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, 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
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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 May 12, 2000 was 6,579,391.
Transitional Small Business Disclosure Format (Check one): Yes ____ No __X__
<PAGE>
SPECTRASCIENCE, INC.
FORM 10-QSB
MARCH 31, 2000
TABLE OF CONTENTS
PAGE
NO.
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..............................8
SIGNATURES...................................................................9
EXHIBIT 27: FINANCIAL DATA SCHEDULE
Page 2
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPECTRASCIENCE, INC.
FORM 10-QSB
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999(1)
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,477,138 $ 4,362,120
Inventory 166,333 143,660
Other current assets 112,796 128,578
------------ ------------
Total current assets 4,756,267 4,634,358
Net fixed assets 285,312 293,746
------------ ------------
TOTAL ASSETS $ 5,041,579 $ 4,928,104
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 189,929 $ 216,203
Note payable to related party 600,005 600,005
Accrued compensation and taxes 213,301 162,457
Accrued expenses 70,126 90,158
Accrued clinical research fees 53,399 47,399
------------ ------------
Total current liabilities 1,126,760 1,116,222
Long-term portion of lease commitment 31,962 45,660
SHAREHOLDERS' EQUITY
Common stock, $.25 par value:
Authorized--10,000,000 shares
Issued and outstanding--
6,576,725 shares on March 31, 2000 and
6,420,705 shares on December 31, 1999 1,644,181 1,605,176
Additional paid-in capital 51,494,383 50,892,249
Accumulated deficit (49,255,707) (48,731,203)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 3,882,857 3,766,222
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 5,041,579 $ 4,928,104
============ ============
</TABLE>
(1) THE BALANCE SHEET ON DECEMBER 31, 1999 IS 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 3
<PAGE>
SPECTRASCIENCE, INC.
FORM 10-QSB
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------------
2000 1999
---- ----
<S> <C> <C>
Operating expenses
Research and development 334,573 282,024
Selling, general and administrative 242,518 193,507
------------ ------------
Total operating expenses 577,091 475,531
Interest and other income 52,588 15,238
------------ ------------
Net loss $ (524,503) $ (460,293)
============ ============
Net loss per common share $ (0.08) $ (0.09)
Weighted average common shares outstanding 6,452,553 4,908,101
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
Page 4
<PAGE>
SPECTRASCIENCE, INC.
FORM 10-QSB
STATEMENTS OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (524,503) $ (460,293)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation 19,323 14,144
Changes in operating assets and liabilities:
Decrease in accounts receivable -- --
Increase in inventories (22,673) (7,572)
Decrease in other current assets 15,782 13,617
Increase (Decrease) increase in current liabilities 10,538 (53,160)
------------ ------------
Net cash used in operating activities (501,533) (493,264)
INVESTING ACTIVITIES
Purchase of fixed assets (10,889) (12,408)
Decrease in long term commitment (13,698) --
------------ ------------
Net cash used in investing activities (24,587) (12,408)
FINANCING ACTIVITIES
Proceeds from issuance of common stock 641,138 2,179,814
------------ ------------
Net cash provided by financing activities 641,138 2,179,814
Net increase in cash and cash equivalents 115,018 1,674,142
Cash and cash equivalents at beginning of period 4,362,120 301,970
------------ ------------
Cash and cash equivalents at end of period $ 4,477,138 $ 1,976,112
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
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<PAGE>
SPECTRASCIENCE, INC.
FORM 10-QSB
MARCH 31, 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.
(the "Company" or "we") 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, 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 incorporated by reference in the
Company'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"). 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 quarter ended March 31, 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. (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 Biopsy(TM) System" is presently pending final FDA clearance to market,
and is SPECTRASCIENCE 's first fully developed product to incorporate its
proprietary Laser Induced Fluorescence technology.
Page 6
<PAGE>
The Company'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]. 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 revenue for the three months ended March 31,
2000 and March 31, 1999. As a result, the Company had no cost of products sold
or gross profit for the same periods.
Research and development expenses for the three months ended March 31,
2000 were $334,573, compared to $282,024 for the same period in 1999. The
increase of 18.6% was primarily due to (i) increased salary expense, in part due
to the hiring of an additional engineer; (ii) increased expenses related to
design engineering and product development; and (iii) increased expenses related
to leasing a larger facility. The increased expenses were partially offset by
lower consulting expenses, lower contract expenses related to clinicals, and
lower legal expenses related to proprietary rights.
Selling, general and administrative expenses for the three months ended
March 31, 2000 were $242,518, compared to $193, 507 for the same period in 1999.
The increase of 25.5% was primarily due to increased expenses related to the
hiring of a marketing and sales vice president, which position was vacant during
the same period in 1999; and increased convention, seminar and travel expenses.
The increased expenses were offset, in part, by lower consulting expenses.
Interest and other income for the three months ended March 31, 2000 was
$52,588, compared to $15,238 for the same period in 1999. The increase of 245.1%
was due to higher balances in cash and cash equivalents.
As a result of the above factors, the net loss for the three months
ended March 31, 2000 was $524,503, compared to a net loss of $460,293 for the
same period in 1999. This represents an increase of 13.1% from the same period
in 1999. The net loss per share for the three months ended March 31, 2000 was
$.08 compared to $.09 for the same period in 2000.
(c) LIQUIDITY AND SOURCES OF CAPITAL
Cash and cash equivalents on March 31, 2000 were $4,477,138, compared
to $4,362,120 on December 31, 1999. The increase in our cash position from
December 31, 1999 to March 31, 2000 was primarily the result of stock option
exercises.
The working capital of the Company on March 31, 2000 was $3,629,507,
compared to $3,518,136 on December 31, 1999. This increase of 3.2% was primarily
due to an increase in cash and cash equivalents as a result of stock option
exercises.
Net cash used in operating activities for the three months ended March
31, 2000 was $501,533, compared to $493,264 for the same period in 1999. An
increase in inventory levels this year, coupled with fluctuations in current
liabilities between the same periods each year, offset the larger net loss for
the current period.
Net cash used in investing activities for the three months ended March
31, 2000 was $24,587, compared to net cash used of $12,408 for the same period
in 1999. This increase was due to the reduction of a long-term commitment.
Net cash provided by financing activities for the three months ended
March 31, 2000 was $641,138, compared to $2,179,814 for the same period in 1999.
The additional cash provided for the quarter ended March 31, 2000 was primarily
the result of stock option exercises for 145,686 shares of common stock at
Page 7
<PAGE>
prices from $4.0063 - $7.05 per share, and the issuance of 13,000 shares of
common stock to investors in the final closing of the December 1999 Private
Placement of Common Stock.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about September 4, 1998, SPECTRASCIENCE 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 SPECTRASCIENCE, 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. On March 13, 2000 a trial was
held. Mr. Gibson is seeking the issuance of common stock in connection with the
option grant and/or in lieu thereof, monetary damages. No final judgment or
order has been entered in the case.
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) OPTION EXERCISES
In February 2000, the Company received $95,598 from the exercise of
stock options to purchase 5,333 shares of Common Stock at $4.7625 per share, and
10,000 shares of Common Stock from $7.00 -$7.05 per share. In March 2000, the
Company received $500,040 from the exercise of stock options to purchase 79,687
shares of Common Stock from $3.76 - $3.79 per share, 44,000 shares of Common
Stock from $4.00 - $4.10 per share, and 4,000 shares of Common Stock from $4.98
- - $5.63 per share.
(b) RESIGNATION OF DIRECTOR
Mr. Nathaniel Thayer, resigned from his position as a director for the
Company on April 18, 2000 due to personal reasons.
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.
Page 8
<PAGE>
SPECTRASCIENCE, INC.
FORM 10-QSB
MARCH 31, 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)
MAY 15, 2000 /s/ CHESTER E. SIEVERT, JR.
- ------------------ ---------------------------
Date CHESTER E. SIEVERT, JR.
President and Chief Executive Officer
(Principal Executive Officer)
Page 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 MARCH 31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,477,138
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 166,333
<CURRENT-ASSETS> 4,756,267
<PP&E> 871,409
<DEPRECIATION> 586,097
<TOTAL-ASSETS> 5,041,579
<CURRENT-LIABILITIES> 1,126,760
<BONDS> 0
0
0
<COMMON> 1,644,181
<OTHER-SE> 2,238,676
<TOTAL-LIABILITY-AND-EQUITY> 5,041,579
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 577,091
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (52,588)
<INCOME-PRETAX> (524,503)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (524,503)
<EPS-BASIC> (0.08)
<EPS-DILUTED> 0
</TABLE>
