-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FAcu3YtqkczeOFfAB1t00+NXSCNkiiS5utjHnXw4NeazZhje/k3Q1QfC0lbu7lUE e43UwjR9PvexoJLWvjweNg== 0000950144-02-002319.txt : 20020415 0000950144-02-002319.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950144-02-002319 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20011231 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECTRX INC CENTRAL INDEX KEY: 0000924515 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 582029543 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-22179 FILM NUMBER: 02575441 BUSINESS ADDRESS: STREET 1: 6025 A UNITY DRIVE CITY: NORCROSS STATE: GA ZIP: 30071 BUSINESS PHONE: 7702428723 MAIL ADDRESS: STREET 1: 6025 A UNITY DRIVE CITY: NORCROSS STATE: GA ZIP: 30071 8-K/A 1 g74752e8-ka.htm SPECTRX, INC. SPECTRX, INC.
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K/A

Amendment to
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 14, 2002 (December 31, 2001)

SPECTRX, INC.
(Exact name of registrant as specified in its charter)

         
Delaware   0-22179   58-2029543
(State or other jurisdiction of incorporation)   (Commission File
Number) 		  (I.R.S. Employer
Identification No.)
     
6025 A Unity Drive, Norcross, GA   30071
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: 770-242-8723

(Former name or former address if changed since last report)

1

 

Item 2. Acquisition or Disposition of Assets

     On December 31, 2001, a newly-formed, wholly-owned subsidiary of SpectRx, Inc. (SpectRx) named SM Merger Sub, Inc. (SM MERGER SUB) was merged with and into Sterling Medivations, Inc. (Sterling), with Sterling Medivations surviving the merger as a wholly-owned subsidiary of SpectRx. Sterling Medivations is a developer of innovative insulin delivery products for people with diabetes, and SpectRx intends to continue that business. The merger was effected pursuant to an Agreement and Plan of Merger, dated December 31, 2001 and filed as Exhibit 2.1 to this Current Report on January 14, 2002, by and among SpectRx, Sterling Medivations, SM Merger Sub and specified major stockholders of Sterling Medivations. In connection with this transaction, SpectRx issued an initial 620,249 shares of its common stock, which was determined based upon an agreed upon price of $7.29 per share for purposes of the merger, to former holders of Sterling Medivations’ capital stock. In addition, SpectRx reserved 22,625 shares of its common stock for future issuance to holders of options to acquire shares of Sterling Medivations common stock, which were converted into options to acquire shares of SpectRx common stock in the transaction. Following the consummation of the merger, the shares issued and reserved by SpectRx regarding this transaction were adjusted based upon certain adjustments to the financial statements of Sterling Medivations, as contemplated by the terms of the Agreement and Plan of Merger. As a result, SpectRx currently estimates that the number of shares issued to former holders of Sterling Medivations’ capital stock will be reduced to 610,338 shares, and the number of shares reserved for future issuance to holders of options to acquire shares of Sterling Medivations common stock, which were converted into options to acquire shares of SpectRx common stock, will be reduced to 22,024 shares. Each of these share numbers remain subject to further adjustment pursuant to the Agreement and Plan of Merger for a period expected not to exceed six months from December 31, 2001. Up to an additional 1,234,567 shares of SpectRx common stock could be issued to former stockholders and option holders of Sterling Medivations, if the product line of Sterling Medivations meets specified financial goals. The consideration was determined through arm’s length negotiations between SpectRx and Sterling Medivations. Prior to the transaction, there were no material relationships between Sterling Medivations and SpectRx or any of its directors and officers, or their associates, or any of its affiliates. The transaction was accounted for using the purchase method of accounting.

Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.

     
(a)   Financial statements of businesses acquired.
 
    The unaudited financial statements of Sterling Medivations, Inc. as of and for the nine months ended September 30, 2001, for the period from inception (January 13, 2000) though September 30, 2000 and cumulative for the period from inception (January 13, 2000) through September 30, 2001. are filed as Exhibit 99.1 to this Current Report
 
    The audited financial statements of Sterling Medivations, Inc. as of December 31, 2000 and for the period from inception (January 13, 2000) through December 31, 2000, together with the report of PricewaterhouseCoopers LLP (Minneapolis, MN) with respect thereto are filed as Exhibit 99.2 to this Current Report.
 
(b)   Pro Forma financial information.

2

 

     
    The unaudited pro forma combined condensed statements of operations of SpectRx, Inc. for the year ended December 31, 2000, the unaudited pro forma combined condensed statements of operations of SpectRx, Inc. for the nine months ended September 30, 2001 and the unaudited proforma combined condensed balance sheet of SpectRx, Inc. as of September 30, 2001, are filed as Exhibit 99.3 to this Current Report.
 
    The unaudited pro forma combined condensed balance sheet as of September 30, 2001, reflects the assumed consummation of the merger accounted for using the purchase method of accounting as of September 30, 2001. The unaudited pro forma combined condensed statements of operations for the nine month period ended September 30, 2001, and for the year ended December 31, 2000, reflect the assumed consummation of merger accounted for using the purchase method of accounting as of the beginning of each such period. Please be aware that the inception date of Sterling is January 13, 2000. No adjustment has been included in the pro forma amounts for any anticipated cost savings or other synergies.
 
    The unaudited pro forma financial information has been prepared by the management of SpectRx based on the historical financial statements of SpectRx and Sterling. The unaudited pro forma combined condensed financial information is prepared for information purposes only and is not necessarily indicative of future results or of actual results that would have been achieved had the merger been consummated at the beginning of the periods presented, nor is it indicative of future financial position or results of operations.
 
(c)   Exhibits.
     
Exhibit No.   Exhibit Description
 
2.1   Agreement and Plan of Merger, dated December 31, 2001 by and among SpectRx, Inc., Sterling Medivations, Inc., SM Merger Sub, Inc. and certain stockholders of Sterling Medivations, Inc. (incorporated herein by reference to Exhibit 2.1 of the initial filing of this Current Report on January 14, 2002)
23.1   Consent of PricewaterhouseCoopers LLP.
99.1   Sterling Medivations, Inc. unaudited financial statements as of and for the nine months ended September 30, 2001, for the period from inception (January 13, 2000) through September 30, 2000 and cumulative for the period from inception (January 13, 2000) through September 30, 2001.
99.2   Sterling Medivations, Inc. audited financial statements as of December 31, 2000 and for the period from inception (January 13, 2000) through December 31, 2000, together with the report of PricewaterhouseCoopers LLP (Minneapolis, MN) with respect thereto.
99.3   SpectRx, Inc. unaudited pro forma condensed combined statements of operations for the year ended December 31, 2000, unaudited pro forma condensed combined statements of operations and the unaudited pro forma condensed combined balance sheet as of and for the nine months ended September 30, 2001.

3

 

SIGNATURE

     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 hereunto duly authorized.

             
            SpectRx, Inc.
 
Date:   March 14, 2002   by:   /s/ Thomas H. Muller, Jr.
           
            Thomas H. Muller, Jr.
            Executive Vice President, Chief Financial Officer
and Secretary

4

 

EXHIBIT INDEX

     
Exhibit No.   Exhibit Description
 
2.1   Agreement and Plan of Merger, dated December 31, 2001 by and among SpectRx, Inc., Sterling Medivations, Inc., SM Merger Sub, Inc. and certain stockholders of Sterling Medivations, Inc. (incorporated herein by reference to Exhibit 2.1 of the initial filing of this Current Report on January 14, 2002)
23.1   Consent of PricewaterhouseCoopers LLP.
99.1   Sterling Medivations, Inc. unaudited financial statements as of and for the nine months ended September 30, 2001.
99.2   Sterling Medivations, Inc. audited financial statements as of December 31, 2000 and for the period from inception (January 13, 2000) through December 31, 2000, together with the report of PricewaterhouseCoopers LLP (Minneapolis, MN) with respect thereto.
99.3   SpectRx, Inc. unaudited pro forma condensed combined statements of operations for the year ended December 31, 2000, unaudited pro forma condensed combined statements of operations and the unaudited pro forma condensed combined balance sheet as of and for the nine months ended September 30, 2001.

5 EX-23.1 3 g74752ex23-1.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.1 CONSENT OF PRICEWATERHOUSE COOPERS LLP. CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-64058) of SpectRX, Inc. of our report dated March 30, 2001 relating to the financial statements of Sterling Medivations, Inc., which appears in the Current Report on Form 8-K/A of SpectRX, Inc. dated March 14, 2002. /s/ PricewaterhouseCoopers LLP Minneapolis, MN March 14, 2002 EX-99.1 4 g74752ex99-1.txt UNAUDITED FINANCIAL STATEMENTS EXHIBIT 99.1 Exhibit 99.1 - Sterling Medivations, Inc. unaudited financial statements as of and for the nine months ended September 30, 2001, for the period from inception (January 13, 2000) through September 30, 2000 and cumulative for the period from inception (January 13, 2000) through September 30, 2001, together with accompanying footnotes. STERLING MEDIVATIONS, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET AS OF SEPTEMBER 30, 2001 (UNAUDITED) - ------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash $ 615,365 Prepaid expenses 3,170 ----------- Total current assets 618,535 Furniture and equipment, net 4,150 Patents 164,571 ----------- Total assets $ 787,256 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts Payable $ 24,320 Accrued consulting expenses 13,720 ----------- Total liabilities 38,040 Convertible debt, net 62,500 Accrued interest 7,500 ----------- Total liabilities 108,040 Stockholders' equity Common stock, $.001 par value 6,000,000 authorized, 2,485,989 shares issued and outstanding 2,486 Additional paid-in capital, common stock 19,239 Series A convertible preferred stock; $.001 par value; $1.00 per share liquidation preference; 1,000,000 shares authorized, issued and outstanding 1,000 Additional paid-in capital, preferred stock 1,467,996 Deficit accumulated during development stage (811,505) ----------- Total stockholders' equity 679,216 ----------- Total liabilities and stockholders' equity $ 787,256 ===========
See accompanying notes. 6 STERLING MEDIVATIONS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS (UNAUDITED) - --------------------------------------------------------------------------------
CUMMULATIVE FOR THE PERIOD FOR THE PERIOD FROM INCEPTION FROM INCEPTION NINE MONTHS (JANUARY 13, 2000) (JANUARY 13, 2000) ENDED THOUGH THOUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2001 2000 2001 -------------------- ------------------ ------------------ Operating Expenses: Research and development $ 163,178 $ 141,689 $ 365,712 General and administrative 319,627 36,957 420,852 -------------------- ------------------ ------------------ Total operating expenses 482,805 178,646 786,564 -------------------- ------------------ ------------------ Operating loss (482,805) (178,646) (786,564) Interest income 18,734 13,976 45,059 Interest expense (70,000) - (70,000) -------------------- ------------------ ------------------ Net Loss $ (534,071) $ (164,670) $ (811,505) -------------------- ------------------ ------------------
See accompanying notes. 7 STERLING MEDIVATIONS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS (UNAUDITED) - --------------------------------------------------------------------------------
CUMMULATIVE FOR THE PERIOD FOR THE PERIOD FROM INCEPTION FROM INCEPTION NINE MONTHS (JANUARY 13, 2000) (JANUARY 13, 2000) ENDED THOUGH THOUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2001 2000 2001 --------------------- ------------------ ------------------- Cash flows from operating activities: Net loss (534,071) (164,670) (811,505) Reconciliation of net loss to net cash used in operating activities Depreciation 1,779 593 2,965 Stock compensation expense 99 7,117 7,264 Interest expense on convertible notes 62,500 - 62,500 Changes in operating assets and liabilities Prepaid expenses 4,698 (600) (3,170) Accounts payable 5,545 15,047 23,569 Accrued consulting expenses - 13,720 13,720 Accrued interest 7,500 - 7,500 --------------------- ------------------ ------------------- Net cash used in operating activities (451,950) (128,793) (697,157) Cash flows from investing activities: Purchase of furniture and equipment - (2,895) (2,895) Patent costs (86,396) (39,427) (164,571) --------------------- ------------------ ------------------- Net cash used in investing activities (86,396) (42,322) (167,466) Cash flows from financing activities Issuance of Series A convertible preferred stock - 1,000,000 1,000,000 Stock issuance costs - (35,432) (35,432) Proceeds from the exercise of stock options 750 - 15,585 Proceeds from convertible notes payable 500,000 - 500,000 Repurchase of common stock (165) - (165) --------------------- ------------------ ------------------- Net cash provided by financing activities 500,585 964,568 1,479,988 Net increase in cash (37,761) 793,453 615,365 Cash: Beginning of period 653,126 - - --------------------- ------------------ ------------------- End of period 615,365 793,453 615,365 --------------------- ------------------ -------------------
Noncash financing activities: In January 2000, the Company issued common stock in exchange for $4,219 of equipment At December 31, 2000, there were $16,467 of patent costs included in accounts payable. See accompanying notes. 8 STERLING MEDIVATIONS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) - ------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to fairly present the Company's financial position and results of operations, and cash flows for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principals in the United States of America require management to make estimates and assumptions that affect the reported amounts therein. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principals in the United States of America have been condensed or omitted. These financial statements should be read in conjunction with the Company's financial statements and notes thereto as of December 31, 2000 and for the period from inception (January 13, 2000) through December 31, 2000, which are contained elsewhere in this Form 8K/A. The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year. 2. CONVERTIBLE NOTES PAYABLE AND DETACHABLE WARRANTS During fiscal 2001, the Company issued convertible promissory notes (the Notes) totaling $500,000 with an annual interest rate of 6%. The Notes have a term of two years and the interest is payable at the end of the term. The Notes have two conversion features: (1) automatic conversion upon the closing of the next equity financing of at least $3,000,000 into the capital stock issued by the Company in the next equity financing within 9 months of the issuance of the Notes; or (2) optional conversion to Series A convertible preferred stock if an acquisition event occurs or the next equity financing does not occur within 9 months of the issuance of the Notes. In automatic conversion, the Notes will be converted into the number of shares of capital stock equal to the outstanding principal balance of, and all accrued and unpaid interest on, the Notes divided by the price per share of capital stock issued in the next equity financing. In optional conversion, the Notes will be converted into the number of shares of Series A convertible preferred stock equal to the outstanding principal balance of, and all accrued and unpaid interest on, the Notes divided by $1.00. The Notes have detachable warrants that gives the holders the right to purchase capital shares in the amount of 60% of the aggregate principle amount of the Notes ($300,000). This amount is divided by either the price per share of the next equity financing or $1.00 per share of Series A convertible preferred stock based upon whether the method of conversion of the notes is automatic conversion or optional conversion, respectively. The term of the warrants is 5 years. The Notes are discounted by the allocation of the relative fair value of the warrants and the intrinsic value of the conversion feature of the Notes. Using the Black-Scholes method of valuation, the relative fair value of the warrants is estimated to be $253,000. The intrinsic value of the conversion feature of the Notes or beneficial conversion feature (BCF) value is 9 STERLING MEDIVATIONS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) - ------------------------------------------------------------------------------- 2. CONVERTIBLE NOTES PAYABLE AND DETACHABLE WARRANTS (CONTINUED) estimated to be $503,000. Since the amount of the BCF is limited to the balance of the Notes after the discount for the warrants, the BCF discounts the remaining Notes balance of $247,000. The fair value of the warrants ($253,000) and the BCF ($247,000) are included in additional paid-in capital, Preferred Stock. The discount related to the warrants and the BCF will be amortized to interest expense over the term of the Notes or until the Notes are converted, at which time any remaining discount and BCF will be charged to interest expense. Interest expense related to the amortization of the discount is $62,500 for the nine month period ended September 30, 2001, and cumulative for the period from inception (January 31, 2000) through September 31, 2001. Schedule maturities of long-term debt are as follows:
YEAR ENDING DECEMBER 31, 2001 $ 0 2002 0 2003 500,000 --------- $ 500,000 =========
3. ACQUISITION In December 2001, the Company finalized negotiations with SpectRx, Inc. (SpectRx) to sell all of the Company's outstanding common and preferred stock to SpectRx. In connection with the closing of this transaction, the Notes described in Note 2 were converted to Series A preferred stock. 10 EX-99.2 5 g74752ex99-2.txt AUDITED FINANCIAL STATEMENTS Exhibit 99.2 - Sterling Medivations, Inc. audited financial statements as of December 31, 2000 and for the period from inception (January 13, 2000) through December 31, 2000, together with the report of PricewaterhouseCoopers LLP (Minneapolis, MN) with respect thereto. STERLING MEDIVATIONS, INC. (A Development Stage Company) Report on Audit of Financial Statements As of December 31, 2000 and for the Period from Inception (January 13, 2000) Through December 31, 2000 Report of Independent Accountants To the Board of Directors and Stockholders of Sterling Medivations, Inc.: In our opinion, the accompanying balance sheet and the related statements of operations, cash flows and changes in stockholders' equity and comprehensive loss present fairly, in all material respects, the financial position of Sterling Medivations, Inc. (a development stage company) as of December 31, 2000, and the results of its operations and its cash flows for the period from inception (January 13, 2000) through December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred a loss and negative cash flows from operations since inception and expects to require additional funds to continue its operations through 2001, all of which raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ PricewaterhouseCoopers LLP March 30, 2001 11 Sterling Medivations, Inc. (A Development Stage Company) Balance Sheet As of December 31, 2000 - ------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash $ 653,126 Prepaid expenses 7,868 ----------- Total current assets 660,994 Furniture and equipment, net 5,928 Patents 94,642 ----------- Total assets $ 761,564 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 34,491 Accrued consulting expenses 13,720 ----------- Total liabilities 48,211 ----------- Stockholders' equity: Common stock, $.001 par value, 6,000,000 authorized, 2,564,583 shares issued and outstanding 2,565 Additional paid-in capital, common stock 18,476 Series A convertible preferred stock; $.001 par value; $1.00 per share liquidation preference; 1,000,000 shares authorized, issued and outstanding 1,000 Additional paid-in capital, preferred stock 968,746 Deficit accumulated during development stage (277,434) ----------- Total stockholders' equity 713,353 ----------- Total liabilities and stockholders' equity $ 761,564 ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 12 Sterling Medivations, Inc. (A Development Stage Company) Statement of Operations For the period from inception (January 13, 2000) through December 31, 2000 - ------------------------------------------------------------------------------------------------------------- Operating expenses: Research and development $ 202,534 General and administrative 101,225 ----------- Total operating expenses 303,759 ----------- Operating loss (303,759) Interest income 26,325 ----------- Net loss $ (277,434) ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 13 Sterling Medivations, Inc. (A Development Stage Company) Statement of Changes in Stockholders' Equity and Comprehensive Loss For the period from inception (January 13, 2000) through December 31, 2000
- ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCK --------------------------------------------------------------------- PRICE ADDITIONAL PER PAID-IN DATE DESCRIPTION SHARE SHARES STOCK CAPITAL ------- --------- ------ ----------- January 13, 2000 Issuance of common stock $ 0.007 2,550,000 $2,550 $11,326 for cash and equipment, less offering costs of $5,178 March 14, 2000 Convertible preferred stock $ 1.00 issued in exchange for cash, less offering costs of $30,254 July 17, 2000 Convertible preferred stock $ 1.00 issued in exchange for cash July 18, 2000 Issuance of common stock $ 0.20 14,583 15 2,902 for services Stock compensation expense 4,248 Net and comprehensive loss for the period from inception (January 13, 2000) through December 31, 2000 --------- ------ ------- Balances, December 31, 2,564,583 $2,565 $18,476 ========= ====== ======= CONVERTIBLE PREFERRED STOCK DEFICIT -------------------------------------- ACCUMULATED ADDITIONAL DURING THE PAID-IN DEVELOPMENT DATE DESCRIPTION SHARES STOCK CAPITAL STAGE TOTAL ------ ------ ----------- ------------ ---------- January 13, 2000 Issuance of common stock $ 13,876 for cash and equipment, less offering costs of $5,178 March 14, 2000 Convertible preferred stock 195,000 $ 195 $164,551 164,746 issued in exchange for cash, less offering costs of $30,254 July 17, 2000 Convertible preferred stock 805,000 805 804,195 805,000 issued in exchange for cash July 18, 2000 Issuance of common stock 2,917 for services Stock compensation expense 4,248 Net and comprehensive loss for the period from inception (January 13, 2000) through December 31, 2000 $(277,434) (277,434) --------- ------ -------- --------- --------- Balances, December 31, 1,000,000 $1,000 $968,746 $(277,434) $ 713,353 ========= ====== ======== ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 14 Sterling Medivations, Inc. (A Development Stage Company) Statement of Cash Flows For the period from inception (January 13, 2000) through December 31, 2000 - ------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net loss $ (277,434) Reconciliation of net loss to net cash used in operating activities: Depreciation 1,186 Stock compensation expense 7,165 Changes in operating assets and liabilities: Prepaid expenses (7,868) Accounts payable 18,024 Accrued consulting expenses 13,720 ----------- Net cash used in operating activities (245,207) ----------- Cash flows from investing activities: Purchase of furniture and equipment (2,895) Patent costs (78,175) ----------- Net cash used in investing activities (81,070) ----------- Cash flows from financing activities: Issuance of Series A convertible preferred stock 1,000,000 Stock issuance costs (35,432) Proceeds from sale of common stock 14,835 ----------- Net cash provided by financing activities 979,403 ----------- Net increase in cash 653,126 Cash: Beginning of period -- ----------- End of period $ 653,126 ===========
Noncash financing activities: In January 2000, the Company issued common stock in exchange for $4,219 of equipment At December 31, 2000, there were $16,467 of patent costs accrued in accounts payable THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 15 STERLING MEDIVATIONS, INC. (A DEVELOPMENTAL STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS 1. BUSINESS ORGANIZATION Sterling Medivations, Inc. (the Company) is a development stage company, incorporated under the laws of the State of Delaware and started operations on January 13, 2000, when it issued stock to its founders. The Company is developing insulin infusion devices which deliver insulin to people with diabetes. 2. BUSINESS OF PRESENTATION AND GOING CONCERN The accompanying financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has a limited operating history and has incurred a loss and negative cash flows from operations since its inception. The Company expects to incur additional losses and to require additional funding in order to continue its operations through 2001. These circumstances raise substantial doubt about the Company's ability to continue as a going concern. Management is seeking to raise additional funds through debt or equity financing. Additionally, the Company is continuing to pursue development of its products. However, there can be no assurance that such additional funding will be available on terms acceptable to the Company or at all, and there can be no assurance that the Company will successfully develop its products or that the Company will receive the regulatory approvals necessary to market its products. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash. The Company places its cash primarily in checking and money market accounts with financial institutions that management considers creditworthy. FURNITURE AND EQUIPMENT Furniture and equipment are stated at cost. Depreciation is determined using the straight-line method over the estimated useful lives (three years) of the assets. Maintenance and repairs are charged to expense as incurred. PATENTS The Company has filed applications for patents with the U.S. Patent and Trademark Office. The legal fees and application costs associated with obtaining patents from the U.S. Patent and Trademark Office are capitalized as incurred. Upon issuance of the 16 STERLING MEDIVATIONS, INC. (A DEVELOPMENTAL STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS related patents, the capitalized costs are amortized using the straight-line method over five years. As of December 31, 2000, none of the patents applied for have been issued. LONG-LIVED ASSETS The recoverability of intangible assets and other long-lived assets is assessed periodically or whenever adverse events or changes in circumstances or business climate indicate that the expected cash flows previously anticipated warrant a reassessment. When such reassessments indicate the potential of impairment, all business factors are considered and, if the carrying value of such intangible assets is not likely to be recovered from future undiscounted operating cash flows, they will be written down for financial reporting purposes. RESEARCH AND DEVELOPMENT Research and development expenditures are expensed as incurred. STOCK-BASED COMPENSATION In accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), the Company has elected to account for stock-based compensation to employees using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations (APB Opinion No. 25). Accordingly, compensation cost for stock options granted to employees is measured as the excess, if any, of the fair value of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. The Company accounts for stock-based compensation to nonemployees using the fair value method prescribed by SFAS No. 123. Compensation cost for stock options granted to nonemployees is measured based on the fair value of the option at the date of grant with the unvested portion revalued at each balance sheet date. Compensation costs, if any, are amortized on a straight-line basis over the underlying option vesting terms. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). The asset and liability approach of SFAS No. 109 requires the recognition of deferred tax assets and liabilities for the tax consequences of temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes using enacted tax rates in effect for the years in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. COMPREHENSIVE LOSS Comprehensive loss, as defined in Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," includes all changes in equity (net assets) during a period from non-owner sources. The Company has not had any changes in stockholders' equity from nonowner sources other than a net loss. 17 STERLING MEDIVATIONS, INC. (A DEVELOPMENTAL STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS 4. SELECTED BALANCE SHEET INFORMATION The following presents selected balance sheet information as of December 31, 2000: Furniture and office equipment, net: Office equipment $ 7,114 Less accumulated depreciation 1,186 ------- $ 5,928 =======
5. STOCKHOLDERS' EQUITY In April 2000 and June 2000, the Company's Board of Directors and stockholders authorized a 6-for-1 stock split and a 0.85-for-1 reverse stock split of its common stock, respectively. The stock splits have been retroactively reflected in the accompanying financial statements. CAPITAL STOCK As of December 31, 2000, the Company and its stockholders have authorized 12,000,000 shares of stock, of which 6,000,000 shares have been designated as common stock, 1,000,000 shares have been designated Series A Convertible Preferred Stock (Series A), and 5,000,000 shares are undesignated. CONVERTIBLE PREFERRED STOCK As of December 31, 2000, terms of the Company's convertible preferred stock are as follows:
NUMBER OF SHARES CONVERTIBLE PREFERRED AUTHORIZED, ISSUED AND STOCK LIQUIDATION PREFERENCE OUTSTANDING --------------------- ---------------------- ---------------------- Series A $1.00 per share 1,000,000
CONVERSION All Series A shares shall be automatically converted into common stock on a one-for-one basis (subject to certain anti-dilutive adjustments of the conversion price, as defined) upon (i) the written consent of the holders of a majority of the outstanding Series A shares, or (ii) the closing of a public offering of the Company's common stock of at least $3.00 per share with gross proceeds of at least $10,000,000. The Company has reserved 1,000,000 shares of unissued common stock for the purpose of effecting the conversion of the shares of the Series A. VOTING RIGHTS The Series A stockholders are entitled to a number of votes equal to the number of shares of common stock into which such shares of Series A is convertible. In addition, an affirmative vote of the majority of the Series A stockholders is required to sell the Company and to amend the Company's Articles of Incorporation in a manner which may adversely affect the current Series A stockholders. 18 STERLING MEDIVATIONS, INC. (A DEVELOPMENTAL STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DIVIDENDS The holders of Series A shall be entitled to receive noncumulative dividends in preference to any dividend on the common stock at the rate of 8% per annum of the original purchase price per share of the Series A. Dividends shall be payable on the Series A out of funds legally available for declaration of dividends, only if and when declared by the Company's Board of Directors. No such dividends have been declared. LIQUIDATION PREFERENCE In the event of any liquidation, dissolution or winding up of the Company, including a merger, acquisition or reorganization where the beneficial owners of the Company's common stock and convertible preferred stock do not own a majority of the outstanding shares of the surviving, purchasing, or newly resulting corporation or a sale of all or substantially all of the assets of the Company, Series A stockholders are entitled to a per share distribution in preference to common stockholders equal to the original issue price per share of $1.00 plus any declared but unpaid dividends. After this distribution, the remaining assets, if any, shall be distributed pro rata among the holders of the common stock. In the event that funds are insufficient to make a complete liquidation distribution to holders of Series A, the holders shall share ratably in any distribution. 6. STOCK OPTIONS In April 2000, the Company's stockholders approved the Sterling Medivations, Inc. 2000 Stock Incentive Plan (the Plan). Under the Plan, options to purchase up to 394,444 shares of common stock could be granted to directors, officers and employees of and advisors to the Company at exercise prices not less than 100% of the fair value (as determined by the Board of Directors) of the Company's common stock on the date of grant. These options, which may be incentive or non-qualified stock options, have exercise prices and vesting terms established by the Board of Directors at the time of each grant. Vesting terms of outstanding options range from one to four years. All options expire ten years after the date of grant. The following is a summary of stock option activity:
WEIGHTED SHARES AVERAGE AVAILABLE OPTIONS EXERCISE PRICE STOCK OPTIONS FOR GRANT OUTSTANDING PER SHARE Shares reserved 394,444 Options granted (94,000) 94,000 $ 0.80 --------- ------ Balances, December 31, 2000 300,444 94,000 $ 0.80 --------- ------
19 STERLING MEDIVATIONS, INC. (A DEVELOPMENTAL STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS Total compensation expense relating to option grants measured using the intrinsic value method for grants to employees, as prescribed by APB Opinion No. 25 and using the fair value method for grants to nonemployees as prescribed by SFAS No. 123, was $4,248, for the period from inception (January 13, 2000) through December 31, 2000. As of December 31, 2000, there was $454 of compensation expense related to these options that will be recognized in future periods. The following summarizes information about stock options outstanding as of December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------- --------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE $ 1.00 70,000 9.0 $ 1.00 56,000 $ 1.00 $ 0.20 24,000 9.5 $ 0.20 ------- ---- ------ ------- ------- 94,000 9.1 $ 0.80 56,000 $ 1.00 ======= ==== ====== ======= =======
PRO FORMA COMPENSATION Had compensation cost for all options granted by the Company been determined based on the option fair value at the grant date, net loss would have been increased to the following pro forma amounts:
PERIOD FROM INCEPTION (JANUARY 13, 2000) THROUGH DECEMBER 31, 2000 Net loss: As reported $ (277,434) Pro forma (277,682)
The weighted average fair value of employee options on the date of grant was $0.08 per option. For purposes of applying the fair value method as prescribed by SFAS No. 123, the Company used the Black-Scholes option pricing model with four years as the expected holding period of the options, the risk-free rate used by the Company was the quoted U.S. Treasury rate on the dates of the related option grants (weighted average rate of 6.42%), and a volatility of 45%. 20 STERLING MEDIVATIONS, INC. (A DEVELOPMENTAL STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS 7. INCOME TAXES As of December 31, 2000, the Company has generated net operating loss carryforwards of approximately $176,000 that may be offset against future taxable income through 2020. In addition, the Company had approximately $101,000 of future deductible temporary differences as of December 31, 2000, related primarily to different methods in accounting for start-up costs for financial and tax reporting purposes. The Company has established a valuation allowance as of December 31, 2000 that offsets the net tax benefits associated with the loss carryforwards and other temporary differences in light of the Company's current stage of development. Under the Internal Revenue Code Section 382, certain stock transactions which significantly change ownership, including sale of stock and the granting of options to purchase stock, could limit the amount of net operating loss carryforwards that may be utilized on an annual basis to offset taxable income in future periods. 21 EX-99.3 6 g74752ex99-3.txt UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS Exhibit 99.3 - SpectRx, Inc. unaudited pro forma condensed combined statements of operations for the year ended December 31, 2000, unaudited pro forma condensed combined statements of operations and the unaudited pro forma condensed combined balance sheet as of and for the nine months ended September 30, 2001. THE UNAUDITED PRO FORMA FINANCIAL INFORMATION HAS BEEN PREPARED BY THE MANAGEMENT OF SPECTRX BASED ON THE HISTORICAL FINANCIAL STATEMENTS OF SPECTRX AND STERLING. THE UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION IS PREPARED FOR INFORMATIONAL PURPOSES ONLY AND IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS OR OF ACTUAL RESULTS THAT WOULD HAVE BEEN ACHIEVED HAD THE MERGER BEEN CONSUMMATED AT THE BEGINNING OF THE PERIODS PRESENTED, NOR IS IT INDICATIVE OF FUTURE FINANCIAL POSITION OR RESULTS OF OPERATIONS. THE UNAUDITED PRO FORMA FINANCIAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH SPECTRX'S HISTORICAL FINANCIAL STATEMENTS AND RELATED NOTES CONTAINED IN IT'S ANNUAL REPORT ON FORM 10-K AND SUBSEQUENT QUARTERLY REPORTS ON FORM 10-Q, OTHER INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AS WELL AS HISTORICAL FINANCIAL STATEMENTS AND NOTES ON STERLING CONTAINED IN THIS 8-K/A. PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 (IN THOUSANDS, EXCEPT PER SHARE DATA)
STERLING FOR THE PERIOD FROM INCEPTION (JANUARY 13, 2000) THROUGH PRO FORMA DECEMBER 31, PRO FORMA COMBINED SPECTRX 2000 ADJUSTMENTS CONDENSED --------- ------- ------- --------- REVENUES ........................................... $ 4,968 $ -- $ 4,968 --------- ------- ------- --------- COST AND EXPENSES: Cost of product sales ............................ 1,732 -- 1,732 Research and development ......................... 957 -- 957 Sales and marketing .............................. 5,804 202 6,006 General and administrative ....................... 3,177 101 7(5) 3,285 Amortization of acquired intangibles ............. -- 337(3) 337 --------- ------- ------- --------- 11,670 303 344 12,317 --------- ------- ------- --------- Operating loss ............................... (6,702) (303) (344) (7,349) OTHER INCOME, NET .................................. 355 26 381 --------- ------- ------- --------- NET LOSS ........................................... $ (6,347) $ (277) $ (344) $ (6,968) --------- ------- ------- --------- PREFERRED STOCK DIVIDENDS .......................... (315) (315) --------- ------- ------- --------- NET LOSS AVAILABLE TO COMMON STOCKHOLDERS .......... (6,662) (277) (344) (7,283) ========= ======= ======= ========= BASIC AND DILUTED LOSS PER SHARE ................... $ (0.79) $ (0.81) ========= ========= WEIGHTED AVERAGE SHARES OUTSTANDING (BASIC AND DILUTED) ................................. 8,429 610(6) 9,039 ========= ======= =========
See accompanying notes to the unaudited pro forma combined condensed financial statements. 22 PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL HISTORICAL PRO FORMA SPECTRX SPECTRX STERLING ADJUSTMENTS PRO FORMA ---------- ---------- ----------- --------- REVENUES ..................................... $ 1,826 $ -- $ $ 1,826 --------- ------- ------ --------- COST AND EXPENSES: Cost of product sales ....................... 1,417 -- 1,417 Research and development .................... 711 163 874 Sales and marketing ......................... 2,989 -- 2,989 General and administrative .................. 2,090 320 5(5) 2,415 Amortization ................................ -- -- 250(3) 250 --------- ------- ------ --------- 7,207 483 255 7,945 --------- ------- ------ --------- Operating loss ......................... (5,381) (483) (255) (6,119) OTHER INCOME (EXPENSE), NET .................. 184 (51) 70(4) 203 --------- ------- ------ --------- NET LOSS ..................................... (5,197) (534) (185) (5,916) PREFERRED STOCK DIVIDENDS .................... (236) -- (236) --------- ------- ------ --------- NET LOSS AVAILABLE TO COMMON STOCKHOLDERS ................................. $ (5,433) $ (534) (185) $ (6,152) ========= ======= ====== ========= BASIC AND DILUTED EARNINGS PER SHARE ......... $ (0.58) $ (0.62) ========= ========= WEIGHTED AVERAGE SHARES OUTSTANDING (BASIC AND DILUTED) (1) ...................... 9,336 610(6) 9,947 ========= ====== =========
See accompanying notes to the unaudited pro forma combined condensed financial statements. 23 PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 2001 (IN THOUSANDS)
HISTORICAL HISTORICAL PRO FORMA SPECTRX SPECTRX STERLING ADJUSTMENTS PRO FORMA ---------- ---------- ----------- --------- ASSETS CURRENT ASSETS: Cash .......................................... $ 9,519 $ 615 $ (385)(2) $ 9,749 Receivables, net .............................. 845 845 Inventories ................................... 625 625 Prepaids and other current assets ............. 496 3 499 ---------- -------- --------- ---------- Total current assets ........................ 11,485 618 (385) 11,718 ---------- -------- --------- ---------- NONCURRENT ASSETS: Property and equipment, net ................... 681 4 685 Goodwill ...................................... -- -- 1,513 (2) 1,513 Intangibles, net and other noncurrent assets... 550 165 (165)(8) 4,132 (2) 4,682 ---------- -------- --------- ---------- Total noncurrent assets ..................... 1,231 169 5,480 6,880 ---------- -------- --------- ---------- Total assets ................................ $ 12,716 $ 787 $ 5,095 $ 18,598 ========== ======== ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued liabilities....... $ 1,790 $ 37 $ 1,827 ---------- -------- --------- ---------- Total current liabilities ................... 1,790 37 -- 1,827 ---------- -------- --------- ---------- NONCURRENT LIABILITIES: Deferred tax liability ........................ -- -- 1,591 (7) 1,591 Collaborative partner advance ................. 381 -- -- 381 Convertible debt, net ......................... -- 63 (63)(4) -- Accrued interest .............................. -- 8 (8)(4) -- ---------- -------- --------- ---------- Total noncurrent liabilities ................ 381 71 1,520 1,972 ---------- -------- --------- ---------- REDEEMABLE CONVERTIBLE PREFERRED STOCK ........... 5,815 -- 5,815 ---------- -------- --------- ---------- STOCKHOLDERS' EQUITY (DEFICIT): Preferred stock ............................... -- 1 (1)(1) 11 Common stock .................................. 10 2 (2)(1) 1 (1) Additional paid-in capital .................... 42,183 1,487 4,272 (1) 46,455 (1,487)(1) Deferred compensation ......................... -- -- (19)(2) (19) Notes receivable from officers ................ (31) -- (31) Accumulated deficit ........................... (37,432) (811) 811 (1) (37,432) ========== ======== ========= ========== Total stockholders' equity .................. 4,730 679 3,575 8,984 ========== ======== ========= ========== Total liabilities and stockholders' equity .................................... $ 12,716 $ 787 $ 5,095 $ 18,598 ========== ======== ========= ==========
See accompanying notes to the unaudited pro forma combined condensed financial statements. 24 PRO FORMA ADJUSTMENTS (1) Reflects: (i) the issuance of 548,056 shares of SpectRx common stock in exchange for all of the outstanding Sterling common stock and preferred stock; plus (ii) 22,024 vested and unvested replacement stock options with an estimated fair market value of $61,895; and (iii) the issuance of an additional estimated 62,282 shares to compensate the Sterling stockholders for estimated cash balances net of any accrued transaction costs. The adjustment does not reflect an aggregate of 1,234,567 additional contingent shares of SpectRx common stock, as the additional shares will only be issued if the Sterling product line achieves specified financial goals. Shares issued to Sterling stockholders in the merger, including estimated shares in (iii) above, represent approximately $4,211,332, at an estimated fair value of $6.90 per share, plus stock options with an estimated fair value of $61,895. (2) Reflects SpectRx's estimate of the purchase price allocation arising from the merger of a subsidiary of SpectRx into Sterling as if it occurred on September 30, 2001 (the inception date of Sterling). A summary of the computation is as follows:
(IN THOUSANDS) Purchase Price $ 4,273 Less: Net tangible assets acquired (585) Less: Identifiable intangible assets (4,132) Less: Deferred Compensation (19) Plus: Deferred tax liability 1,591 Plus: Transaction costs of purchase acquisition 385 -------- Excess purchase price over the fair value of Sterling's net assets acquired (i.e., goodwill) $ 1,513 ========
(3) Represents additional amortization related to identifiable intangible assets as noted in footnote (2) above over an average estimated useful life of 13 years. The preliminary purchase price allocation and estimate of underlying useful lives is subject to adjustment once a final purchase price allocation is completed. (4) Reflects the elimination of the Sterling bridge loans and related interest expense. Sterling's bridge loan was not part of the liabilities assumed in the merger because it was satisfied, in whole, by the conversion of the loan into Sterling preferred stock. (5) Reflects stock compensation expense because of amortization of deferred compensation related to the $18,759 estimated intrinsic value of 6,958 unvested replacement stock options issued by SpectRx in connection with the acquisition. (6) Reflects the issuance of 610,338 shares of SpectRx common stock issued to the Sterling stockholders as a result of the merger as if these shares were outstanding since the beginning of the period. These shares exclude the effect of stock options for purposes of the diluted earnings per share calculation as the effect for pro forma purposes is antidilutive. (7) Reflects the income tax effect differences between the assigned value and the tax basis of certain assets and liabilities recognized in the acquisition of Sterling. (8) Reflects elimination of historical assets of Sterling. 25 -----END PRIVACY-ENHANCED MESSAGE-----