<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER: 0-22179
SpectRx, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-2029543
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6025A UNITY DRIVE
NORCROSS, GEORGIA 30071
(Address of principal executive offices, including zip code)
(770) 242-8723
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days.
YES [ ] NO [X] (1)
The number of issued and outstanding shares of the Registrant's Common
Stock, $0.001 par value, as of June 30, 1997, was 5,015,185(2)
(1) The Registrant's initial public offering was declared effective as of
5:00 p.m., E.D.T., on June 30, 1997. The Registrant was not subject to the
reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934 prior to that date.
(2) The Registrant's initial public offering was declared effective as of
5:00 p.m., E.D.T., on June 30, 1997. Upon the closing of the initial public
offering on July 7, 1997, the number of issued and outstanding shares of the
Registrant's Common Stock was 7,577,995. Upon the closing of the exercise of
the Underwriters' over-allotment option on August 5, 1997, the number of issued
and outstanding shares of the Registrant's Common Stock was 7,737,995.
<PAGE> 2
SPECTRX, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 1. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
CONSOLIDATED BALANCE SHEETS -
DECEMBER 31, 1996 AND JUNE 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . 3
CONSOLIDATED STATEMENTS OF OPERATIONS -
THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1997 . . . . . . . . . . . . . . . . . 4
CONSOLIDATED STATEMENTS OF CASH FLOWS -
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 . . . . . . . . . . . . . . . . . . . . . . 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . 8
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ITEM 2. CHANGES IN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
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<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPECTRX, INC.
(a development stage company)
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................................... $ 4,721 $ 1,757
Accounts receivable ........................................... 1 2
Other current assets .......................................... 90 192
-------- --------
Total current assets .................................... 4,812 1,951
-------- --------
Property and equipment, net of accumulated depreciation of $274 596 742
and $363 in 1996 and 1997, respectively -------- --------
OTHER ASSETS, net:
Other Assets .................................................. 126 1,054
Due from related parties ...................................... 412 427
-------- --------
Total other assets ...................................... 538 1,481
-------- --------
$ 5,946 $ 4,174
======== ========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable .............................................. 557 868
Accrued liabilities ........................................... 385 725
-------- --------
Total current liabilities ............................... 942 1,593
-------- --------
CONVERTIBLE SUBORDINATED PROMISSORY NOTES ..................... 250 250
-------- --------
COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' (DEFICIT) EQUITY:
Series A convertible preferred stock, $0.001 par value;
3,560,000 shares authorized, 3,103,784 shares issued and
outstanding in 1996 and 1997 ............................... 3 3
Series B convertible preferred stock, $0.001 par value;
1,375,000 shares authorized, 1,272,051 shares issued and
outstanding in 1996 and 1997 ............................... 1 1
Series C convertible preferred stock, $0.001 par value;
500,000 shares authorized, 500,000 shares issued and
outstanding in 1996 and 1997 ............................... 1 1
Common stock, $0.001 par value; 15,000,000 shares
authorized 1,531,702 shares issued and outstanding
in 1996 and 1997 ........................................... 2 2
Additional paid-in capital .................................... 11,330 11,330
Deferred Compensation ......................................... (286) (248)
Notes receivable from officers ................................ (48) (48)
Warrants ...................................................... 173 173
Deficit accumulated during development stage .................. (6,422) (8,883)
-------- --------
Total stockholders' (deficit) equity .................... 4,754 2,331
-------- --------
$ 5,946 $ 4,174
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets
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<PAGE> 4
SPECTRX, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period From
Inception
(October 27,
Three Months Six Months 1992) to
Ended June 30, Ended June 30, June 30,
1996 1997 1996 1997 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
REVENUES ............................. $ 0 $ 200 $ 0 $ 276 $ 2,029
-------- -------- -------- -------- --------
EXPENSES:
Research and development ............. 457 762 785 1,288 5,799
Sales and marketing .................. 76 150 120 288 977
General and administrative ........... 202 533 482 1,242 5,148
-------- -------- -------- -------- --------
735 1,445 1,387 2,818 10,934
-------- -------- -------- -------- --------
Operating loss ..................... (735) (1,245) (1,387) (2,542) (8,905)
INTEREST EXPENSE, NET ................ 21 5 44 7 288
OTHER (INCOME) ....................... (3) (38) (5) (88) (310)
-------- -------- -------- -------- --------
NET LOSS ............................. $ (753) $ (1,212) $ (1,426) $ (2,461) $ (8,883)
======== ======== ======== ======== ========
PRO FORMA NET LOSS PER COMMON AND
COMMON EQUIVALENT SHARE ............ $ (0.25) $ (0.39) $ (0.46) $ (0.80)
======== ======== ======== ========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 3,069 3,069 3,069 3,069
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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SPECTRX, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Period From
Inception
(October 27,
Six Months Ended 1992) to
June 30, June 30,
1996 1997 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................ $ (1,426) $ (2,461) $ (8,883)
-------- -------- --------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization .................................... 77 93 489
Amortization of debt discount .................................... 39 -- 138
Issuance of stock in settlement of dispute ....................... 14 -- 14
Amortization of deferred compensation ............................ 2 38 56
Changes in assets and liabilities:
Accounts receivable ............................................ 187 (1) (2)
Other assets ................................................... (7) (98) (196)
Due from related parties ....................................... -- (15) (427)
Accounts payable ............................................... (15) 311 868
Accrued liabilities ............................................ 276 340 857
Deferred revenue ............................................... -- -- --
-------- -------- --------
Total adjustments ............................................ 573 668 1,797
Net cash used in operating activities ........................ (853) (1,793) (7,086)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ............................... (38) (270) (1,140)
Payment of royalties .............................................. -- (5) (228)
Additions to purchased technology ................................. (27) -- (205)
-------- -------- --------
Net cash used in investing activities ........................ (65) (275) (1,573)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Under revolving credit facility ................................... -- -- --
Issuance of common stock .......................................... -- -- 2
Issuance of Series A preferred stock .............................. -- -- 1,850
Issuance of Series B preferred stock .............................. -- -- 3,528
Issuance of Series C preferred stock .............................. -- -- 3,000
Issuance of stock warrants ........................................ -- -- 35
Exercise of warrant ............................................... -- -- 24
Payment of stock issuance costs ................................... -- (896) (955)
Issuance of convertible subordinated promissory notes ............. 1,232 -- 2,932
-------- -------- --------
Net cash provided by (used in) financing activities .......... 1,232 (896) 10,416
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS .................................................. 314 (2,964) 1,757
CASH AND CASH EQUIVALENTS, beginning of period ...................... 107 4,721 --
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period ............................ $ 421 $ 1,757 $ 1,757
======== ======== ========
CASH PAID FOR:
Interest .......................................................... $ -- $ -- $ --
Income taxes ...................................................... $ -- $ -- $ --
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Conversion of subordinated promissory notes to .................... $ -- $ -- $ 2,814
preferred stock ..................................................
Stock issued for subscription receivable .......................... $ -- $ -- $ 48
Warrants issued in connection with convertible .................... $ -- $ -- $ 138
subordinated notes ...............................................
Issuance of common stock for purchased technology ................. $ 35 $ -- $ 35
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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<PAGE> 6
SPECTRX, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The interim consolidated financial statements included herein have
been prepared by the company without audit. These statements reflect all
adjustments, all of which are of a normal, recurring nature, which are, in the
opinion of management, necessary to present fairly the consolidated financial
position as of June 30, 1997, the consolidated results of operations for the
three and six months ended June 30, 1996 and 1997, and the consolidated cash
flows for the six months ended June 30, 1996 and 1997. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. The accounting policies of the Company continue unchanged from
December 31, 1996. The Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
financial statements be read in conjunction with the December 31, 1996
financial statements and notes thereto included in the Company's Prospectus
dated July 1, 1997.
The results of operations for the three and six months ended June 30,
1997 are not necessarily indicative of the results to be expected for the full
fiscal year.
2. NET LOSS PER SHARE
Pro forma net loss per share is computed using the weighted average
number of shares of Common Stock and dilutive common stock equivalent shares
("CSEs") issuable upon the conversion of convertible preferred stock (using the
if-converted method) and stock options and warrants (using the treasury stock
method). Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common stock and CSEs issued at prices below the expected
public offering price during the 12-month period prior to an initial public
offering are included in the calculation as if they were outstanding for all
periods presented prior to the offering, regardless of whether they are
dilutive, and were outstanding in prior periods.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings per Shares," which specifies the computation, presentation,
and disclosure requirements for earnings per share. The Company is required to
adopt the provisions of SFAS No. 128 for the year ending December 31, 1997.
Earlier application is not permitted; however, upon adoption the Company will
be required to restate previously reported annual and interim loss per share in
accordance with the provisions of SFAS No. 128. Based on a preliminary
evaluation, the Company does not believe that the adoption of SFAS No. 128 will
have a material impact on the computation or manner of presentation of its loss
per share as currently or previously presented under Accounting Principles
Board Opinion No. 15.
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<PAGE> 7
SPECTRX, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. SUBSEQUENT EVENT -- INITIAL PUBLIC OFFERING
On July 7, 1997, the Company successfully completed its initial public
offering of common stock. The Company sold 2,000,000 shares of common stock in
the initial public offering for $14 million, less issuance costs of $896,000.
In connection with the offering, all outstanding shares of Preferred Stock
converted into 3,482,762 shares of Common Stock and warrants to purchase
553,126 shares of Common Stock were exercised for proceeds of $692,000. On
August 5, 1997, the Company completed the sale of an additional 160,000 shares
at $7 per share to the underwriters of the initial public offering pursuant to
the exercise of the underwriters' over-allotment option.
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<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report contains forward looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. These forward looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or anticipated results, including those set forth under
"Risk Factors" in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in or incorporated by
reference into this report. The following discussion should be read in
conjunction with the Company's Financial Statements and Notes thereto included
elsewhere in this report.
OVERVIEW
SpectRx was incorporated on October 27, 1992, and since that date has
raised capital through the sale of preferred stock, issuance of debt securities
and funding from collaborative arrangements. Following its initial funding in
early 1993, the Company immediately began research and development activities
with the objective of commercializing less invasive diagnostic screening and
monitoring products. As part of its business strategy, the Company has
selectively established arrangements with leading medical device companies for
the development, commercialization and introduction of its products. Since
inception, the Company has entered into collaborative arrangements with Abbott,
Boehringer Mannheim and Healthdyne for its glucose monitoring, diabetes
screening and infant jaundice products, respectively. In December 1996, the
Company sublicensed certain technology to and acquired a 64.8% interest in
FluorRx, Inc., a Delaware corporation formed for the purpose of developing and
commercializing technology related to fluorescence spectroscopy.
The Company has a limited operating history upon which its prospects
can be evaluated. Such prospects must be considered in light of the
substantial risks, expenses and difficulties encountered by entrants into the
medical device industry, which is characterized by an increasing number of
participants, intense competition and a high failure rate. The Company has
experienced operating losses since its inception, and, as of June 30, 1997, the
Company had an accumulated deficit of approximately $8.9 million. To date,
the Company has engaged primarily in research and development efforts, and a
number of the Company's key management and technical personnel have only
recently joined the Company. The Company has never generated revenues from
product sales and does not have experience in manufacturing, marketing or
selling its products. There can be no assurance that the Company's development
efforts will result in commercially viable products, that the Company will be
successful in introducing its products, or that required regulatory clearances
or approvals will be obtained in a timely manner, or at all. There can be no
assurance that the Company's products will ever gain market acceptance or that
the Company will ever generate revenues or achieve profitability. The
development and commercialization of its products will require substantial
development, regulatory, sales and marketing, manufacturing and other
expenditures. The Company expects its operating losses to continue through
1999 as it continues to
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<PAGE> 9
expend substantial resources to complete development of its products, obtain
regulatory clearances or approvals, build its marketing, sales, manufacturing
and finance organizations and conduct further research and development.
Substantially all of the Company's revenues and profits are expected
to be derived from royalties and manufacturing profits that the Company will
receive from Abbott Laboratories ("Abbott"), Boehringer Mannheim Corporation
("Boehringer Mannheim") and Healthdyne Technologies, Inc. ("Healthdyne")
resulting from sales of its glucose monitoring, diabetes screening and infant
jaundice products, respectively. The royalties and manufacturing profits that
the Company is expected to receive from each of its collaborative partners
depend on sales of such products. There can be no assurance that the Company,
together with its collaborative partners, will be able to sell sufficient
volumes of the Company's products to generate substantial royalties and
manufacturing profits for the Company. In addition, the Company's profit
margins are not likely to increase over time because the Company's royalty
rates and manufacturing profit rates are predetermined.
In addition, it is common practice in the glucose monitoring device
industry for manufacturers to sell their glucose monitoring devices at
substantial discounts to their list prices or to offer customers rebates on
sales of their products. Manufacturers offer such discounts or rebates to
expand the use of their products and thus increase the market for the
disposable assay strips they sell for use with their products. Because Abbott
may, pursuant to its collaborative arrangement with the Company, determine the
prices at which it sells the Company's glucose monitoring devices, it may
choose to adopt this marketing strategy. If Abbott adopts this marketing
strategy and discounts the prices at which it sells the Company's glucose
monitoring devices, the royalties earned by the Company in respect of such
sales will decline. There can be no assurance that, if this strategy is
adopted, royalties earned by the Company on sales of the disposable cartridges
to be used in connection with its glucose monitoring device will be equal to or
greater than the royalties the Company would have earned had its glucose
monitoring devices not been sold at a discount. This possible reduction in
royalties on sales of the Company's glucose monitoring devices could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
The Company has entered into collaborative arrangements with Abbott,
Boehringer Mannheim and Healthdyne. The agreements evidencing these
collaborative arrangements grant a substantial amount of discretion to each
collaborative partner. If one or more of the Company's collaborative partners
were to terminate its arrangement with the Company, the Company would either
need to reach agreement with a replacement collaborative partner or undertake
at its own expense the activities handled by its collaborative partner prior to
such termination, which would require the Company to develop expertise it does
not currently possess, would significantly increase the Company's capital
requirements and would limit the programs the Company could pursue. The
Company would likely encounter significant delays in introducing its products
and the development, manufacture and sale of its products would be adversely
affected by the absence of such collaborative arrangements. The termination of
any of the Company's collaborative arrangements
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<PAGE> 10
would have a material adverse effect on the Company's business, financial
condition and results of operations.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended June 30, 1997 and 1996
General. Net losses increased to approximately $1.2 million during
the three months ended June 30, 1997 from approximately $750,000 during the
same period in 1996 due to an increase in research and development expenses and
general and administrative expenses. The increase in revenue to $200,000 in
the three months ended June 30, 1997 versus no revenue in the same period in
1996 is a result of having reached a development milestone on the Company's
infant jaundice product in the 2nd quarter of 1997 and the signing of a license
agreement by the Company's 65% owned subsidiary FluorRx. The Company expects
similar net losses to continue.
Research and development expenses. Research and development expenses
increased to approximately $760,000 during the three months ended June 30, 1997
from approximately $460,000 during the same period in 1996. The increase in
research and development expenses was primarily due to increases in
compensation, benefit and employee recruiting costs and, to a lesser extent,
increases in consulting expenses, patent legal fees and the cost of prototype
materials purchased. The Company expects research and development expenses to
increase in the future as it begins clinical trials for its products.
Sales and marketing expenses. Sales and marketing expenses increased
to $150,000 during the three months ended June 30, 1997 from $80,000 during the
same period in 1996. The increase was due primarily to building a marketing
organization for the Company's infant jaundice product. Sales and marketing
expenses are expected to increase in the future as the Company begins to market
this product.
General and administrative expenses. General and administrative
expenses increased to approximately $530,000 during the three months ended June
30, 1997 from approximately $200,000 during the same period in 1996. The
increase in general and administrative expenses was due to increases in
compensation and facility costs as well as general and administrative expenses
at the company's subsidiary FluorRx. General and administrative expenses are
expected to increase in the future as a result of overhead costs associated
with research and development activities and, to a lesser extent, expenses
associated with being a public company.
Net interest expense. Net interest expense decreased to $5,000 during
the three months ended June 30, 1997 from an expense of $20,000 during the same
period in 1996. This decrease results from the redemption of convertible notes
which were outstanding during the first quarter of 1996.
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<PAGE> 11
Comparison of Six Months Ended June 30, 1997 and 1996
General. Net losses increased to approximately $2.5 million during
the six months ended June 30, 1997 from approximately $1.4 million during the
same period in 1996 due to an increase in research and development expenses,
marketing expenses, and general and administrative expenses.
Research and development expenses. Research and development expenses
increased to approximately $1.3 million during the six months ended June 30,
1997 from approximately $780,000 during the same period in 1996. The increase
in research and development expenses was primarily due to increases in
compensation, benefit and employee recruiting costs and, to a lesser extent,
increases in consulting expenses, patent legal fees and the cost of prototype
materials purchased.
Sales and marketing expenses. Sales and marketing expenses increased
to $290,000 during the six months ended June 30, 1997 from $120,000 during the
same period in 1996. The increase was due primarily to compensation and
recruiting costs, product design costs and expenses related to building a
marketing organization for the Company's infant jaundice product.
General and administrative expenses. General and administrative
expenses increased to approximately $1.2 million during the six months ended
June 30, 1997 from approximately $480,000 during the same period in 1996. The
increase in general and administrative expenses was due to increases in
compensation and facility costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily
through private sales of its debt and equity securities. From October 27, 1992
(inception) through June 30, 1997, the Company received approximately $11.3
million in net proceeds from sales of its debt and equity securities. At June
30, 1997, the Company had cash of approximately $1.8 million and working
capital of approximately $360,000. The Company completed an initial public
offering of its common stock on July 7, 1997 which resulted in net proceeds
received by the Company, before expenses related to the transaction, of
approximately $13.0 million. The Company currently invests its excess cash
balances primarily in short-term, investment-grade, interest-bearing
obligations until such funds are utilized in operations. Substantial capital
will be required to develop the Company's products, including completing
product testing and clinical trials, obtaining all required United States and
foreign regulatory approvals and clearances, commencing and scaling up
manufacturing and marketing its products. Any failure of the Company's
collaborative partners to fund its development expenditures would have a
material adverse effect on the Company's business, financial condition and
results of operations.
In addition to funds that the Company expects to be provided by its
collaborative partners, the Company may be required to raise additional funds
through public or private financing, additional collaborative relationships or
other arrangements. The Company believes that its existing
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<PAGE> 12
capital resources and the net proceeds of an offering completed subsequent to
this reporting period, will be sufficient to satisfy its funding requirements
for at least the next 24 months, but may not be sufficient to fund the
Company's operations to the point of commercial introduction of its glucose
monitoring product.
RISK FACTORS
The following risk factors should be considered carefully in addition
to the other information presented in this report. This report contains
forward looking statements that involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward looking statements. Factors that might cause such differences include,
but are not limited to, the following risk factors.
Early Stage of Development; No Assurance of Successful Product Development
To date, the Company has only tested prototypes of its products.
Because the Company's research and clinical development programs are at an
early stage, substantial additional research and development and clinical
trials will be necessary before commercial prototypes of the Company's products
are produced. The Company could encounter unforeseen problems in the
development of its products such as delays in conducting clinical trials,
delays in the supply of key components or delays in overcoming technical
hurdles. There can be no assurance that the Company will be able to
successfully address the problems that may arise during the development and
commercialization process. In addition, there can be no assurance that any of
the Company's products will be successfully developed, proven safe and
efficacious in clinical trials, meet applicable regulatory standards, be
capable of being produced in commercial quantities at acceptable costs, be
eligible for third-party reimbursement from governmental or private insurers,
be successfully marketed or achieve market acceptance. If any of the Company's
development programs are not successfully completed, required regulatory
approvals or clearances are not obtained, or products for which approvals or
clearances are obtained are not commercially successful, the Company's
business, financial condition and results of operations would be materially
adversely affected.
The Company's business is subject to the risks inherent in the
development of new products using new technologies and approaches. There can
be no assurance that unforeseen problems will not develop with these
technologies or applications, that the Company will be able to successfully
address technological challenges it encounters in its research and development
programs or that commercially feasible products will ultimately be developed by
the Company.
Dependence on Collaborative Arrangements
The Company's business strategy for the development, clinical testing,
regulatory approval, manufacturing and commercialization of its products
depends upon the Company's ability to selectively enter into and maintain
collaborative arrangements with leading medical device companies. The Company
has entered into collaborative arrangements with (i) Abbott under which
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<PAGE> 13
Abbott is primarily responsible for undertaking or funding the development,
clinical testing, regulatory approval process, manufacture and sale of the
Company's glucose monitoring product, (ii) Boehringer Mannheim under which
Boehringer Mannheim is primarily responsible for undertaking or funding the
development, clinical testing, regulatory approval process and sale of the
Company's diabetes screening product, and (iii) Healthdyne under which
Healthdyne is primarily responsible for undertaking or funding the development,
clinical testing, regulatory approval process and sale of the Company's infant
jaundice product in the United States and Canada. The agreements evidencing
these collaborative arrangements grant a substantial amount of discretion to
each of Abbott, Boehringer Mannheim and Healthdyne. For example, each of these
collaborative partners may terminate their respective collaborative
arrangements with the Company effective upon the expiration of certain notice
periods. In addition, the obligation of each of the Company's collaborative
partners to fund or undertake the development, clinical testing, regulatory
approval process, marketing, distribution and/or sale of the products covered
by their respective collaborative arrangements with the Company is, to a large
extent, dependent upon the satisfaction of certain goals or "milestones" by
certain specified dates, some of which are outside the Company's control. To
the extent that the obligations of the Company's collaborative partners to fund
or undertake all or certain of the foregoing activities are not contingent upon
the satisfaction of certain goals or milestones, the collaborative partners
nevertheless retain a significant degree of discretion regarding the timing of
these activities and the amount and quality of financial, personnel and other
resources that they devote to these activities. Furthermore, there can be no
assurance that disputes will not arise between the Company and one or more of
its collaborative partners regarding their respective rights and obligations
under the collaborative arrangements. Finally, there can be no assurance that
one or more of the Company's collaborative partners will not be unable, due to
financial, regulatory or other reasons, to satisfy its obligations under its
collaborative arrangement with the Company or will not intentionally or
unintentionally breach its obligations under the arrangement.
There can be no assurance that one or more of the Company's
collaborative partners will not, for competitive reasons, support, directly or
indirectly, a company or product that competes with the Company's product that
is the subject of its collaborative arrangement with the Company. Furthermore,
any dispute between the Company and one of its collaborative partners might
require the Company to initiate or defend expensive litigation or arbitration
proceedings.
Any termination of any collaborative arrangement by one of the
Company's collaborative partners, any inability of a collaborative partner to
fund or otherwise satisfy its obligations under its collaborative arrangements
with the Company and any significant dispute with, or breach of a contractual
commitment by, a collaborative partner, would likely require the Company to
seek and reach agreement with another collaborative partner or to assume, to
the extent possible and at its own expense, all the responsibilities being
undertaken by this collaborative partner. There can be no assurance that the
Company would be able to reach agreement with a replacement collaborative
partner. If the Company were not able to find a replacement collaborative
partner, there can be no assurance that the Company would be able to perform or
fund the activities for which such collaborative partner is currently
responsible. Even if the Company were able to perform and fund these
activities, the Company's capital requirements would increase substantially.
In addition, the
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<PAGE> 14
further development and the clinical testing, regulatory approval process,
marketing, distribution and sale of the product covered by such collaborative
arrangement would be significantly delayed.
In January 1997, Healthdyne became the subject of a hostile takeover
attempt by Invacare Corporation. As of June 23, 1997, more than 35% of
Healthdyne's outstanding shares of common stock was held by Invacare, and the
offer has been extended to August 1, 1997 and may be extended further. There
can be no assurance that a change in control of Healthdyne would not adversely
affect the Company's collaborative arrangement with Healthdyne.
In May 1997, Roche Holding, Ltd. announced it would acquire Corange,
Ltd., which is the parent company of Boehringer Mannheim, GmbH., the parent
company of Boehringer Mannheim. There can be no assurance that a change in
control of Boehringer Mannheim will not adversely affect the Company's
collaborative arrangement with Boehringer Mannheim.
Any of the foregoing circumstances could have a material adverse
effect upon the Company's business, financial condition and results of
operations.
Limited Operating History; History of Losses and Expectations of Future Losses
The Company has a limited operating history upon which its prospects
can be evaluated. Such prospects must be considered in light of the
substantial risks, expenses and difficulties encountered by entrants into the
medical device industry, which is characterized by an increasing number of
participants, intense competition and a high failure rate. The Company has
experienced operating losses since its inception, and, as of June 30, 1997, the
Company had an accumulated deficit of approximately $____ million. To date,
the Company has engaged primarily in research and development efforts, and a
number of the Company's key management and technical personnel have only
recently joined the Company. The Company has never generated revenues from
product sales and does not have experience in manufacturing, marketing or
selling its products. There can be no assurance that the Company's development
efforts will result in commercially viable products, that the Company will be
successful in introducing its products, or that required regulatory clearances
or approvals will be obtained in a timely manner, or at all. There can be no
assurance that the Company's products will ever gain market acceptance or that
the Company will ever generate revenues or achieve profitability. The
development and commercialization of its products will require substantial
development, regulatory, sales and marketing, manufacturing and other
expenditures. The Company expects its operating losses to continue through
1999 as it continues to expend substantial resources to complete development of
its products, obtain regulatory clearances or approvals, build its marketing,
sales, manufacturing and finance organizations and conduct further research and
development.
Government Regulations; No Assurance of Regulatory Approvals
The design, manufacturing, labeling, distribution and marketing of the
Company's products will be subject to extensive and rigorous government
regulation in the United States and certain
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<PAGE> 15
other countries where the process of obtaining and maintaining required
regulatory clearance or approvals is lengthy, expensive and uncertain. In
order for the Company to market its products in the United States, the Company
must obtain clearance or approval from the United States Food and Drug
Administration ("FDA"). The Company intends to seek clearance to market each
of its products through a 510(k) premarket notification supported by clinical
data. Although no 510(k) premarket notification has been filed with the FDA
for clearance to market any of the Company's products, the Company expects
510(k) premarket notifications for clearance to market its infant jaundice
product, its diabetes screening product and its glucose monitoring product to
be filed in 1997, 1998 and 1999, respectively. There can be no assurance that
any such notifications will be filed in accordance with this schedule, that the
FDA will act favorably or quickly on such 510(k) submissions, or that
significant difficulties and costs will not be encountered during efforts to
obtain FDA clearance or approval. Specifically, the FDA may request additional
data or require additional clinical studies be conducted to obtain 510(k)
clearance for one or more of the Company's products. In addition, there can be
no assurance that the FDA will not require the submission of a premarket
approval ("PMA") application to obtain FDA approval to market one or more of
the Company's products. The PMA process is more rigorous and lengthier than
the 510(k) clearance process and can take several years from initial filing and
require the submission of extensive supporting data and clinical information.
In addition, there can be no assurance that the FDA will not impose strict
labeling or other requirements as a condition of its 510(k) clearance or PMA,
any of which could limit the Company's ability to market its products.
Further, if the Company wishes to modify a product after FDA clearance of a
510(k) premarket notification or approval of a PMA application, including
changes in indications or other modifications that could affect safety and
efficacy, additional clearances or approvals will be required from the FDA.
Any request by the FDA for additional data or any requirement by the FDA that
the Company conduct additional clinical studies or submit to the more rigorous
and lengthier PMA process could result in a significant delay in bringing the
Company's products to market and substantial additional research and other
expenditures by the Company. Similarly, any labeling or other conditions or
restrictions imposed by the FDA on the marketing of the Company's products
could hinder the Company's ability to effectively market its products. Any of
the foregoing actions by the FDA could delay or prevent altogether the
Company's ability to market and distribute its products and could have a
material adverse effect on the Company's business, financial condition and
results of operations.
In order for the Company to market its products under development in
Europe and certain other foreign jurisdictions, the Company and its
distributors and agents must obtain required regulatory registrations or
approvals and otherwise comply with extensive regulations regarding safety,
efficacy and quality in those jurisdictions. Specifically, certain foreign
regulatory bodies have adopted various regulations governing product standards,
packaging requirements, labeling requirements, import restrictions, tariff
regulations, duties and tax requirements. These regulations vary from country
to country. In order to commence sales in Europe, the Company will be required
to obtain ISO 9001 certifications and after mid-1998, the Company will be
prohibited from selling its products in Europe until such time as the Company
receives CE mark certification, which is an international symbol of quality and
compliance with applicable European medical device directives. There can be no
assurance that the Company will be successful in obtaining ISO 9001 or CE mark
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<PAGE> 16
certification. Failure to receive ISO 9001 or CE mark certification or other
foreign regulatory approvals could have a material adverse effect on the
Company's business, financial condition and results of operations. There can
be no assurance that the Company will obtain any other required regulatory
registrations or approvals in such countries or that it will not be required to
incur significant costs in obtaining or maintaining such regulatory
registrations or approvals. Delays in obtaining any registrations or approvals
required to market the Company's products, failure to receive these
registrations or approvals, or future loss of previously obtained registrations
or approvals could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company and its collaborative partners will be required to adhere
to applicable FDA regulations regarding Good Manufacturing Practice ("GMP") and
similar regulations in other countries, which include testing, control, and
documentation requirements. Ongoing compliance with GMP and other applicable
regulatory requirements will be strictly enforced in the United States through
periodic inspections by state and federal agencies, including the FDA, and in
foreign jurisdictions by comparable agencies. Failure to comply with
applicable regulatory requirements could result in, among other things, warning
letters, fines, injunctions, civil penalties, recall or seizure of products,
total or partial suspension of production, refusal of the government to grant
premarket clearance or premarket approval for devices, withdrawal of approvals
previously obtained and criminal prosecution. The restriction, suspension or
revocation of regulatory approvals or any other failure to comply with
regulatory requirements would have a material adverse effect on the Company's
business, financial condition and results of operations.
The Clinical Chemistry Branch of the FDA's Division of Clinical
Laboratory Devices (the "Branch") has traditionally been the reviewing branch
for blood-based personal glucose monitoring products. The Clinical Chemistry
and Clinical Toxicology Devices Panel (the "Panel") is an external advisory
panel that provides advice to the Branch regarding devices that are reviewed by
the Branch. The Panel met on March 20-21, 1997 to discuss invasive and
non-invasive self-monitoring blood glucose devices. The Panel submitted
comments to the Branch suggesting revisions of existing guidelines relating to
the laboratory and clinical testing of blood glucose devices. The Branch may
take the Panel's comments into consideration in determining whether to revise
the existing guidelines. To date, there has been no change in the existing
510(k) guidance document for blood glucose monitoring devices. There can be no
assurance that the Panel's comments will not result in a FDA policy or change
in FDA policy that is materially adverse to the Company's regulatory position.
The Company will rely upon Abbott and Boehringer Mannheim to obtain
United States and foreign regulatory approvals and clearances for its glucose
monitoring and diabetes screening products, respectively, and if such approvals
or clearances are obtained the Company will rely upon these collaborative
partners to maintain them in full force and effect and to otherwise remain in
compliance with all applicable United States and foreign regulatory
restrictions. The inability or failure of such third parties to comply with
the varying regulations or the imposition of new regulations would materially
adversely effect the Company's business, financial condition and results of
operations.
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<PAGE> 17
Dependence on Licensed Patent Applications and Proprietary Technology
SpectRx's success depends in large part upon its ability to establish
and maintain the proprietary nature of its technology through the patent
process and to license from others patents and patent applications necessary to
develop its products. The Company has licensed from Non-Invasive Monitoring
Company, Inc. ("Nimco") one granted patent and know-how related to its glucose
monitoring product, jointly applied with Altea Technologies, Inc. ("Altea")
for a U.S. patent and an international patent related to this device and has
licensed this granted patent and these patent applications to Abbott pursuant
to the parties' collaborative arrangements. SpectRx has license agreements
with Georgia Tech Research Corporation ("GTRC") that give the Company the right
to use two patents related to its diabetes screening product, and the Company
has licensed this proprietary technology to Boehringer Mannheim pursuant to the
Company's collaborative arrangement with Boehringer Mannheim. The Company has
license agreements with the University of Texas M.D. Anderson Cancer Center
("M.D. Anderson") that give SpectRx access to one patent related to the
Company's infant jaundice product, and the Company has applied for two patents
related to this product. SpectRx has licensed the one patent and two patent
applications to Healthdyne pursuant to its collaborative arrangement with that
company. In addition, SpectRx has licensed from Joseph Lakowicz, Ph.D. of the
University of Maryland several granted patents and patent applications related
to fluorescence spectroscopy that it intends to use in its research and
development efforts.
There can be no assurance that one or more of the patents held
directly by the Company or licensed by the Company from third parties,
including the disposable components to be used in connection with its glucose
monitoring and infant jaundice products, or processes used in the manufacture
of the Company's products, will not be successfully challenged, invalidated or
circumvented or that the Company will otherwise be able to rely on such patents
for any reason. In addition, there can be no assurance that competitors, many
of whom have substantial resources and have made substantial investments in
competing technologies, will not seek to apply for and obtain patents that
prevent, limit or interfere with the Company's ability to make, use and sell
its products either in the United States or in foreign markets. If any of the
Company's patents are successfully challenged, invalidated or circumvented or
the Company's right or ability to manufacture its products were to be
proscribed or limited, the Company's ability to continue to manufacture and
market its products could be adversely affected, which would likely have a
material adverse effect upon the Company's business, financial condition and
results of operations.
The medical device industry has been characterized by extensive
litigation regarding patents and other intellectual property rights. Certain
companies in the medical device industry have instituted intellectual property
litigation, including patent infringement actions, for legitimate and, in
certain cases, competitive reasons. In addition, the United States Patent and
Trademark Office ("USPTO") may institute litigation or interference
proceedings. There can be no assurance that the Company will not become
subject to patent infringement claims or litigation or interference proceedings
instituted by the USPTO to determine the priority of inventions. The defense
and prosecution of intellectual property suits, USPTO interference proceedings
and related legal and
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<PAGE> 18
administrative proceedings are both costly and time consuming. Litigation may
be necessary to enforce patents issued to the Company, to protect trade secrets
or know-how owned by the Company or to determine the enforceability, scope and
validity of the proprietary rights of others. Any litigation or interference
proceedings brought against, initiated by or otherwise involving the Company
may require the Company to incur substantial legal and other fees and expenses
and may require some of the Company's employees to devote all or a substantial
portion of their time to the prosecution or defense of such litigation or
proceedings. An adverse determination in litigation or interference
proceedings to which the Company may become a party, including any litigation
that may arise against the Company, could subject the Company to significant
liabilities to third parties, require the Company to seek licenses from third
parties or prevent the Company from selling its products in certain markets, or
at all. Although patent and intellectual property disputes regarding medical
devices are often settled through licensing or similar arrangements, there can
be no assurance that the Company would be able to reach a satisfactory
settlement of such a dispute that would allow it to license necessary patents
or other intellectual property. Even if such a settlement were reached, the
settlement process may be expensive and time consuming and the terms of the
settlement may require the Company to pay substantial royalties. An adverse
determination in a judicial or administrative proceeding or the failure to
obtain a necessary license could prevent the Company from manufacturing and
selling its products, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
In addition to patents, the Company relies on trade secrets and
proprietary know-how, which it seeks to protect, in part, through
confidentiality and proprietary information agreements. There can be no
assurance that such confidentiality or proprietary information agreements will
not be breached, that the Company would have adequate remedies for any breach,
or that the Company's trade secrets will not otherwise become known to or be
independently developed by competitors.
Fixed Royalty Rates and Manufacturing Profits
Substantially all of the Company's revenues and profits are expected
to be derived from royalties and manufacturing profits that the Company will
receive from Abbott, Boehringer Mannheim and Healthdyne resulting from sales of
its glucose monitoring, diabetes screening and infant jaundice products,
respectively. The royalties and manufacturing profits that the Company is
expected to receive from each of its collaborative partners depend on sales of
such products. There can be no assurance that the Company, together with its
collaborative partners, will be able to sell sufficient volumes of the
Company's products to generate substantial royalties and manufacturing profits
for the Company. In addition, the Company's profit margins are not likely to
increase over time because the Company's royalty rates and manufacturing profit
rates are predetermined.
In addition, it is common practice in the glucose monitoring device
industry for manufacturers to sell their glucose monitoring devices at
substantial discounts to their list prices or to offer customers rebates on
sales of their products. Manufacturers offer such discounts or rebates to
expand the use of their products and thus increase the market for the
disposable assay strips they sell for use with their products. Because Abbott
may, pursuant to its collaborative arrangement with
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<PAGE> 19
the Company, determine the prices at which it sells the Company's glucose
monitoring devices, it may choose to adopt this marketing strategy. If Abbott
adopts this marketing strategy and discounts the prices at which it sells the
Company's glucose monitoring devices, the royalties earned by the Company in
respect of such sales will decline. There can be no assurance that, if this
strategy is adopted, royalties earned by the Company on sales of the disposable
cartridges to be used in connection with its glucose monitoring device will be
equal to or greater than the royalties the Company would have earned had its
glucose monitoring devices not been sold at a discount. This possible
reduction in royalties on sales of the Company's glucose monitoring devices
could have a material adverse effect upon the Company's business, financial
condition and results of operations.
Uncertainty of Market Acceptance
The Company's products are based upon new methods of glucose
monitoring, diabetes screening and infant jaundice monitoring and screening,
and there can be no assurance that any of these products will gain market
acceptance. Physicians and individuals will not recommend or use the Company's
products unless they determine, based on experience, clinical data, relative
cost, and other factors, that these products are an attractive alternative to
current blood-based tests that have a long history of safe and effective use.
To date, the Company's products have been utilized by only a limited number of
subjects, and no independent studies regarding the Company's products have been
published. The lack of any such independent studies may have an adverse effect
on the Company's ability to successfully market its products. In addition,
purchase decisions for products like the Company's diabetes screening and
infant jaundice products are greatly influenced by health care administrators
who are subject to increasing pressures to reduce costs. Failure of the
Company's products to achieve significant market acceptance would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Intense Competition
The medical device industry in general, and the markets for glucose
monitoring and diabetes screening devices and processes in particular, are
intensely competitive. If successful in its product development, the Company
will compete with other providers of personal glucose monitors, diabetes
screening tests and infant jaundice products. A number of competitors,
including Johnson & Johnson, Inc. (which owns Lifescan, Inc.), Boehringer
Mannheim, Bayer AG (which owns Miles Laboratories, Inc.) and Abbott (which owns
MediSense Inc.), are currently marketing traditional glucose monitors. These
monitors are widely accepted in the health care industry and have a long
history of accurate and effective use. Furthermore, a number of companies have
announced that they are developing products that permit non-invasive and less
invasive glucose monitoring. Accordingly, competition in this area is expected
to increase.
Many of the Company's competitors have substantially greater
financial, research, technical, manufacturing, marketing and distribution
resources than the Company and have greater name recognition and lengthier
operating histories in the health care industry. There can be no assurance
that the Company will be able to effectively compete against these and other
competitors. In
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<PAGE> 20
addition, there can be no assurance that the Company's glucose monitoring,
diabetes screening or infant jaundice products will replace any currently used
devices or systems, which have long histories of safe and effective use.
Furthermore, there can be no assurance that the Company's competitors will not
succeed in developing, either before or after the development and
commercialization of the Company's products, devices and technologies that
permit more efficient, less expensive non-invasive and less invasive glucose
monitoring, diabetes screening and infant jaundice monitoring. It is also
possible that one or more pharmaceutical or other health care companies will
develop therapeutic drugs, treatments or other products that will substantially
reduce the prevalence of diabetes or infant jaundice or otherwise render the
Company's products obsolete. Such competition could have a material adverse
effect on the Company's business, financial condition and results of operation.
In addition, there can be no assurance that one or more of the
Company's collaborative partners will not, for competitive reasons, reduce its
support of its collaborative arrangement with the Company or support, directly
or indirectly, a company or product that competes with the Company's product
that is the subject of the collaborative arrangement.
No Manufacturing Experience; Dependence on Sole Sources of Supply
To date, the Company's manufacturing activities have consisted only of
building certain prototype devices. If the Company successfully develops its
diabetes screening and infant jaundice products and, together with Boehringer
Mannheim and Healthdyne, obtains FDA clearance and other regulatory approvals
to market these products, the Company will undertake to manufacture these
products. The Company has no experience manufacturing such products in the
volumes that would be necessary for the Company to achieve significant
commercial sales. There can be no assurance that the Company will be able to
establish and maintain reliable, full scale manufacturing of these products at
commercially reasonable costs. Although the Company has leased space that it
plans to use to manufacture its products, it may encounter various problems in
establishing and maintaining its manufacturing operations, resulting in
inefficiencies and delays. Specifically, companies often encounter
difficulties in scaling up production, including problems involving production
yield, quality control and assurance, and shortages of qualified personnel. In
addition, the Company's manufacturing facilities will be subject to GMP
regulations, including possible preapproval inspection, international quality
standards and other regulatory requirements. Difficulties encountered by the
Company in manufacturing scale-up or failure by the Company to implement and
maintain its manufacturing facilities in accordance with GMP regulations,
international quality standards or other regulatory requirements could result
in a delay or termination of production, which could have a material adverse
effect on the Company's business, financial condition and results of
operations.
The microspectrometer and disposable calibration element, components
of the Company's infant jaundice product, and the blue light module and
calibration element, components of the Company's diabetes screening product,
are each available from only one supplier and these products would require a
major redesign in order to incorporate a substitute component. Certain other
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<PAGE> 21
components of the infant jaundice and diabetes screening products are currently
obtained from only one supplier, but have readily available substitute
components that can be incorporated in the applicable product with minimal
design modifications. If the Company's products require a PMA, the inclusion
of substitute components could require the Company to qualify the new supplier
with the appropriate government regulatory authorities. Alternatively, if the
Company's products qualify for a 510(k) premarket notification, the substitute
components need only meet the Company's product specifications. Any
significant problem experienced by one of the Company's sole source suppliers
may result in a delay or interruption in the supply of components to the
Company until such supplier cures the problem or an alternative source of the
component is located and qualified. Any delay or interruption would likely
lead to a delay or interruption in the Company's manufacturing operations,
which could have a material adverse effect upon the Company's business,
financial condition and results of operations.
No Marketing and Sales Experience
If the Company, together with Healthdyne, successfully develops the
Company's infant jaundice product and obtains, in countries other than the
United States and Canada, necessary regulatory approvals and clearances to
market this product, the Company will be responsible for marketing this product
in these countries. The Company has no experience in marketing or selling
medical device products and only has a three person marketing and sales staff.
In order to successfully market and sell its infant jaundice product outside
the United States and Canada, the Company must either develop a marketing and
sales force or enter into arrangements with third parties to market and sell
this product. There can be no assurance that the Company will be able to
successfully develop a marketing and sales force or that it will be able to
enter into marketing and sales agreements with third parties on acceptable
terms, if at all. If the Company develops its own marketing and sales
capabilities, it will compete with other companies that have experienced and
well-funded marketing and sales operations. If the Company enters into a
marketing arrangement with a third party for the marketing and sale of its
infant jaundice product outside the United States and Canada, any revenues to
be received by the Company from this product will be dependent on this third
party, and the Company will likely be required to pay a sales commission or
similar amount to this party. Furthermore, the Company is currently dependent
on the efforts of Abbott and Boehringer Mannheim for any revenues to be
received from its glucose monitoring and diabetes screening products,
respectively. There can be no assurance that the efforts of these third
parties for the marketing and sale of the Company's products will be
successful.
Product Liability Risk; Limited Insurance Coverage
The development, manufacture and sale of medical products entail
significant risks of product liability claims. The Company currently has no
product liability insurance coverage beyond that provided by its general
liability insurance. Accordingly, there can be no assurance that the Company
is adequately protected from any liabilities, including any adverse judgments
or settlements, it might incur in connection with the development, clinical
testing, manufacture and sale of its products. In addition, product liability
insurance is expensive and may not be available to the
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<PAGE> 22
Company on acceptable terms, if at all. A successful product liability claim
or series of claims brought against the Company that results in an adverse
judgment against or settlement by the Company in excess of any insurance
coverage could have a material adverse effect on the Company's business,
financial condition and results of operations.
Need for Additional Capital; Uncertainty of Access to Capital
Substantial capital will be required to develop the Company's
products, including completing product testing and clinical trials, obtaining
all required United States and foreign regulatory approvals and clearances,
commencing and scaling up manufacturing and marketing its products. Pursuant
to the Company's collaborative arrangements with Abbott, Boehringer Mannheim
and Healthdyne, these collaborative partners will either directly undertake
these activities or will fund a substantial portion of these expenditures. The
obligations of the Company's collaborative partners to fund the Company's
capital expenditures is largely discretionary and depends on a number of
factors, including the Company's ability to meet certain milestones in the
development and testing of its products. There can be no assurance that the
Company will meet such milestones or that the Company's collaborative partners
will continue to fund the Company's capital expenditures. Any failure of the
Company's collaborative partners to fund its capital expenditures would have a
material adverse effect on the Company's business, financial condition and
results of operations.
In addition to funds that the Company expects to be provided by its
collaborative partners, the Company may be required to raise additional funds
through public or private financing, additional collaborative relationships or
other arrangements. The Company believes that its existing capital resources
and the net proceeds of this offering will be sufficient to satisfy its funding
requirements for at least the next 24 months, but may not be sufficient to fund
the Company's operations to the point of commercial introduction of its glucose
monitoring product. There can be no assurance that any required additional
funding, if needed, will be available on terms attractive to the Company, or at
all, which could have a material adverse effect on the Company's business,
financial condition and results of operations. Any additional equity financing
may be dilutive to stockholders, and debt financing, if available, may involve
restrictive covenants.
Uncertainty of Third-Party Reimbursement
In the United States and elsewhere, sales of medical products are
dependent, in part, on the ability of consumers of these products to obtain
reimbursement for all or a portion of their cost from third-party payors, such
as government and private insurance plans. Third-party payors are increasingly
challenging the prices charged for medical products and services. If the
Company succeeds in bringing one or more products to market, there can be no
assurance that these products will be considered cost effective and that
reimbursement to the consumer will be available or sufficient to allow the
Company to sell its products on a competitive basis.
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<PAGE> 23
Need to Attract and Retain Key Employees
The Company's ability to operate successfully and manage its potential
future growth depends in significant part upon the continued service of certain
key scientific, technical, managerial and finance personnel, and its ability to
attract and retain additional highly qualified scientific, technical,
managerial and finance personnel. The officers listed in the Executive
Officers and Directors table comprise the Company's key personnel. The Chief
Financial Officer and the Vice President, Operations joined the Company within
the last 12 months. None of these key employees has an employment contract
with the Company nor are any of these employees covered by key person or
similar insurance. In addition, if the Company, together with its
collaborative partners, is able to successfully develop and commercialize the
Company's products, the Company will need to hire additional scientific,
technical, managerial and finance personnel. The Company faces intense
competition for qualified personnel in these areas, many of whom are often
subject to competing employment offers, and there can be no assurance that the
Company will be able to attract and retain such personnel. The loss of key
personnel or inability to hire and retain additional qualified personnel in the
future could have a material adverse effect on the Company's business,
financial condition and results of operations.
Control by Directors, Executive Officers and Affiliated Entities
The Company's directors, executive officers and entities affiliated
with them will, in the aggregate, beneficially own approximately 46% of the
Company's outstanding Common Stock following the completion of this offering.
These stockholders, acting together, would be able to control substantially all
matters requiring approval by the stockholders of the Company, including the
election of directors and the approval of mergers and other business
combination transactions.
Potential Volatility of Stock Price
The stock markets have experienced extreme price and volume
fluctuations that have substantially affected small capitalization medical
technology companies, resulting in changes in the market prices of the stocks
of many such companies that may not have been directly related to their
operating performance. Such broad market fluctuations may adversely affect the
market price of the Company's Common Stock. In addition, the market price of
the Common Stock may be highly volatile. Factors such as variations in the
Company's financial results, changes in the Company's collaborative
arrangements, comments by security analysts, announcements of technological
innovations or new products by the Company or its competitors, changing
government regulations and developments with respect to FDA submissions,
patents and proprietary rights, or litigation may have a material adverse
effect on the market price of the Common Stock.
Potential Adverse Effect of Shares Eligible for Future Sale
The number of shares of Common Stock available for sale in the public
market is limited by lock-up agreements under which the Company (subject to
certain exceptions) and all directors,
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<PAGE> 24
executive officers and certain other stockholders of the Company that
beneficially own or have dispositive power over substantially all of the shares
of Common Stock outstanding prior to the Company's initial public offering,
including Common Stock issued upon the closing of the initial public offering
upon conversion of the Company's Preferred Stock, have agreed not to issue (in
the case of the Company), sell or otherwise dispose of any of their shares for
a period of 180 days following the initial public offering, without the prior
written consent of Hambrecht & Quist LLC. However, Hambrecht & Quist LLC may,
in its sole discretion, permit the sale or other disposition of all or any
portion of the securities subject to such lock-up agreements prior to the
expiration of this 180 day period. If Hambrecht & Quist LLC were to release
any securities from the prohibitions on sales and other dispositions imposed by
these lock-up agreements, up to 5,077,007 shares of Common Stock, including
363,602 shares issuable upon exercise of currently outstanding vested options,
may be eligible for immediate sale. Hambrecht & Quist LLC retains the right at
any time and without notice to release from the scope of the lock-up
restrictions all or any portion of the securities currently subject to such
restrictions. The release of any securities from such prohibitions and the
subsequent sale of such shares may have an adverse effect on the ability of the
Company to raise capital and could adversely affect the market price of the
Company's Common Stock.
Anti-Takeover Effect of Certain Charter and Bylaw Provisions on Price of Common
Stock
Certain provisions of the Company's Certificate of Incorporation and
Bylaws may have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control
of the Company. Such provisions could limit the price that certain investors
might be willing to pay in the future for shares of the Company's Common Stock.
Certain of these provisions allow the Company to issue Preferred Stock without
any vote or further action by the stockholders, eliminate the right of
stockholders to act by written consent without a meeting and specify procedures
for director nominations by stockholders and submission of other proposals for
consideration at stockholder meetings. Certain provisions of Delaware law
applicable to the Company, including Section 203, which prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholders for a period of three years unless certain conditions are met,
could also delay or make more difficult a merger, tender offer or proxy contest
involving the Company. The possible issuance of Preferred Stock, the
procedures required for director nominations and stockholder proposals and
Delaware law could have the effect of delaying, deferring or preventing a
change in control of the Company, including without limitation, discouraging a
proxy contest or making more difficult the acquisition of a substantial block
of the Company's Common Stock. These provisions could also limit the price
that investors might be willing to pay in the future for shares of the
Company's Common Stock.
Lack of Dividends
The Company has not paid any dividends and does not anticipate paying
any dividends in the foreseeable future.
-24-
<PAGE> 25
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On July 7, 1997, as a result of the Company's initial public offering,
all outstanding shares of the Company's Series A Preferred Stock were converted
into 2,474,150 shares of unregistered Common Stock without payment of
additional consideration, all outstanding shares of the Company's Series B
Preferred Stock were converted into 908,621 shares of unregistered Common Stock
without payment of additional consideration and all outstanding shares of the
Company's Series C Preferred Stock were converted into 357,143 shares of
unregistered Common Stock without payment of additional consideration.
Also on such date, the Company issued 360,000 shares of Series A
Preferred Stock that immediately converted into 257,152 shares of unregistered
Common Stock upon exercise of warrants for an aggregate price of approximately
$360,000, 295,974 shares of unregistered Common Stock upon exercise of warrants
for an aggregate exercise price of approximately $331,478.40 and 6,857 shares
of unregistered Common Stock upon the net exercise of a warrant.
The Common Stock issued upon conversion of the Preferred Stock and
upon the net exercise of the warrant was exempt from registration under the
Securities Act of 1933, as amended (the "Act") pursuant to Section 3(a)(9)
thereof, as securities exchanged by an issuer with existing security holders.
The cash exercise of warrants were exempt from registration under the Act
pursuant to Section 4(2) thereof, as transactions not involving any public
offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Exhibits listed on the accompanying Index to Exhibits are
filed as part hereof, or incorporated by reference into, this Report.
(b) Reports of Form 8-K
The Registrant filed no Current Reports on Form 8-K during the
quarter ended June 30, 1997.
-25-
<PAGE> 26
SIGNATURE
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, in Norcross, Georgia.
SPECTRX, INC.
Date: August 12, 1997 By: /S/ THOMAS H. MULLER, JR.
------------------------------------
Thomas H. Muller, Jr.
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial and Accounting
Officer)
-26-
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- - ----------- -----------
<S> <C>
3.1 Certificate of Incorporation of the Company, as amended, as currently in effect.
3.2* Bylaws of the Company.
4.1* Specimen Common Stock Certificate.
10.1* 1997 Employee Stock Purchase Plan and form of agreement thereunder.
10.2* 1995 Stock Plan, as amended, and form of Stock Option Agreement thereunder.
10.3* Series A Preferred Stock Purchase Agreement, dated February 5, 1993, between the
Company and certain investors.
10.4* Note and Warrant Purchase Agreement, dated November 6, 1995 and April 15, 1996,
between the Registrant and certain investors.
10.5* Series B Preferred Stock Purchase Agreement, dated August 30, 1996, between the
Company and certain investors.
10.6* Series C Preferred Stock Purchase Agreement, dated October 21, 1996, between the
Company and Abbott Laboratories (included in Exhibit 10.23).
10.7* Stock Purchase Agreement, dated June 30, 1994, between Mark A. Samuels and the
Company.
10.8* Stock Purchase Agreement, dated June 30, 1994, between Keith D. Ignotz and the
Company.
10.9* Assignment and Bill of Sale, dated February 29, 1996, between LAO and the Company.
10.10* Security Agreement, dated October 31, 1996, between Mark A. Samuels and the Company.
10.11* Security Agreement, dated October 31, 1996, between Keith D. Ignotz and the Company.
10.12A+* License Agreement, dated May 7, 1991, between GTRC and LAO.
10.12B* Agreement for Purchase and Sale of Technology, Sale, dated January 16, 1993, between
LAO and the Company.
10.12C* First Amendment to License Agreement, dated October 19, 1993, between GTRC and the
Company.
10.13* Clinical Research Study Agreement, dated July 22, 1993, between Emory University and
the Company.
10.14A+* Development and License Agreement, dated December 2, 1994, between Boehringer Mannheim
Corporation and the Company.
10.14B+* Supply Agreement, dated January 5, 1996, between Boehringer Mannheim and the Company.
10.15* Sponsored Research Agreement, No. SR95-006, dated May 3, 1995, between University of
Texas, M.D. Anderson Cancer Center and the Company.
</TABLE>
-27-
<PAGE> 28
<TABLE>
<S> <C>
Sole Commercial Patent License Agreement, dated May 4, 1995, between Martin Marietta
10.16* Energy Systems, Inc. and the Company.
10.17* Joint Development Agreement, dated July 10, 1995, between Teijin and the Company.
10.18A* License Agreement, dated November 22, 1995, between Joseph R. Lakowicz, Ph.D. and the
Company.
10.18B* Amendment of License Agreement, dated November 28, 1995, between Joseph R. Lakowicz,
Ph.D. and the Company.
10.18C* Second Amendment to License Agreement, dated March 26, 1997, between Joseph R.
Lakowicz, Ph.D. and the Company.
10.19* License and Joint Development Agreement, dated March 1, 1996, between NonInvasive-
Monitoring Company, Inc., Altea Technologies, Inc. and the Company.
10.20+* Patent License Agreement, dated March 12, 1996, between the Board of Regents of the
University of Texas System, M.D. Anderson and the Company.
10.21+* Purchasing and Licensing Agreement, dated June 19, 1996, between Healthdyne and the
Company.
10.22* Research Services Agreement, dated September 3, 1996, between Sisters of Providence in
Oregon doing business as the Oregon Medical Laser Center, Providence St. Vincent
Medical Center and the Company.
10.23+* Research and Development and License Agreement, dated October 10, 1996, between Abbott
Laboratories and the Company.
10.24* Lease, dated September 21, 1993, between National Life Insurance Company d/b/a Plaza
85 Business Park and the Company, together with amendments 1, 2 and 3 thereto and
Tenant Estoppel Certificate, dated September 20, 1994.
11.1 Calculation of earnings per share.
27.1 Financial Data Schedule.
</TABLE>
- - ------------------------
* Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-1 (No. 333-22429) filed February 27,
1997, and amended on April 24, 1997, June 11, 1997, and June 30, 1997,
which Registration Statement became effective June 30, 1997.
+ Confidential treatment granted for portions of these agreements.
-28-
<PAGE> 1
Exhibit 3.1
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED
CERTIFICATE OF "SPECTRX, INC.", FILED IN THIS OFFICE ON THE SEVENTH DAY OF
JULY, A.D. 1997, AT 11:30 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[STATE OF DELAWARE SEAL] /s/ EDWARD J. FREEL
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8546376
DATE: 07-08-97
<PAGE> 2
RESTATED CERTIFICATE OF INCORPORATION
OF
SPECTRX, INC.
SPECTRX, INC., a corporation organized and existing under the laws of
the State of Delaware, the original Certificate of Incorporation of which was
filed on October 27, 1992 hereby certifies that the following Restated
Certificate of Incorporation (i) has been duly adopted in accordance with the
provisions of Section 245 of the General Corporation Law, (ii) restates the
provisions of the Certificate of Incorporation of SpectRx, Inc. filed with the
Secretary of State of the State of Delaware on September 30, 1996 and (iii)
supersedes the original Certificate of Incorporation and all prior restatements
thereof and amendments thereto in their entirety.
ARTICLE I
The name of the corporation is SpectRx, Inc. (the "Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle,
Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
The Corporation is authorized to issue two classes of shares of stock to
be designated, respectively, Common Stock, $0.001 par value, and Preferred
Stock, $0.001 par value. The total number of shares that the Corporation is
authorized to issue is $5,000,000 shares. The number of shares of Common Stock
authorized is 50,000,000. The number of shares of Preferred authorized is
5,000,000.
The Preferred Stock may be issued from time to time in one or more
series pursuant to a resolution or resolutions providing for such issue duly
adopted by the board of directors (authority to do so being hereby expressly
vested in the board). The board of directors is further authorized to determine
or alter the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock and to fix the
number of shares of any series of Preferred
<PAGE> 3
Stock and the designation of any such series of Preferred Stock. The board of
directors, within the limits and restrictions stated in any resolution or
resolutions of the board of directors originally fixing the number of shares
constituting any series, may increase or decrease (but not below the number of
shares in any such series then outstanding) the number of shares of any series
subsequent to the issue of shares of that series.
The authority of the board of directors with respect to each such class
or series shall include, without limitation of the foregoing, the right to
determine and fix:
(a) the distinctive designation of such class or series and
the number of shares to constitute such class or series;
(b) the rate at which dividends on the shares of such class
or series shall be declared and paid, or set aside for payment, whether
dividends at the rate so determined shall be cumulative or accruing, and whether
the shares of such class or series shall be entitled to any participating or
other dividends in addition to dividends at the rate so determined, and if so,
on what terms;
(c) the right or obligation, if any, of the corporation to
redeem shares of the particular class or series of Preferred Stock and, if
redeemable, the price, terms and manner of such redemption;
(d) the special and relative rights and preferences, if any,
and the amount or amounts per share, which the shares of such class or series of
Preferred Stock shall be entitled to receive upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
(e) the terms and conditions, if any, upon which shares of
such class or series shall be convertible into, or exchangeable for, shares of
capital stock of any other class or series, including the price or prices or the
rate or rates of conversion or exchange and the terms of adjustment, if any;
(f) the obligation, if any, of the corporation to retire,
redeem or purchase shares of such class or series pursuant to a sinking fund or
fund of a similar nature or otherwise, and the terms and conditions of such
obligation;
(g) voting rights, if any, on the issuance of additional
shares of such class or series or any shares of any other class or series of
Preferred Stock;
(h) limitations, if any, on the issuance of additional
shares of such class or series or any shares of any other class or series of
Preferred Stock; and
(i) such other preferences, powers, qualifications, special
or relative rights and privileges thereof as the board of directors of the
corporation, acting in accordance with this
-2-
<PAGE> 4
Restated Certificate of Incorporation, may deem advisable and are not
inconsistent with law and the provisions of this Restated Certificate of
Incorporation.
ARTICLE V
The Corporation reserves the right to amend, alter, change, or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon the
stockholders herein are granted subject to this right.
ARTICLE VI
The Corporation is to have perpetual existence.
ARTICLE VII
1. Limitation of Liability. To the fullest extent permitted by the
General Corporation Law of the State of Delaware as the same exists or as may
hereafter be amended, a director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director.
2. Indemnification. The Corporation may indemnify to the fullest
extent permitted by law any person made or threatened to be made a party to an
action or proceeding, whether criminal, civil, administrative or investigative,
by reason of the fact that such person or his or her testator or intestate is or
was a director, officer or employee of the Corporation, or any predecessor of
the Corporation, or serves or served at any other enterprise as a director,
officer or employee at the request of the Corporation or any predecessor to the
Corporation.
3. Amendments. Neither any amendment nor repeal of this Article
VII, nor the adoption of any provision of the Corporation's Certificate of
Incorporation inconsistent with this Article VII, shall eliminate or reduce
the effect of this Article VII, in respect of any matter occurring, or any
action or proceeding accruing or arising or that, but for this Article VII,
would accrue or arise, prior to such amendment, repeal, or adoption of an
inconsistent provision.
ARTICLE VIII
In the event any shares of Preferred Stock shall be redeemed or
converted pursuant to the terms hereof, the shares so converted or redeemed
shall not revert to the status of authorized but unissued shares, but instead
shall be canceled and shall not be re-issuable by the Corporation.
3
<PAGE> 5
ARTICLE IX
Holders of stock of any class or series of this corporation shall not be
entitled to cumulate their votes for the election of directors or any other
matter submitted to a vote of the stockholders.
ARTICLE X
1. Number of Directors. The number of directors which constitutes
the whole Board of Directors of the corporation shall be designated in the
Bylaws of the corporation.
2. Election of Directors. Election of directors need not be by
written ballot unless the Bylaws of the corporation shall so provide.
ARTICLE XI
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend
or repeal the Bylaws of the corporation.
ARTICLE XII
Immediately upon the closing of a public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering any of the corporation's securities (as that term is defined under the
Securities Act of 1933, as then in effect), no action shall be taken by the
stockholders of the corporation except at an annual or special meeting of the
stockholders called in accordance with the Bylaws of the corporation and no
action shall be taken by the stockholders by written consent.
ARTICLE XIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
This Restated Certificate of Incorporation has been duly adopted by the
board of directors of the Corporation in accordance with the provisions of
Section 242 and 245 of the General Corporation Law of the State of Delaware, as
amended.
The Restated Certificate of Incorporation restates and integrates and
further amends the provisions of the Corporation's Certificate of Incorporation.
-4-
<PAGE> 6
IN WITNESS WHEREOF, SpectRx, Inc. has caused this certificate to be
signed by Mark A. Samuels, its President, and Thomas H. Muller, Jr., Secretary,
this 3rd day of July, 1997.
By: /s/ MARK A. SAMUELS
------------------------------------
Mark A. Samuels, President
Attest: /s/ THOMAS H. MULLER
--------------------------------
Thomas H. Muller, Jr., Secretary
<PAGE> 1
EXHIBIT 11.1
SPECTRX, INC.
COMPUTATION OF LOSS PER SHARE
(in thousands, except per share data)
Three Months Six Months
Ended June 30, Ended June 30,
-------------- -------------
1996 1997 1996 1997
---- ---- ---- ----
Primary and Fully Diluted
Pro Forma Net Loss $ (753) $ (1,212) $ (1,426) $(2,461)
Weighted average Common Stock
outstanding during the period 1,532 1,532 1,532 1,532
Cheap Stock (1) 1,537 1,537 1,537 1,537
------------------- ------------------
Total 3,069 3,069 3,069 3,069
------------------- ------------------
------------------- ------------------
Per Share Amount $ (0.25) $ (0.39) $ (0.46) $ (0.80)
(1) Pursuant to Securities and Exchange Commission Accounting Bulletin No. 83,
common stock equivalents issued at prices below the assumed initial public
offering price per share ("cheap stock") during the twelve months immediately
preceding the initial filing date of the Company's Registration Statement for
its public offering have been included as outstanding for all periods presented,
regardless of whether they are antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,757
<SECURITIES> 0
<RECEIVABLES> 2
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,951
<PP&E> 742
<DEPRECIATION> 363
<TOTAL-ASSETS> 4,174
<CURRENT-LIABILITIES> 1,593
<BONDS> 0
0
5
<COMMON> 2
<OTHER-SE> 2,324
<TOTAL-LIABILITY-AND-EQUITY> 2,331
<SALES> 276
<TOTAL-REVENUES> 276
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,818
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> (2,461)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,461)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,461)
<EPS-PRIMARY> (.80)
<EPS-DILUTED> (.80)
</TABLE>
