-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TWw7+DtRCIQMoNg8T6/O1Lq3lpP+lHnwOggUCDs/BNDjbedNhbqV2nyWDBWywq54 xO+0jkgNhZv7mn9Va6RUwA== 0000897101-98-000854.txt : 19980817 0000897101-98-000854.hdr.sgml : 19980817 ACCESSION NUMBER: 0000897101-98-000854 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECTRASCIENCE INC CENTRAL INDEX KEY: 0000727672 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 411448837 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-13092 FILM NUMBER: 98690490 BUSINESS ADDRESS: STREET 1: 3650 ANNAPOLIS LANE STREET 2: STE 101 CITY: MINNEAPOLIS STATE: MN ZIP: 55447-5434 BUSINESS PHONE: 6125099999 MAIL ADDRESS: STREET 1: 3650 ANNAPOLIS LANE STREET 2: STE 101 CITY: MINNETONKA STATE: MN ZIP: 55447-5434 FORMER COMPANY: FORMER CONFORMED NAME: GV MEDICAL INC DATE OF NAME CHANGE: 19920703 10QSB 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 1998 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-13092 SPECTRASCIENCE, INC. (Exact name of small business issuer as specified in its charter) MINNESOTA 41-1448837 (State or other jurisdiction (I.R.S. Employer Identification Number) of incorporation or organization) 3650 ANNAPOLIS LANE, SUITE 101 MINNEAPOLIS, MINNESOTA 55447 (Address of principal executive offices) (612) 509-9999 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES _X_ NO The number of shares of the Registrant's common stock, par value $.25 per share, outstanding on August 12, 1998 was 4,714,104. Transitional Small Business Disclosure Format (Check one): Yes ___ No _X_ SPECTRASCIENCE, INC. FORM 10-QSB JUNE 30, 1998 INDEX PAGE NO. -------- PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Balance Sheets -- June 30, 1998 and December 31, 1997 3 Statements of Operations -- Three Months Ended June 30, 1998 and 1997 4 Six Months Ended June 30, 1998 and 1997 Statements of Cash Flows -- Six Months Ended June 30, 1998 and 1997 5 Notes to Financial Statements -- June 30, 1998 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7 PART II -- OTHER INFORMATION 8 ITEM 1. LEGAL PROCEEDINGS 8 ITEM 2. CHANGES IN SECURITIES 8 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 8 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 8 ITEM 5. OTHER INFORMATION 9 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10 SIGNATURES 11 EXHIBIT 27: Financial Data Schedule pursuant to Article 5 of Regulation S-X 12 2 PART I -- FINANCIAL INFORMATION SPECTRASCIENCE, INC. FORM 10-QSB BALANCE SHEETS
June 30, December 31, 1998 1997(1) ------------ ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 1,136,522 $ 1,638,173 Inventories 301,295 180,474 Other current assets 95,084 98,419 ------------ ------------ Total current assets 1,532,901 1,917,066 Net property and equipment 41,934 155,046 ------------ ------------ TOTAL ASSETS $ 1,574,835 $ 2,072,112 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 121,965 $ 140,809 Accrued compensation and taxes 83,903 100,690 Accrued expenses 106,306 61,019 Accrued clinical research fees 70,010 159,899 ------------ ------------ Total current liabilities 382,184 462,417 Commitments SHAREHOLDERS' EQUITY Common stock, $.25 par value: Authorized shares--10,000,000 Issued and outstanding shares-- 4,714,104 on June 30, 1998 and 4,506,559 on December 31, 1997 1,178,526 1,126,640 Additional paid-in capital 45,496,453 44,620,283 Accumulated deficit (45,482,328) (44,137,228) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 1,192,651 1,609,695 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,574,835 $ 2,072,112 ============ ============
(1) THE BALANCE SHEET ON DECEMBER 31, 1997 HAS BEEN DERIVED FROM THE AUDITED FINANCIAL STATEMENTS AT THAT DATE BUT DOES NOT INCLUDE ALL OF THE INFORMATION AND FOOTNOTES REQUIRED BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR COMPLETE FINANCIAL STATEMENTS. SEE NOTES TO FINANCIAL STATEMENTS. 3 SPECTRASCIENCE, INC. FORM 10-QSB STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 --------------------------- --------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Revenue $ -- $ -- $ -- $ -- Cost of products sold -- -- -- -- ----------- ----------- ----------- ----------- Gross profit -- -- -- -- Operating expenses Research and development 604,978 226,017 942,907 490,075 Selling, general and Administrative 220,782 188,309 439,922 412,146 ----------- ----------- ----------- ----------- Total operating expenses 825,760 414,326 1,382,829 902,221 Interest and other Income (expense) 18,519 34,594 37,729 73,359 ----------- ----------- ----------- ----------- Net loss $ (807,241) $ (379,732) $(1,345,100) $ (828,862) =========== =========== =========== =========== Net loss per share $ (0.17) $ (0.08) $ (0.29) $ (0.19) Weighted average common Shares outstanding 4,683,390 4,480,379 4,603,063 4,444,873
SEE NOTES TO FINANCIAL STATEMENTS. 4 SPECTRASCIENCE, INC. FORM 10-QSB STATEMENTS OF CASH FLOW (UNAUDITED)
SIX MONTHS ENDED JUNE 30 --------------------------- 1998 1997 ---- ---- OPERATING ACTIVITIES Net loss $(1,345,100) $ (828,862) Adjustments to reconcile net loss to cash Used in operating activities: Depreciation 126,352 34,900 Changes in operating assets and liabilities: Decrease in accounts receivable -- -- (Increase) decrease in inventories (120,821) 9,232 Decrease in other current assets 3,335 32,106 (Decrease) increase in current liabilities (80,233) 39,384 ----------- ----------- Net cash used in operating activities (1,416,467) (713,240) INVESTING ACTIVITIES Purchase of property and equipment (13,240) (6,695) ----------- ----------- Net cash used in investing activities (13,240) (6,695) FINANCING ACTIVITIES Proceeds from issuance of common stock 928,056 -- ----------- ----------- Net cash provided by financing activities 928,056 -- ----------- ----------- Net decrease in cash and cash equivalents (501,651) (719,935) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,638,173 3,047,182 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,136,522 $ 2,327,247 =========== =========== SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS Series A and B preferred stock converted into common stock -- $ 859,167
SEE NOTES TO FINANCIAL STATEMENTS. 5 SPECTRASCIENCE, INC. FORM 10-QSB JUNE 30, 1998 - -------------------------------------------------------------------------------- SPECTRASCIENCE, INC. (THE "COMPANY") DESIRES TO TAKE ADVANTAGE OF THE "SAFE HARBOR" PROVISIONS CONTAINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "ACT"). CONTAINED IN THIS FORM 10-QSB ARE STATEMENTS WHICH ARE INTENDED AS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE ACT. WHEN USED IN THIS FORM 10-QSB AND IN FUTURE FILINGS BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION, IN THE COMPANY'S PRESS RELEASES AND IN ORAL STATEMENTS, WORDS OR PHRASES SUCH AS "MAY," "EXPECTS," "WILL CONTINUE," "IS ANTICIPATED," "MANAGEMENT BELIEVES," "ESTIMATE," "PROJECTS," "HOPE" OR EXPRESSIONS OF A SIMILAR NATURE ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE ACT. THESE STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR FROM THOSE RESULTS PRESENTLY ANTICIPATED OR PROJECTED. THE COMPANY WISHES TO CAUTION READERS NOT TO PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS. INVESTORS CONTEMPLATING AN INVESTMENT IN ANY SECURITY OFFERED BY THE COMPANY, SUCH AS ITS COMMON STOCK, SHOULD NOTE THAT SUCH INVESTMENTS INVOLVE A HIGH DEGREE OF RISK, AND INVESTORS ARE CAUTIONED TO CAREFULLY CONSIDER ALL THE RISKS ASSOCIATED WITH SUCH AN INVESTMENT. PLEASE REFER TO EXHIBIT 99 OF THE COMPANY'S QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTER ENDED MARCH 31, 1998, FOR CERTAIN IMPORTANT CAUTIONARY FACTORS, RISKS AND UNCERTAINTIES RELATED TO FORWARD-LOOKING STATEMENTS. - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS NOTE A BASIS OF PRESENTATION The accompanying unaudited financial statements of SPECTRASCIENCE, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three- and six-month periods ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. These statements should be read in conjunction with the financial statements and related notes which are incorporated by reference in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1997. NOTE B NET LOSS PER SHARE Net loss per share is computed using the weighted average number of common shares outstanding during the period. Common equivalent shares from stock options and warrants are excluded from the computation as their effect is anti-dilutive. In February 1998, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 128, "EARNINGS PER SHARE." This Statement replaces the presentation of primary earnings per share (EPS) with basic EPS and also requires dual presentation of basic and diluted EPS for entities with complex capital structures. This Statement is effective for the fiscal year ending December 31, 1998. For the three- and six-month periods ended June 30, 1998, there is no difference between basic loss per share under Statement No. 128 and net loss per share as reported by the Company. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (a) BUSINESS SPECTRASCIENCE, Inc. (the "Company" or "SPECTRASCIENCE") develops innovative, minimally-invasive medical delivery systems to facilitate the diagnosis and treatment of a broad range of human diseases by utilizing advanced spectroscopy, fiber optics, computer hardware and software. The Company was incorporated in the state of Minnesota on May 4, 1983 as GV Medical, Inc. The Company changed its name to SPECTRASCIENCE, Inc. on October 16, 1992, and the name change was approved by the Company's shareholders on May 13, 1993. The Company's common stock, par value $.25 per share (the "Common Stock"), is traded on the Nasdaq SmallCap Market under the symbol SPSI. The Company's corporate offices are located at 3650 Annapolis Lane, Suite 101, Minneapolis, Minnesota 55447-5434. The Company's telephone number is 612/509-9999, its fax number is 612/509-9805, and its e-mail address is spsi@spectrascience.com. The Company also has a web-site which can be accessed at http://www.spectrascience.com. The Company's development effort is focused on the Optical Biopsy(TM) System, ("OBS") which is an endoscopic biopsy forceps system employing proprietary flourescence spectroscopy technology used for the differentiation and diagnosis between healthy and cancerous tissues in the gastrointestinal tract, and to a lesser extent, the Spectroscopic Guidewire(TM) System, ("SGS") which is currently targeted for the detection of intra-coronary thrombus and differentiation of atherosclerotic plaque. (b) RESULTS OF OPERATIONS The Company recorded no revenue for the three and six months ended June 30, 1998 and June 30, 1997. Research and development expenses for the three and six months ended June 30, 1998 were $604,978 and $942,907 compared to $226,017 and $490,075 for the same periods in 1997. The increase of 167.7% for the three months ended June 30, 1998 was primarily due to an increase in salary expense related to engineering documentation personnel not with the company during the same period in 1997, increased consulting and travel expense related in part to the PMA pre-submission meeting with the United States Food and Drug Administration ("FDA"), and an inventory revaluation due to the replacement of the SGS Console with second generation technology currently utilized in the Company's OBS System. The 92.4% increase for the six months ended June 30, 1998 was primarily due to increased personnel and consulting expenses, and the inventory revaluation mentioned above. Selling, general and administrative expenses for the three and six months ended June 30, 1998 were $220,782 and $439,922 compared to $188,309 and $412,146 for the same periods in 1997. The 17.2% increase for the three months ended June 30, 1998 was primarily due to increased consulting expenses related to investor relations activities and, to a lesser extent, increased legal expenses. The increase of 6.7% for the six months ended June 30, 1998 was primarily due to increases in expenses mentioned above and partially offset by decreased expenses for the annual shareholders meeting and wages. Interest and other income for the three and six months ended June 30, 1998 were $18,519 and $37,729 compared to $34,594 and $73,359 for the same periods in 1997. The decreases were primarily due to lower balances in cash and cash equivalents. As a result of the above, the net loss for the three and six months ended June 30, 1998 was $807,241 and $1,345,100 compared to a net loss of $379,732 and $828,862 for the same periods in 1997. The net loss per share for the three and six months ended June 30, 1998 was $0.17 and $0.29 compared to $0.08 and $0.19 for the same periods in 1997. 7 (c) LIQUIDITY AND SOURCES OF CAPITAL Cash and cash equivalents on June 30, 1998 were $1,136,522 compared to $1,638,173 on December 31, 1997. The decrease in the cash position from December 31, 1997 to June 30, 1998 was the result of the net loss during the six-month period that ended June 30, 1998. The working capital of the Company on June 30, 1998 was $1,150,717 compared to $1,454,649 on December 31, 1997. This decrease was primarily due to a reduction of the cash position. Net cash used in operating activities for the six months ended June 30, 1998 was $1,416,467 compared to $713,240 for the same period in 1997. This increase was primarily due to the higher net loss for the six months ended June 30, 1998 compared to the same period in 1997. Net cash used in investing activities for the six months ended June 30, 1998 was $13,240 compared to $6,695 for the same period in 1997. This increase was due to purchases of property and equipment in 1998. Net cash provided by financing activities for the six months ended June 30, 1998 was $928,056 compared to $0 for the same period in 1997. The increase was due to the exercise of stock options and warrants. Management believes that the amount of cash and cash equivalents is adequate to fund operations at least through December 1998. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There are no material on-going or pending legal proceedings which involve the Company. ITEM 2. CHANGES IN SECURITIES Not Applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Reference is made hereby to the Company's definitive proxy statement (Form DEF 14A) for the Annual Meeting of Shareholders held on May 28, 1998, as filed with the Securities and Exchange Commission on April 20, 1998, File No. 0-13092. (a) The Annual Meeting of Shareholders of SPECTRASCIENCE, Inc. (the "Meeting") was held on May 28, 1998 Shareholders of record at the close of business on March 31, 1998, (the "Record Date") were entitled to receive notice of and to vote at the Meeting and any adjournment thereof. On the Record Date, 4,624,338 shares of the Company's common stock, par value $.25 per share (the "Shares"), were entitled to vote at the Meeting, of which a total of 3,791,226 Shares, or 82.0% of the total Shares outstanding, were represented at the Meeting. (b) The following individuals were re-elected to serve as directors of the Company: Brian T. McMahon Henry M. Holterman Nathaniel S. Thayer 8 The only item submitted to a vote of the shareholders was the proposal to elect three (3) persons to serve as directors until the next meeting of shareholders or until their respective successors shall be elected and qualified. All of the nominees for directors were elected by the shareholders. The final votes for each of the nominees were as follows:
Name No. of Votes AS % OF TOTAL No. of Votes AS % OF TOTAL FOR SHARES OUTSTANDING WITHHELD SHARES OUTSTANDING - --------------------------------------------------------------------------------------------------- Brian T. McMahon 3,725,230 80.6% 65,996 1.4% Henry M. Holterman 3,753,472 81.2% 37,754 0.8% Nathaniel S. Thayer 3,752,802 81.2% 38,424 0.8%
There were no broker non-votes for this item. ITEM 5. OTHER INFORMATION (a) REGISTRATION STATEMENT ON FORM SB-2 FOR 2,875,000 SHARES OF COMMON STOCK The Company filed a registration statement on Form SB-2 on July 17, 1998 with the Securities and Exchange Commission (File No. 333-59395) (the "Registration Statement") for the proposed sale by the Company of up to 2,500,000 shares of its common stock. The Registration Statement also includes the underwriters' over-allotment option for an additional 375,000 shares. Josephthal & Co. Inc. is acting as representative of the several underwriters. (b) NASDAQ SMALLCAP MARKET CONTINUED LISTING Upon completion of the offering contemplated by the Registration Statement, the Company expects to satisfy all of the requirements for continued listing on the Nasdaq SmallCap Market. The Company does not anticipate any potential delisting from the Nasdaq SmallCap Market prior to the completion of the secondary public offering, which is anticipated to be completed sometime in third quarter 1998. (c) OPTION AND WARRANT EXERCISES In May 1998, Brian McMahon, Chairman and Chief Executive Officer of the Company, exercised stock options to purchase 43,333 shares of Common Stock at $3.00 per share. This resulted in net proceeds to the Company of $129,999. Of the 43,333 shares of Common Stock, 10,000 shares were sold in the open market to cover the cost of the option exercises. Mr. McMahon currently owns 58,333 shares of Common Stock. In May 1998, Ching-Meng Chew, then Vice President of Finance and Administration, Chief Financial Officer, and Secretary of the Company, exercised stock options to purchase 9,100 shares of Common Stock at $3.9375 per share. This resulted in net proceeds to the Company of $35,831.25. In April 1998, various warrantholders exercised their warrants to purchase 37,333 shares of Common Stock at $5.00 per share. This resulted in net proceeds to the Company of $186,665. All remaining warrants that were issued to investors in the Company's issuance of Series A Convertible Preferred Stock ("Preferred A"), expired on or before June 29, 1998. As a result, there were no remaining warrants associated with Preferred A. (d) CLINICAL STUDIES During the three months ended June 30, 1998, clinical studies were performed to evaluate the Company's Optical BiopsyTM System for the detection of colon cancer. After a PMA pre-submission meeting with the United States Food and Drug Administration ("FDA"), at which the results of the clinical studies were presented, a smaller clinical study was deemed necessary to demonstrate reproducibility of the 9 results prior to filing the pre-market approval application. The Company expects to complete the additional clinical trials and anticipates submitting its pre-market approval application to the FDA for marketing clearance during the third quarter of 1998. (e) RESIGNATION OF CHIEF FINANCIAL OFFICER Ching-Meng Chew, the Company's Vice President of Finance and Administration, Chief Financial Officer, and Secretary since August 1995, submitted his resignation to the Company, effective August 1, 1998, to pursue other business interests. The Company intends to seek a replacement for Mr. Chew. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBIT 27: Financial Data Schedule pursuant to Article 5 of Regulation S-X. (b) FORM 8-K: No reports on Form 8-K were filed by the Company during the quarter covered by this report. 10 SPECTRASCIENCE, INC. FORM 10-QSB JUNE 30, 1998 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SPECTRASCIENCE, INC. (Registrant) AUGUST 14, 1998 /s/ BRIAN T. MCMAHON - ------------------------ ------------------------------------------- Date BRIAN T. MCMAHON Chairman and Chief Executive Officer (Principal Executive Officer, Principal Financial and Accounting Officer) AUGUST 14, 1998 /s/ CHESTER E. SIEVERT, JR. - ------------------------ ------------------------------------------- Date CHESTER E. SIEVERT, JR. President and Chief Operating Officer 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS SUBMITTED IN THIS QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1998 JUN-30-1998 1,136,522 0 0 0 301,295 1,532,901 823,376 781,442 1,574,835 382,184 0 1,178,526 0 0 14,125 1,574,835 0 0 0 0 1,382,829 0 (37,729) (1,345,100) 0 0 0 0 0 (1,345,100) (0.29) 0
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