-----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, TV7e4WDusH0eJceMP13AXWYHzCctJ2UkjvamoQj9sRLx4VuAodwqSlOLXO0e6rp7 8n2a3+S8lI1UNETXWqegWA== 0000897101-99-000827.txt : 19990817 0000897101-99-000827.hdr.sgml : 19990817 ACCESSION NUMBER: 0000897101-99-000827 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 99690063 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, 1999 [ ] 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 13, 1999 was 5,296,720. Transitional Small Business Disclosure Format (Check one): Yes ___ No _X_ SPECTRASCIENCE, INC. FORM 10-QSB JUNE 30, 1999 INDEX PAGE NO. -------- PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Balance Sheets - June 30, 1999 and December 31, 1998 3 Statements of Operations - Three Months Ended June 30, 1999 and 1998 4 Six Months Ended June 30, 1999 and 1998 Statements of Cash Flows - Six Months Ended June 30, 1999 and 1998 5 Notes to Financial Statements - June 30, 1999 6 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 9 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10 SIGNATURES 11 EXHIBIT 10.1: Second Amendment to Restated License Agreement between GV 12 Medical and Massachusetts Institute of Technology, effective April 26, 1990. EXHIBIT 10.2 Third Amendment of License Agreement between Massachusetts 13 Institute of Technology and SpectraScience, Inc., effective October 15, 1993. EXHIBIT 27: Financial Data Schedule pursuant to Article 5 of 21 Regulation S-X 2 SPECTRASCIENCE, INC. FORM 10-QSB BALANCE SHEETS June 30, December 31, 1999 1998 (1) ------------ ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 1,418,010 $ 301,970 Inventories 198,669 185,625 Other current assets 55,559 85,253 ------------ ------------ Total current assets 1,672,238 572,848 Net property and equipment 232,594 247,531 ------------ ------------ TOTAL ASSETS $ 1,904,832 $ 820,379 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 74,872 $ 281,986 Accrued compensation and taxes 149,763 99,263 Accrued expenses 188,317 56,990 Accrued clinical research fees 97,009 162,400 ------------ ------------ Total current liabilities 509,961 600,639 Commitments SHAREHOLDERS' EQUITY Common stock, $.25 par value: Authorized shares--10,000,000 Issued and outstanding shares-- 5,296,720 on June 30, 1999 and 4,737,804 on December 31, 1998 1,324,180 1,184,451 Additional paid-in capital 47,626,744 45,586,659 Accumulated deficit (47,556,053) (46,551,370) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 1,394,871 219,740 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,904,832 $ 820,379 ============ ============ (1) THE BALANCE SHEET ON DECEMBER 31, 1998 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 ----------------------------- ----------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Revenue $ -- $ -- $ -- $ -- Cost of products sold -- -- -- -- ----------- ----------- ----------- ----------- Gross profit -- -- -- -- Operating expenses Research and development 261,423 604,978 543,447 942,907 Selling, general and administrative 306,843 220,782 500,350 439,922 ----------- ----------- ----------- ----------- Total operating expenses 568,266 825,760 1,043,797 1,382,829 Interest and other income (expense) 23,876 18,519 39,114 37,729 ----------- ----------- ----------- ----------- Net loss $ (544,390) $ (807,241) $(1,004,683) $(1,345,100) =========== =========== =========== =========== Net loss per share $ (0.10) $ (0.17) $ (0.20) $ (0.29) Weighted average common shares outstanding 5,296,720 4,683,390 5,103,484 4,603,063
SEE NOTES TO FINANCIAL STATEMENTS. 4 SPECTRASCIENCE, INC. FORM 10-QSB STATEMENTS OF CASH FLOW (UNAUDITED)
SIX MONTHS ENDED JUNE 30 ----------------------------- 1999 1998 ----------- ----------- OPERATING ACTIVITIES Net loss $(1,004,683) $(1,345,100) Adjustments to reconcile net loss to cash used in operating activities: Depreciation 27,879 126,352 Changes in operating assets and liabilities: Decrease in accounts receivable -- -- Increase in inventories (13,044) (120,821) Decrease in other current assets 29,694 3,335 Decrease in current liabilities (90,678) (80,233) ----------- ----------- Net cash used in operating activities (1,050,832) (1,416,467) INVESTING ACTIVITIES Purchase of property and equipment (12,942) (13,240) ----------- ----------- Net cash used in investing activities (12,942) (13,240) FINANCING ACTIVITIES Proceeds from issuance of common stock 2,179,814 928,056 ----------- ----------- Net cash provided by financing activities 2,179,814 928,056 ----------- ----------- Net increase (decrease) in cash and cash equivalents 1,116,040 (501,651) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 301,970 1,638,173 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,418,010 $ 1,136,522 =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS. 5 SPECTRASCIENCE, INC. FORM 10-QSB JUNE 30, 1999 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 expressions of a similar nature 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 Quarterly Report on Form 10-QSB for the quarter ended March 31, 1999 for certain important cautionary factors, risks and uncertainties related to forward-looking statements. NOTES TO FINANCIAL STATEMENTS NOTE A BASIS OF PRESENTATION The accompanying unaudited financial statements of SPECTRASCIENCE, Inc. (the "Company") 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, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. These statements should be read in conjunction with the financial statements and related notes, which are included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998. NOTE B NET LOSS PER SHARE Net loss per share is computed using the weighted average number of common shares outstanding during the period. Common equivalent shares from stock options and warrants are excluded from the computation, as their effect is anti-dilutive. In February 1997, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 128, "EARNINGS PER SHARE." This Statement replaces the presentation of primary earnings per share (EPS) with basic EPS and also requires dual presentation of basic and diluted EPS for entities with complex capital structures. This Statement was effective for the fiscal year ending December 31, 1998. For the three- and six-month periods ended June 30, 1999, there is no difference between basic loss per share under Statement No. 128 and net loss per share as reported. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (a) BUSINESS SPECTRASCIENCE, Inc. develops and manufactures innovative, minimally-invasive spectroscopic systems to facilitate real-time differentiation and diagnosis of cancerous and diseased tissue by utilizing advanced spectroscopy, fiber optics, computer hardware and software. SPECTRASCIENCE, INC. was incorporated in the state of Minnesota on May 4, 1983 as GV Medical, Inc. and is located at 3650 Annapolis Lane, Suite 101, Minneapolis, Minnesota 55447-5434. Our telephone number is (612) 509-9999, and our fax number is (612) 509-9805. Our web-site can be 6 accessed at http://www.spectrascience.com, and our e-mail address is spsi@spectrascience.com. The Company's common stock, par value $.25 per share (the "Common Stock"), is traded on the Over-The-Counter Bulletin Board under the symbol SPSI. (b) RESULTS OF OPERATIONS The Company recorded no revenue for the three and six months ended June 30, 1999 and June 30, 1998. Research and development expenses for the three and six months ended June 30, 1999 were $261,423 and $543,447, compared to $604,978 and $942,907 for the same periods in 1998. The decrease of 56.8% for the three months ended June 30, 1999 was primarily due to lower design engineering, consulting, legal and salary expenses. In addition, the Company had an inventory revaluation which substantially increased research and development expenses during this same period in 1998. The decrease was partially offset by increased expenses relating to ISO certification and research and development contracts. The 42.4% decrease for the six months ended June 30, 1999 was due to the same reasons stated above. Selling, general and administrative expenses for the three and six months ended June 30, 1999 were $306,843 and $500,350, compared to $220,782 and $439,922 for the same periods in 1998. The 39.0% increase for the three months ended June 30, 1999 was primarily due to increased legal expenses related to late billings, and to a lesser extent, increased consulting expenses. This was partially offset by decreased salary expenses related to the vacant Chief Financial Officer position and the assumption of Mr. McMahon's duties by Mr. Sievert. The increase of 13.7% for the six months ended June 30, 1999 was primarily due to increased legal expenses related to late billings, increased consulting expenses and an increase in expenses related to the annual shareholders' meeting. This increase was partially offset by decreases in salary and investor relations expenses. Interest and other income for the three and six months ended June 30, 1999 were $23,876 and $39,114, compared to $18,519 and $37,729 for the same periods in 1998. The increases were primarily due to higher balances in cash and cash equivalents, even though interest rates during the same periods this year were less favorable. As a result of the above, the net loss for the three and six months ended June 30, 1999 was $544,390 and $1,004,683, compared to a net loss of $807,241 and $1,345,100 for the same periods in 1998. The net loss per share for the three and six months ended June 30, 1999 was $0.10 and $0.20 compared to $0.17 and $0.29 for the same periods in 1998. (c) LIQUIDITY AND SOURCES OF CAPITAL Cash and cash equivalents on June 30, 1999 were $1,418,010, compared to $301,970 on December 31, 1998. The increase in the cash position from December 31, 1998 to June 30, 1999 was primarily due to warrant exercises and a private placement of the Company's Common Stock during the first quarter of 1999. The working capital of the Company on June 30, 1999 was $1,162,277, compared to ($27,791) on December 31, 1998. The increase in working capital was primarily due to an increase in the Company's cash position. Net cash used in operating activities for the six months ended June 30, 1999 was $1,050,832, compared to $1,416,467 for the same period in 1998. This decrease was primarily due to the lower net loss for the six months ended June 30, 1999 compared to the same period in 1998. The Company also had a larger inventory build-up during the six months ended June 30, 1998 than it did during the same period in 1999. Net cash used in investing activities for the six months ended June 30, 1999 was $12,942, compared to $13,240 for the same period in 1998. 7 Net cash provided by financing activities for the six months ended June 30, 1999 was $2,179,814, compared to $928,056 for the same period in 1998. The increase was primarily due to a private placement of the Company's Common Stock and warrant exercises in the first quarter of 1999. Management believes that the amount of cash and cash equivalents is adequate to fund operations at least through December 1999. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On or about September 4, 1998, the Company was served with a Complaint in the case of Paul Gibson v. SpectraScience, Inc. (Minn. 4th Jud. Dist.), claiming that the plaintiff, who was at one time a financial consultant to the Company, was entitled to receive options for 50,000 shares of Common Stock at an exercise price of $2.50 per share. Mr. Gibson was retained to successfully complete a proposed private placement financing. The stock options were to vest upon the successful closing of the proposed financing on or before December 31, 1994. The proposed financing did not occur. The Company believes the claim to lack merit and intends to defend itself vigorously. 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 June 18, 1999, as filed with the Securities and Exchange Commission on May 28, 1999, File No. 0-13092. (a) The Annual Meeting of Shareholders of SPECTRASCIENCE, Inc. (the "Meeting") was held on June 18, 1999. Shareholders of record at the close of business on May 27, 1999, (the "Record Date") were entitled to receive notice of and to vote at the Meeting and any adjournment thereof. On the Record Date, 5,296,720 shares of the Company's Common Stock (the "Shares"), were entitled to vote at the Meeting, of which a total of 2,817,646 Shares, or 53.2% of the total Shares outstanding, were represented at the Meeting. (b) The following individuals were elected to serve as directors of the Company: Chester E. Sievert, Jr. Henry M. Holterman Nathaniel S. Thayer Johan A.P.M de Hond 8 The only item submitted to a vote of the shareholders was the proposal to elect four (4) persons to serve as directors until the next annual meeting of shareholders or until their respective successors shall be elected and qualified. All of the nominees for directors were elected by the shareholders. The final votes for each of the nominees were as follows: No. of Votes AS % OF TOTAL No. of Votes AS % OF TOTAL Name FOR SHARES VOTED WITHHELD SHARES VOTED - -------------------------------------------------------------------------------- Chester E. Sievert, Jr. 2,780,166 98.7% 37,480 1.3% Henry M. Holterman 2,431,155 86.3% 386,491 13.7% Nathaniel S. Thayer 2,781,766 98.7% 35,880 1.3% Johan A.P.M. de Hond 2,782,166 98.7% 35,480 1.3% There were no broker non-votes for this item. ITEM 5. OTHER INFORMATION (a) EXECUTIVE VICE PRESIDENT Stephen M. Blinn joined the company on August 5, 1999 as Executive Vice President. His primary duties are in the areas of new business development, sales and marketing. Mr. Blinn has over 28 years of experience with companies ranging in size from start-ups to large corporations, all of which have been involved with medical product or medical device manufacturing and distribution. Mr. Blinn has been a Director of Sight Resources Corporation since May of 1993. He served as Executive Vice President and Chief Operating Officer from May 1993 to January 1998, and as President of their SightCare operations from January 1998 to August 1998. He has also served as President and Chief Executive Officer of Silver Platter Education, Inc., a company providing continuing education programs for medical providers, since January 1999. Mr. Blinn served as Executive Vice President, Strategic Marketing Development of Summit Technology, Inc. from 1991 to May 1993. He also was a co-founder and President of Source Research, Inc., a distribution company for medical lasers and cardiac pacemakers, from 1985 to 1987. (b) YEAR 2000 ISSUE Many currently installed computer systems and software are coded to accept only two-digit entries in the date code fields. These date code fields will need to accept four-digit entries to distinguish 21st century dates from 20th century dates. This problem could result in system failures or miscalculations causing disruptions of business operations. As a result, many companies' computer systems and software will need to be upgraded or replaced in order to comply with Year 2000 ("Y2K") requirements. The potential global impact of the Y2K problem is not known, and if not corrected in a timely manner, could affect the Company in particular and the U.S. and world economy generally. Our product development process currently contains steps to include Y2K compliance verification for all current and future products. Our existing products are Y2K compliant. In addition, we are requesting assurances from our major and sole or limited source suppliers that they are addressing the Y2K issue. These actions are intended to help mitigate the possible external impact of the Y2K problem. The Y2K efforts of third parties are not within our control; however, their failure to resolve Y2K issues successfully could result in business disruption and increased costs to the Company. At the present time, it is not possible to determine whether any such events are likely to occur, or quantify any potential negative impact they may have on our future results of operations and financial condition. We are currently analyzing internal and external Y2K issues. Our internal and other computer systems are being reviewed to assess and minimize Y2K issues; this assessment includes our information technology ("IT") and non-IT systems. Our Y2K compliance program includes the following phases: identifying systems that may need to be modified or replaced; carrying out modifications to existing 9 systems or converting to new systems; and conducting validation testing of various systems and applications to determine their readiness. All internal IT computer systems and software have been assessed and appear to be Y2K compliant, with the exception of the accounting software. Computer equipment that we purchased in 1997 for the purpose of satisfying operational needs is Y2K compliant. Our accounting software will be replaced during third quarter of 1999. To date, the assessment of our external IT systems has not revealed any Y2K compliance issues. We believe the assessment of our non-IT systems to be complete. We estimate that we will complete our Y2K compliance program for all of our significant internal systems by September 30, 1999. We estimate the total cost for resolving our Y2K issues will probably be less than $15,000, of which approximately $1,400 has been spent through August 12, 1999. The estimate of Y2K costs is based on numerous assumptions, and there can be no assurance that the estimate is correct or that actual costs will not be materially greater than anticipated. Although we use computer software and hardware for various operations, including financial reporting, certain manufacturing and assembly functions, and in our products, we believe that the Y2K issue will not cause any material disruptions to our operations. However, if certain critical third-party providers, such as those that supply electricity, water or telephone service, experience difficulties resulting in disruption of the services they provide us, a shutdown of our facility could occur for the duration of the disruption. We plan to continuously monitor the status of completion of our Y2K plan and, based upon such information, will develop a contingency plan as necessary. The most reasonably likely worst-case scenario of failure by the Company or our suppliers or customers to resolve Y2K issues could potentially be a temporary slowdown or cessation of operations at our facility, and/or a temporary inability on our part to timely process orders and to deliver finished products to customers. Unresolved Y2K issues by the Company, suppliers or customers could potentially delay the timing of payments from or to the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K EXHIBIT 10.1 Second Amendment to Restated License Agreement between GV Medical and Massachusetts Institute of Technology, effective April 26, 1990. EXHIBIT 10.2 Third Amendment of License Agreement between Massachusetts Institute of Technology and SpectraScience, Inc., effective October 15, 1993. EXHIBIT 27: Financial Data Schedule pursuant to Article 5 of Regulation S-X. FORM 8-K: No reports on Form 8-K were filed by the Company during the quarter covered by this report. 10 SPECTRASCIENCE, INC. FORM 10-QSB JUNE 30, 1999 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 13, 1999 /s/ CHESTER E. SIEVERT, JR. - --------------------- -------------------------------------- Date CHESTER E. SIEVERT, JR. Chairman, Chief Executive Officer, and President (Principal Executive Officer, Principal Financial and Accounting Officer) 11 EX-10.1 2 SECOND AMENDMENT EXHIBIT 10.1 LLN/#1: 3938/3939GV.amd Date: October 29, 1990 SECOND AMENDMENT This amendment is to the Restated License Agreement for vascular and cardiovascular applications of diagnostic and therapeutic laser catheters signed by Massachusetts Institute of Technology on April 24, 1990 and by GV Medical on April 26, 1990. The parties thereto agree that the Patent Rights of M.I.T. Case 3938 and M.I.T. Case 3939 were inadvertently omitted from the listing of the Patent Rights in Appendix D of the Restated License Agreement. The parties therefore agree that the following shall be added to Appendix D, effective as of April 26, 1990: M.I.T. CASE NO. 3938 "Visible Fluorescence Spectral Diagnostic for Laser Angiosurgery" By Cynthia do los Santos-Pancheco, Leo T. Kenny and Michael S. Feld U.S. Patent 4,718,417 (Issued 1/12/88) M.I.T. CASE NO. 3938A "Catheter System for Imaging" By Carter Kittrell and Michael S. Feld U.S.S.N. 439,005 (Filed 11/21/89) CONTINUATION OF U.S.S.N. 100,714 (Filed 9/24/87 and now abandoned) Foreign Filing * PCT/US88/03257 (Filed 9/21/88 designating Japan and EPO) Claiming priority to U.S. 100,714 (Filed 9/24/87 and now abandoned) * Canadian patent application 578,286-4 (Filed 9/23/88 and claiming priority to U.S.S.N. 100,714) M.I.T. CASE NO. 3939 "Optical Shield for a Laser Catheter" By Carter Kittrell, Gary B. Hayes and Michael S. Feld U.S. Patent 4,648,892 (Issued 3/10/87) No Foreign Filings Agreed to for: Massachusetts Institute of Technology GV Medical By /s/ JOHN T. PRESTON By /s/ JAMES GRABEK -------------------------------- -------------------- Title Director, Technology Licensing Department Title President/CEO -------------------------------- -------------------- Date OCTOBER 27, 1990 Date NOVEMBER 12, 1990 -------------------------------- -------------------- EX-10.2 3 THIRD AMENDMENT OF LICENSE AGREEMENT EXHIBIT 10.2 1 of 5 THIRD AMENDMENT OF LICENSE AGREEMENT SpectraScience M.I.T. CONFIDENTIAL (10/13/93 11:38 AM) - -------------------------------------------------------------------------------- CONFIDENTIAL THIRD AMENDMENT OF LICENSE AGREEMENT This is the Third Amendment to License Agreement (the "Third Amendment") with effective date of October 15, 1993 (the "Effective Date") by and between the Massachusetts Institute of Technology, with a principal office at 77 Massachusetts Ave., Cambridge, MA 02139 ("M.I.T.") and SpectraScience Inc. (formerly, before name change, GV Medical, Inc.) with a principal office at 5909 Baker Road, Minnetonka, MN 55345 ("Licensee"). WHEREAS, the parties on even date herewith have duly executed a Settlement and Reconciliation Agreement; and WHEREAS, this Third Amendment is necessary to fully implement said Settlement and Reconciliation Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows: 1. Paragraph 1.1 is hereby deleted and replaced by the following: 1.1 "Licensee", through change of corporate name, shall mean SpectraScience, Inc. and any subsidiary of SpectraScience, Inc. 2. Paragraph 1.3 is hereby deleted and replaced by the following: 1.3 "Patent Rights" shall mean the United States and Foreign pending patent applications set forth in Appendix D attached hereto and made a part hereof (hereinafter referred to as the "Patent Rights Patent Applications"), and the United States patents and Foreign patents set forth in Appendix D, and the U.S. patents and Foreign patents issuing from said pending United States and Foreign applications or later-filed foreign applications based upon any of said United States patents and applications (hereinafter referred to as the "Patent Rights Patents") and any continuations, continuations-in-part which are directed to subject matter specifically described in the Patent Rights Patent Applications and Patent Rights Patents, divisions, reissues or extensions of any of the foregoing. Patent Rights also include any patent applications and the patents issuing therefrom for which Licensee has elected to acquire a license under the terms of the Research Funding Agreement. Such patent applications and patents have been and shall be added to Appendix D hereto and made a part hereof. Appendix D shall be amended from time to time to list the then current Patent Rights. 3. Paragraph 1.6 is hereby deleted and replaced by the following: 2 of 5 THIRD AMENDMENT OF LICENSE AGREEMENT SpectraScience M.I.T. CONFIDENTIAL (10/13/93 11:38 AM) - -------------------------------------------------------------------------------- 1.6 "Field of Use" shall mean vascular and cardiovascular diagnostic laser catheters, including, but not limited to, laser guide wires. 4. Paragraph 1.8 is hereby deleted and replaced by the following: 1.8 "Catheters" shall mean diagnostic laser catheters for vascular and cardiovascular applications, which embody technology resulting from the Research Funding Agreements. 5. Paragraph 6.1 is hereby amended by the addition of the underlined phrase at the end of the first sentence, "MIT shall apply for, shall seek prompt issuance of, and maintain during the term of this Agreement the Patent Rights set forth in Appendix D subject to Paragraph 6.5." 6. Paragraphs 6.2, 6.3 and 6.4 are hereby deleted in their entirety and following new paragraphs 6.2, 6.3, 6.4, 6.5, 6.6 and 6.7 are hereby added: 6.2 Licensee shall pay to M.I.T. the sum of $75,000 as an initial Annual Payment for prosecution and maintenance costs for the Patent Rights for the period beginning October 1, 1993, and ending October 14, 1994, such sum to be payable in equal installments due on the fifteenth (15th day of each month, commencing with the first payment due October 15, 1993. Beginning October 15, 1994, and for each one-year period, (October 15 to October 14) of each subsequent year through the one-year period ending October 14, 2003, Licensee shall pay to M.I.T. an Annual Payment of $50,000 which shall be due and payable in equal monthly installments on the fifteenth (15th) day of each month. Beginning October 15, 2003, and for each one-year period (October 15 to October 14) of each subsequent year thereafter, Licensee shall pay an Annual Payment of $30,000 which shall be due and payable in equal monthly installments on the fifteenth (15th) day of each month. The Annual Payments shall be made until the expiration of the last to expire of the Patent Rights, unless this Agreement shall be sooner terminated. In the event any installment of such Annual Payments is not received by M.I.T. within thirty (30) calendar days of the date due, this License Agreement between M.I.T. and Licensee shall immediately terminate with no further notice, subject to Paragraph 6.3 below if such additional monthly installment provided in Paragraph 6.3 has been paid by Licensee. 6.3 On or before October 15, 1993, and on or before each October 15 thereafter, or whenever Licensee so decides, Licensee may pay an additional monthly installment of that year's Annual Payment, which shall be held by M.I.T. and, automatically without notice to Licensee, credited to any monthly installment for that year which Licensee shall fail to pay on the 15th of any month. Should Licensee fail to pay the next installment by the 15th day of the following month, the License Agreement shall immediately terminate with no further notice. 3 of 5 THIRD AMENDMENT OF LICENSE AGREEMENT SpectraScience M.I.T. CONFIDENTIAL (10/13/93 11:38 AM) - -------------------------------------------------------------------------------- 6.4 Both the $65,000 payment under Paragraph 1 of the Settlement and Reconciliation Agreement and the Annual Payments paid by Licensee shall be creditable against future royalties on the sale of Licensed Products or Minimum Royalties due M.I.T. under this License Agreement. 6.5 In consideration of Licensee's Annual Payment, M.I.T. will: (a) Maintain the issued U.S. Patent Rights, except that if any issued patent becomes the subject of an interference, M.I.T. shall have the right, at its sole discretion, to abandon, subject to Licensee's rights under (b.) below; (b) Prosecute the U.S. Patent Rights patent applications through at least the first office action and thereafter continue prosecution in a reasonable commercial manner; appeals to the U.S. District Court or the Court of Appeals for the Federal Circuit and interference's, whether defensive or offensive, will be at M.I.T.'s sole discretion and sole cost, subject to the comment provision of Paragraph 6.6. In the event M.I.T. decides not to file such an appeal, or to provoke or defend such an interference, M.I.T. shall give Licensee written notice of said decision sixty (60) days prior to the first date that action must be taken, and Licensee shall have the right to assume such appeal or interference, at Licensee's sole expense, subject to a similar credit against future royalties as described in Paragraph 6.4 above and subject to Paragraph 6.1. (c) Maintain issued foreign Licensed Patent Rights. (d) Prosecute the foreign Patent Rights patent applications through at least the first office action and thereafter continue prosecution in a reasonable commercial manner, including where commercially reasonable, prosecution through any periods of opposition; provided, however, pending EPO applications for: 3767 (Serial No. 86103432.0), 3767 Div I (Serial No. 93112269.1), 3938A (Serial No. 88909936.2), 4673A (Serial N. 90900642.1), and 5507A (Serial No. 92906273.5) will be prosecuted only in Germany, France and Great Britain, and any additional foreign Licensed Patent Rights filed after the Effective Date (the "Additional Foreign Patent Rights") will be prosecuted only in Canada, Germany, France and Great Britain. Should SpectraScience desire to prosecute such Additional Foreign Patent Rights in additional countries, SpectraScience shall so notify M.I.T. in writing. M.I.T. shall prosecute and maintain such Additional Foreign Patent Rights at SpectraScience's sole expense and shall transfer responsibility for such 4 of 5 THIRD AMENDMENT OF LICENSE AGREEMENT SpectraScience M.I.T. CONFIDENTIAL (10/13/93 11:38 AM) - -------------------------------------------------------------------------------- prosecution and maintenance to SpectraScience's patent counsel, currently Kevin Raasch of Merchant & Gould. SpectraScience's patent counsel shall invoice SpectraScience directly, with information copies to M.I.T. and SpectraScience shall pay all costs directly to its patent counsel. Nevertheless, such costs paid by SpectraScience shall be creditable against future royalties on the sale of Licensed Products or Minimum Royalties due M.I.T. under the License Agreement. 6.6 Prior to initiating significant patent activity, M.I.T.'s outside patent counsel, currently Thomas Hoover of Hamilton, Brook, Smith & Reynolds, will contact Licensee's designated patent counsel, currently Kevin Raasch of Merchant & Gould, and provide Licensee's counsel opportunity to comment, and communicate with such counsel per Paragraph 6.1 above. 6.7 In the event M.I.T. is successful in licensing a third party to the Patent Rights in the field of use of therapeutic products, or licenses the Patent Rights to a third party during the nonexclusive period of this License Agreement, and such third party as a condition of license reimburses M.I.T. for a portion or all of M.I.T.'s patent prosecution and maintenance costs, M.I.T. agrees that the Annual Payment shall be reduced for the next annual period after which M.I.T. has received such third-party reimbursement, on a dollar for dollar basis to the extent such third-party reimbursement exceeds M.I.T.'s total cumulative out-of-pocket patent costs for the prosecution and maintenance of the Patent Rights from the date of disclosure of the first disclosed invention falling within the Patent Rights through the last day of that Annual Payment period. 7. Paragraph 7.4 is hereby amended by the addition of the underlined language to read as follows: 7.4 Upon any material breach or default of this Agreement by Licensee, other than those occurrences set out in Paragraphs 6.2, 6.3, 7.2 and 7.3 hereinabove, which shall always take precedence in that order over any material breach or default referred to in this Paragraph 7.4, M.I.T. shall have the right to terminate this Agreement and the rights, privileges and license granted hereunder by ninety (90) days' notice by certified mail to Licensee. Such termination shall become effective unless Licensee shall have cured any such breach or default prior to the expiration of the (90) day period from receipt of M.I.T.'s notice of termination. 8. "Article XIV - Payments, Notices and Other Communication" is hereby amended by the following change of address for Licensee: SpectraScience, Inc. cc: Glenn H. Stevens, Esq. 5909 Baker Road 1050 Walnut St., Suite 212 Minnetonka, MN 55345 Boulder, CO 80302 ATTN: President 5 of 5 THIRD AMENDMENT OF LICENSE AGREEMENT SpectraScience M.I.T. CONFIDENTIAL (10/13/93 11:38 AM) - -------------------------------------------------------------------------------- 9. Appendix D is hereby deleted in its entirety and replaced by the new Appendix D attached hereto and made a part hereof. IN WITNESS WHEREOF, the parties have duly executed this Agreement the day and year set forth below. Massachusetts Institute of Technology SpectraScience, Inc. By /s/ LITA NELSEN By /s/ DARYL YUREK -------------------------------- --------------------- Title Director of Technology Licensing Department Title Chairman of the Board -------------------------------- --------------------- Date OCTOBER 14, 1993 Date OCTOBER 17, 1993 -------------------------------- --------------------- THIRD AMENDMENT Appendix D to License Agreement Patent Rights M.I.T. CASE NO. 3767 "A Device For Multiple Independent Small Area Exposures to Laser Radiation Through a Catheter for Use in Medical Applications" Disclosure Date: February 11, 1983
HBSR# Status Country Appl. No. File Date Patent No. Issue Date Related To - ----- ------ ------- --------- --------- ---------- ---------- ---------- 3767'A ISS USA 410897 09/21/89 5106387 04/21/92 CON 058675 3767'CA PEN USA 827990 01/29/92 CON 420135 3767'C ISS USA 420135 10/11/89 5104392 04/14/92 CON 058675 3767'CAA PEN USA 905101 06/26/92 CON 827,990 3767'E PEN USA 701620 05/14/91 CON 058675 3767'G ISS USA 440100 11/21/89 5125404 06/30/92 CON 058675 3767'GA PEN USA 808001 12/16/91 CON 440100 3767'Z ISS USA 411326 09/22/89 5034010 07/23/91 DIV 058675 HBSR# Status Appl. No. File Date Patent No. Issue Date Related To - ----- ------ --------- --------- ---------- ---------- ---------- 3767 CAN ISS 504731 03/21/86 1279901 02/05/91 PAR N/A 3767 CAN DIV I PEN 615648 02/13/90 3767 CAN DIV II ISS 615649 03/21/86 1317641 05/11/93 DIV 504731 3767 CAN DIV III PEN 615650 03/21/86 DIV 504731 3767 EPO PEN 86103432.0 03/14/86 PAR N/A 3767 EPO DIVI PEN 93112269.1 03/14/86 3767 JAPAN PEN 6466/86 03/22/86 PAR N/A
M.I.T. CASE NO. 3938 "A Spectral Diagnostic For Distinguishing Atheromatous Plaque From Normal Artery Wall" Disclosure Date: August 21, 1984 Sponsor: American Hospital Supply Corporation
HBSR# Status Country Appl. No. File Date Patent No. Issue Date Related To - ----- ------ ------- --------- --------- ---------- ---------- ---------- 3938 ISS USA 715131 03/22/85 4718417 01/12/88 PAR 100714 3938AF3 PEN USA 086253 07/01/93 FWC 773983
HBSR# Status Appl. No. File Date Patent No. Issue Date Related To - ----- ------ --------- --------- ---------- ---------- ---------- 3938A EPO PEN 88909936.2 09/21/88 PCT/US88/03257 3938A CAN PEN 579286-4 09/21/88 PCT/US88/03257 3938A JAPAN PEN 509105/88 09/21/88 PCT/US88/03257
M.I.T. CASE NO. 4673 "Ultraviolet LIF Spectroscopy of Tissue" Disclosure Date: April 25, 1988 Sponsor: NIH, Cleveland Clinic Foundation
HBSR# Status Country Appl. No. File Date Patent No. Issue Date Related To - ----- ------ ------- --------- --------- ---------- ---------- ---------- 4673F2 PEN USA 082342 06/24/93 FWC 920151 4673A PEN USA 720465 11/17/89 NAT'L-PCT/US89/05174 HBSR# Status Appl. No. File Date Patent No. Issue Date Related To - ----- ------ --------- --------- ---------- ---------- ---------- 4673A EPO PEN 90900642.1 11/17/89 PCT/US89/05174
M.I.T. CASE NO. 4923 "Contour Mapping of Spectral Diagnostics" Disclosure Date: January 5, 1989 Sponsor: Cleveland Clinic Foundation
HBSR# Status Country Appl. No. File Date Patent No. Issue Date Related To - ----- ------ ------- --------- --------- ---------- ---------- ---------- 4923' ISS USA 772620 10/04/91 5201318 04/13/93 FWC 342311 4923'Z PEN USA 024674 03/01/93 DIV 772620
M.I.T. CASE NO. 5507/5507A "Detection of Atherosclerosis in Human Artery by Mid-Infrared Attenuated Total Reflectance" Disclosure Date: January 16, 1991 Sponsor: NIH
HBSR# Status Country Appl. No. File Date Patent No. Issue Date Related To - ----- ------ ------- --------- --------- ---------- ---------- ---------- 5507 PEN USA 661077 02/26/91 PAR N/A 5507A PEN USA 107854 01/17/92 NAT'L PCT/US92/00420
HBSR# Status Appl. No. File Date Patent No. Issue Date Related To - ----- ------ --------- --------- ---------- ---------- ---------- 5507A EPO PEN 92906273.5 01/17/92 PCT/US92/00420 5507A CAN PEN Appl. Filed 01/17/92 PCT/US92/00420 5507A JAPAN PEN Appl. Filed 01/17/92 PCT/US92/00420
M.I.T. CASE NO. 5908 "Diffuse Reflectance from Turbid Media: An Analytical Model of Photon Migration" Disclosure Date: April 10, 1992 Sponsor: NIH
HBSR# Status Country Appl. No. File Date Patent No. Issue Date Related To - ----- ------ ------- --------- --------- ---------- ---------- ---------- 5908 PEN USA 920135 07/24/93 PAR N/A
EX-27 4 FINANCIAL DATA SCHEDULE -- ARTICLE 5
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, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1999 JUN-30-1999 1,418,010 0 0 0 198,669 1,672,238 820,411 587,817 1,904,832 509,961 0 0 0 1,324,180 70,691 1,904,832 0 0 0 0 1,043,797 0 (39,114) (1,004,683) 0 0 0 0 0 (1,004,683) (0.20) 0
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