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, 2000
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[ ] 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 August 10, 2000 was 6,760,821.
Transitional Small Business Disclosure Format (Check one): Yes ___ No _X_
1
<PAGE>
SPECTRASCIENCE, INC.
FORM 10-QSB
JUNE 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..............................................10
ITEM 6. Exhibits and Reports on Form 8-K...............................10
Signatures...................................................................... 11
Exhibit 27: Financial Data Schedule.............................................12
</TABLE>
<PAGE>
SPECTRASCIENCE, INC.
FORM 10-QSB
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999(1)
------------ ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,814,007 $ 4,362,120
Inventories 162,852 143,660
Other current assets 109,622 128,578
------------ ------------
Total current assets 4,086,481 4,634,358
Net property and equipment 283,675 293,746
------------ ------------
TOTAL ASSETS $ 4,370,156 $ 4,928,104
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 207,201 $ 216,203
Note payable to related party -- 600,005
Accrued compensation and taxes 139,974 162,457
Accrued expenses 46,560 90,158
Accrued clinical research fees 59,399 47,399
------------ ------------
Total current liabilities 453,134 1,116,222
Long-term portion of lease commitment 18,264 45,660
SHAREHOLDERS' EQUITY
Common stock, $.25 par value:
Authorized shares--17,000,000
Issued and outstanding shares--
6,760,821 on June 30, 2000 and
6,420,705 shares on December 31, 1999 1,690,205 1,605,176
Additional paid-in capital 52,097,159 50,892,249
Accumulated deficit (49,888,606) (48,731,203)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 3,898,758 3,766,222
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 4,370,156 $ 4,928,104
============ ============
</TABLE>
(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 SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------------- -------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ -- $ -- $ -- $ --
Cost of products sold -- -- -- --
----------- ----------- ----------- -----------
Gross profit -- -- -- --
Operating expenses
Research and development 401,432 261,423 736,005 543,447
Selling, general and
administrative 286,505 306,843 529,024 500,350
----------- ----------- ----------- -----------
Total operating expenses 687,937 568,266 1,265,029 1,043,797
Interest and other
income (expense) 55,038 23,876 107,627 39,114
----------- ----------- ----------- -----------
Net loss $ (632,899) $ (544,390) $(1,157,402) $(1,004,683)
=========== =========== =========== ===========
Net loss per share $ (0.10) $ (0.10) $ (0.18) $ (0.20)
Weighted average common
shares outstanding 6,365,196 5,296,720 6,408,874 5,103,484
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
SPECTRASCIENCE, INC.
FORM 10-QSB
STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,157,402) $(1,004,683)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation 39,116 27,879
Changes in operating assets
and liabilities:
Decrease in accounts receivable -- --
Increase in inventories (19,192) (13,044)
Decrease in other current assets 18,956 29,694
Decrease in current liabilities (663,088) (90,678)
----------- -----------
Net cash used in operating activities (1,781,610) (1,050,832)
INVESTING ACTIVITIES
Purchase of property and equipment (29,045) (12,942)
Decrease in long term commitment (27,396) --
----------- -----------
Net cash used in investing activities (56,441) (12,942)
FINANCING ACTIVITIES
Proceeds from issuance of common stock 1,289,938 2,179,814
----------- -----------
Net cash provided by financing activities 1,289,938 2,179,814
----------- -----------
Net increase (decrease) in cash and cash (548,113) 1,116,040
equivalents
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 4,362,120 301,970
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 3,814,007 $ 1,418,010
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
SPECTRASCIENCE, INC.
FORM 10-QSB
JUNE 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.
(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 six month period ended June 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 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 June 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. (the "Company" or "SPECTRASCIENCE") develops and
manufactures proprietary, Laser Induced Fluorescence systems capable of
determining whether tissue is normal,
<PAGE>
potentially cancerous or cancerous. The "Virtual BiopsyTM System" is presently
pending final FDA approval and clearance to market, 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 (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 and six months ended June
30, 2000 and June 30, 1999. The Company had no cost of products sold or gross
profit for the same periods.
Research and development expenses for the three and six months ended
June 30, 2000 were $401,432 and $736,005, compared to $261,423 and $543,447 for
the same periods in 1999. Approximately one-third of the 53.6% increase for the
three months ended June 30, 2000, was due to research and design engineering
expenses related to second generation and new product development. These were
partially offset by lower expenses related to clinical contracts. Another one
third was due to increased salary expense, a portion of which is due to an
engineer that was hired in third quarter of 1999. The remaining third is
primarily due to legal fees related to patent filing and intellectual property
expenses, and increased rent and facilities expenses. The 35.4% increase for the
six months ended June 30, 2000 was due to the same reasons stated above, offset
partially by lower contract expenses related to clinicals.
Selling, general and administrative expenses for the three and six
months ended June 30, 2000 were $286,505 and $529,024 compared to $306,843 and
$500,350 for the same periods in 1999. The 6.6% decrease for the three months
ended June 30, 2000 was a net result of much lower legal and consulting expenses
offset by increased salary expenses related to the hiring of a Marketing and
Sales Vice President, and increased travel expenses. The increase of 5.7% for
the six months ended June 30, 2000 was primarily due to increased salary and
travel expense, offset by lower consulting and legal expenses.
Interest and other income for the three and six months ended June 30,
2000 were $55,038 and $107,627, compared to $23,876 and $39,114 for the same
periods in 1999. The increases were primarily due to higher balances in cash and
cash equivalents.
As a result of the above, the net loss for the three and six months
ended June 30, 2000 was $632,899 and $1,157,402, compared to a net loss of
$544,390 and $1,004,683 for the same periods in 1999. The net loss per share for
the three and six months ended June 30, 2000 was $0.10 and $0.18 compared to
$0.10 and $0.20 for the same periods in 1999.
(c) LIQUIDITY AND SOURCES OF CAPITAL
Cash and cash equivalents on June 30, 2000 were $3,814,007, compared to
$4,362,120 on December 31, 1999. The decrease in the cash position from December
31, 1999 to June 30, 2000 was primarily due to the net loss incurred during the
period.
The working capital of the Company on June 30, 2000 was $3,633,347,
compared to $3,518,136 on December 31, 1999. The increase in working capital was
due to a reduction of current liabilities; primarily the conversion of a
short-term convertible demand note into equity.
<PAGE>
Net cash used in operating activities for the six months ended June 30,
2000 was $1,781,610, compared to $1,050,832 for the same period in 1999. This
increase was primarily due to the conversion of the convertible demand note, and
to a lesser extent, a higher net loss for the six months ended June 30, 2000
compared to the same period in 1999.
Net cash used in investing activities for the six months ended June 30,
2000 was $56,441, compared to $12,942 for the same period in 1999. The increase
was primarily due to a reduction of a long-term commitment and the purchase of
additional equipment.
Net cash provided by financing activities for the six months ended June
30, 2000 was $1,289,938, compared to $2,179,814 for the same period in 1999. The
increase was primarily due to the conversion of a convertible demand note during
the second quarter and stock option exercises for 145,686 shares of common stock
during the first quarter.
Management believes that the amount of cash and cash equivalents is
adequate to fund operations at least through June 2001.
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.
SpectraScience contended that the options never vested.
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 for the purpose of determining damages. On June 2, 2000, the
judge in the case ruled that the company must have available sufficient
registered stock for Mr. Gibson no later than August 31, 2000 and that the
company shall not impede Mr. Gibson in the exercise process. Either party can
appeal prior to September 6, 2000.
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 May 17, 2000, as
filed with the Securities and Exchange Commission on April 10, 2000, File No.
0-13092.
(a) The Annual Meeting of Shareholders of SPECTRASCIENCE, Inc. (the
"Meeting") was held on May 17, 2000.
<PAGE>
Shareholders of record at the close of business on March 30, 2000, (the
"Record Date") were entitled to receive notice of and to vote at the Meeting and
any adjournment thereof. On the Record Date, 6,576,725 shares of SPECTRASCIENCE,
Inc. Common Stock (the "Shares"), were entitled to vote at the Meeting, of which
a total of 5,440,495 Shares, or 82.7% 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
Johan A.P.M de Hond
The first item submitted to a vote of the shareholders was the proposal
to elect three (3) 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:
<TABLE>
<CAPTION>
Name No. of Votes AS % OF TOTAL No. of Votes AS % OF TOTAL
FOR SHARES VOTED WITHHELD SHARES VOTED
----------------------------- ------------------ ------------------------ -------------------- ----------------------
<S> <C> <C> <C> <C>
Chester E. Sievert, Jr. 5,409,346 99.4% 31,149 0.6%
Henry M. Holterman 5,391,758 99.1% 48,737 0.9%
Johan A.P.M. de Hond 5,408,371 99.4% 32,124 0.6%
</TABLE>
There were no broker non-votes for this item.
The second item submitted to a vote of the shareholders was a proposed
amendment to the Company's Articles of Incorporation to increase the authorized
number of shares of common stock from 10,000,000 to 17,000,000. The proposed
amendment was approved by the shareholders. The final votes for the proposal
were as follows:
<TABLE>
<CAPTION>
AS % OF TOTAL
Position No. of Votes SHARES VOTED
------------------------ ------------------------ -----------------------------------
<S> <C> <C>
FOR 5,285,219 97.1%
AGAINST 130,634 2.4%
ABSTAIN 24,642 0.5%
</TABLE>
There were no broker non-votes for this item.
The third item submitted to a vote of the shareholders was ratification
of an amendment to the Company's 1991 Stock Plan, increasing the number of
shares subject to the plan by 500,000, to 2,140,000. The amendment was ratified
by the shareholders. The final votes for the proposal were as follows:
<TABLE>
<CAPTION>
AS % OF TOTAL
Position No. of Votes SHARES VOTED
------------------------ ------------------------ -----------------------------------
<S> <C> <C>
FOR 2,777,071 51.0%
AGAINST 151,639 2.8%
ABSTAIN 24,604 0.5%
</TABLE>
There were 2,487,181 broker non-votes for this item.
<PAGE>
The final item submitted to a vote of the shareholders was ratification
of the appointment of Ernst & Young LLP as independent public accountants for
SPECTRASCIENCE for the current fiscal year ending December 31, 2000. The
appointment was ratified by 99.4% of total shares voted. There were no broker
non-votes.
ITEM 5. OTHER INFORMATION
(a) EQUITY TRANSACTIONS
In June 2000, the Company received $30,000 from the exercise of
warrants to purchase 10,000 shares of Common Stock at $3.00 per share. In June
2000 the Company also converted a short-term convertible demand note for
$600,005 into 171,430 shares of common stock and a warrant to purchase 85,715
shares of common stock, pursuant to the terms of the note.
(b) REGISTRATION STATEMENTS
The Company filed a Registration Statement on Form SB-2 with the
Securities and Exchange Commission on April 14, 2000, covering shares of common
stock issued in two private placements during 1999, as well as shares issuable
upon the exercise of warrants issued to investors in the 1999 private
placements, and warrants issued to investors who exercised warrants in January
and March 1999. The Registration Statement was declared effective May 12, 2000.
The Company filed a second Registration Statement on Form SB-2 with the
Securities and Exchange Commission on July 7, 2000, pursuant to a ruling it
received in the Gibson matter (see Item 1, Legal Proceedings.) The Registration
Statement covered shares to be made available to Mr. Gibson, as well as shares
issuable upon the exercise of warrants. The shares issuable upon the exercise of
warrants were covered by a registration statement filed in 1996, however counsel
advised that the registration statement was no longer effective due to the
passage of time.
(c) ISO 9001 CERTIFICATION
On July 27, 2000 the Company received ISO 9001 Certification from its
european notified body. The Company is in the process of obtaining CE mark
authorization which is required before European Union sales can begin. The
Company expects to receive CE mark authorization in approximately three months.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT 3.1 Articles of Incorporation, as amended. Filed herewith.
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>
SPECTRASCIENCE, INC.
FORM 10-QSB
JUNE 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)
AUGUST 14, 2000 CHESTER E. SIEVERT, JR.
--------------- -----------------------
Date Chairman, Chief Executive Officer, and President
(Principal Executive Officer,
Principal Financial and Accounting Officer)
