 1998. For the quarter ended September 30, 2000,
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. develops and manufactures proprietary, Laser
Induced Fluorescence spectrophotometry systems capable of determining whether
tissue is normal, potentially cancerous or cancerous without removing tissue
from the body. The "Virtual Biopsy(TM) System," our first fully
<PAGE>
developed product to incorporate our proprietary Laser Induced Fluorescence
technology, is pending final FDA approval and clearance to market for use during
colorectal cancer screening. We believe our technology represents an enabling
platform that can be expanded to develop multiple applications that may be used
to distinguish normal vs. diseased tissues in other regions of the body. In
addition to the colon, we have begun clinical studies utilizing our Laser
Induced Fluorescence technology for the detection of cancer in the esophagus.
SPECTRASCIENCE's corporate offices are located at 14405 21st Avenue N,
Suite 111, Minneapolis, Minnesota 55447. The Company's telephone number is (763)
745-4120, its fax number is (763) 745-4126, and its e-mail address is
[email protected]. SPECTRASCIENCE 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
SPECTRASCIENCE recorded no revenue for the three and nine month periods
ended September 30, 2000 and September 30, 1999, and had no cost of products
sold or gross profit for the same periods.
Research and development expenses for the three and nine month periods
ended September 30, 2000 were $365,130 and $1,101,135, respectively, an increase
of 13.2% and 27.1% respectively, compared to the same periods in 1999. During
the quarter our engineers were focused on developing the next generation Virtual
Biopsy(TM) System, value engineering, and development of a Barrett's Esophagus
product. We had increased design engineering expenses related to these
activities. We also had increased legal expenses related to intellectual
property and patent filings, and increased rent and utilities expenses due to
the occupation of a larger facility. For the nine month period we had increased
salary expense, increased consulting and design engineering expenses related to
product development, increased legal expenses related to intellectual property,
and increased facilities expenses. These increases were partially offset by
lower research and development contract expenses.
Selling, general and administrative expenses for the three month period
ended September 30, 2000 were $238,561, an 8.4% decrease, and for the nine month
period ended September 30, 2000 were $767,585, a 0.9% increase, compared to the
same periods in 1999. The third quarter decrease was due, primarily, to lower
consulting and legal expenses. This decrease however was partially offset due to
increased salary, convention and travel expenses. For the nine month period we
had increased salary, convention, travel and seminar expenses, a majority of
which were due to increased marketing and sales activities and research.
Decreased consulting and legal expenses for the nine month period offset most of
the increased expenses.
Interest and other income for the three and nine month periods ended
September 30, 2000 were $54,114 and $161,740, respectively, a substantial
increase compared to the same periods in 1999. The increase was primarily due to
higher balances in cash and cash equivalents.
Even though operating expenses for the three month period ended
September 30, 2000 increased to $603,691, compared to $583,004 for the same
period last year, the increase in interest income for the period ended September
30, 2000, resulted in a 3.2% decrease in the net loss for the three month
period. The increase of $107,304 in interest income for the nine month period
ended September 30, 2000 compared to the same period last year offset just less
than half of the $241,919 increase in operating expenses for the same period,
resulting in a net loss increase of 8.6%. The net loss per share for the three
and nine month periods ended September 30, 2000 was $0.08 and $0.26 compared to
$0.11 and $0.30 for the same periods in 1999. The lower net losses per share for
the current periods are due to additional outstanding shares of capital stock in
the current periods as compared to the same periods in 1999.
<PAGE>
(c) LIQUIDITY AND SOURCES OF CAPITAL
Cash and cash equivalents on September 30, 2000 were $3,415,330,
compared to $4,362,120 on December 31, 1999. The decrease in the cash position
from December 31, 1999 to September 30, 2000 was primarily due to the net loss
incurred during the nine month period ended September 30, 2000.
SPECTRASCIENCE's working capital on September 30, 2000 was $3,192,356,
compared to $3,518,136 on December 31, 1999. The decrease in working capital was
primarily due to a reduction in the cash position.
Net cash used in operating activities for the nine months ended
September 30, 2000 was $2,277,418, a $646,114 increase compared to the same
period in 1999, which was primarily due to the conversion of a convertible
demand note, and to a lesser extent, the higher net loss for period.
Net cash used in investing activities for the nine months ended
September 30, 2000 was $65,848, a $47,491 increase compared to the same period
in 1999, and was primarily due to a reduction of a long-term commitment and the
purchase of additional capital equipment.
Net cash provided by financing activities for the nine month period
ended September 30, 2000 was $1,396,476, a $783,338 decrease compared to the
same period in 1999, which was primarily due to a private placement of our
common stock during March 1999 with no comparable financing in 2000.
Management believes that the amount of cash and cash equivalents is
adequate to fund operations at least through June 2001. Management believes
additional cash will be required to fund continued operations and manufacturing
ramp up. The amount and timing of any future financing will be impacted by FDA
product approval and market conditions, as well as other factors.
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
(a) EQUITY TRANSACTIONS
During September and October 2000, SPECTRASCIENCE received $48,813 from
the exercise of stock options to purchase 10,000 shares of common stock at
$4.0063 per share and 3,500 shares of common stock at $2.50 per share.
SPECTRASCIENCE also received $132,030 from the exercise of warrants to purchase
15,000 shares of common stock at $5.50 per share and 9,906 shares of common
stock at $5.00 per share.
<PAGE>
(b) BOARD OF DIRECTORS
SPECTRASCIENCE added two individuals, Terrence W. Glarner and Delwin K.
Ohrt, MD, to its Board of Directors in September 2000. Mr. Glarner brings
business experience and a financial background to the Board. Dr. Ohrt brings a
medical managed care background, with product reimbursement and technology
assessment experience to the Board.
(c) PRODUCT APPROVAL STATUS
As of the date of this filing, SPECTRASCIENCE is awaiting final FDA
approval and clearance to market for its Virtual Biopsy(TM) System for use
during colorectal cancer screening. Management continues to believe the Virtual
Biopsy(TM) System will receive approval and, if approved, the Company will next
focus on conducting outcome based clinical studies, both in the United States
and Europe. These outcome based clinicals are intended to:
o gain opinion leader confidence and support for the purpose of
obtaining market acceptance of a new technology;
o to prove the clinical utility and cost effectiveness of our
Virtual Biopsy(TM) System; and
o to collect the data necessary to obtain reimbursement codes
for a new technology.
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 SPECTRASCIENCE
during the quarter covered by this report.
<PAGE>
SPECTRASCIENCE, INC.
FORM 10-QSB
SEPTEMBER 30, 2000
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 13, 2000 /S/ CHESTER E. SIEVERT, JR.
------------------------------ --------------------------------------------
Date CHESTER E. SIEVERT, JR.
Chairman, Chief Executive Officer, and President
(Principal Executive Officer,
Principal Financial and Accounting Officer)
