-----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, MqI1nAaWFDgJVmQqSEsshlcX3+cfLiyeNrk2x1XOAHXTD3POFPPpzk5jCkABcksZ CuJIQl/I14AR7qAQX3O0Pg== 0000897101-96-000190.txt : 19960503 0000897101-96-000190.hdr.sgml : 19960503 ACCESSION NUMBER: 0000897101-96-000190 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960502 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECTRASCIENCE INC CENTRAL INDEX KEY: 0000727672 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 411448837 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-13092 FILM NUMBER: 96555654 BUSINESS ADDRESS: STREET 1: 5909 BAKER ROAD SUITE 580 CITY: MINNEAPOLIS STATE: MN ZIP: 55345 BUSINESS PHONE: 612-931-90 MAIL ADDRESS: STREET 1: 5909 BAKER RD, STE 580 STREET 2: 5909 BAKER RD, STE 580 CITY: MINNETONKA STATE: MN ZIP: 55345 FORMER COMPANY: FORMER CONFORMED NAME: GV MEDICAL INC DATE OF NAME CHANGE: 19920703 10QSB 1 FORM 10-QSB FOR SPECTRASCIENCE, INC. U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 1996 [ ] 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) 5909 BAKER ROAD, SUITE 580, MINNETONKA, MINNESOTA 55345 (Address of principal executive offices) (612) 931-9000 (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, outstanding on May 1, 1996 was 2,976,548. Transitional Small Business Disclosure Format (Check one): Yes ___ No _X_ SPECTRASCIENCE, INC. FORM 10-QSB MARCH 31, 1996 INDEX PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Balance Sheets -- March 31, 1996 and December 31, 1995 Statements of Operations -- Three months Ended March 31, 1996 and 1995 Statements of Cash Flows -- Three months Ended March 31, 1996, and 1995 Notes to Financial Statements -- March 31, 1996 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PART II -- OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K SIGNATURES EXHIBIT 3.1 AMENDMENT TO THE ARTICLES OF INCORPORATION PART I -- FINANCIAL INFORMATION SPECTRASCIENCE, INC. FORM 10-QSB BALANCE SHEETS
March 31, December 31, 1996 1995 ------------ ------------ (Unaudited) (Note) ASSETS Current assets: Cash and cash equivalents $ 3,889,438 $ 4,123,326 Accounts receivable 320 100,641 Inventory 253,486 181,871 Other current assets 59,251 80,197 ------------ ------------ Total current assets 4,202,495 4,486,035 Net fixed assets 202,552 158,230 ------------ ------------ TOTAL ASSETS $ 4,405,047 $ 4,644,265 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 195,479 $ 150,278 Accrued compensation and taxes 60,425 74,328 Accrued expenses 11,281 30,058 ------------ ------------ Total current liabilities 267,185 254,664 Commitments STOCKHOLDERS' EQUITY Preferred stock, par value $1.00 per share Authorized shares--20,000,000 Convertible preferred stock, Series A, par value $1.00 per share: Authorized shares--5,000,000 Issued and outstanding shares--674,998 674,998 674,998 Convertible preferred stock, Series B, par value $1.00 per share: Authorized shares--1,000,000 Issued and outstanding shares--792,500 792,500 792,500 Common stock, $.25 par value: Authorized shares--10,000,000 Issued and outstanding shares--2,976,548 in 1996 and 2,933,348 in 1995 744,137 733,337 Additional paid-in capital 43,258,109 43,136,284 Accumulated deficit (41,331,882) (40,947,518) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 4,137,862 4,389,601 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,405,047 $ 4,644,265 ============ ============
Note: The balance sheet at December 31, 1995 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. SPECTRASCIENCE, INC. FORM 10-QSB STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED MARCH 31 -------------------------- 1996 1995 ----------- ----------- Revenue $ -- $ 166,088 Cost of products sold -- 108,144 ----------- ----------- Gross Profit -- 57,944 Operating expenses Research and development 235,895 121,951 Selling, general and administrative 199,137 122,817 ----------- ----------- Total operating expenses 435,032 244,768 Interest and other income (expense) 50,668 (9,490) ----------- ----------- Net loss $ (384,364) $ (196,314) =========== =========== Net loss per share $ (0.13) $ (0.07) Weighted average common shares outstanding 2,944,308 2,790,681 See notes to financial statements. SPECTRASCIENCE, INC. FORM 10-QSB STATEMENTS OF CASH FLOW (UNAUDITED) THREE MONTHS ENDED MARCH 31 -------------------------- 1996 1995 ----------- ----------- OPERATING ACTIVITIES Net loss $ (384,364) $ (196,314) Adjustments to reconcile net cash used in operating activities: Depreciation 16,565 13,050 Recognition of deferred income -- (26,000) Non-cash interest expense -- 3,260 Disposal of other assets -- 37,444 Changes in operating assets and liabilities: Decrease (increase) in accounts receivable 100,319 (160,415) (Increase) decrease in inventories (71,613) 36,487 Decrease in other current assets 20,946 17,508 Increase (decrease) in current liabilities 12,521 (77,706) ----------- ----------- Net cash used in operating activities (305,626) (352,686) INVESTING ACTIVITIES Purchase of fixed assets (60,887) (1,171) ----------- ----------- Net cash used in investing activities (60,887) (1,171) FINANCING ACTIVITIES Proceeds from issuance of notes payable -- 225,000 Proceeds from issuance of common stock 132,625 100,000 ----------- ----------- Net cash provided by financing activities 132,625 325,000 ----------- ----------- Net decrease in cash and cash equivalents (233,888) (28,857) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,123,326 58,298 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,889,438 $ 29,441 =========== =========== See notes to financial statements. SPECTRASCIENCE, INC. FORM 10-QSB MARCH 31, 1996 NOTES TO FINANCIAL STATEMENTS NOTE A BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Registrant Company's annual report on Form 10-KSB for the year ended December 31, 1995. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (A) BUSINESS SpectraScience, Inc. (the "Company" or "SpectraScience"), is a market-driven company which utilizes its expertise in the underlying core technologies of spectroscopy, fiber optics, computer software and hardware, and minimally-invasive medical delivery systems to design, develop, manufacture and market medical products for the diagnosis and facilitation of treatment of a broad range of human diseases. The Company was incorporated in the state of Minnesota on May 4, 1983 as GV Medical, Inc. Subsequently the Company changed its name to SpectraScience, Inc. on October 16, 1992, which was approved by the shareholders on May 13, 1993. The executive offices of the Company are located at 5909 Baker Road, Suite 580, Minnetonka, Minnesota 55345. Its telephone number is (612) 931-9000 and its fax number is (612) 933-9090. (B) RESULTS OF OPERATIONS Revenue for the first quarter ended March 31, 1996 was $-0- compared to $166,088 for the first quarter of 1995. Revenues in the previous year reflected the sale of two units of the Company's Spectroscopic Guidewire(TM) System and guidewires to SCIMED Life Systems, Inc. Cost of products sold during the first quarter of 1996 was $-0- compared to $108,144 in the first quarter of 1995. As a result, the Company reported a gross profit of $-0- for the quarter ended March 31, 1996 compared to $57,944 for the comparable quarter of 1995. Research and development expenses for the quarter ended March 31, 1996 were $235,895 compared to $121,951 for the same period in 1995. This represented an increase of 93.4% which was due to higher design engineering expenses associated with the development of the Optical Biopsy(TM) System, and additional expenses incurred in the clinical research agreement with the Massachusetts General Hospital's Wellman Laboratory of Photomedicine, which began in June 1995 and called for the payment of approximately $50,000 per quarter in fees. Selling, general and administrative expenses for the quarter ended March 31, 1996 were $199,137 compared to $122,817 for the same period in 1995. This 62.1% increase was primarily due to the Annual Meeting of Shareholders expenses of approximately $61,000, held on March 28, 1996, which in fiscal year 1995 were incurred in the second quarter. Interest income (expense) for the quarter ended March 31, 1996 was $50,668 compared to $(9,490) for the same period in 1995. This increase was primarily due to a much larger cash balance in the first quarter of 1996. The Company reported a net loss for the quarter ended March 31, 1996 of $384,364, which was a 95.8% increase from the $196,314 loss reported for the quarter ended March 31, 1995. The loss per share increased to $0.13 per share for the first quarter of 1996 from $0.07 per share for the same period in 1995. (C) LIQUIDITY AND SOURCES OF CAPITAL Cash and cash equivalents on March 31, 1996 was $3,889,438 compared to $4,123,326 on December 31, 1995. The decrease in the cash position from December 31, 1995 to March 31, 1996 was the result of the net loss in the first quarter of 1996. The working capital (current assets less current liabilities) of the Company on March 31, 1996 was $3,935,310 compared to $4,231,371 on December 31, 1995. This was primarily due to a reduction of the cash position and accounts receivable. Net cash used in operating activities for the quarter ended March 31, 1996 was $305,626 compared to $352,686 for the quarter ended March 31, 1995. This was primarily achieved through a decrease in accounts receivable, though it was offset with an increase in inventories and current liabilities. Net cash used in investing activities for the quarter ended March 31, 1996 was $60,887 compared to $1,171 for the quarter ended March 31, 1995. This was due to the increase in the purchase of equipment used for research and development purposes. Net cash provided by financing activities for the quarter ended March 31, 1996 was $132,625 compared to $325,000 for the quarter ended March 31, 1995. The amount provided in the first quarter of 1996 was the result of stock option exercises for 43,200 shares of the common stock of the Company. The amount provided in the first quarter of 1995 was the result of the raising of additional bridge loans of $225,000 and $100,000 from stock option exercises for 40,000 shares of the common stock of the Company. SPECTRASCIENCE, INC. FORM 10-QSB MARCH 31, 1996 PART II -- OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Reference is made hereby to the Company's definitive proxy statement for the Annual Meeting of Shareholders held on March 28, 1996, as filed with the Securities and Exchange Commission on February 26, 1996, File No. 0-13092. (a) The Annual Meeting of Shareholders of SpectraScience, Inc. ("Meeting") was held on March 28, 1996. Shareholders of record at the close of business on February 1, 1996, ("Record Date") were entitled to receive notice of and to vote at the Meeting and any adjournment thereof. On the Record Date, 2,933,348 shares of the Company's common stock ("Shares") were entitled to vote at the Meeting, of which a total of 2,762,462 Shares or 94.17% 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 (c) There were three proposals that were submitted to a vote by the shareholders: (i) Proposal One: To elect three (3) persons to serve as directors until the next Meeting or until their respective successors shall be elected and qualified. All three incumbent directors, as mentioned in Item 4(b) above, were re-elected by the shareholders. The final votes for each of the nominees were as follows:
Name No. of Votes As % of Total Shares No. of Votes As % of Total FOR Outstanding WITHHELD Shares Outstanding - ------------------------------------------------------------------------------------------------ Brian T. McMahon 2,712,059 92.46% 50,403 1.72% Henry M. Holterman 2,712,059 92.46% 50,403 1.72% Nathaniel S. Thayer 2,712,059 92.46% 50,403 1.72% ------------------------------------------------------------------------- TOTAL 2,712,059 92.46% 50,403 1.72% ------------------------------------------------------------------------- The number of broker non-votes was 280 or less than 0.01% of the total Shares outstanding.
(ii) Proposal Two: To amend the Company's Articles of Incorporation to increase the number of authorized Shares from 4,000,000 to 10,000,000. This proposal was approved by the shareholders. The final vote for this item was as follows:
No. of Votes FOR No. of Votes AGAINST No. of Votes ABSTAIN (As % of Total Shares Outstanding) (As % of Total Shares Outstanding) (As % of Total Shares Outstanding) - ---------------------------------------------------------------------------------------------------------------- 2,672,543 (91.11%) 78,262 (2.67%) 11,657 (0.40%)
The number of broker non-votes was 5,400 or 0.18% of the total Shares outstanding. (iii) Proposal Three: To ratify certain amendments to the Company's Amended and Restated 1991 Stock Plan ("Plan"). The following amendments were made to the Plan: (1) To increase the annual grant of options to non-employee directors from 3,000 to 5,000; and (2) To increase the aggregate number of stock options available for issuance to all participants from 1,000,000 to 1,500,000. This proposal was approved by the shareholders. The final vote for this item was as follows:
No. of Votes FOR No. of Votes AGAINST No. of Votes ABSTAIN (As % of Total Shares Outstanding) (As % of Total Shares Outstanding) (As % of Total Shares Outstanding) - ----------------------------------------------------------------------------------------------------------------- 1,626,716 (55.46%) 135,748 (4.63%) 35,285 (1.20%)
The number of broker non-votes was 280 or 0.01% of the total Shares outstanding. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS ON THIS FORM 10-QSB An amendment to the Articles of Incorporation of the Company, dated March 28, 1996, is attached as Exhibit 3.1. (B) REPORTS ON FORM 8-K No reports on Form 8-K were filed by the Company during the quarter covered by this report. SPECTRASCIENCE, INC. FORM 10-QSB MARCH 31, 1996 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SPECTRASCIENCE, INC. (Registrant) MAY 2, 1996 /s/ Brian T. McMahon Date BRIAN T. MCMAHON President and Chief Executive Officer (Principal Executive Officer) MAY 2, 1996 /s/ Ching-Meng Chew Date CHING-MENG CHEW Vice President of Finance and Administration Chief Financial Officer (Principal Financial and Accounting Officer) MAY 2, 1996 /s/ Dawn M. Leuer Date DAWN M. LEUER Controller EX-3.1 2 ARTICLES OF INCORPORATION OF THE COMPANY SPECTRASCIENCE, INC. FORM 10-QSB FOR THE QUARTER ENDED MARCH 31, 1996 EXHIBIT 3.1: AMENDMENT TO THE ARTICLES OF INCORPORATION OF SPECTRASCIENCE, INC DATED: MARCH 28, 1996 ARTICLE III CAPITAL STOCK The authorized capital stock of this corporation shall be Ten Million (10,000,000) shares of common stock with a stated par value of twenty five cents $ (.25) per share (the "Common Stock") and Twenty Million (20,000,000) shares of preferred stock with a stated par value of one dollar $ (1.00) per share (the "Preferred Stock"). The designation and the powers, preferences and rights, and the qualifications, limitations or restrictions of the shares of each class of stock shall be as follows: SECTION 1. COMMON STOCK. Subject to all of the rights of the Preferred Stock, and except as may be expressly provided with respect to the Preferred Stock herein, by law or by the Board of Directors pursuant to this Article III: (a) dividends may be declared and paid or set apart for payment upon the Common Stock out of any assets or funds of the corporation legally available for the payment of dividends; (b) the holders of the Common Stock shall have the exclusive right to vote for the election of directors and on all matters requiring stockholder action, each share being entitled to one vote; and (c) upon the voluntary or involuntary liquidation, dissolution or winding up of the corporation, the net assets of the corporation shall be distributed pro rata to the holders of the Common Stock in accordance with their respective share ownership. SECTION 2. PREFERRED STOCK. The Preferred Stock may be issued from time to time by the Board of Directors as shares of one or more series. Subject to the provisions hereof and the limitations prescribed by law, the Board of Directors is expressly authorized by adopting resolutions providing for the issuance of shares of any particular series and, if and to the extent from time to time required by law, by filing with the Minnesota Secretary of State a statement with respect to the adoption of the resolutions pursuant to the Minnesota Business Corporation Act (or other law hereafter in effect relating to the same or substantially similar subject matter), to establish the number of shares to be included in each such series and to fix the designation and relative powers, preferences and rights and the qualifications and limitations or restrictions thereof relating to the shares of each such series. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following: (a) the distinctive serial designation of such series and the number of shares constituting such series, provided that the aggregate number of shares constituting all series of Preferred Stock shall not exceed Twenty Million (20,000,000); (b) the annual dividend rate on shares of such series, if any, whether dividends shall be cumulative and, if so, from which date or dates; (c) whether the shares of such series shall be redeemable and, if so, the terms and conditions of such redemption, including the date or dates upon and after which such shares shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (d) the obligation, if any, of the corporation to retire shares of such series pursuant to a sinking fund; (e) whether shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or classes and, if so, the terms and conditions of such conversion or exchange, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; (f) whether the shares of such series shall have voting rights provided by law, and, if so, the terms of such voting rights; (g) the rights of the shares of such series in the event of the voluntary or involuntary liquidation, dissolution or winding up of the corporation; and (h) any other rights, powers, preferences, qualifications, limitations or restrictions thereof relating to such series. The shares of Preferred Stock of any one series shall be identical with each other in all respects except as to the dates from and after which dividends thereon shall cumulate, if cumulative. Although the Board of Directors may fix and determine the relative rights and preferences among the various series of Preferred Stock in accordance with the authority set forth above, in all other respects, the shares of all series shall be of equal rank with each other, regardless of series. 2.1 REDEMPTION AND CONVERSION. Any share of any series of Preferred Stock which has been redeemed or converted shall have the status of an authorized and unissued share of Preferred Stock and may be reissued as a part of the series of which it was originally a part or may be reissued as part of another series of Preferred Stock established by the Board of Directors. 2.2 PREFERENTIAL DISTRIBUTION IN LIQUIDATION. Upon the liquidation, dissolution or winding up of the corporation, the holders of the Preferred Stock then outstanding shall be entitled to receive the amount per share fixed for the various series before any of the assets of the corporation are distributed to the holders of the Common Stock. If the assets of the corporation distributable to the holders of the Preferred Stock have a value which is less that the full amount so fixed for the various series, such assets shall be distributed among the holders of the various series of Preferred Stock in accordance with any preferences among the series that may have been established or, to the extent that no such preferences shall have been established, pro rata among the holders of all of the series of Preferred Stock. After distribution of the preferential amounts required to be distributed to the holders of the Preferred Stock then outstanding, the holders of the Common Stock shall be entitled, to the exclusion of the holders of the Preferred Stock unless otherwise provided, to share in all the remaining assets of the corporation. SERIES A CONVERTIBLE STOCK There is hereby established and created an initial series of Preferred Stock in the number of shares and having the designation, relative rights, preferences and limitations as follows: 2.3 DESIGNATION AND NUMBER OF SHARES. The distinctive designation of the series shall be "Series A Convertible Preferred Stock" (par value $ 1.00 per share) herein sometimes referred to as the "Series A Preferred Stock") and the number of shares initially constituting the series shall be 5,000,000. 2.4 DIVIDENDS. The Series A Preferred Stock shall bear no dividends. 2.5 PREFERENCES IN LIQUIDATION. (a) PREFERENTIAL PAYMENT. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the corporation, the holders of shares of the Series A Preferred Stock then outstanding shall be entitled to be paid according to their relationship with other holders of Preferred Stock, out of the assets of the corporation available for distribution to shareholders, whether from capital, surplus or earnings, before any payment shall be made in respect of the corporation's Common Stock, an amount equal to $1.00 per share. After setting apart or paying in full the preferential amounts due the holders of the Series A Preferred Stock and any other holders of Preferred Stock, the remaining assets of the corporation available for distribution to shareholders, if any, shall be distributed to the holders of Common Stock unless otherwise provided. If upon liquidation, dissolution or winding up of the corporation, the assets of the corporation available for distribution to its shareholders shall be insufficient to pay the holders of the Series A Preferred Stock the full preferential distribution of $1 per share, the holders of the Series A Preferred Stock shall share ratably in the distribution of such assets. (b) NOTICE. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the corporation, the corporation shall, within 10 days after the date the Board of Directors approves such action, or within 20 days prior to any shareholders' meeting called to approve such action, or within 20 days after the commencement of any involuntary proceeding, whichever is earlier, give each holder of shares of Series A Preferred Stock initial written notice of the proposed action. Such initial written notice shall describe the material terms and conditions of the proposed action, including a description of the stock, cash and property to be received by the holders of shares of Series A Preferred Stock upon consummation of the proposed action and the date of delivery thereof. If any material change in the facts set forth in the initial notice shall occur, the corporations shall promptly give written notice to each holder of shares of Series A Preferred Stock of such material change. 2.6 VOTING RIGHTS. Except as otherwise provided by law or as expressly provided herein, the Common Stock shall have exclusive voting rights and powers, including the exclusive right to notice of shareholders' meetings. 2.7 CONVERSION RIGHTS. (a) OPTIONAL CONVERSION. Shares of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after March 31, 1996, (the "Conversion Period"), into fully paid and nonassessable shares of Common Stock of the corporation. (b) CONVERSION RATIO. Each share of Series A Preferred Stock shall be converted into one share of the Common Stock of the corporation, subject to adjustment as provided in paragraph 2.8 below. (c) PROCEDURE FOR CONVERSION. The holder of any shares of Series A Preferred Stock may exercise the conversion rights during the Conversion Period as to such shares or any part thereof by delivering to the corporation during regular business hours, at the office of any transfer agent of the corporation for the Series A Preferred Stock, or at the principal office of the corporation, the certificate or certificates for the shares to be converted, duly endorsed for transfer to the corporation, accompanied by written notice stating that the holder elects to convert such shares or a part thereof. Conversion shall be deemed to have been effected on the date when such delivery is made, and such date is referred to herein as the "Conversion Date". As promptly as practicable thereafter the corporation shall issue and deliver to or upon the written order of such holder, at such office or other place designated by the corporation, a certificate or certificates for the number of full shares of Common Stock to which such holder is entitled and a check for cash with respect to any fractional interest in a share of Common Stock as provided in paragraph 2.7(d). The holder shall be deemed to have become a shareholder of record on the applicable Conversion Date unless the transfer books of the corporation are closed on such date, in which event he shall be deemed to have become a shareholder of record on the next succeeding date on which the transfer books are open, but the Conversion Ratio shall be that in effect on the Conversion Date. Upon conversion of only a portion of the number of shares of Series A Preferred Stock represented by a certificate surrendered for conversion, the corporation shall issue and deliver to or upon the written order of the holder of the certificate so surrendered for conversion, at the expense of the corporation, a new certificate covering the number of shares of Series A Preferred Stock representing the unconverted portion of the certificate so surrendered. (d) FRACTIONAL SHARES. No fractional shares of Common Stock or scrip shall be issued upon conversion of shares of Series A Preferred Stock. If more than one share of Series A Preferred Stock shall be surrendered for conversion at any one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Series A Preferred Stock so surrendered. Instead of any fractional shares of Common Stock which would otherwise be issuable upon conversion of any shares of Series A Preferred Stock, the corporation shall pay a cash adjustment in respect of such fractional interest equal to the fair market value of such fractional interest as determined by the Board of Directors. (e) RESERVED SHARES. The corporation shall reserve and keep available, out of its authorized but unissued Common Stock, solely for the purpose of effecting the conversion of the Series A Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all Series A Preferred Stock from time to time outstanding. The corporation shall from time to time (subject to obtaining necessary director and shareholder action) increase the authorized amount of its Common Stock if at any time the authorized number of shares of its Common Stock remaining unissued shall not be sufficient to permit the conversion of all of the shares of Series A Preferred Stock at the time outstanding. (f) REGISTRATION. If any shares of Common Stock to be reserved for the purpose of shares of Series A Preferred Stock require registration or listing with, or approval of, any governmental authority, stock exchange, or other regulatory body under any federal or state law or regulation or otherwise, before such shares may be validly issued or delivered upon conversion, the corporation will in good faith and as expeditiously as reasonable endeavor to secure such registration, listing or approval, as the case may be. (g) VALIDLY ISSUED. All shares of Common Stock which may be issued upon conversion of the shares of Series A Preferred Stock will, upon issuance by the corporation, be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof. (h) NEGATIVE COVENANTS. This corporation will not, by amendment of its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed thereunder, but will at all times in good faith assist in the carrying out of all the provisions hereof and in the taking of such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series A Preferred Stock against impairment. In addition, the corporation shall at no time issue or sell any shares of its Common Stock or Preferred Stock, options or warrants for a consideration less than fair market value, as reasonably determined by the Board of Directors, except for grants or awards of Common Stock or options to acquire Common Stock made to the corporation's employees, officers, and directors and to consultants and other participants in the corporation's stock option, stock award, stock purchase and other benefit plans, provided such grants and awards made after the date of the first issuance of the corporation's Series A Preferred Stock shall not represent more than 10% of the then outstanding shares of Common Stock of the corporation. 2.8 ANTIDILUTION. The Conversion Ratio (referred to in paragraph 2.7 (b)) shall be subject to adjustment from time to time, and the number of shares of Common Stock issuable on conversion of any shares of Series A Preferred Stock shall be subject to a resultant increase or decrease (calculated to the nearest 1/100th of a share) by reason of such adjustment, as hereafter stated, except that no adjustment shall be made, unless by reason of the occurrence of one or more of the events hereinafter specified, the Conversion Ratio theretofore in effect shall be changed by an amount equal to at least 5% thereof, but in the event that an adjustment would be required except of insufficiency of amount, such amount shall be carried forward and added to and shall be made at the time of and together with any subsequent adjustment which, together with any adjustment or adjustments so carried forward, amount to at least 5% of the Conversion Ratio at such later time: (a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. In the event the corporation shall declare a stock dividend with respect to its Common Stock or shall effect a subdivision or combination of its Common Stock into a greater or lesser number of shares without a proportionate and corresponding stock dividend, subdivision or combination with respect to its outstanding Series A Preferred Stock, then the existing Conversion Ratio for the Series A Preferred Stock shall be increased or decreased proportionately. (b) CLASSIFICATION, RECLASSIFICATION, CAPITAL REORGANIZATION, ETC. In the case of any classification, reclassification, capital reorganization or other change of outstanding shares of Common Stock (other than a change in par value, or from without par value to par value, or from par value to without par value, or as a result of an issuance of Common Stock by way of dividend or other distribution or of a subdivision or combination), or in case of any consolidation or merger of the corporation with or into another corporation (other than a merger with a subsidiary in which the corporation is the continuing corporation and which does not result in any reclassification, capital reorganization or other change of outstanding shares of the Common Stock issuable upon conversion of the shares of the Series A Preferred Stock) or in case of any sale or conveyance to another corporation of the property of the corporation as an entirety or substantially as an entirety, the corporation shall cause the holders of the Series A Preferred Stock to have the right, by exercising their conversion rights thereunder, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization or other change, consolidation, merger, sale or conveyance, if any, which the holders of the Series A Preferred Stock would have received had the conversion taken place immediately prior to such event. 2.9 CHANGES AFFECTING SERIES A PREFERRED STOCK. So long as any shares of Series A Preferred Stock are outstanding, the corporation shall not, without first obtaining the approval by vote or written consent, in the manner provided by law, of the holders of at least a majority of the total number of shares of Series A Preferred Stock outstanding, voting separately as a class, (i) alter or change any of the powers, preferences, privileges, or rights of the Series A Preferred Stock; or (ii) amend the provisions of this paragraph 2.9; or (iii) create any new class or series of shares having preferences prior to the Series A Preferred Stock or reclassifying any class or series of any Common Stock or any other shares of stock hereafter created junior to the Class A Preferred Stock into shares having any preference or priority over the Series A Preferred Stock. SERIES B CONVERTIBLE STOCK There is hereby established and created a second series of Preferred Stock in the number of shares and having the designation, relative rights, preferences and limitations as follows: 2.10 DESIGNATION AND NUMBER OF SHARES. The distinctive designation of the series shall be "Series B Convertible Preferred Stock" (par value $ 1.00 per share) herein sometimes referred to as the "Series B Preferred Stock") and the number of shares initially constituting the series shall be 1,000,000. 2.11 DIVIDENDS. Except as provided below, the Series B Preferred Stock shall bear no dividends. In the event that the corporation has not increased the number of authorized shares of its Common Stock to the extent sufficient to enable the corporation to reserve a number of shares of Common Stock sufficient to cover the conversion of the shares of Series B Preferred Stock and the exercise of all Warrants issued in connection with the offering of the Series B Preferred Stock by December 15, 1996, the Series B Preferred Stock shall bear an 8% cumulative annual dividend, payable quarterly, commencing upon the corporation's failure to satisfy such condition and terminating on the date compliance with such condition is satisfied. 2.12 PREFERENCES IN LIQUIDATION. (a) PREFERENTIAL PAYMENT. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the corporation, the holders of shares of the Series B Preferred Stock then outstanding shall be entitled to be paid according to their relationship with other holders of Preferred Stock, out of the assets of the corporation available for distribution to shareholders, pari passu, whether from capital, surplus or earnings, before any payment shall be made in respect of the corporation's Common Stock, an amount equal to $1.00 per share. After setting apart or paying in full the preferential amounts due the holders of the Series B Preferred Stock and any other holders of Preferred Stock, the remaining assets of the corporation available for distribution to shareholders, if any, shall be distributed to the holders of Common Stock unless otherwise provided. If upon liquidation, dissolution or winding up of the corporation, the assets of the corporation available for distribution to its shareholders shall be insufficient to pay the holders of the Series B Preferred Stock the full preferential distribution of $1 per share, the holders of the Series B Preferred Stock shall share ratably in the distribution of such assets. (b) NOTICE. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the corporation, the corporation shall, within 10 days after the date the Board of Directors approves such action, or within 20 days prior to any shareholders' meeting called to approve such action, or within 20 days after the commencement of any involuntary proceeding, whichever is earlier, give each holder of shares of Series B Preferred Stock initial written notice of the proposed action. Such initial written notice shall describe the material terms and conditions of the proposed action, including a description of the stock, cash and property to be received by the holders of shares of Series B Preferred Stock upon consummation of the proposed action and the date of delivery thereof. If any material change in the facts set forth in the initial notice shall occur, the corporations shall promptly give written notice to each holder of shares of Series B Preferred Stock of such material change. 2.13 VOTING RIGHTS. Except as otherwise provided by law or as expressly provided herein, the Common Stock shall have exclusive voting rights and powers, including the exclusive right to notice shareholders' meetings. 2.14 CONVERSION RIGHTS. (a) OPTIONAL CONVERSION. Shares of Series B Preferred Stock shall be convertible, at the option of the holder thereof, at any time after December 28, 1996 (the "Conversion Period"), into fully paid and nonassessable shares of Common Stock of the corporation. (b) CONVERSION RATIO. Each share of Series B Preferred Stock shall be converted into one share of the Common Stock of the corporation, subject to adjustment as provided in paragraph 2.15 below. (c) PROCEDURE FOR CONVERSION. The holder of any shares of Series B Preferred Stock may exercise the conversion rights during the Conversion Period as to such shares or any part thereof by delivering to the corporation during regular business hours, at the office of any transfer agent of the corporation for the Series B Preferred Stock, or at the principal office of the corporation, the certificate or certificates for the shares to be converted, duly endorsed for transfer to the corporation, accompanied by written notice stating that the holder elects to convert such shares or a part thereof. Conversion shall be deemed to have been effected on the date when such delivery is made, and such date is referred to herein as the "Conversion Date". As promptly as practicable thereafter the corporation shall issue and deliver to or upon the written order of such holder, at such office or other place designated by the corporation, a certificate or certificates for the number of full shares of Common Stock to which such holder is entitled and a check for cash with respect to any fractional interest in a share of Common Stock as provided in paragraph 2.14(d). The holder shall be deemed to have become a shareholder of record on the applicable Conversion Date unless the transfer books of the corporation are closed on such date, in which event he shall be deemed to have become a shareholder of record on the next succeeding date on which the transfer books are open, but the Conversion Ratio shall be that in effect on the Conversion Date. Upon conversion of only a portion of the number of shares of Series B Preferred Stock represented by a certificate surrendered for conversion, the corporation shall issue and deliver to or upon the written order of the holder of the certificate so surrendered for conversion, at the expense of the corporation, a new certificate covering the number of shares of Series B Preferred Stock representing the unconverted portion of the certificate so surrendered. (d) FRACTIONAL SHARES. No fractional shares of Common Stock or scrip shall be issued upon conversion of shares of Series B Preferred Stock. If more than one share of Series B Preferred Stock shall be surrendered for conversion at any one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Series B Preferred Stock so surrendered. Instead of any fractional shares of Common Stock which would otherwise be issuable upon conversion of any shares of Series B Preferred Stock, the corporation shall pay a cash adjustment in respect of such fractional interest equal to the fair market value of such fractional interest as determined by the Board of Directors. (e) RESERVED SHARES. The corporation shall reserve and keep available, out of its authorized but unissued Common Stock, solely for the purpose of effecting the conversion of the Series B Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all Series B Preferred Stock from time to time outstanding. The corporation shall from time to time (subject to obtaining necessary director and shareholder action) increase the authorized amount of its Common Stock if at any time the authorized number of shares of its Common Stock remaining unissued shall not be sufficient to permit the conversion of all of the shares of Series B Preferred Stock at the time outstanding. (f) REGISTRATION. If any shares of Common Stock to be reserved for the purpose of shares of Series B Preferred Stock require registration or listing with, or approval of, any governmental authority, stock exchange, or other regulatory body under any federal or state law or regulation or otherwise, before such shares may be validly issued or delivered upon conversion, the corporation will in good faith and as expeditiously as reasonable endeavor to secure such registration, listing or approval, as the case may be. (g) VALIDLY ISSUED. All shares of Common Stock which may be issued upon conversion of the shares of Series B Preferred Stock will, upon issuance by the corporation, be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof. (h) NEGATIVE COVENANTS. This corporation will not, by amendment of its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed thereunder, but will at all times in good faith assist in the carrying out of all the provisions hereof and in the taking of such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series B Preferred Stock against impairment. 2.15 ANTIDILUTION. The Conversion Ratio (referred to in paragraph 2.14 (b)) shall be subject to adjustment from time to time, and the number of shares of Common Stock issuable on conversion of any shares of Series B Preferred Stock shall be subject to a resultant increase or decrease (calculated to the nearest 1/100th of a share) by reason of such adjustment, as hereafter stated, except that no adjustment shall be made, unless by reason of the occurrence of one or more of the events hereinafter specified, the Conversion Ratio theretofore in effect shall be changed by an amount equal to at least 5% thereof, but in the event that an adjustment would be required except of insufficiency of amount, such amount shall be carried forward and added to and shall be made at the time of and together with any subsequent adjustment which, together with any adjustment or adjustments so carried forward, amount to at least 5% of the Conversion Ratio at such later time. (a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. In the event the corporation shall declare a stock dividend with respect to its Common Stock or shall effect a subdivision or combination of its Common Stock into a greater or lesser number of shares without a proportionate and corresponding stock dividend, subdivision or combination with respect to its outstanding Series B Preferred Stock, then the existing Conversion Ratio for the Series B Preferred Stock shall be increased or decreased proportionately. (b) CLASSIFICATION, RECLASSIFICATION, CAPITAL REORGANIZATION, ETC. In the case of any classification, reclassification, capital reorganization or other change of outstanding shares of Common Stock (other than a change in par value, or from without par value to par value, or from par value to without par value, or as a result of an issuance of Common Stock by way of dividend or other distribution or of a subdivision or combination), or in case of any consolidation or merger of the corporation with or into another corporation (other than a merger with a subsidiary in which the corporation is the continuing corporation and which does not result in any reclassification, capital reorganization or other change of outstanding shares of the Common Stock issuable upon conversion of the shares of the Series B Preferred Stock) or in case of any sale or conveyance to another corporation of the property of the corporation as an entirety or substantially as an entirety, the corporation shall cause the holders of the Series B Preferred Stock to have the right, by exercising their conversion rights thereunder, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization or other change, consolidation, merger, sale or conveyance, if any, which the holders of the Series B Preferred Stock would have received had the conversion taken place immediately prior to such event. 2.16 CHANGES AFFECTING SERIES B PREFERRED STOCK So long as any shares of Series B Preferred Stock are outstanding, the corporation shall not, without first obtaining the approval by vote or written consent, in the manner provided by law, of the holders of at least a majority of the total number of shares of Series B Preferred Stock outstanding, voting separately as a class, (i) alter or change any of the powers, preferences, privileges, or rights of the Series B Preferred Stock; or (ii) amend the provisions of this paragraph 2.16; or (iii) create any new class or series of shares having preferences prior to the Series B Preferred Stock or reclassifying any class or series of any Common Stock or any other shares of stock hereafter created junior to the Class B Preferred Stock into shares having any preference or priority over the Series B Preferred Stock. EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1996 MAR-31-1996 3,889,438 0 320 0 312,737 4,202,495 741,024 538,472 4,405,047 267,185 0 0 1,467,498 744,137 1,926,227 4,405,047 0 0 0 0 435,032 0 (50,668) (384,364) 0 0 0 0 0 (384,364) (0.13) 0
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