10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

Commission file number 0-13092

SPECTRASCIENCE, INC.

(Exact name of registrant

as specified in its charter)

Minnesota	41-1448837
(State or other jurisdiction	(I.R.S. Employer Identification Number)
of incorporation or organization)

11568 Sorrento Valley Rd., Suite 11

San Diego, California 92121

(Address of principal executive offices, including zip code)

(858) 847-0200

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   YES x     NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registration was required to submit and post such files). YES  x    NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer        ¨	Accelerated filer                  ¨
Non-accelerated filer           ¨	Smaller reporting company        x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ¨ NO x

The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding on May 20, 2016 was 668,651,881.  

SPECTRASCIENCE, INC.

FORM 10-Q

For the Three months Ended March 31, 2016

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION:
Item 1.	Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Mine Safety Disclosures	24
Item 5.	Other Information	24
Item 6.	Exhibits	25
SIGNATURES		25

2

PART I     FINANCIAL INFORMATION:

Item 1. Financial Statements

SpectraScience, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

	March 31,
	2016			December 31,
	(Unaudited)			2015
ASSETS
Current assets:
Cash	$	1,785		$	127,493
Accounts receivable, net		-			7,061
Inventory, current portion		143,525			111,887
Prepaid expenses and other current assets		247,419			284,305
Total current assets		392,729			530,746
Fixed assets, net		-			316
Long-term inventory		150,000			150,000
Patents, net		1,145,235			1,185,472
	$	1,687,964		$	1,866,534
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable	$	1,068,824		$	941,106
Note payable		137,982			137,982
Notes payable- related parties		35,000			-
Convertible debt, net of discounts of $323,962 as of March 31, 2016 and $430,156 as of December 31, 2015		6,107,633			5,744,604
Derivative liability		1,564,661			620,321
Accrued Expenses		1,520,552			1,411,333
Total current liabilities		10,434,652			8,855,346
COMMITMENTS AND CONTINGENCIES
Mezzanine equity
Series B Convertible Preferred Stock, $.01 par value; 2,585,000 shares authorized, issued and outstanding as of March 31, 2016 and December 31, 2015; liquidation value of $517,000 plus accumulated and and unpaid dividends of $106,931 as of March 31, 2016 and December 31, 2015, respectively		25,850			25,850
Series C Convertible Preferred Stock, $.01 par value; 500,000 shares authorized, issued and outstanding as of March 31, 2016 and December 31, 2015; liquidation value of $100,000 as of March 31, 2016 and December 31, 2015, respectively		5,000			5,000
Total mezzanine equity		30,850			30,850
Shareholders' deficit
Series A Convertible Preferred Stock, $.01 par value; 0 shares authorized, issued and outstanding as of March 31, 2016 and December 31, 2015		-			-
Common stock, $.01 par value; 746,915,000 shares authorized; 667,513,791 and 431,247,207 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively		6,675,138			4,312,472
Additional paid in capital		36,102,610			38,166,818
Accumulated deficit		(51,555,286	)		(49,498,952	)
Total shareholders' deficit		(8,777,538	)		(7,019,662	)
	$	1,687,964		$	1,866,534

See accompanying summary of accounting polices and notes to unaudited condensed consolidated financial statements.

3

SpectraScience, Inc. and Subsidiaries

Condensed Consolidated Statements of Operation

(Unaudited)

	Three Months Ended
	March 31,
	2016			2015
Revenue	$	-		$	-
Cost of revenue		-			(6,000	)
Gross profit		-			6,000
Operating expenses:
Research and development		194,007			174,680
General and administrative		307,841			381,454
Sales and marketing		79,413			39,862
		581,261			595,996
Loss from operations		(581,261	)		(589,996	)
Other income (expense)
Interest expense		(374,130	)		(144,502	)
Change in fair value of derivative and warrant liabilities		(887,494	)		(677,584	)
Amortization of derivative and warrant liabilities discount		(141,561	)		(290,109	)
Amortization of deferred debt issuance costs and original issue discount		(62,530	)		(87,814	)
Gain on extinguishment of debt		1,166			82,728
Loss on foreign exchange transactions		(8,924	)		-
Other income (expense), net		(1,600	)		(2,413	)
		(1,475,073	)		(1,119,694	)
Net loss	$	(2,056,334	)	$	(1,709,690	)
Basic and diluted loss per share	$	(0.00	)	$	(0.01	)
Weighted average common shares outstanding:
Basic and diluted		609,825,530			194,355,277

See accompanying summary of accounting polices and notes to unaudited condensed consolidated financial statements.

4

SpectraScience, Inc. and Subsidiaries

Condensed Consolidated Statement of Shareholders' Deficit

For the three months ended March 31, 2016

(unaudited)

					Additional						Total
	Common Stock				Paid-In			Accumulated			Shareholders'
	Shares		Amount		Capital			Deficit			Deficit
Balance December 31, 2015		431,247,207	$	4,312,472	$	38,166,818		$	(49,498,952	)	$	(7,019,662	)
Conversion of convertible debt		236,266,584		2,362,666		(2,105,861	)		-			256,805
Non cash stock option expense		-		-		40,001			-			40,001
Non cash issuance of warrant for consulting services		-		-		1,652			-			1,652
Net loss		-		-		-			(2,056,334	)		(2,056,334	)
Balance March 31, 2016		667,513,791	$	6,675,138	$	36,102,610		$	(51,555,286	)	$	(8,777,538	)

See accompanying summary of accounting polices and notes to unaudited condensed consolidated financial statements.

5

SpectraScience, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended March 31,
	2016			2015
Operating activities:
Net loss	$	(2,056,334	)	$	(1,709,690	)
Adjustments to reconcile net loss to cash used in operating activities:
Amortization and depreciation		40,552			41,443
Non-cash interest		94,329			-
Non-cash issuance of stock options and warrants		40,001			59,768
Non-cash expense related to commitment of common stock in excess of authorized shares		131,504			-
Amortization of derivative and warrant liabilities discount		141,561			290,109
Amortization of deferred debt issuance costs and original issue discount		62,530			87,814
Issuance of common stock for services		350			-
Change in fair value of derivative and warrant liabilities		887,494			677,584
Gain on extinguishment of debt		(1,166	)		(82,728	)
Changes in assets and liabilities:
Accounts receivable		7,061			-
Inventory		(31,639	)		(259	)
Prepaid expense and other assets		36,887			15,297
Accounts payable		127,720			14,131
Accrued expenses		112,154			66,957
Net cash used in operating activities		(406,996	)		(539,574	)
Investing activities:
Purchases of fixed assets		-			-
Net cash used in investing activities		-			-
Financing activities:
Proceeds from issuance of convertible notes payable		300,000			410,000
Proceeds from issuance of notes payable to related parties		35,000			-
Debt issuance costs		(53,712	)		(24,000	)
Net cash provided by financing activities		281,288			386,000
Net decrease in cash		(125,708	)		(153,574	)
Cash, beginning of year		127,493			223,529
Cash, end of period	$	1,785		$	69,955
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest	$	-		$	-
Income taxes	$	-		$	-
Non Cash Investing and Financing Activities:
Conversion of convertible notes and accrued interest to common stock	$	75,812		$	114,604
Conversion of accrued interest to note payable	$	-		$	15,000

See accompanying summary of accounting polices and notes to unaudited condensed consolidated financial statements.

6

SpectraScience, Inc.

Notes to Unaudited Condensed Financial Statements

1.     Nature of Business and Basis of Presentation

Description of Business

SpectraScience, Inc. was incorporated in the State of Minnesota on May 4, 1983 as GV Medical, Inc. In October 1992, GV Medical discontinued its prior business, refocused its development efforts and changed its name to SpectraScience, Inc. The “Company,” hereinafter, refers to SpectraScience, Inc. and its wholly owned subsidiaries Luma Imaging Corporation (“LUMA”), Spectra Science International, Inc. (“International”) and SpectraScience (UK) Limited (“SpectraUK”). Since 1996, the Company has focused primarily on developing the WavSTAT Optical Biopsy System (the “WavSTAT System”). 

The Company has developed and received the European CE mark approval to market a proprietary, minimally invasive technology that optically illuminates tissue in real-time to distinguish between normal, pre-cancerous or cancerous cells without the need to remove the subject cell tissue from the body to make such determinations. The WavSTAT System operates by using cool, safe laser light to optically illuminate and analyze tissue, enabling the physician to make an instant diagnosis during endoscopy when screening for cancer, and if warranted, to begin immediate treatment during the same procedure. Beginning in December 2011, the WavSTAT 4 version of the product began to be sold in the European Union for colon cancer detection. In June 2012, the Company entered into a distribution agreement with PENTAX Europe, GmbH, for the sale of its systems internationally.

On November 6, 2007, the Company acquired the assets of LUMA in an equity transaction accounted for as an acquisition of assets and now operates LUMA as a wholly-owned subsidiary of the Company. LUMA had acquired the assets from a predecessor company that had developed, and received FDA approval for, a non-invasive diagnostic imaging system that can detect cervical cancer precursors and which utilizes an underlying technology that is similar to that of the WavSTAT System. The addition of the LUMA technology to the Company’s existing WavSTAT System technology provides the Company with a broad suite of fluorescence-based intellectual property and know-how. During the fiscal year ended December 31, 2010, the Company wrote off the remaining fair value of the LUMA inventory in order to focus on the continued development and marketing of the WavSTAT System. The Company retained the intellectual property of LUMA for use in the development of future generations of the WavSTAT System.

The transaction was accounted for as an acquisition of assets that included intellectual property, inventory and equipment. The intellectual property consisted of a total of 34 issued U.S. patents and 28 additional patent applications.

Basis of Presentation

The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q as they are prescribed for smaller reporting companies. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the financial statements not misleading have been included. Operating results for the three month period ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. 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-K for the year ended December 31, 2015.

7

SpectraScience, Inc.

Notes to Unaudited Condensed Financial Statements (continued)

Going Concern

Historically, the Company’s sources of cash have come from the issuance and sale of equity securities and convertible debentures. The Company’s historical cash outflows have been primarily used for operating activities including research, development, administrative and sales activities. Fluctuations in the Company’s working capital due to timing differences of its cash receipts and cash disbursements also impact its cash flow. The Company expects to incur significant additional operating losses through at least the end of 2016, as it completes proof-of-concept trials, conducts outcome-based clinical studies and increases sales and marketing efforts to commercialize the WavSTAT4 System in Europe. If the Company does not receive sufficient funding, there is substantial doubt that the Company will be able to continue as a going concern. The Company may incur unknown expenses or may not be able to meet its revenue forecast, and one or more of these circumstances would require the Company to seek additional capital. The Company may not be able to obtain equity capital or debt funding on terms that are acceptable. Even if the Company receives additional funding, such proceeds may not be sufficient to allow the Company to sustain operations until it becomes profitable and begins to generate positive cash flows from operations.

As of March 31, 2016, the Company had a working capital deficit of $10,041,923 and cash of $1,785, compared to a working capital deficit of $8,324,600 and cash of $127,493 as of December 31, 2015. In December 2011, the Company entered into an Engagement Agreement with Laidlaw & Company (UK) Ltd., which Engagement Agreement was amended in July 2012. Under the Engagement Agreement, Laidlaw agreed to assist the Company in raising up to $20.0 million in capital over a two year period from the date of the Engagement Agreement. Subsequent to March 31, 2013, the Company has engaged other agents to assist the Company with raising capital and has commenced raising capital on its own. During the three months ended March 31, 2016, the Company raised $311,000, net of transaction costs of $24,000, under these agreements. However, if the Company does not receive additional funds in a timely manner, the Company could be in jeopardy as a going concern. The Company may not be able to find alternative capital or raise capital or debt on terms that are acceptable. Management believes that if the events defined in the Engagement Agreements occur as expected, or if the Company is otherwise able to raise a similar level of funds, such proceeds will be sufficient to allow the Company to sustain operations until it attains profitability and positive cash flows from operations. However, the Company may incur unknown expenses or may not be able to meet its revenue expectations requiring it to seek additional capital. In such event, the Company may not be able to find capital or raise capital or debt on terms that are acceptable.

The holders of Convertible Debentures control the conversion of the Convertible Debentures and certain of the Convertible Debentures were not converted at their maturity constituting a potential default on the matured, but unconverted, Convertible Debentures. In the event of such default, principal, accrued interest and other related costs are immediately due and payable in cash. As of March 31, 2016, Convertible Debentures with a face value of $4,750,976 held by 70 individual investors are in default. None of these investors have served notice of default on the Convertible Debentures held by them.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

8

SpectraScience, Inc.

Notes to Unaudited Condensed Financial Statements (continued)

2.     Summary of Significant Accounting Policies

Revenue recognition

The Company recognizes revenues when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. Revenue from the sale of the Company’s products is generally recognized when title and risk of loss transfers to the customer, the terms of which are generally free on board shipping point. The Company uses customer purchase orders to determine the existence of an arrangement. The Company uses shipping documents and third-party proof of delivery to verify that title has transferred. The Company assesses whether the price is fixed or determinable based upon the terms of the agreement associated with the transaction. To determine whether collection is probable, the Company assesses a number of factors, including past transaction history with the customer and the creditworthiness of the customer.

Consolidation

The accompanying consolidated financial statements include the accounts of SpectraScience, Inc. and its wholly-owned subsidiaries LUMA, International and Spectra UK. All significant intercompany balances and transactions have been eliminated in consolidation.

Risks and Uncertainties

The Company operates in an industry that is subject to intense competition, government regulation and rapid technological change. The Company's operations are subject to significant risk and uncertainties, including financial, operational, technological, regulatory and other risks associated with a short history of product sales, including the potential risk of business failure.

Use of Estimates

The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, which requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes to the financial statements. Significant estimates made by management include, among others, realization of long-lived assets including intangible assets, assumptions used to value stock options, assumptions used to value the common stock issued and assumptions related to the determination of the fair value of the derivative components associated with the Company’s Convertible Debentures. Actual results could differ from those estimates.

Inventory Valuation

The Company states its inventory at the lower of cost or market value, determined on a specific cost basis. The Company provides inventory allowances when conditions indicate that the selling price could be less than cost due to obsolescence and reductions in estimated future demand. The Company balances the need to maintain strategic inventory levels with the risk of obsolescence due to changing technology and customer demand levels. Unfavorable changes in market conditions may result in a need for additional inventory reserves that could adversely impact the Company’s gross margins. Conversely, favorable changes in demand could result in higher gross margins when the Company sells products.

Valuation of Long-lived Assets

The Company’s long-lived assets consist of property and equipment and intangible assets. Equipment is carried at cost and is depreciated over the estimated useful lives of the assets, which are generally two to three years, and leasehold improvements are amortized over the lesser of the lease term or the estimated useful lives of the improvements. The straight-line method is used for depreciation and amortization. Intangible assets consist of patents, which are amortized using the straight-line method over the estimated useful lives of the patents. The Company does not capitalize external legal costs and filing fees associated with obtaining patents on its new discoveries. Acquired intellectual property is recorded at cost and is amortized over its estimated useful life. The Company believes the useful lives assigned to these assets are reasonable. The Company assesses the recoverability of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. These computations utilize judgments and assumptions inherent in management’s estimate of future cash flows to determine recoverability of these assets. If management’s assumptions about these assets were to change as a result of events or circumstances, the Company may be required to record an impairment loss.  

9

SpectraScience, Inc.

Notes to Unaudited Condensed Financial Statements (continued)

Variable Conversion Rate Debentures

Starting in 2015, the Company entered into convertible debentures with floating exercise prices discounted to market prices. As a result, a significant number of shares were either issued in 2015 or will be issued in subsequent periods at deeply discounted variable conversion prices. The downward pressure placed on the Company’s stock as a result of these conversions can be classified as “death spirals” since the investors have no incentive to maintain a stable stock price. The Company accounts for these debentures as derivative liabilities which means the debentures are revalued at the end of each period and gains and losses are recognized at the issuance of the debentures and on the conversion of the debentures.

Over Commitment of Shares

Since the number of shares issuable under convertible debentures with floating exercise prices is undeterminable, the Company may be required to issue shares in excess of the number of shares authorized by its shareholders. As a result, when the Company determines that is does not have sufficient shares to meet the obligations of derivative unexercised debentures, warrants and options, the derivatives must be valued using the Black Scholes Option Pricing method and a liability is recorded as though the obligations would be settled using some means other than stock.

Stock-Based Compensation

The Company accounts for stock-based compensation under the provisions of FASB ASC Topic 718, Compensation—Stock Compensation   (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. The Company estimates the fair value of stock-based awards on the date of grant using the Black-Scholes-Merton option-pricing model (the “Black-Scholes Model”). The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method. The Company estimates forfeitures at the time of grant and revises its estimate in subsequent periods if actual forfeitures differ from those estimates.

The Company accounts for stock-based compensation awards to non-employees in accordance with FASB ASC Topic 505-50, Equity-Based Payments to Non-Employees (“ASC 505-50”). Under ASC 505-50, the Company determines the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

All issuances of stock options or other equity instruments to employees and non-employees as the consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued. Any stock options issued to non-employees are recorded in expense and additional paid-in capital in shareholders’ equity over the applicable service periods using variable accounting through the vesting dates based on the fair value of the options at the end of each reporting period.

10

SpectraScience, Inc.

Notes to Unaudited Condensed Financial Statements (continued)

As of March 31, 2016, the Company had one stock-based employee compensation plan under which it makes grants, the 2011 Equity Incentive Plan (the “EIP”). The EIP provides for the grant of incentive stock options (“ISOs”), nonqualified stock options (“NQSOs”) and restricted stock awards to full-time employees (who may also be directors) and NQSOs and restricted stock awards to non-employee directors, consultants, customers, vendors or providers of services. The exercise price of any ISO may not be less than the fair market value of the common stock on the date of grant and the term shall not exceed ten years. The amount reserved under the 2011 EIP is 40,000,000 shares of common stock.  At March 31, 2016, the Company had options outstanding exercisable into up to 34,168,800 shares of stock under the EIP and the Company’s prior Amended 2001 Stock Plan of which up to 21,394,089 shares were exercisable. Awards under the Company’s EIP generally vest over four years.

The fair value of options granted are estimated at the date of grant using a Black-Scholes Model which includes several variables including expected life, risk free interest rate, expected stock price volatility, stock option exercise patterns and expected dividend yield. The Company also must estimate forfeitures for employee stock options. Management used the following weighted average assumptions to value stock options granted during the three month periods ended March 31, 2016 and 2015:

	Three months ended March 31,
	2016	2015
Expected term	3 to 5 years		5 years
Exercise price	$0.02 to $.04		$0.01
Expected volatility	243% to 266%		210%
Expected dividends	None		None
Risk-free interest rate	1.04% to 1.49%		1.48%
Forfeitures	None		None

Earnings (Loss) Per Share

Basic loss per share is computed by dividing loss available to common shareholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Common equivalent shares are excluded from the computation if their effect is anti-dilutive.

For the three month periods ended March 31, 2016 and 2015, the following common equivalent shares were excluded from the computation of loss per share since their effects are anti-dilutive.

	March 31,		March 31,
	2016		2015
Preferred Stock		3,085,000		3,085,000
Convertible debentures		378,651,041		101,060,673
Options		34,168,800		40,193,802
Warrants		132,875,170		109,205,387
Total		548,780,011		253,544,862

11

SpectraScience, Inc.

Notes to Unaudited Condensed Financial Statements (continued)

The following table sets forth the computation of basic and diluted loss per share for the three month periods ended March 31, 2016 and 2015:

	Three Months Ended
	March 31,
	2016			2015
Numerator:
Net loss for basic earnings per share	$	(2,056,334	)	$	(1,709,690	)
Net loss for diluted earnings per share	$	(2,056,334	)	$	(1,709,690	)
Denominator:
Weighted average basic shares outstanding		609,825,530			194,355,277
Denominator for diluted earnings per share-
Adjusted weighted average shares		609,825,530			194,355,277
Income (loss) per share
Basic	$	(0.00	)	$	(0.01	)
Diluted	$	(0.00	)	$	(0.01	)

Inventory

Inventory consisted of the following at March 31, 2016 and December 31, 2015:

	March 31,		December 31,
	2016		2015
Raw materials	$	257,114	$	216,704
Finished goods		36,411		45,183
		293,525		261,887
Reserve for obsolescence		-		-
		293,525		261,887
Less long-term portion		150,000		150,000
	$	143,525	$	111,887

During the three months ended March 31, 2016, the Company purchased the inventory of Oncoscope, Inc. from the Trustee of Oncoscope’s bankruptcy proceeding for a total of $40,000. This amount has been reflected as raw materials.

Recently Adopted and Issued Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which amended Interest – Imputation of Interest of the Accounting Standards Codification. The amended guidance requires that debt issuance costs related to a recognized debt liability, which were presented as deferred charges (assets), be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The amendments is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which provides guidance for accounting for leases. The new guidance requires companies to recognize the assets and liabilities for the rights and obligations created by leased assets, initially measured at the present value of the lease payments. The accounting guidance for lessors is largely unchanged. The ASU is effective for annual and interim periods beginning after December 15, 2018. It is to be adopted using a modified retrospective approach. The Company is currently evaluating the impact that the adoption of this guidance will have on the Company’s financial statements.

Reclassifications

Certain reclassifications have been made to the 2015 financial statements in order for them to conform to the 2016 presentation. Such reclassifications have no impact on the Company’s financial position or results of operations.

3. Liabilities

Note Payable

In November 2014, the Company issued for cash of $100,000 an unsecured note payable and a five year warrant with an exercise price of $0.09 per share for the purchase of up to 50,000 shares of common stock. The terms of the note were a repayment of $115,000 if paid by February 18, 2015 and, if paid thereafter, the principal balance of the note was to be increased to $137,982 as of October 1, 2015 and interest will accrue at 20% from October 1, 2015 until paid. The note remained outstanding at March 31, 2016 and is accruing interest at 20%. The warrant was valued at $1,659 using the Black-Scholes Pricing Model and was recorded as additional paid-in capital and expensed to non-cash interest in 2014.

12

SpectraScience, Inc.

Notes to Unaudited Condensed Financial Statements (continued)

Notes Payable- Related Parties

During the three months ended March 31, 2016, two affiliates of the Company advanced to the Company cash in an accumulated amount of $35,000 in exchange for one year 10% promissory notes. The balance of the notes remains $35,000 at March 31, 2016.

Convertible Debentures

As of March 31, 2016, the Company has issued and outstanding Convertible Debentures (“Debentures”) with original terms of three months to one year, an interest rate ranging from 10-20% per year and an original issue discount ranging from 5% to 10% which, at the option of the holder, may convert into common stock at initial conversion prices ranging from $0.01 to $0.099 per share. The Debentures were issued with detachable five year cashless Holders Warrants that allow the holders to purchase one share of stock for each two shares available under the converted Debentures at an exercise price ranging from $0.02 to $0.1287 per share. In addition, the Company issued five year cashless Agent Warrants equal to 10% of the total number of shares issuable under the Debentures and Holders Warrants at exercise prices ranging from $0.0745 to $0.1287 per share. For debentures issued through March 31, 2013, at the option of the Debenture holder, the terms of the Debentures and Holders Warrants are subject to an exchange feature in the event that the Company issues securities with terms more favorable than those of the then outstanding Debentures and Holders Warrants. Debentures issued subsequent to March 31, 2013 do not contain such an exchange clause. The gross amount of Debentures outstanding is $6,232,345 as of March 31, 2016.

During the three months ended March 31, 2016, the Company has issued and outstanding Convertible Debentures (“Variable Debentures”) with original terms of 9 months to one year, interest rates ranging from 0-10% per year and original issue discounts ranging from 0-10% which contain variable conversion rates ranging from discounts of 40-50% of the Company’s common stock based on the Company’s common stock trading prices ranging from 10-25 days previous to conversion. The Variable Debentures contain prepayment options which enable the Company to prepay the notes for periods of 0-180 days subsequent to issuance at premiums ranging from 0-50%. The gross amount of Variable Debentures outstanding is $199,250 as of March 31, 2016 which includes $29,712 of principal either added to the original notes or issued as new notes related to forbearance agreements as a result of the Company not having an adequate number of authorized shares to honor the noteholders conversion requests.

As of March 31, 2016 and December 31, 2015, the balances of the Debentures are as follows:

	March 31,			December 31,
	2016			2015
Balance at beginning of period	$	6,174,760		$	4,496,602
Issuance of debentures for cash		300,000			1,970,250
Original issue discount		-			145,263
Issuance of debentures for forbearance		29,712			-
Debentures converted to common stock		(72,877	)		(437,355	)
Convertible debt		6,431,595			6,174,760
Less unamortized costs of financing		323,962			430,156
Convertible debt, net of unamortized costs	$	6,107,633		$	5,744,604
Convertible debt in default	$	4,750,976		$	4,313,199

13

SpectraScience, Inc.

Notes to Unaudited Condensed Financial Statements (continued)

Derivative Liability

Since the Company issued Convertible Debentures which included Holders Warrants, Agent Warrants and a conversion option that includes a possible exchange feature in the event of a future financing on terms more favorable than those of the existing warrants and debentures, this results in the warrants and conversion feature of the debentures being recorded as a liability and measured at fair value. In addition, outstanding Variable Debentures contain variable conversion rates based on unknown future prices of the Company’s common stock resulting in a conversion feature. The Company measures these warrants and conversion features using a Black-Scholes option valuation model using similar assumptions to those described under “Stock-Based Compensation.” The time period over which the Company will be required to evaluate the fair value of the warrants is approximately five years and the time period over which the Company will be required to evaluate the fair value of the conversion features are six to twelve months or conversion.

The assumptions used in determining fair value represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change, including changes in the market value of the Company’s common stock, managements’ assessment of the probability of a more favorably priced future financing or significant fluctuations in the volatility of the trading market for the Company’s common stock, the Company’s fair value estimates could be materially different in the future.

The Company computes the fair value of the derivative liability at each reporting period and the change in the fair value is recorded as non-cash expense or non-cash income. The key component in the value of the derivative liability is the Company’s stock price, which is subject to significant fluctuation and is not under its control. The resulting effect on net loss is therefore subject to significant fluctuation and will continue to be so until the Company’s Debentures, which the convertible feature is associated with, are converted into common stock or paid in full with cash. Assuming all other fair value inputs remain constant, the Company will record non-cash expense when its stock price increases and non-cash income when its stock price decreases.

In addition, since the number of shares issuable under the Variable Debentures are undeterminable, the Company may be required to issue shares in excess of the number of shares authorized by its shareholders. As a result, when the Company determines that is does not have sufficient shares to meet the obligations of derivative unexercised debentures, warrants and options, the derivatives must be valued using the Black Sholes Option Pricing method and a liability is recorded as though the obligations would be settled using some means other than stock. For the three months ended March 31, 2016, the Company determined that it was over committed to the number of shares issuable on the exercise of outstanding debentures, stock options and warrants for approximately 466,000,000 shares

14

SpectraScience, Inc.

Notes to Unaudited Condensed Financial Statements (continued)

As of March 31, 2016 and December 31, 2015, the balances of the Derivative Liability are as follows:

							Commitment
				Conversion			In Excess of
	Warrants			Feature			Authorized Stock		Total
Balance at January 1, 2015	$	764,958		$	296,881		$	-	$	1,061,839
Liability on issuance of debt and warrants		-			1,306,372			-		1,306,372
Change in fair value at year end		(726,216	)		(448,228	)		-		(1,174,444	)
Elimination of liability on conversion		-			(637,874	)		-		(637,874	)
Over commitment of stock		-			-			64,428		64,428
Balance at December 31, 2015		38,742			517,151			64,428		620,321
Liability on issuance of debt and warrants		-			137,071			-		137,071
Change in fair value at year end		222,069			665,425			-		887,494
Elimination of liability on conversion		-			(211,729	)		-		(211,729	)
Over commitment of stock		-			-			131,504		131,504
Balance at March 31, 2016	$	260,811		$	1,107,918		$	195,932	$	1,564,661

Debentures with warrants attached issued subsequent to March 31, 2013 did not contain an exchange provision and were accounted for using the equity method of valuing the note and warrant.

4. Shareholders’ Deficit

Common Stock

During the three months ended March 31, 2016, holders of Convertible Debentures with a face value of $72,877 and accrued interest of $2,935 converted their debentures into 236,266,584 shares of common stock. In addition, associated with these debentures, the Company recorded a gain on extinguishment of debt of $1,166.

Warrants

During the three months ended March 31, 2016, in conjunction with the sale of Convertible Debentures, the Company issued five year common stock purchase warrants to acquire up to 15,000,000 shares to holders of the Debentures. These warrants have an exercise price of $0.02 per share.

In March 2016, the Company issued a warrant exercisable into up to 1,000,000 shares of common stock in exchange for services provided by a consultant. The value of these warrants, $1,652, was determined using the Black-Sholes Option pricing model and was included as non-cash expenses and additional paid-in capital during the three months ended March 31, 2016.

15

SpectraScience, Inc.

Notes to Unaudited Condensed Financial Statements (continued)

The balance of all warrants outstanding as of March 31, 2016 is as follows:

			Weighted
			Average
			Exercise
	Warrants		Price
Outstanding at January 1, 2016		116,875,170	$	0.08
Granted		16,000,000	$	0.02
Cancelled		-	$	-
Exercised		-	$	-
Outstanding at March 31, 2016		132,875,170	$	0.08
Exercisable at March 31, 2016		132,875,170	$	0.08

Stock Options

Options outstanding as of March 31, 2016 are as follows:

			Weighted Average		Weighted Average		Aggregate
			Exercise Price		Remaining Contractual		Intrinsic
	Options		Per Share		Term (years)		Value (1)
Outstanding at January 1, 2016		34,168,800	$	0.02		8.03
Granted		-	$	-		-
Cancelled		-	$	-		-
Exercised		-	$	-		-
Outstanding at March 31, 2016		34,168,800	$	0.02		7.79	$	-
Exercisable at March 31, 2016		21,394,089	$	0.02		7.79	$	-
Weighted average fair value of options granted during the period		-	$	-

(1) These amounts represent the excess, if any, between the exercise price and $0.0042, the closing market price of the Company’s common stock on March 31, 2016 as quoted on the Over-the-Counter Bulletin Board under the symbol “SCIE”.

At March 31, 2016, total unrecognized estimated employee compensation cost related to non-vested stock options granted prior to that date is $293,327, which we expect to be recognized over the next four years.

5. Fair Value Measurements

Accounting guidance on fair value measurements and disclosures defines fair value, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system, and defines required disclosures. It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts business.

The Company's balance sheet contains derivative and warrant liabilities that are recorded at fair value on a recurring basis. The three-level valuation hierarchy for disclosure of fair value is as follows:

16

SpectraScience, Inc.

Notes to Unaudited Condensed Financial Statements (continued)

Level 1: uses quoted market prices in active markets for identical assets or liabilities.

Level 2: uses observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: uses unobservable inputs that are not corroborated by market data.

The fair value of the Company’s recorded derivative and warrant liabilities is determined based on unobservable inputs that are not corroborated by market data, which require a Level 3 classification. A Binomial Lattice option valuation model was used to determine the fair value with similar assumptions to those described under “Stock-Based Compensation”. The Company records derivative and warrant liabilities on the condensed consolidated balance sheets at fair value with changes in fair value recorded in the condensed consolidated statements of operation.

The following table presents the balances of derivative liabilities which are measured at fair value on a recurring basis by level as of March 31, 2016:

	Fair Value Measurements Using
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
As of March 31, 2016
Derivative liability	$	-	$	-	$	1,107,918	$	1,107,918
Warrant liability		-		-		260,811		260,811
Commitment in excess of authorized stock		-		-		195,932		195,932
Total	$	-	$	-	$	1,564,661	$	1,564,661

The following table presents changes in the derivative liabilities with significant unobservable inputs (Level 3) for the three months ended March 31, 2016:

						Commitment
	Warrant		Derivative			In Excess of		Total
	Liability		Liability			Authorized Stock		Liability
Balance December 31, 2015	$	38,742	$	517,151		$	64,428	$	620,321
Liability on issuance of debt and warrants		-		137,071			-		137,071
Elimination of liability on conversion		-		(211,729	)		-		(211,729	)
Change in estimated fair value (1)		222,069		665,425			-		887,494
Commitment in excess of authorized stock		-		-			131,504		131,504
Balance March 31, 2016	$	260,811	$	1,107,918		$	195,932	$	1,564,661

(1) Included in the Condensed Statements of Operation on the line “Change in fair value of derivative and warrant liabilities.”

17

SpectraScience, Inc.

Notes to Unaudited Condensed Financial Statements (continued)

Management used the following inputs to value the Derivative and Warrant Liabilities for the three months ended March 31, 2016:

	Derivative Liability	Warrant Liability
Expected term	6 months to 2 years	5 years
Exercise price	$0.00025 - $0.099	$0.075 - $0.1287
Expected volatility	280% to 334%	279% to 283%
Expected dividends	None	None
Risk-free interest rate	0.37% to 0.75%	1.21% to 1.49%
Forfeitures	None	None

In computing the fair value of the derivative and warrant liability at March 31, 2016 for instruments under the Binomial Lattice option-pricing model, management estimated a 60% probability of a down round financing event at a price of $0.025 and a 9% to 34% probability that existing note holders with exchange privileges would exchange their existing debentures and warrants for new debentures and warrants.

6. Contingencies

None

7. Subsequent Events

Series AA Preferred Shares

On April 15, 2016, the Board of Directors of the Company authorized an amendment to the Company’s Articles of Incorporation, as amended (the “Articles of Incorporation”), in the form of a Certificate of Designation that authorized the issuance of up to three thousand (3,000) shares of a new series of preferred stock, par value $0.0001 per share, designated “Series AA Super Voting Preferred Stock,” for which the board of directors established the rights, preferences and limitations thereof.  

Each holder of outstanding shares of Series AA Super Voting Preferred Stock shall be entitled to one million (1,000,000) votes for each share of Series AA Super Voting Preferred Stock held on the record date for the determination of stockholders entitled to vote at each meeting of stockholders of the Company. The holders are restricted from voting the preferred shares for any proposal on the election of directors.  

Convertible Debentures and Warrants

During April 2016, the Company received an advance of $150,000 against a yet to be finalized Secured Convertible Debenture (the “Debenture”) to an accredited investor. The terms of the Debenture are anticipated to include a two to three year maturity, a conversion price that will vary based on the price of the Company’s stock and an annual interest rate of 8%. The Company received net cash proceeds of approximately $138,000 after payment of fees and expenses of $12,000. The secured interest is on all of the assets of the Company.

In May 2016 a holder of Variable Rate Convertible Debentures with a face value of $1,138 converted their debenture and accrued interest into 1,138,090 shares of common stock.

Subsequent events have been evaluated through the date financial statements are filed with the Securities and Exchange Commission.

18

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This quarterly report on Form 10-Q (the “Report”) contains forward-looking statements that are not related to historical results, including, without limitation, statements regarding our business strategy and objectives, our anticipated duration of periods of net loss, our near term operating goals, our expectations regarding the market for our products, the introduction of our products in new international markets and our beliefs with respect to opportunities and industry conditions in those markets, our beliefs about our products, product development, acquisition or licensing of complementary technologies and expectations with respect to our products’ performance and acceptance, the results of and our intentions with respect to our distribution agreement with PENTAX Europe GmbH, our beliefs about the strengths of our intellectual property portfolio, our regulatory goals and developments, anticipated clinical trials and research, our agreements with Laidlaw and other agents and their effect on our future capital resources and future financial position, our expectations with respect to stock option expense recognition, our future cash needs, the sufficiency of our working capital and our operating losses for the remainder of the current fiscal year. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, there can be no assurance that such assumptions will prove to be accurate and actual results could differ materially from those discussed in the forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause or contribute to such differences, including, but not limited to, changes in law or regulatory policies, unanticipated competition from other similar businesses, adverse outcomes from litigation, unexpected employee departures or disruptions, adverse market and general economic factors and other factors described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. Such forward-looking statements are qualified in their entirety by the cautions and risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

Business

SpectraScience, Inc. (the “Company,” “SpectraScience,” “we,” “our,” or “us”) develops and manufactures innovative Laser Induced Fluorescence spectrophotometry systems capable of determining whether tissue is normal, pre-cancerous or cancerous without removing tissue from the body. The WavSTAT Optical Biopsy System (the “WavSTAT System”) is SpectraScience's first product to incorporate its proprietary fluorescence technology for clinical use. The WavSTAT System carries the CE mark designation which allows for the sale and marketing in the European Union for the diagnosis of cancer. We are developing light-based diagnostics for additional indications including inflammatory bowel disease and esophageal cancer. Once these additional applications are developed we plan to self-certify for CE mark approval for sale in the European Union and then file an application with the FDA seeking permission to begin marketing for that indication for use in the United States. We believe we have a strong intellectual property portfolio that will allow us to continue to expand our WavSTAT cancer diagnosis platform to address the diagnosis of multiple cancers, utilize additional proprietary bio-photonic techniques to improve the WavSTAT’s overall diagnostic performance and ultimately allow for the detection of cancer and pre-cancer over a relatively large area of examined tissue.

Our principal executive offices are located at 11568 Sorrento Valley Rd., Suite 11, San Diego, CA 92121. We can be reached by telephone at (858) 847-0200; by fax at (858) 847-0880; or by email at info@spectrascience.com. We have a Web site at http://www.spectrascience.com. The information contained on our Web site shall not be deemed to be a part of this Report.

Plan of Operation

During the three month period ended March 31, 2016, SpectraScience carried forward on the improvements made to the WavSTAT4 in fiscal 2011 and continued working with PENTAX Europe, GmbH (“PENTAX”) and other distributors, for distribution of its products in Europe, the Middle East and Africa.

19

Over the next 12 months, SpectraScience intends to:

Market and sell the WavSTAT4 Optical Biopsy System colon cancer diagnostic application through PENTAX and other distribution channels in the European Union;

Conduct country-specific evaluation trials to demonstrate the effectiveness and cost benefit of the WavSTAT4 Optical Biopsy System in each relevant European jurisdiction;

Coordinate the creation and publication of scientific papers and presentations related to the country-specific evaluation trials to support widespread education and adoption of the WavSTAT4 ;

Pursue the introduction of the WavSTAT4 colon cancer application in other international markets, in particular China, Saudi Arabia and India;

Begin meeting with the FDA towards the preparation and submission of a Supplemental PMA filing with the FDA and plan for additional clinical trials to support eventual approval for sale in the United States;

Begin the design and planning for the next generation of multi-modal fluorescence and broadband spectroscopy systems at our facility in San Diego, California.

Continue to expand and refine our intellectual property portfolio.

Results of Operations

Comparison of the Three Months Ended March 31, 2016 and 2015

	Three Months Ended March 31,						Favorable
	2016			2015			(Unfavorable)			%
Revenue	$	-		$	-		$	-			NM
Cost of revenue		-			(6,000	)		(6,000	)		NM
Gross profit		-			6,000			(6,000	)		NM
Operating expenses:
Research and development		194,007			174,680			(19,327	)		11.1	%
General and administrative		307,841			381,454			73,613			19.3	%
Sales and marketing		79,413			39,862			(39,551	)		99.2	%
		581,261			595,996			14,735			2.5	%
Loss from operations		(581,261	)		(589,996	)		8,735			1.5	%
Other income (expense)		(1,475,073	)		(1,119,694	)		(355,379	)		31.7	%
Net loss	$	(2,056,334	)	$	(1,709,690	)	$	(346,644	)		20.3	%

Revenues

There was no revenue during the three months ended March 31, 2016 or 2015. We anticipate that revenue will resume as a result of our distribution agreement with PENTAX and continuing direct sales efforts in certain locations once sufficient information has been accumulated from our MORDIS trials in Europe.

20

Cost of Revenue

There was no cost of revenue during the three months ended March 31, 2016 compared to a negative cost of sales of $6,000 during the three months ended March 31, 2015. The negative amount was result of two systems coming off of warranty with no associated costs. We anticipate that as revenue resumes as a result of our distribution agreement with PENTAX and continuing direct sales efforts in certain locations once sufficient information has been accumulated from our MORDIS trials in Europe, that associated costs will also resume. The following table reflects the status of the warranty reserve as of March 31, 2016 and 2015:

	Three months ended March 31,
	2016		2015
Balance at the beginning of the year	$	-	$	12,000
Increase in warranty expense		-		-
Systems coming off warranty		-		(6,000	)
Ending balance	$	-	$	6,000

Research and Development Expenses

Research and development expenses increased by $19,327, 11.1%, to $194,007 for the quarter ended March 31, 2016 from $174,680 for the three months ended March 31, 2015. This increase was due to an increase in regulatory affairs costs of approximately $17,000. We anticipate that clinical costs will increase as we proceed with our introduction of the WaveSTAT4 in Europe.

General and Administrative Expenses

General and administrative expenses decreased by $73,613, 19.3%, to $307,841 for the quarter ended March 31, 2016 compared to $381,454 for the quarter ended March 31, 2015. This decrease was due primarily to a reduction in costs associated with the issuance of stock options in an amount of approximately $36,000, a reduction in legal and professional fees of approximately $28,000 and a reduction in payroll and consulting expenses of approximately $17,000. We anticipate that general and administrative expenses will increase as we increase our activity in Europe.

Sales and Marketing Expenses

Sales and marketing expenses increased by $39,551, 99.2%, to $79,413 for the quarter ended March 31, 2016 from $39,862 for the quarter ended March 31, 2015. The primary reason for the increase was an increase in payroll costs as a result of an unfavorable change in exchange rates coupled with an increase in costs related to stock option expenses. We anticipate that sales and marketing expenses will increase as we increase our activity in Europe.

Other Income (Expense)

Other income (expense) for the quarter ended March 31, 2016 was expense of $1,475,073 compared to expense of $1,119,694 for the quarter ended March 31, 2015. This change was due primarily to a change in valuation of our derivative liabilities. We anticipate continued large fluctuations in other income (expense) as a result of quarterly re-evaluating these obligations.

21

Liquidity and Capital Resources

	As of						Increase
	March 31, 2016			December 31, 2015			(Decrease)
Working Capital
Current assets	$	392,729		$	530,746		$	(138,017	)
Current liabilities		10,434,652			8,855,346			1,579,306
Working capital deficit	$	(10,041,923	)	$	(8,324,600	)	$	1,717,323
Long-term debt	$	-		$	-		$	-
Stockholders' deficit	$	(8,777,538	)	$	(7,019,662	)	$	1,757,876

	Three Months Ended March 31,						Increase
	2016			2015			(Decrease)
Statements of Cash Flows Select Information
Net cash provided (used) by:
Operating activities	$	(436,708	)	$	(539,574	)	$	(102,866	)
Investing activities	$	-		$	-		$	-
Financing activities	$	311,000		$	386,000		$	(75,000	)

	As of				Increase
	March 31, 2016		December 31, 2015		(Decrease)
Balance Sheet Select Information
Cash	$	1,785	$	127,493	$	(125,708	)
Accounts receivable	$	-	$	7,061	$	(7,061	)
Inventory	$	293,525	$	261,887	$	31,638
Accounts payable and accrued expenses	$	2,589,376	$	2,352,439	$	236,937

Historically, the Company’s sources of cash have come from the issuance and sales of equity securities and convertible debentures. The Company’s historical cash outflows have been primarily used for operating activities including research, development, administrative and sales activities. Fluctuations in the Company’s working capital due to timing differences of its cash receipts and cash disbursements also impact its cash flow. The Company expects to incur significant additional operating losses through at least the end of 2016, as it completes proof-of-concept trials, conducts outcome-based clinical studies and increases sales and marketing efforts to commercialize the WavSTAT4 Systems in Europe. If the Company does not receive sufficient funding, there is substantial doubt that the Company will be able to continue as a going concern. The Company may incur unknown expenses or may not be able to meet its revenue forecast, and one or more of these circumstances would require the Company to seek additional capital. The Company may not be able to obtain equity capital or debt funding on terms that are acceptable. Even if the Company receives additional funding, such proceeds may not be sufficient to allow the Company to sustain operations until it becomes profitable and begins to generate positive cash flows from operations.

22

As of March 31, 2016, the Company had a working capital deficit of $10,041,923 and cash of $1,785, compared to a working capital deficit of $8,324,600 and cash of $127,493 as of December 31, 2015. In December 2011, the Company entered into an Engagement Agreement with Laidlaw & Company (UK) Ltd., which Engagement Agreement was amended in July 2012. Under the Engagement Agreement, Laidlaw agreed to assist the Company in raising up to $20.0 million in capital over a two year period from the date of the Engagement Agreement. Subsequent to March 31, 2013, the Company has engaged other agents to assist the Company with raising capital and has commenced raising capital on its own. During the three months ended March 31, 2016, The Company raised $311,000, net of transaction costs of $24,000, under these agreements. However, if the Company does not receive additional funds in a timely manner, the Company could be in jeopardy as a going concern. The Company may not be able to find alternative capital or raise capital or debt on terms that are acceptable. Management believes that if the events defined in the Engagement Agreements occur as expected, or if the Company is otherwise able to raise a similar level of funds, such proceeds will be sufficient to allow the Company to sustain operations until it attains profitability and positive cash flows from operations. However, the Company may incur unknown expenses or may not be able to meet its revenue expectations requiring it to seek additional capital. In such event, the Company may not be able to find capital or raise capital or debt on terms that are acceptable.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Report (the “Evaluation Date”).  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the Evaluation Date.

Changes in Internal Financial Controls

There was no change in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

23

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

		Number of
	Date of	Common Shares		Source of
Common Stock	Issuance	Issued		Payment	Amount
	1/5/2016		47,792,095	Conversion of debt	$	71,690
	1/7/2016		21,143,358	Conversion of debt	$	27,486
	1/8/2016		10,477,808	Conversion of debt	$	11,526
	1/13/2016		21,143,358	Conversion of debt	$	19,029
	1/14/2016		21,031,250	Conversion of debt	$	14,722
	1/19/2016		44,466,008	Conversion of debt	$	35,573
	1/28/2016		13,020,534	Conversion of debt	$	10,416
	2/9/2016		17,142,850	Conversion of debt	$	13,714
	2/24/2016		37,049,323	Conversion of debt	$	37,049
	3/14/2016		3,000,000	Conversion of debt	$	15,600

With respect to the above equity securities issuances, the Company relied on exemptions provided by Sections 4(a)(2) and 3(a)9 of the Securities Act of 1933, as amended (the “Securities Act”). No advertising or general solicitation was employed in offering the securities. The securities were issued to a limited number of persons all of whom were accredited investors as that term is defined in Rule 501 of Regulation D under the Securities Act. All were capable of analyzing the merits and risks of their investment, acknowledged in writing that they were acquiring the securities for investment and not with a view toward distribution or resale, and understood the speculative nature of their investment. All securities issued contained a restrictive legend prohibiting transfer of the shares except in accordance with federal securities laws.

Item 3. Defaults Upon Senior Securities

As of May 20, 2016 there are Unsecured Convertible Debentures with a face value of $4,750,976 held by 70 individual Holders in default. As a result, the outstanding principal amount of these Debentures, plus accrued but unpaid interest, liquidated damages and other amounts owing shall become immediately due and payable in cash at the election of the Holders. As of May 20, 2016, none of the Holders of these Debentures have elected to provide notice of default.

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

None

24

Item 6. Exhibits

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Financial statements from the quarterly report on Form 10-Q of the Company for the quarter ended March 31, 2016, formatted in XBRL; (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statement of Shareholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) the Notes to the Consolidated Financial Statements.

 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)
Date: May 20, 2016	/s/ Michael P. Oliver
	Michael P. Oliver
	President and Chief Executive Officer
	(Principal executive officer)
Date: May 20, 2016	/s/ Lowell W. Giffhorn
	Lowell W. Giffhorn
	Chief Financial Officer
	(Principal financial officer and  principal accounting officer)

25

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

18 U.S.C. §1350, AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael P. Oliver, certify that:

1. I have reviewed this quarterly report on Form 10-Q of SpectraScience, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Michael P. Oliver

Name:  Michael P. Oliver

Title:   Chief Executive Officer

Date:     May 20, 2016

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

18 U.S.C. §1350, AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Lowell W. Giffhorn, certify that:

1. I have reviewed this quarterly report on Form 10-Q of SpectraScience, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Lowell W. Giffhorn

Name:  Lowell W. Giffhorn

Title:   Chief Financial Officer

Date:    May 20, 2016

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of SpectraScience, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael P. Oliver, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Michael P. Oliver

Michael P. Oliver

Chief Executive Officer

Date: May 20, 2016

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of SpectraScience, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lowell W. Giffhorn, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Lowell W. Giffhorn

Lowell W. Giffhorn

Chief Financial Officer

Date: May 20, 2016

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2016	May. 20, 2016
Document And Entity Information
Entity Registrant Name	SPECTRASCIENCE INC
Entity Central Index Key	0000727672
Document Type	10-Q
Trading Symbol	SCIE
Document Period End Date	Mar. 31, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity a Well-known Seasoned Issuer	No
Entity a Voluntary Filer	No
Entity's Reporting Status Current	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		66,861,881
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2016

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Current assets:
Cash	$ 1,785	$ 127,493
Accounts receivable, net		7,061
Inventory, current portion	$ 143,525	111,887
Prepaid expenses and other current assets	247,419	284,305
Total current assets	$ 392,729	530,746
Fixed assets, net		316
Long-term inventory	$ 150,000	150,000
Patents, net	1,145,235	1,185,472
TOTAL ASSETS	1,687,964	1,866,534
Current liabilities:
Accounts payable	1,068,824	941,106
Note payable	137,982	$ 137,982
Notes payable- related parties	35,000
Convertible debt, net of discounts of $323,962 as of March 31, 2016 and $430,156 as of December 31, 2015	6,107,633	$ 5,744,604
Derivative liability	1,564,661	620,321
Accrued Expenses	1,520,552	1,411,333
Total current liabilities	$ 10,434,652	$ 8,855,346
COMMITMENTS AND CONTINGENCIES
Mezzanine equity
Total mezzanine equity	$ 30,850	$ 30,850
Shareholders' deficit
Common stock, $.01 par value; 746,915,000 shares authorized; 667,513,791 and 431,247,207 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively	6,675,138	4,312,472
Additional paid in capital	36,102,610	38,166,818
Accumulated deficit	(51,555,286)	(49,498,952)
TOTAL STOCKHOLDERS' DEFICIT	(8,777,538)	(7,019,662)
Total shareholders' deficit	$ 1,687,964	$ 1,866,534
Series A Preferred Stock [Member]
Shareholders' deficit
Convertible Preferred Stock, value
Series B Preferred Stock [Member]
Mezzanine equity
Convertible Preferred Stock	$ 25,850	$ 25,850
Series C Preferred Stock [Member]
Mezzanine equity
Convertible Preferred Stock	$ 5,000	$ 5,000

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Discounts on convertible debt	$ 323,962	$ 430,156
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized	746,915,000	746,915,000
Common stock, issued	667,513,791	431,247,207
Common stock, outstanding	667,513,791	431,247,207
Series A Preferred Stock [Member]
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, authorized	0	0
Preferred stock, issued	0	0
Preferred stock, outstanding	0	0
Series B Preferred Stock [Member]
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, authorized	2,585,000	2,585,000
Preferred stock, issued	2,585,000	2,585,000
Preferred stock, outstanding	2,585,000	2,585,000
Preferred stock, liquidation value	$ 517,000	$ 517,000
Preferred stock, accumulated and unpaid dividends	$ 106,931	$ 106,931
Series C Preferred Stock [Member]
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, authorized	500,000	500,000
Preferred stock, issued	500,000	500,000
Preferred stock, outstanding	500,000	500,000
Preferred stock, liquidation value	$ 100,000	$ 100,000

XML

Condensed Consolidated Statements of Operation (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Income Statement [Abstract]
Revenue
Cost of revenue		$ (6,000)
Gross profit		6,000
Operating expenses:
Research and development	$ 194,007	174,680
General and administrative	307,841	381,454
Sales and marketing	79,413	39,862
Total operating expenses	581,261	595,996
Loss from operations	(581,261)	(589,996)
Other income (expense)
Interest expense	(374,130)	(144,502)
Change in fair value of derivative and warrant liabilities	(887,494)	(677,584)
Amortization of derivative and warrant liabilities discount	(141,561)	(290,109)
Amortization of deferred debt issuance costs and original issue discount	(62,530)	(87,814)
Gain on extinguishment of debt	1,166	$ 82,728
Loss on foreign exchange transactions	(8,924)
Other income (expense), net	(1,600)	$ (2,413)
Total Other income (expense)	(1,475,073)	(1,119,694)
Net loss	$ (2,056,334)	$ (1,709,690)
Basic and diluted loss per share (in dollars per share)	$ (0.00)	$ (0.01)
Weighted average common shares outstanding:
Basic and diluted (in shares)	609,825,530	194,355,277

XML

Condensed Consolidated Statement of Shareholders' Deficit (unaudited) - USD ($)	Common Stock [Member]	Additional Paid-In Capital [Member]	Accumulated Deficit [Member]	Total
Balance at beginning at Sep. 30, 2015	$ 4,312,472	$ 38,166,818	$ (49,498,952)	$ (7,019,662)
Balance at beginning (in shares) at Sep. 30, 2015	431,247,207
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Conversion of convertible debt	$ 2,362,666	(2,105,861)		256,805
Conversion of convertible debt (in shares)	236,266,584
Non cash stock option expense		40,001		40,001
Non cash issuance of warrant for consulting services		$ 1,652		1,652
Net loss			$ (2,056,334)	(2,056,334)
Balance at ending at Mar. 31, 2016	$ 6,675,138	$ 36,102,610	(51,555,286)	(8,777,538)
Balance at ending (in shares) at Mar. 31, 2016	667,513,791
Balance at beginning at Dec. 31, 2015				(7,019,662)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Non cash stock option expense				75,812
Net loss				(2,056,334)
Balance at ending at Mar. 31, 2016	$ 6,675,138	$ 36,102,610	$ (51,555,286)	$ (8,777,538)
Balance at ending (in shares) at Mar. 31, 2016	667,513,791

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Operating activities:
Net loss	$ (2,056,334)	$ (1,709,690)
Adjustments to reconcile net loss to cash used in operating activities:
Amortization and depreciation	40,552	$ 41,443
Non-cash interest	94,329
Non-cash issuance of stock options and warrants	40,001	$ 59,768
Non-cash expense related to commitment of common stock in excess of authorized shares	131,504
Amortization of derivative and warrant liabilities discount	141,561	$ 290,109
Amortization of deferred debt issuance costs and original issue discount	62,530	$ 87,814
Issuance of common stock for services	350
Change in fair value of derivative and warrant liabilities	887,494	$ 677,584
Gain on extinguishment of debt	(1,166)	$ (82,728)
Changes in assets and liabilities:
Accounts receivable	7,061
Inventory	(31,639)	$ (259)
Prepaid expense and other assets	36,887	15,297
Accounts payable	127,720	14,131
Accrued expenses	112,154	66,957
Net cash used in operating activities	$ (406,996)	$ (539,574)
Investing activities:
Purchases of fixed assets
Net cash used in investing activities
Financing activities:
Proceeds from issuance of convertible notes payable	$ 300,000	$ 410,000
Proceeds from issuance of notes payable to related parties	35,000
Debt issuance costs	(53,712)	$ (24,000)
Net cash provided by financing activities	281,288	386,000
Net decrease in cash	(125,708)	(153,574)
Cash, beginning of year	127,493	223,529
Cash, end of period	$ 1,785	$ 69,955
Cash paid during the period for:
Interest
Income taxes
Non Cash Investing and Financing Activities:
Conversion of convertible notes and accrued interest to common stock	$ 75,812	$ 114,604
Conversion of accrued interest to note payable		$ 15,000

XML

Nature of Business and Basis of Presentation

3 Months Ended

Mar. 31, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Business and Basis of Presentation

1.     Nature of Business and Basis of Presentation

Description of Business

SpectraScience, Inc. was incorporated in the State of Minnesota on May 4, 1983 as GV Medical, Inc. In October 1992, GV Medical discontinued its prior business, refocused its development efforts and changed its name to SpectraScience, Inc. The “Company,” hereinafter, refers to SpectraScience, Inc. and its wholly owned subsidiaries Luma Imaging Corporation (“LUMA”), Spectra Science International, Inc. (“International”) and SpectraScience (UK) Limited (“SpectraUK”). Since 1996, the Company has focused primarily on developing the WavSTAT Optical Biopsy System (the “WavSTAT System”). 

The Company has developed and received the European CE mark approval to market a proprietary, minimally invasive technology that optically illuminates tissue in real-time to distinguish between normal, pre-cancerous or cancerous cells without the need to remove the subject cell tissue from the body to make such determinations. The WavSTAT System operates by using cool, safe laser light to optically illuminate and analyze tissue, enabling the physician to make an instant diagnosis during endoscopy when screening for cancer, and if warranted, to begin immediate treatment during the same procedure. Beginning in December 2011, the WavSTAT 4 version of the product began to be sold in the European Union for colon cancer detection. In June 2012, the Company entered into a distribution agreement with PENTAX Europe, GmbH, for the sale of its systems internationally.

On November 6, 2007, the Company acquired the assets of LUMA in an equity transaction accounted for as an acquisition of assets and now operates LUMA as a wholly-owned subsidiary of the Company. LUMA had acquired the assets from a predecessor company that had developed, and received FDA approval for, a non-invasive diagnostic imaging system that can detect cervical cancer precursors and which utilizes an underlying technology that is similar to that of the WavSTAT System. The addition of the LUMA technology to the Company’s existing WavSTAT System technology provides the Company with a broad suite of fluorescence-based intellectual property and know-how. During the fiscal year ended December 31, 2010, the Company wrote off the remaining fair value of the LUMA inventory in order to focus on the continued development and marketing of the WavSTAT System. The Company retained the intellectual property of LUMA for use in the development of future generations of the WavSTAT System.

The transaction was accounted for as an acquisition of assets that included intellectual property, inventory and equipment. The intellectual property consisted of a total of 34 issued U.S. patents and 28 additional patent applications.

Basis of Presentation

The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q as they are prescribed for smaller reporting companies. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the financial statements not misleading have been included. Operating results for the three month period ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. 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-K for the year ended December 31, 2015.

Going Concern

Historically, the Company’s sources of cash have come from the issuance and sale of equity securities and convertible debentures. The Company’s historical cash outflows have been primarily used for operating activities including research, development, administrative and sales activities. Fluctuations in the Company’s working capital due to timing differences of its cash receipts and cash disbursements also impact its cash flow. The Company expects to incur significant additional operating losses through at least the end of 2016, as it completes proof-of-concept trials, conducts outcome-based clinical studies and increases sales and marketing efforts to commercialize the WavSTAT4 System in Europe. If the Company does not receive sufficient funding, there is substantial doubt that the Company will be able to continue as a going concern. The Company may incur unknown expenses or may not be able to meet its revenue forecast, and one or more of these circumstances would require the Company to seek additional capital. The Company may not be able to obtain equity capital or debt funding on terms that are acceptable. Even if the Company receives additional funding, such proceeds may not be sufficient to allow the Company to sustain operations until it becomes profitable and begins to generate positive cash flows from operations.

As of March 31, 2016, the Company had a working capital deficit of $10,041,923 and cash of $1,785, compared to a working capital deficit of $8,324,600 and cash of $127,493 as of December 31, 2015. In December 2011, the Company entered into an Engagement Agreement with Laidlaw & Company (UK) Ltd., which Engagement Agreement was amended in July 2012. Under the Engagement Agreement, Laidlaw agreed to assist the Company in raising up to $20.0 million in capital over a two year period from the date of the Engagement Agreement. Subsequent to March 31, 2013, the Company has engaged other agents to assist the Company with raising capital and has commenced raising capital on its own. During the three months ended March 31, 2016, the Company raised $311,000, net of transaction costs of $24,000, under these agreements. However, if the Company does not receive additional funds in a timely manner, the Company could be in jeopardy as a going concern. The Company may not be able to find alternative capital or raise capital or debt on terms that are acceptable. Management believes that if the events defined in the Engagement Agreements occur as expected, or if the Company is otherwise able to raise a similar level of funds, such proceeds will be sufficient to allow the Company to sustain operations until it attains profitability and positive cash flows from operations. However, the Company may incur unknown expenses or may not be able to meet its revenue expectations requiring it to seek additional capital. In such event, the Company may not be able to find capital or raise capital or debt on terms that are acceptable.

The holders of Convertible Debentures control the conversion of the Convertible Debentures and certain of the Convertible Debentures were not converted at their maturity constituting a potential default on the matured, but unconverted, Convertible Debentures. In the event of such default, principal, accrued interest and other related costs are immediately due and payable in cash. As of March 31, 2016, Convertible Debentures with a face value of $4,750,976 held by 70 individual investors are in default. None of these investors have served notice of default on the Convertible Debentures held by them.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

XML

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2016

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2.     Summary of Significant Accounting Policies

Revenue recognition

The Company recognizes revenues when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. Revenue from the sale of the Company’s products is generally recognized when title and risk of loss transfers to the customer, the terms of which are generally free on board shipping point. The Company uses customer purchase orders to determine the existence of an arrangement. The Company uses shipping documents and third-party proof of delivery to verify that title has transferred. The Company assesses whether the price is fixed or determinable based upon the terms of the agreement associated with the transaction. To determine whether collection is probable, the Company assesses a number of factors, including past transaction history with the customer and the creditworthiness of the customer.

Consolidation

The accompanying consolidated financial statements include the accounts of SpectraScience, Inc. and its wholly-owned subsidiaries LUMA, International and Spectra UK. All significant intercompany balances and transactions have been eliminated in consolidation.

Risks and Uncertainties

The Company operates in an industry that is subject to intense competition, government regulation and rapid technological change. The Company's operations are subject to significant risk and uncertainties, including financial, operational, technological, regulatory and other risks associated with a short history of product sales, including the potential risk of business failure.

Use of Estimates

The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, which requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes to the financial statements. Significant estimates made by management include, among others, realization of long-lived assets including intangible assets, assumptions used to value stock options, assumptions used to value the common stock issued and assumptions related to the determination of the fair value of the derivative components associated with the Company’s Convertible Debentures. Actual results could differ from those estimates.

Inventory Valuation

The Company states its inventory at the lower of cost or market value, determined on a specific cost basis. The Company provides inventory allowances when conditions indicate that the selling price could be less than cost due to obsolescence and reductions in estimated future demand. The Company balances the need to maintain strategic inventory levels with the risk of obsolescence due to changing technology and customer demand levels. Unfavorable changes in market conditions may result in a need for additional inventory reserves that could adversely impact the Company’s gross margins. Conversely, favorable changes in demand could result in higher gross margins when the Company sells products.

Valuation of Long-lived Assets

The Company’s long-lived assets consist of property and equipment and intangible assets. Equipment is carried at cost and is depreciated over the estimated useful lives of the assets, which are generally two to three years, and leasehold improvements are amortized over the lesser of the lease term or the estimated useful lives of the improvements. The straight-line method is used for depreciation and amortization. Intangible assets consist of patents, which are amortized using the straight-line method over the estimated useful lives of the patents. The Company does not capitalize external legal costs and filing fees associated with obtaining patents on its new discoveries. Acquired intellectual property is recorded at cost and is amortized over its estimated useful life. The Company believes the useful lives assigned to these assets are reasonable. The Company assesses the recoverability of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. These computations utilize judgments and assumptions inherent in management’s estimate of future cash flows to determine recoverability of these assets. If management’s assumptions about these assets were to change as a result of events or circumstances, the Company may be required to record an impairment loss.  

Variable Conversion Rate Debentures

Starting in 2015, the Company entered into convertible debentures with floating exercise prices discounted to market prices. As a result, a significant number of shares were either issued in 2015 or will be issued in subsequent periods at deeply discounted variable conversion prices. The downward pressure placed on the Company’s stock as a result of these conversions can be classified as “death spirals” since the investors have no incentive to maintain a stable stock price. The Company accounts for these debentures as derivative liabilities which means the debentures are revalued at the end of each period and gains and losses are recognized at the issuance of the debentures and on the conversion of the debentures.

Over Commitment of Shares

Since the number of shares issuable under convertible debentures with floating exercise prices is undeterminable, the Company may be required to issue shares in excess of the number of shares authorized by its shareholders. As a result, when the Company determines that is does not have sufficient shares to meet the obligations of derivative unexercised debentures, warrants and options, the derivatives must be valued using the Black Scholes Option Pricing method and a liability is recorded as though the obligations would be settled using some means other than stock.

Stock-Based Compensation

The Company accounts for stock-based compensation under the provisions of FASB ASC Topic 718, Compensation—Stock Compensation   (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. The Company estimates the fair value of stock-based awards on the date of grant using the Black-Scholes-Merton option-pricing model (the “Black-Scholes Model”). The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method. The Company estimates forfeitures at the time of grant and revises its estimate in subsequent periods if actual forfeitures differ from those estimates.

The Company accounts for stock-based compensation awards to non-employees in accordance with FASB ASC Topic 505-50, Equity-Based Payments to Non-Employees (“ASC 505-50”). Under ASC 505-50, the Company determines the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

All issuances of stock options or other equity instruments to employees and non-employees as the consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued. Any stock options issued to non-employees are recorded in expense and additional paid-in capital in shareholders’ equity over the applicable service periods using variable accounting through the vesting dates based on the fair value of the options at the end of each reporting period.

As of March 31, 2016, the Company had one stock-based employee compensation plan under which it makes grants, the 2011 Equity Incentive Plan (the “EIP”). The EIP provides for the grant of incentive stock options (“ISOs”), nonqualified stock options (“NQSOs”) and restricted stock awards to full-time employees (who may also be directors) and NQSOs and restricted stock awards to non-employee directors, consultants, customers, vendors or providers of services. The exercise price of any ISO may not be less than the fair market value of the common stock on the date of grant and the term shall not exceed ten years. The amount reserved under the 2011 EIP is 40,000,000 shares of common stock.  At March 31, 2016, the Company had options outstanding exercisable into up to 34,168,800 shares of stock under the EIP and the Company’s prior Amended 2001 Stock Plan of which up to 21,394,089 shares were exercisable. Awards under the Company’s EIP generally vest over four years.

The fair value of options granted are estimated at the date of grant using a Black-Scholes Model which includes several variables including expected life, risk free interest rate, expected stock price volatility, stock option exercise patterns and expected dividend yield. The Company also must estimate forfeitures for employee stock options. Management used the following weighted average assumptions to value stock options granted during the three month periods ended March 31, 2016 and 2015:

	Three months ended March 31,
	2016	2015
Expected term	3 to 5 years		5 years
Exercise price	$0.02 to $.04		$0.01
Expected volatility	243% to 266%		210%
Expected dividends	None		None
Risk-free interest rate	1.04% to 1.49%		1.48%
Forfeitures	None		None

Earnings (Loss) Per Share

Basic loss per share is computed by dividing loss available to common shareholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Common equivalent shares are excluded from the computation if their effect is anti-dilutive.

For the three month periods ended March 31, 2016 and 2015, the following common equivalent shares were excluded from the computation of loss per share since their effects are anti-dilutive.

	March 31,		March 31,
	2016		2015
Preferred Stock		3,085,000		3,085,000
Convertible debentures		378,651,041		101,060,673
Options		34,168,800		40,193,802
Warrants		132,875,170		109,205,387
Total		548,780,011		253,544,862

The following table sets forth the computation of basic and diluted loss per share for the three month periods ended March 31, 2016 and 2015:

	Three Months Ended
	March 31,
	2016			2015
Numerator:
Net loss for basic earnings per share	$	(2,056,334	)	$	(1,709,690	)
Net loss for diluted earnings per share	$	(2,056,334	)	$	(1,709,690	)
Denominator:
Weighted average basic shares outstanding		609,825,530			194,355,277
Denominator for diluted earnings per share-
Adjusted weighted average shares		609,825,530			194,355,277
Income (loss) per share
Basic	$	(0.00	)	$	(0.01	)
Diluted	$	(0.00	)	$	(0.01	)

Inventory

Inventory consisted of the following at March 31, 2016 and December 31, 2015:

	March 31,		December 31,
	2016		2015
Raw materials	$	257,114	$	216,704
Finished goods		36,411		45,183
		293,525		261,887
Reserve for obsolescence		-		-
		293,525		261,887
Less long-term portion		150,000		150,000
	$	143,525	$	111,887

During the three months ended March 31, 2016, the Company purchased the inventory of Oncoscope, Inc. from the Trustee of Oncoscope’s bankruptcy proceeding for a total of $40,000. This amount has been reflected as raw materials.

Recently Adopted and Issued Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which amended Interest – Imputation of Interest of the Accounting Standards Codification. The amended guidance requires that debt issuance costs related to a recognized debt liability, which were presented as deferred charges (assets), be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The amendments is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which provides guidance for accounting for leases. The new guidance requires companies to recognize the assets and liabilities for the rights and obligations created by leased assets, initially measured at the present value of the lease payments. The accounting guidance for lessors is largely unchanged. The ASU is effective for annual and interim periods beginning after December 15, 2018. It is to be adopted using a modified retrospective approach. The Company is currently evaluating the impact that the adoption of this guidance will have on the Company’s financial statements.

Reclassifications

Certain reclassifications have been made to the 2015 financial statements in order for them to conform to the 2016 presentation. Such reclassifications have no impact on the Company’s financial position or results of operations.

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Liabilities

3 Months Ended

Mar. 31, 2016

Debt Disclosure [Abstract]

Liabilities

3. Liabilities

Note Payable

In November 2014, the Company issued for cash of $100,000 an unsecured note payable and a five year warrant with an exercise price of $0.09 per share for the purchase of up to 50,000 shares of common stock. The terms of the note were a repayment of $115,000 if paid by February 18, 2015 and, if paid thereafter, the principal balance of the note was to be increased to $137,982 as of October 1, 2015 and interest will accrue at 20% from October 1, 2015 until paid. The note remained outstanding at March 31, 2016 and is accruing interest at 20%. The warrant was valued at $1,659 using the Black-Scholes Pricing Model and was recorded as additional paid-in capital and expensed to non-cash interest in 2014.

Notes Payable- Related Parties

During the three months ended March 31, 2016, two affiliates of the Company advanced to the Company cash in an accumulated amount of $35,000 in exchange for one year 10% promissory notes. The balance of the notes remains $35,000 at March 31, 2016.

Convertible Debentures

As of March 31, 2016, the Company has issued and outstanding Convertible Debentures (“Debentures”) with original terms of three months to one year, an interest rate ranging from 10-20% per year and an original issue discount ranging from 5% to 10% which, at the option of the holder, may convert into common stock at initial conversion prices ranging from $0.01 to $0.099 per share. The Debentures were issued with detachable five year cashless Holders Warrants that allow the holders to purchase one share of stock for each two shares available under the converted Debentures at an exercise price ranging from $0.02 to $0.1287 per share. In addition, the Company issued five year cashless Agent Warrants equal to 10% of the total number of shares issuable under the Debentures and Holders Warrants at exercise prices ranging from $0.0745 to $0.1287 per share. For debentures issued through March 31, 2013, at the option of the Debenture holder, the terms of the Debentures and Holders Warrants are subject to an exchange feature in the event that the Company issues securities with terms more favorable than those of the then outstanding Debentures and Holders Warrants. Debentures issued subsequent to March 31, 2013 do not contain such an exchange clause. The gross amount of Debentures outstanding is $6,232,345 as of March 31, 2016.

During the three months ended March 31, 2016, the Company has issued and outstanding Convertible Debentures (“Variable Debentures”) with original terms of 9 months to one year, interest rates ranging from 0-10% per year and original issue discounts ranging from 0-10% which contain variable conversion rates ranging from discounts of 40-50% of the Company’s common stock based on the Company’s common stock trading prices ranging from 10-25 days previous to conversion. The Variable Debentures contain prepayment options which enable the Company to prepay the notes for periods of 0-180 days subsequent to issuance at premiums ranging from 0-50%. The gross amount of Variable Debentures outstanding is $199,250 as of March 31, 2016 which includes $29,712 of principal either added to the original notes or issued as new notes related to forbearance agreements as a result of the Company not having an adequate number of authorized shares to honor the noteholders conversion requests.

As of March 31, 2016 and December 31, 2015, the balances of the Debentures are as follows:

	March 31,			December 31,
	2016			2015
Balance at beginning of period	$	6,174,760		$	4,496,602
Issuance of debentures for cash		300,000			1,970,250
Original issue discount		-			145,263
Issuance of debentures for forbearance		29,712			-
Debentures converted to common stock		(72,877	)		(437,355	)
Convertible debt		6,431,595			6,174,760
Less unamortized costs of financing		323,962			430,156
Convertible debt, net of unamortized costs	$	6,107,633		$	5,744,604
Convertible debt in default	$	4,750,976		$	4,313,199

Derivative Liability

Since the Company issued Convertible Debentures which included Holders Warrants, Agent Warrants and a conversion option that includes a possible exchange feature in the event of a future financing on terms more favorable than those of the existing warrants and debentures, this results in the warrants and conversion feature of the debentures being recorded as a liability and measured at fair value. In addition, outstanding Variable Debentures contain variable conversion rates based on unknown future prices of the Company’s common stock resulting in a conversion feature. The Company measures these warrants and conversion features using a Black-Scholes option valuation model using similar assumptions to those described under “Stock-Based Compensation.” The time period over which the Company will be required to evaluate the fair value of the warrants is approximately five years and the time period over which the Company will be required to evaluate the fair value of the conversion features are six to twelve months or conversion.

The assumptions used in determining fair value represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change, including changes in the market value of the Company’s common stock, managements’ assessment of the probability of a more favorably priced future financing or significant fluctuations in the volatility of the trading market for the Company’s common stock, the Company’s fair value estimates could be materially different in the future.

The Company computes the fair value of the derivative liability at each reporting period and the change in the fair value is recorded as non-cash expense or non-cash income. The key component in the value of the derivative liability is the Company’s stock price, which is subject to significant fluctuation and is not under its control. The resulting effect on net loss is therefore subject to significant fluctuation and will continue to be so until the Company’s Debentures, which the convertible feature is associated with, are converted into common stock or paid in full with cash. Assuming all other fair value inputs remain constant, the Company will record non-cash expense when its stock price increases and non-cash income when its stock price decreases.

In addition, since the number of shares issuable under the Variable Debentures are undeterminable, the Company may be required to issue shares in excess of the number of shares authorized by its shareholders. As a result, when the Company determines that is does not have sufficient shares to meet the obligations of derivative unexercised debentures, warrants and options, the derivatives must be valued using the Black Sholes Option Pricing method and a liability is recorded as though the obligations would be settled using some means other than stock. For the three months ended March 31, 2016, the Company determined that it was over committed to the number of shares issuable on the exercise of outstanding debentures, stock options and warrants for approximately 466,000,000 shares

As of March 31, 2016 and December 31, 2015, the balances of the Derivative Liability are as follows:

							Commitment
				Conversion			In Excess of
	Warrants			Feature			Authorized Stock		Total
Balance at January 1, 2015	$	764,958		$	296,881		$	-	$	1,061,839
Liability on issuance of debt and warrants		-			1,306,372			-		1,306,372
Change in fair value at year end		(726,216	)		(448,228	)		-		(1,174,444	)
Elimination of liability on conversion		-			(637,874	)		-		(637,874	)
Over commitment of stock		-			-			64,428		64,428
Balance at December 31, 2015		38,742			517,151			64,428		620,321
Liability on issuance of debt and warrants		-			137,071			-		137,071
Change in fair value at year end		222,069			665,425			-		887,494
Elimination of liability on conversion		-			(211,729	)		-		(211,729	)
Over commitment of stock		-			-			131,504		131,504
Balance at March 31, 2016	$	260,811		$	1,107,918		$	195,932	$	1,564,661

Debentures with warrants attached issued subsequent to March 31, 2013 did not contain an exchange provision and were accounted for using the equity method of valuing the note and warrant.

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Shareholders' Deficit

3 Months Ended

Mar. 31, 2016

Stockholders' Equity Note [Abstract]

Shareholders' Deficit

4. Shareholders’ Deficit

Common Stock

During the three months ended March 31, 2016, holders of Convertible Debentures with a face value of $72,877 and accrued interest of $2,935 converted their debentures into 236,266,584 shares of common stock. In addition, associated with these debentures, the Company recorded a gain on extinguishment of debt of $1,166.

Warrants

During the three months ended March 31, 2016, in conjunction with the sale of Convertible Debentures, the Company issued five year common stock purchase warrants to acquire up to 15,000,000 shares to holders of the Debentures. These warrants have an exercise price of $0.02 per share.

In March 2016, the Company issued a warrant exercisable into up to 1,000,000 shares of common stock in exchange for services provided by a consultant. The value of these warrants, $1,652, was determined using the Black-Sholes Option pricing model and was included as non-cash expenses and additional paid-in capital during the three months ended March 31, 2016.

The balance of all warrants outstanding as of March 31, 2016 is as follows:

			Weighted
			Average
			Exercise
	Warrants		Price
Outstanding at January 1, 2016		116,875,170	$	0.08
Granted		16,000,000	$	0.02
Cancelled		-	$	-
Exercised		-	$	-
Outstanding at March 31, 2016		132,875,170	$	0.08
Exercisable at March 31, 2016		132,875,170	$	0.08

Stock Options

Options outstanding as of March 31, 2016 are as follows:

			Weighted Average		Weighted Average		Aggregate
			Exercise Price		Remaining Contractual		Intrinsic
	Options		Per Share		Term (years)		Value (1)
Outstanding at January 1, 2016		34,168,800	$	0.02		8.03
Granted		-	$	-		-
Cancelled		-	$	-		-
Exercised		-	$	-		-
Outstanding at March 31, 2016		34,168,800	$	0.02		7.79	$	-
Exercisable at March 31, 2016		21,394,089	$	0.02		7.79	$	-
Weighted average fair value of options granted during the period		-	$	-

(1) These amounts represent the excess, if any, between the exercise price and $0.0042, the closing market price of the Company’s common stock on March 31, 2016 as quoted on the Over-the-Counter Bulletin Board under the symbol “SCIE”.

At March 31, 2016, total unrecognized estimated employee compensation cost related to non-vested stock options granted prior to that date is $293,327, which we expect to be recognized over the next four years.

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Fair Value Measurements

3 Months Ended

Mar. 31, 2016

Fair Value Disclosures [Abstract]

Fair Value Measurements

5. Fair Value Measurements

Accounting guidance on fair value measurements and disclosures defines fair value, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system, and defines required disclosures. It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts business.

The Company's balance sheet contains derivative and warrant liabilities that are recorded at fair value on a recurring basis. The three-level valuation hierarchy for disclosure of fair value is as follows:

Level 1: uses quoted market prices in active markets for identical assets or liabilities.

Level 2: uses observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: uses unobservable inputs that are not corroborated by market data.

The fair value of the Company’s recorded derivative and warrant liabilities is determined based on unobservable inputs that are not corroborated by market data, which require a Level 3 classification. A Binomial Lattice option valuation model was used to determine the fair value with similar assumptions to those described under “Stock-Based Compensation”. The Company records derivative and warrant liabilities on the condensed consolidated balance sheets at fair value with changes in fair value recorded in the condensed consolidated statements of operation.

The following table presents the balances of derivative liabilities which are measured at fair value on a recurring basis by level as of March 31, 2016:

	Fair Value Measurements Using
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
As of March 31, 2016
Derivative liability	$	-	$	-	$	1,107,918	$	1,107,918
Warrant liability		-		-		260,811		260,811
Commitment in excess of authorized stock		-		-		195,932		195,932
Total	$	-	$	-	$	1,564,661	$	1,564,661

The following table presents changes in the derivative liabilities with significant unobservable inputs (Level 3) for the three months ended March 31, 2016:

						Commitment
	Warrant		Derivative			In Excess of		Total
	Liability		Liability			Authorized Stock		Liability
Balance December 31, 2015	$	38,742	$	517,151		$	64,428	$	620,321
Liability on issuance of debt and warrants		-		137,071			-		137,071
Elimination of liability on conversion		-		(211,729	)		-		(211,729	)
Change in estimated fair value (1)		222,069		665,425			-		887,494
Commitment in excess of authorized stock		-		-			131,504		131,504
Balance March 31, 2016	$	260,811	$	1,107,918		$	195,932	$	1,564,661

(1) Included in the Condensed Statements of Operation on the line “Change in fair value of derivative and warrant liabilities.”

Management used the following inputs to value the Derivative and Warrant Liabilities for the three months ended March 31, 2016:

	Derivative Liability	Warrant Liability
Expected term	6 months to 2 years	5 years
Exercise price	$0.00025 - $0.099	$0.075 - $0.1287
Expected volatility	280% to 334%	279% to 283%
Expected dividends	None	None
Risk-free interest rate	0.37% to 0.75%	1.21% to 1.49%
Forfeitures	None	None

In computing the fair value of the derivative and warrant liability at March 31, 2016 for instruments under the Binomial Lattice option-pricing model, management estimated a 60% probability of a down round financing event at a price of $0.025 and a 9% to 34% probability that existing note holders with exchange privileges would exchange their existing debentures and warrants for new debentures and warrants.

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Contingencies

3 Months Ended

Mar. 31, 2016

Commitments and Contingencies Disclosure [Abstract]

Contingencies

6. Contingencies

None

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Subsequent Events

3 Months Ended

Mar. 31, 2016

Subsequent Events [Abstract]

Subsequent Events

7. Subsequent Events

Series AA Preferred Shares

On April 15, 2016, the Board of Directors of the Company authorized an amendment to the Company’s Articles of Incorporation, as amended (the “Articles of Incorporation”), in the form of a Certificate of Designation that authorized the issuance of up to three thousand (3,000) shares of a new series of preferred stock, par value $0.0001 per share, designated “Series AA Super Voting Preferred Stock,” for which the board of directors established the rights, preferences and limitations thereof.  

Each holder of outstanding shares of Series AA Super Voting Preferred Stock shall be entitled to one million (1,000,000) votes for each share of Series AA Super Voting Preferred Stock held on the record date for the determination of stockholders entitled to vote at each meeting of stockholders of the Company. The holders are restricted from voting the preferred shares for any proposal on the election of directors.  

Convertible Debentures and Warrants

During April 2016, the Company received an advance of $150,000 against a yet to be finalized Secured Convertible Debenture (the “Debenture”) to an accredited investor. The terms of the Debenture are anticipated to include a two to three year maturity, a conversion price that will vary based on the price of the Company’s stock and an annual interest rate of 8%. The Company received net cash proceeds of approximately $138,000 after payment of fees and expenses of $12,000. The secured interest is on all of the assets of the Company.

In May 2016 a holder of Variable Rate Convertible Debentures with a face value of $1,138 converted their debenture and accrued interest into 1,138,090 shares of common stock.

Subsequent events have been evaluated through the date financial statements are filed with the Securities and Exchange Commission.

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2016

Accounting Policies [Abstract]

Revenue recognition

Revenue recognition

The Company recognizes revenues when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. Revenue from the sale of the Company’s products is generally recognized when title and risk of loss transfers to the customer, the terms of which are generally free on board shipping point. The Company uses customer purchase orders to determine the existence of an arrangement. The Company uses shipping documents and third-party proof of delivery to verify that title has transferred. The Company assesses whether the price is fixed or determinable based upon the terms of the agreement associated with the transaction. To determine whether collection is probable, the Company assesses a number of factors, including past transaction history with the customer and the creditworthiness of the customer.

Consolidation

Consolidation

The accompanying consolidated financial statements include the accounts of SpectraScience, Inc. and its wholly-owned subsidiaries LUMA, International and Spectra UK. All significant intercompany balances and transactions have been eliminated in consolidation.

Risks and Uncertainties

Risks and Uncertainties

The Company operates in an industry that is subject to intense competition, government regulation and rapid technological change. The Company's operations are subject to significant risk and uncertainties, including financial, operational, technological, regulatory and other risks associated with a short history of product sales, including the potential risk of business failure.

Use of Estimates

Use of Estimates

The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, which requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes to the financial statements. Significant estimates made by management include, among others, realization of long-lived assets including intangible assets, assumptions used to value stock options, assumptions used to value the common stock issued and assumptions related to the determination of the fair value of the derivative components associated with the Company’s Convertible Debentures. Actual results could differ from those estimates.

Inventory Valuation

Inventory Valuation

The Company states its inventory at the lower of cost or market value, determined on a specific cost basis. The Company provides inventory allowances when conditions indicate that the selling price could be less than cost due to obsolescence and reductions in estimated future demand. The Company balances the need to maintain strategic inventory levels with the risk of obsolescence due to changing technology and customer demand levels. Unfavorable changes in market conditions may result in a need for additional inventory reserves that could adversely impact the Company’s gross margins. Conversely, favorable changes in demand could result in higher gross margins when the Company sells products.

Valuation of Long-lived Assets

Valuation of Long-lived Assets

The Company’s long-lived assets consist of property and equipment and intangible assets. Equipment is carried at cost and is depreciated over the estimated useful lives of the assets, which are generally two to three years, and leasehold improvements are amortized over the lesser of the lease term or the estimated useful lives of the improvements. The straight-line method is used for depreciation and amortization. Intangible assets consist of patents, which are amortized using the straight-line method over the estimated useful lives of the patents. The Company does not capitalize external legal costs and filing fees associated with obtaining patents on its new discoveries. Acquired intellectual property is recorded at cost and is amortized over its estimated useful life. The Company believes the useful lives assigned to these assets are reasonable. The Company assesses the recoverability of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. These computations utilize judgments and assumptions inherent in management’s estimate of future cash flows to determine recoverability of these assets. If management’s assumptions about these assets were to change as a result of events or circumstances, the Company may be required to record an impairment loss.  

Variable Conversion Rate Debentures

Variable Conversion Rate Debentures

Starting in 2015, the Company entered into convertible debentures with floating exercise prices discounted to market prices. As a result, a significant number of shares were either issued in 2015 or will be issued in subsequent periods at deeply discounted variable conversion prices. The downward pressure placed on the Company’s stock as a result of these conversions can be classified as “death spirals” since the investors have no incentive to maintain a stable stock price. The Company accounts for these debentures as derivative liabilities which means the debentures are revalued at the end of each period and gains and losses are recognized at the issuance of the debentures and on the conversion of the debentures.

Over Commitment of Shares

Over Commitment of Shares

Since the number of shares issuable under convertible debentures with floating exercise prices is undeterminable, the Company may be required to issue shares in excess of the number of shares authorized by its shareholders. As a result, when the Company determines that is does not have sufficient shares to meet the obligations of derivative unexercised debentures, warrants and options, the derivatives must be valued using the Black Scholes Option Pricing method and a liability is recorded as though the obligations would be settled using some means other than stock.

Stock-Based Compensation

Stock-Based Compensation

The Company accounts for stock-based compensation under the provisions of FASB ASC Topic 718, Compensation—Stock Compensation   (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. The Company estimates the fair value of stock-based awards on the date of grant using the Black-Scholes-Merton option-pricing model (the “Black-Scholes Model”). The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method. The Company estimates forfeitures at the time of grant and revises its estimate in subsequent periods if actual forfeitures differ from those estimates.

The Company accounts for stock-based compensation awards to non-employees in accordance with FASB ASC Topic 505-50, Equity-Based Payments to Non-Employees (“ASC 505-50”). Under ASC 505-50, the Company determines the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

All issuances of stock options or other equity instruments to employees and non-employees as the consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued. Any stock options issued to non-employees are recorded in expense and additional paid-in capital in shareholders’ equity over the applicable service periods using variable accounting through the vesting dates based on the fair value of the options at the end of each reporting period.

As of March 31, 2016, the Company had one stock-based employee compensation plan under which it makes grants, the 2011 Equity Incentive Plan (the “EIP”). The EIP provides for the grant of incentive stock options (“ISOs”), nonqualified stock options (“NQSOs”) and restricted stock awards to full-time employees (who may also be directors) and NQSOs and restricted stock awards to non-employee directors, consultants, customers, vendors or providers of services. The exercise price of any ISO may not be less than the fair market value of the common stock on the date of grant and the term shall not exceed ten years. The amount reserved under the 2011 EIP is 40,000,000 shares of common stock.  At March 31, 2016, the Company had options outstanding exercisable into up to 34,168,800 shares of stock under the EIP and the Company’s prior Amended 2001 Stock Plan of which up to 21,394,089 shares were exercisable. Awards under the Company’s EIP generally vest over four years.

The fair value of options granted are estimated at the date of grant using a Black-Scholes Model which includes several variables including expected life, risk free interest rate, expected stock price volatility, stock option exercise patterns and expected dividend yield. The Company also must estimate forfeitures for employee stock options. Management used the following weighted average assumptions to value stock options granted during the three month periods ended March 31, 2016 and 2015:

	Three months ended March 31,
	2016	2015
Expected term	3 to 5 years		5 years
Exercise price	$0.02 to $.04		$0.01
Expected volatility	243% to 266%		210%
Expected dividends	None		None
Risk-free interest rate	1.04% to 1.49%		1.48%
Forfeitures	None		None

Earnings (Loss) Per Share

Earnings (Loss) Per Share

Basic loss per share is computed by dividing loss available to common shareholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Common equivalent shares are excluded from the computation if their effect is anti-dilutive.

For the three month periods ended March 31, 2016 and 2015, the following common equivalent shares were excluded from the computation of loss per share since their effects are anti-dilutive.

	March 31,		March 31,
	2016		2015
Preferred Stock		3,085,000		3,085,000
Convertible debentures		378,651,041		101,060,673
Options		34,168,800		40,193,802
Warrants		132,875,170		109,205,387
Total		548,780,011		253,544,862

The following table sets forth the computation of basic and diluted loss per share for the three month periods ended March 31, 2016 and 2015:

	Three Months Ended
	March 31,
	2016			2015
Numerator:
Net loss for basic earnings per share	$	(2,056,334	)	$	(1,709,690	)
Net loss for diluted earnings per share	$	(2,056,334	)	$	(1,709,690	)
Denominator:
Weighted average basic shares outstanding		609,825,530			194,355,277
Denominator for diluted earnings per share-
Adjusted weighted average shares		609,825,530			194,355,277
Income (loss) per share
Basic	$	(0.00	)	$	(0.01	)
Diluted	$	(0.00	)	$	(0.01	)

Inventory

Inventory

Inventory consisted of the following at March 31, 2016 and December 31, 2015:

	March 31,		December 31,
	2016		2015
Raw materials	$	257,114	$	216,704
Finished goods		36,411		45,183
		293,525		261,887
Reserve for obsolescence		-		-
		293,525		261,887
Less long-term portion		150,000		150,000
	$	143,525	$	111,887

During the three months ended March 31, 2016, the Company purchased the inventory of Oncoscope, Inc. from the Trustee of Oncoscope’s bankruptcy proceeding for a total of $40,000. This amount has been reflected as raw materials.

Recently Adopted and Issued Accounting Pronouncements

Recently Adopted and Issued Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which amended Interest – Imputation of Interest of the Accounting Standards Codification. The amended guidance requires that debt issuance costs related to a recognized debt liability, which were presented as deferred charges (assets), be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The amendments is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which provides guidance for accounting for leases. The new guidance requires companies to recognize the assets and liabilities for the rights and obligations created by leased assets, initially measured at the present value of the lease payments. The accounting guidance for lessors is largely unchanged. The ASU is effective for annual and interim periods beginning after December 15, 2018. It is to be adopted using a modified retrospective approach. The Company is currently evaluating the impact that the adoption of this guidance will have on the Company’s financial statements.

Reclassifications

Reclassifications

Certain reclassifications have been made to the 2015 financial statements in order for them to conform to the 2016 presentation. Such reclassifications have no impact on the Company’s financial position or results of operations.

XML

Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2016

Accounting Policies [Abstract]

Schedule of weighted average assumptions to value stock options granted

Management used the following weighted average assumptions to value stock options granted during the three month periods ended March 31, 2016 and 2015:

	Three months ended March 31,
	2016	2015
Expected term	3 to 5 years		5 years
Exercise price	$0.02 to $.04		$0.01
Expected volatility	243% to 266%		210%
Expected dividends	None		None
Risk-free interest rate	1.04% to 1.49%		1.48%
Forfeitures	None		None

Schedule of antidilutive securities excluded from computation of earnings per share

For the three month periods ended March 31, 2016 and 2015, the following common equivalent shares were excluded from the computation of loss per share since their effects are anti-dilutive.

	March 31,		March 31,
	2016		2015
Preferred Stock		3,085,000		3,085,000
Convertible debentures		378,651,041		101,060,673
Options		34,168,800		40,193,802
Warrants		132,875,170		109,205,387
Total		548,780,011		253,544,862

Schedule of earnings per share basic and diluted

The following table sets forth the computation of basic and diluted loss per share for the three month periods ended March 31, 2016 and 2015:

	Three Months Ended
	March 31,
	2016			2015
Numerator:
Net loss for basic earnings per share	$	(2,056,334	)	$	(1,709,690	)
Net loss for diluted earnings per share	$	(2,056,334	)	$	(1,709,690	)
Denominator:
Weighted average basic shares outstanding		609,825,530			194,355,277
Denominator for diluted earnings per share-
Adjusted weighted average shares		609,825,530			194,355,277
Income (loss) per share
Basic	$	(0.00	)	$	(0.01	)
Diluted	$	(0.00	)	$	(0.01	)

Schedule of inventory

Inventory consisted of the following at March 31, 2016 and December 31, 2015:

	March 31,		December 31,
	2016		2015
Raw materials	$	257,114	$	216,704
Finished goods		36,411		45,183
		293,525		261,887
Reserve for obsolescence		-		-
		293,525		261,887
Less long-term portion		150,000		150,000
	$	143,525	$	111,887

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Liabilities (Tables)

3 Months Ended

Mar. 31, 2016

Liabilities [Abstract]

Schedule of balance of debentures

As of March 31, 2016 and December 31, 2015, the balances of the Debentures are as follows:

	March 31,			December 31,
	2016			2015
Balance at beginning of period	$	6,174,760		$	4,496,602
Issuance of debentures for cash		300,000			1,970,250
Original issue discount		-			145,263
Issuance of debentures for forbearance		29,712			-
Debentures converted to common stock		(72,877	)		(437,355	)
Convertible debt		6,431,595			6,174,760
Less unamortized costs of financing		323,962			430,156
Convertible debt, net of unamortized costs	$	6,107,633		$	5,744,604
Convertible debt in default	$	4,750,976		$	4,313,199

Schedule of balances of derivative liability

As of March 31, 2016 and December 31, 2015, the balances of the Derivative Liability are as follows:

							Commitment
				Conversion			In Excess of
	Warrants			Feature			Authorized Stock		Total
Balance at January 1, 2015	$	764,958		$	296,881		$	-	$	1,061,839
Liability on issuance of debt and warrants		-			1,306,372			-		1,306,372
Change in fair value at year end		(726,216	)		(448,228	)		-		(1,174,444	)
Elimination of liability on conversion		-			(637,874	)		-		(637,874	)
Over commitment of stock		-			-			64,428		64,428
Balance at December 31, 2015		38,742			517,151			64,428		620,321
Liability on issuance of debt and warrants		-			137,071			-		137,071
Change in fair value at year end		222,069			665,425			-		887,494
Elimination of liability on conversion		-			(211,729	)		-		(211,729	)
Over commitment of stock		-			-			131,504		131,504
Balance at March 31, 2016	$	260,811		$	1,107,918		$	195,932	$	1,564,661

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Shareholders' Deficit (Tables)

3 Months Ended

Mar. 31, 2016

Stockholders' Equity Note [Abstract]

Schedule of warrants outstanding

The balance of all warrants outstanding as of March 31, 2016 is as follows:

			Weighted
			Average
			Exercise
	Warrants		Price
Outstanding at January 1, 2016		116,875,170	$	0.08
Granted		16,000,000	$	0.02
Cancelled		-	$	-
Exercised		-	$	-
Outstanding at March 31, 2016		132,875,170	$	0.08
Exercisable at March 31, 2016		132,875,170	$	0.08

Schedule of stock options outstanding

Options outstanding as of March 31, 2016 are as follows:

			Weighted Average		Weighted Average		Aggregate
			Exercise Price		Remaining Contractual		Intrinsic
	Options		Per Share		Term (years)		Value (1)
Outstanding at January 1, 2016		34,168,800	$	0.02		8.03
Granted		-	$	-		-
Cancelled		-	$	-		-
Exercised		-	$	-		-
Outstanding at March 31, 2016		34,168,800	$	0.02		7.79	$	-
Exercisable at March 31, 2016		21,394,089	$	0.02		7.79	$	-
Weighted average fair value of options granted during the period		-	$	-

(1) These amounts represent the excess, if any, between the exercise price and $0.0042, the closing market price of the Company’s common stock on March 31, 2016 as quoted on the Over-the-Counter Bulletin Board under the symbol “SCIE”.

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2016

Fair Value Disclosures [Abstract]

Schedule of balances of liabilities measured at fair value on recurring basis

The following table presents the balances of derivative liabilities which are measured at fair value on a recurring basis by level as of March 31, 2016:

	Fair Value Measurements Using
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
As of March 31, 2016
Derivative liability	$	-	$	-	$	1,107,918	$	1,107,918
Warrant liability		-		-		260,811		260,811
Commitment in excess of authorized stock		-		-		195,932		195,932
Total	$	-	$	-	$	1,564,661	$	1,564,661

Schedule changes in liabilities with significant unobservable inputs

The following table presents changes in the derivative liabilities with significant unobservable inputs (Level 3) for the three months ended March 31, 2016:

						Commitment
	Warrant		Derivative			In Excess of		Total
	Liability		Liability			Authorized Stock		Liability
Balance December 31, 2015	$	38,742	$	517,151		$	64,428	$	620,321
Liability on issuance of debt and warrants		-		137,071			-		137,071
Elimination of liability on conversion		-		(211,729	)		-		(211,729	)
Change in estimated fair value (1)		222,069		665,425			-		887,494
Commitment in excess of authorized stock		-		-			131,504		131,504
Balance March 31, 2016	$	260,811	$	1,107,918		$	195,932	$	1,564,661

(1) Included in the Condensed Statements of Operation on the line “Change in fair value of derivative and warrant liabilities.”

Schedule of derivative and warrant liabilities

Management used the following inputs to value the Derivative and Warrant Liabilities for the three months ended March 31, 2016:

	Derivative Liability	Warrant Liability
Expected term	6 months to 2 years	5 years
Exercise price	$0.00025 - $0.099	$0.075 - $0.1287
Expected volatility	280% to 334%	279% to 283%
Expected dividends	None	None
Risk-free interest rate	0.37% to 0.75%	1.21% to 1.49%
Forfeitures	None	None

XML

Nature of Business and Basis of Presentation (Details Narrative)		3 Months Ended	12 Months Ended
	Jul. 12, 2012 USD ($)	Mar. 31, 2016 USD ($) Number	Dec. 31, 2015 USD ($)	Mar. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)
Number of U.S. patents | Number		34
Number of additional patent issued | Number		28
Working capital deficit		$ 10,041,923	$ 8,324,600
Cash and cash equivalents		1,785	127,493	$ 69,955	$ 223,529
Debt face amount		4,750,976	$ 4,313,199
Engagement Agreement [Member] | Laidlaw & Company (UK) Ltd [Member]
Maximum capital raising	$ 20,000,000	311,000
Agreement period	2 years
Payments of transaction costs		24,000
Convertible Debentures [Member]
Debt face amount		$ 4,750,976
Number of individual default | Number		70

XML

Summary of Significant Accounting Policies (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
Options outstanding exercisable	34,168,800	34,168,800
Inventory raw materials	$ 257,114	$ 216,704
Oncoscope, Inc [Member]
Inventory raw materials	$ 40,000
Equipment [Member] | Minimum [Member]
Useful life	2 years
Equipment [Member] | Maximum [Member]
Useful life	3 years
2011 Equity Incentive Plan [Member]
Number of shares reserved	40,000,000
Options outstanding exercisable	34,168,800
Vesting period	4 years
2011 Equity Incentive Plan [Member] | Incentive Stock Options [Member]
Vesting period	10 years
Amended 2001 Equity Incentive Plan [Member]
Options outstanding exercisable	21,394,089

XML

Summary of Significant Accounting Policies (Details) - $ / shares	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Expected term		5 years
Exercise price		$ 0.01
Expected volatility		210.00%
Expected dividends
Risk-free interest rate		1.48%
Forfeitures
Minimum [Member]
Expected term	3 years
Exercise price	$ 0.02
Expected volatility	243.00%
Risk-free interest rate	1.04%
Maximum [Member]
Expected term	5 years
Exercise price	$ 0.04
Expected volatility	266.00%
Risk-free interest rate	1.49%

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Summary of Significant Accounting Policies (Details 1) - shares	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Antidilutive securities excluded from computation of earnings per share, amount	548,780,011	253,544,862
Preferred Stock [Member]
Antidilutive securities excluded from computation of earnings per share, amount	3,085,000	3,085,000
Convertible Debentures [Member]
Antidilutive securities excluded from computation of earnings per share, amount	378,651,041	101,060,673
Options [Member]
Antidilutive securities excluded from computation of earnings per share, amount	34,168,800	40,193,802
Warrants [Member]
Antidilutive securities excluded from computation of earnings per share, amount	132,875,170	109,205,387

XML

Summary of Significant Accounting Policies (Details 2) - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Numerator:
Net loss for basic earnings per share	$ (2,056,334)	$ (1,709,690)
Net loss for diluted earnings per share	$ (2,056,334)	$ (1,709,690)
Denominator:
Weighted average basic shares outstanding (in shares)	609,825,530	194,355,277
Denominator for diluted earnings per share - Adjusted weighted average shares (in shares))	609,825,530	194,355,277
Income (loss) per share
Basic (in dollars per share)	$ (0.00)	$ (0.01)
Diluted (in dollars per share)	$ (0.00)	$ (0.01)

XML

Summary of Significant Accounting Policies (Details 3) - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Accounting Policies [Abstract]
Raw materials	$ 257,114	$ 216,704
Finished goods	36,411	45,183
Inventory, gross	$ 293,525	$ 261,887
Reserve for obsolescence
Inventories, net	$ 293,525	$ 261,887
Less long-term portion	150,000	150,000
Inventories, current	$ 143,525	$ 111,887

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Liabilities (Details Narrative) - USD ($)	1 Months Ended	3 Months Ended
	Nov. 30, 2014	Mar. 31, 2016	Dec. 31, 2015
Debt Instrument [Line Items]
Debt instrument, face amount			$ 145,263
Notes payable- related parties		$ 35,000
Unsecured Note Payable [Member]
Debt Instrument [Line Items]
Accrued interest rate	20.00%
Debt instrument, face amount	$ 100,000
Number of stock issued during period for debt offering costs	50,000
Exercise price (in dollars per share)	$ 0.09
Remaining balance of notes payable	$ 115,000
Increased principal balance note payable	137,982
Warrants valued	$ 1,659
Warrant term	5 years
10% promissory notes [Member] | Two Affiliates [Member]
Debt Instrument [Line Items]
Debt payment term		1 year
Proceeds from notes payable		$ 35,000
Notes payable- related parties		$ 35,000
Convertible Debentures [Member]
Debt Instrument [Line Items]
Warrant term		5 years
Debentures outstanding		$ 6,232,345
Convertible Debentures [Member] | Minimum [Member]
Debt Instrument [Line Items]
Debt payment term		3 months
Accrued interest rate		10.00%
Percent original issue discount		5.00%
Conversion price (in dollars per share)		$ 0.01
Exercise price (in dollars per share)		0.0745
Convertible debentures exercise price		$ 0.02
Convertible Debentures [Member] | Maximum [Member]
Debt Instrument [Line Items]
Debt payment term		1 year
Accrued interest rate		20.00%
Percent original issue discount		10.00%
Conversion price (in dollars per share)		$ 0.099
Exercise price (in dollars per share)		0.1287
Convertible debentures exercise price		$ 0.1287
Variable Debentures [Member]
Debt Instrument [Line Items]
Debentures outstanding		$ 199,250
Amount of principal		$ 29,712
Variable Debentures [Member] | Minimum [Member]
Debt Instrument [Line Items]
Debt payment term		9 months
Accrued interest rate		0.00%
Percent original issue discount		0.00%
Variable issue discount rate		40.00%
Debt subsequent issuance premiums		0.00%
Variable Debentures [Member] | Maximum [Member]
Debt Instrument [Line Items]
Debt payment term		1 year
Accrued interest rate		10.00%
Percent original issue discount		10.00%
Variable issue discount rate		50.00%
Debt subsequent issuance premiums		50.00%
Derivative Financial Instruments, Liabilities [Member]
Debt Instrument [Line Items]
Number of shares issued upon conversion		466,000,000

XML

Liabilities (Details) - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Long-term Debt, Debentures [Roll Forward]
Balance at beginning of period	$ 6,174,760	$ 4,496,602
Issuance of debentures for cash	$ 300,000	1,970,250
Original issue discount		$ 145,263
Issuance of debentures for forbearance	$ 29,712
Debentures converted to common stock	(72,877)	$ (437,355)
Convertible debt	6,431,595	6,174,760
Less unamortized costs of financing	323,962	430,156
Convertible debt, net of unamortized costs	6,107,633	5,744,604
Convertible debt in default	$ 4,750,976	$ 4,313,199

XML

Liabilities (Details 1) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning	$ 620,321	$ 1,061,839
Liability on issuance of debt and warrants	137,071	1,306,372
Change in fair value at year end	887,494	(1,174,444)
Elimination of liability on conversion	(211,729)	(637,874)
Over commitment of stock	131,504	64,428
Balance at ending	1,564,661	620,321
Warrant [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning	$ 38,742	$ 764,958
Liability on issuance of debt and warrants
Change in fair value at year end	$ 222,069	$ (726,216)
Elimination of liability on conversion
Over commitment of stock
Balance at ending	$ 260,811	$ 38,742
Conversion Feature [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning	517,151	296,881
Liability on issuance of debt and warrants	137,071	1,306,372
Change in fair value at year end	665,425	(448,228)
Elimination of liability on conversion	$ (211,729)	$ (637,874)
Over commitment of stock
Balance at ending	$ 1,107,918	$ 517,151
Commitment In Excess of Authorized Stock [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning	$ 64,428
Liability on issuance of debt and warrants
Change in fair value at year end
Elimination of liability on conversion
Over commitment of stock	$ 131,504	$ 64,428
Balance at ending	$ 195,932	$ 64,428

XML

Shareholders' Deficit (Details Narrative)	3 Months Ended
	Mar. 31, 2016 USD ($) Number $ / shares shares	Mar. 31, 2015 USD ($)	Dec. 31, 2015 USD ($)
Face amount			$ 145,263
Gain on extinguishment of debt	$ 1,166	$ 82,728
Total unrecognized estimated employee compensation cost	$ 293,327
Recognized period	4 years
Exercised (in dollars per share) | $ / shares
Maximum [Member]
Exercised (in dollars per share) | $ / shares	$ 0.0042
Warrants [Member] | Consultant [Member]
Number of warrant issued | shares	1,000,000
Value of warrants	$ 1,652
Convertible Debentures [Member] | Warrants [Member]
Warrant term	5 years
Number of warrant issued | shares	15,000,000
Warrants exercise price | $ / shares	$ 0.02
Convertible Debentures [Member] | Common Stock [Member]
Face amount	$ 72,877
Number of common stock converted | Number	236,266,584
Accrued interest	$ 2,935
Gain on extinguishment of debt	$ 1,166

XML

Shareholders' Deficit (Details) - Warrant [Member]	3 Months Ended
	Mar. 31, 2016 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Outstanding at beginning | shares	116,875,170
Granted | shares	16,000,000
Cancelled | shares
Exercised | shares
Outstanding at ending | shares	132,875,170
Exercisable at ending | shares	132,875,170
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward]
Outstanding at beginning | $ / shares	$ 0.08
Granted | $ / shares	$ 0.02
Cancelled | $ / shares
Exercised | $ / shares
Outstanding at ending | $ / shares	$ 0.08
Exercisable at ending | $ / shares	$ 0.08

XML

Shareholders' Deficit (Details 1)	3 Months Ended
	Mar. 31, 2016 USD ($) $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Outstanding at beginning | shares	34,168,800
Granted | shares
Cancelled | shares
Exercised | shares
Outstanding at ending | shares	34,168,800
Exercisable at ending | shares	21,394,089
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward]
Outstanding at beginning | $ / shares	$ 0.02
Granted | $ / shares
Cancelled | $ / shares
Exercised | $ / shares
Outstanding at ending | $ / shares	$ 0.02
Exercisable at ending | $ / shares	$ 0.02
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term [Roll Forward]
Outstanding at beginning	8 years 11 months
Outstanding at ending	7 years 9 months 14 days
Exercisable at ending	7 years 9 months 14 days
Aggregate Intrinsic Value
Outstanding at ending | $		[1]
Exercisable at ending | $		[1]

[1] These amounts represent the excess, if any, between the exercise price and $0.0042, the closing market price of the Company's common stock on March 31, 2016 as quoted on the Over-the-Counter Bulletin Board under the symbol "SCIE.

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Fair Value Measurements (Details Narartive)

3 Months Ended

Mar. 31, 2016

Fair Value Disclosures [Abstract]

Description of valuation of derivative and warrant liability

The fair value of the derivative and warrant liability at March 31, 2016 for instruments under the Binomial Lattice option-pricing model, management estimated a 60% probability of a down round financing event at a price of $0.025 and a 9% to 34% probability that existing note holders with exchange privileges would exchange their existing debentures and warrants for new debentures and warrants.

XML

Fair Value Measurements (Details) - Fair Value, Measurements, Recurring [Member]	Mar. 31, 2016 USD ($)
Total Liability	$ 1,564,661
Derivative liability [Member]
Total Liability	1,107,918
Warrant liability [Member]
Total Liability	260,811
Commitment In Excess Of Authorized Stock [Member]
Total Liability	$ 195,932
Fair Value, Inputs, Level 1 [Member]
Total Liability
Fair Value, Inputs, Level 1 [Member] | Derivative liability [Member]
Total Liability
Fair Value, Inputs, Level 1 [Member] | Warrant liability [Member]
Total Liability
Fair Value, Inputs, Level 1 [Member] | Commitment In Excess Of Authorized Stock [Member]
Total Liability
Fair Value, Inputs, Level 2 [Member]
Total Liability
Fair Value, Inputs, Level 2 [Member] | Derivative liability [Member]
Total Liability
Fair Value, Inputs, Level 2 [Member] | Warrant liability [Member]
Total Liability
Fair Value, Inputs, Level 2 [Member] | Commitment In Excess Of Authorized Stock [Member]
Total Liability
Fair Value, Inputs, Level 3 [Member]
Total Liability	$ 1,564,661
Fair Value, Inputs, Level 3 [Member] | Derivative liability [Member]
Total Liability	1,107,918
Fair Value, Inputs, Level 3 [Member] | Warrant liability [Member]
Total Liability	260,811
Fair Value, Inputs, Level 3 [Member] | Commitment In Excess Of Authorized Stock [Member]
Total Liability	$ 195,932

XML

Fair Value Measurements (Details 1) - USD ($)		3 Months Ended	12 Months Ended
		Mar. 31, 2016	Dec. 31, 2015
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning		$ 620,321	$ 1,061,839
Change in estimated fair value		(887,494)	1,174,444
Balance at ending		1,564,661	$ 620,321
Commitment In Excess Of Authorized Stock [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning		$ 64,428
Change in estimated fair value
Balance at ending		$ 195,932	$ 64,428
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning		620,321
Liability on issuance of debt and warrants		137,071
Elimination of liability on conversion		(211,729)
Change in estimated fair value	[1]	887,494
Commitment in excess of authorized stock		131,504
Balance at ending		1,564,661	620,321
Significant Unobservable Inputs (Level 3) [Member] | Warrant liability [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning		$ 38,742
Liability on issuance of debt and warrants
Elimination of liability on conversion
Change in estimated fair value	[1]	$ 222,069
Commitment in excess of authorized stock
Balance at ending		$ 260,811	38,742
Significant Unobservable Inputs (Level 3) [Member] | Derivative liability [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning		517,151
Liability on issuance of debt and warrants		137,071
Elimination of liability on conversion		(211,729)
Change in estimated fair value	[1]	$ 665,425
Commitment in excess of authorized stock
Balance at ending		$ 1,107,918	517,151
Significant Unobservable Inputs (Level 3) [Member] | Commitment In Excess Of Authorized Stock [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning		$ 64,428
Liability on issuance of debt and warrants
Elimination of liability on conversion
Change in estimated fair value	[1]
Commitment in excess of authorized stock		$ 131,504
Balance at ending		$ 195,932	$ 64,428

[1] Included in the Condensed Statements of Operation on the line "Change in fair value of derivative and warrant liabilities."

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Fair Value Measurements (Details 2)	3 Months Ended
	Mar. 31, 2016 $ / shares
Derivative liability [Member]
Expected dividends
Forfeitures
Derivative liability [Member] | Maximum [Member]
Expected term	2 years
Exercise price	$ 0.099
Expected volatility	334.00%
Risk-free interest rate	0.75%
Derivative liability [Member] | Minimum [Member]
Expected term	6 months
Exercise price	$ 0.00025
Expected volatility	280.00%
Risk-free interest rate	0.37%
Warrant liability [Member]
Expected term	5 years
Expected dividends
Forfeitures
Warrant liability [Member] | Maximum [Member]
Exercise price	$ 0.1287
Expected volatility	283.00%
Risk-free interest rate	1.49%
Warrant liability [Member] | Minimum [Member]
Exercise price	$ 0.075
Expected volatility	279.00%
Risk-free interest rate	1.21%

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Subsequent Events (Details Narrative) - USD ($)

1 Months Ended

3 Months Ended

Apr. 15, 2016

May. 31, 2016

Apr. 30, 2016

Mar. 31, 2016

Mar. 31, 2015

Dec. 31, 2015

Face amount

$ 145,263

Net cash proceeds of debentures

$ 300,000

$ 410,000

Series AA Preferred Shares [Member]

Preferred stock, authorized

0

0

Preferred stock, par value (in dollars per share)

$ 0.01

$ 0.01

Subsequent Event [Member] | 8% Secured Convertible Debentures [Member]

Aggregate consideration of debentures

$ 150,000

Net cash proceeds of debentures

138,000

Payment of fees and expenses

$ 12,000

Subsequent Event [Member] | 8% Secured Convertible Debentures [Member] | Minimum [Member]

Maturity period

2 years

Subsequent Event [Member] | 8% Secured Convertible Debentures [Member] | Maximum [Member]

Maturity period

3 years

Subsequent Event [Member] | Variable Rate Convertible Debentures [Member]

Face amount

$ 1,138

Number of common shares issued

1,138,090

Subsequent Event [Member] | Series AA Preferred Shares [Member]

Preferred stock, authorized

3,000

Preferred stock, par value (in dollars per share)

$ 0.0001

Description of voting rights

One million (1,000,000) votes for each share of Series AA Super Voting Preferred Stock.