10QSB/A 1 spectra024331_10qsba.txt SPECTRASCIENCE, INC. FORM 10-QSB/A U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB/A (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 2001 ------------------ [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 0-13092 SPECTRASCIENCE, INC. --------------------- (Exact name of small business issuer as specified in its charter) MINNESOTA 41-1448837 ------------------------------------- ---------------------------------------- (State or other jurisdiction (I.R.S. Employer Identification Number) of incorporation or organization) 14405 21ST AVENUE N, SUITE 111 MINNEAPOLIS, MINNESOTA 55447 ------------------------------------------ (Address of principal executive offices) (763) 745-4120 ------------------------------- (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES _X_ NO ___ The number of shares of the Registrant's common stock, par value $.25 per share, outstanding on November 9, 2001 was 7,153,813. Transitional Small Business Disclosure Format (Check one): Yes ___ No _X_ 1 SPECTRASCIENCE, INC. FORM 10-QSB SEPTEMBER 30, 2001 INDEX PAGE NO. Part I -- Financial Information................................................3 ITEM 1. Financial Statements..............................................3 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.........................................6 Part II Other Information.....................................................8 ITEM 1. Legal Proceedings.................................................8 ITEM 2. Changes in Securities.............................................8 ITEM 3. Defaults Upon Senior Securities...................................8 ITEM 4. Submission of Matters to a Vote of Security Holders...............8 ITEM 5. Other Information.................................................8 ITEM 6. Exhibits and Reports on Form 8-K..................................8 Signatures.....................................................................9 2 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SPECTRASCIENCE, INC. FORM 10-QSB BALANCE SHEETS
September 30, December 31, 2001 2000(1) ------------ ------------ (UNAUDITED) (AUDITED) ASSETS Current assets: Cash and cash equivalents $ 1,847,859 $ 3,734,422 Inventories 472,715 258,303 Other current assets 52,939 87,878 ------------ ------------ Total current assets 2,373,513 4,080,603 Net property and equipment 220,185 268,692 Other Assets 20,742 20,742 ------------ ------------ TOTAL ASSETS 2,614,440 $ 4,370,037 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 276,577 $ 117,563 Note payable -- 47,597 Accrued compensation and taxes 220,759 249,985 Accrued expenses 90,263 68,020 Accrued clinical research fees 6,804 25,662 ------------ ------------ Total current liabilities 594,403 508,827 SHAREHOLDERS' EQUITY Common stock, $.25 par value: Authorized shares--17,000,000 Issued and outstanding shares-- 7,153,813 on September 30, 2001 and 7,004,438 shares on December 31, 2000 1,788,453 1,751,110 Additional paid-in capital 53,797,013 53,249,591 Accumulated deficit (53,565,429) (51,139,491) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 2,020,037 3,861,210 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,614,440 $ 4,370,037 ============ ============
(1) THE BALANCE SHEET ON DECEMBER 31, 2000 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 NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ----------------------------- ----------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Revenue $ -- $ -- $ -- $ -- Cost of products sold -- -- -- -- ------------ ------------ ------------ ------------ Gross profit -- -- -- -- Operating expenses Research and development 481,085 365,130 1,600,245 1,101,135 Selling, general and administrative 310,013 238,561 920,906 767,585 ------------ ------------ ------------ ------------ Total operating expenses 791,098 603,691 2,521,151 1,868,720 Interest and other income (expense) 19,870 54,114 95,212 161,740 ------------ ------------ ------------ ------------ Net loss $ (771,228) $ (549,577) $ (2,425,939) $ (1,706,980) ============ ============ ============ ============ Net loss per share $ (0.11) $ (0.08) $ (0.34) $ (0.26) Weighted average common shares outstanding 7,151,748 6,835,808 7,100,380 6,522,224
SEE NOTES TO FINANCIAL STATEMENTS. 4 SPECTRASCIENCE, INC. FORM 10-QSB STATEMENTS OF CASH FLOW (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30 ----------------------------- 2001 2000 ---- ---- OPERATING ACTIVITIES Net loss $ (2,425,939) $ (1,706,980) Adjustments to reconcile net loss to cash used in operating activities: Depreciation 65,575 50,571 Changes in operating assets and liabilities: Increase in inventories (214,412) (14,969) Decrease in other current assets 34,940 66,762 Increase (decrease) in current liabilities 85,575 (672,802) ------------ ------------ Net cash used in operating activities (2,454,261) (2,277,418) INVESTING ACTIVITIES Purchase of property and equipment (17,067) (24,754) Decrease in long term commitment -- (41,094) ------------ ------------ Net cash used in investing activities (17,067) (65,848) FINANCING ACTIVITIES Proceeds from issuance of common stock 584,765 1,396,476 ------------ ------------ Net cash provided by financing activities 584,765 1,396,476 ------------ ------------ Net increase (decrease) in cash and cash equivalents (1,886,563) (946,790) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,734,422 4,362,120 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,847,859 $ 3,415,330 ============ ============
SEE NOTES TO FINANCIAL STATEMENTS. 5 SPECTRASCIENCE, INC. FORM 10-QSB SEPTEMBER 30, 2001 SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain statements in this Form 10-QSB constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words or phrases such as "may," "expects," "will continue," "is anticipated," "management believes," "estimate," "projects," "hope" or similar expressions or the negatives thereof identify forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical, currently anticipated or projected results. We caution you not to place undue reliance on forward-looking statements. Please refer to Exhibit 99 of the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000, for certain important cautionary factors, risks and uncertainties related to investing in the Company. NOTES TO FINANCIAL STATEMENTS NOTE A BASIS OF PRESENTATION The accompanying unaudited financial statements of SPECTRASCIENCE, Inc. (the "Company" or "we") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. 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, 2000. NOTE B NET LOSS PER SHARE Basic earnings per share is based on weighted average shares outstanding and excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share for the Company is the same as basic earnings per share because the effect of options and warrants is anti-dilutive. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (a) BUSINESS SPECTRASCIENCE, Inc. (the "Company" or "SPECTRASCIENCE") develops and manufactures innovative, Laser Induced Fluorescence spectrophotometry systems capable of determining whether tissue is normal, pre-cancerous or cancerous without removing tissue from the body. The Optical Biopsy System is SPECTRASCIENCE's first fully developed product to incorporate its proprietary Laser Induced Fluorescence technology for worldwide clinical use. SPECTRASCIENCE received FDA approval and European CE mark approval in the last quarter of the year 2000. 6 The Company's corporate offices are located at 14405 21st Avenue N, Suite 111, Minneapolis, Minnesota 55447. The Company's telephone number is (763) 745-4120, its fax number is (763) 745-4126, and its e-mail address is INFO@SPECTRASCIENCE.COM. The Company also has a web-site that can be accessed at HTTP://WWW.SPECTRASCIENCE.COM. The Company's Common Stock is traded on the Over-The-Counter Bulletin Board under the symbol SPSI. (b) RESULTS OF OPERATIONS The Company recorded no revenue for the three and nine months ended September 30, 2001 and September 30, 2000. The Company had no cost of products sold or gross profit for the same periods. Overall research and development expenses for the three and nine months ended September 30, 2001 were $481,085 and $1,600,245, compared to $365,130 and $1,101,135 for the same periods in 2000. Research and development expenses related specifically to new product and application development for the three and nine months ended September 30, 2001 were $404,596 and $1,377,897, compared to $365,130 and $1,101,135 for the same periods in 2000, reflecting an increase in expenses of 10.8% and 25.1% respectively. For the three month period ended September 30, 2001, the Company continued to see increased expenses related to its ongoing cost-effectiveness and outcome based clinical studies, as well as increased expenses for consulting services related to development of a next generation product and an additional application. The 25.1% increase for the nine months ended September 30, 2001 was primarily due to increased consulting expenses, expenses related to the above mentioned clinical studies, and new product/application development. The increase was partially offset by reduced travel and legal expenses. Research and development expenses related to the development of manufacturing operations and processes for the three and nine months ended September 30, 2001 were $76,489 and $222,348, compared to $0 for the same periods in 2000. The increase is primarily due to increased expenses related to manufacturing process consulting services, an increase in tools and supplies expense, the hiring of an assembler, and the cost of maintaining ISO 9001 certification. We expect to continue to have increased expenses for manufacturing operations as we prepare for anticipated sales. Selling, general and administrative expenses for the three month period ended September 30, 2001 were $310,013, a 30% increase, and for the nine month period ended September 30, 2001 were $920,906, a 20% increase, compared to the same periods in 2000. The third quarter increase was due primarily to increased salary expense for the Director of Marketing position which was vacant during the third quarter of 2000. The 20% increase for the nine month period was primarily due to increased salary expense for the reason stated above. The increase was partially offset by reduced legal, convention and travel, and consulting expenses. Interest and other income for the three and nine month periods ended September 30, 2001 were $19,870 and $95,212, respectively, a substantial decrease compared to the same periods in 2000. The decrease was primarily due to lower balances in cash and cash equivalents. As a result of the above, the net loss for the three and nine months ended September 30, 2001 was $771,228 and $2,425,939, compared to a net loss of $549,577 and $1,706,980 for the same periods in 2000. The net loss per share for the three and nine months ended September 30, 2001 was $0.11 and $0.34 compared to $0.08 and $0.26 for the same periods in 2000. 7 (c) LIQUIDITY AND SOURCES OF CAPITAL Cash and cash equivalents on September 30, 2001 were $1,847,859, compared to $3,734,422 on December 31, 2000. The decrease in the cash position from December 31, 2000 to September 30, 2001 was primarily due to the net loss incurred during the period. The working capital of the Company on September 30, 2001 was $1,779,110, compared to $3,571,776 on December 31, 2000. The decrease in working capital was primarily due to the reduction of cash and cash equivalents used for operations. Net cash used in operating activities for the nine months ended September 30, 2001 was $2,454,261, a $176,843 increase compared to the same period in 2000. The increase was primarily due to the higher net loss for period. Net cash used in investing activities for the nine months ended September 30, 2001 was $17,067, a $48,417 decrease compared to the same period in 2000. The decrease was primarily due to not having a long-term commitment to reduce during 2001. Net cash provided by financing activities for the nine month period ended September 30, 2001 was $584,765, a $811,711 decrease compared to the same period in 2000. The Company had fewer stock options exercised during this period in 2001, compared to the same period in 2000. Management believes that the amount of cash and cash equivalents is adequate to fund operations at least through December 2001. Management believes additional cash will be required to fund continued operations and sales and manufacturing ramp up. The amount and timing of any future financing will be impacted by market conditions as well as other factors. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION The three clinical studies initiated during the first quarter of 2001 were ongoing during the third quarter of 2001. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibit 10.1:* International Distributor Agreement between the Company and Endoscopy U.K., Ltd. dated August 22, 2001. Form 8-K: No reports on Form 8-K were filed by SPECTRASCIENCE during the quarter covered by this report. *Confidential information has been omitted from such Exhibit and filed separately with the Commission pursuant to a confidential treatment request under Rule 24b-2 of the Exchange Act. 8 SPECTRASCIENCE, INC. FORM 10-QSB SEPTEMBER 30, 2001 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SPECTRASCIENCE, INC. ---------------------------------- (Registrant) SEPTEMBER 4, 2002 /s/ SCOTT G. ANDERSON ------------------------ ---------------------------------- Date SCOTT G. ANDERSON President and Chief Executive Officer (Principal Executive Officer, Principal Financial and Accounting Officer) 9