SPECTRASCIENCE, INC.
2,264,006 SHARES OF COMMON STOCK
($.25 PAR VALUE PER SHARE)
--------------------------------
This Prospectus relates to the public offering, which is not being
underwritten, of shares (the "Shares") of Common Stock, par value $.25 per share
(the "Common Stock") of SpectraScience, Inc. (the "Company"). The shares may be
offered by certain securityholders of the Company or by pledges, donees,
transferees or other successors in interest that receive such shares as a gift
or other non-sale related transfer (the "Selling Shareholders") from time to
time in transactions on the Nasdaq Small Cap Market, in over-the-counter trades,
in privately negotiated transactions, or by a combination of such methods of
sale, at fixed prices that may be changed, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Shares are issuable upon conversion of Series A Preferred
Stock ("Preferred A") and Series B Preferred Stock ("Preferred B") and exercise
of warrants received by the Selling Shareholders in private placements by the
Company and in providing bridge loan financing (the "Bridge Loans") to the
Company (collectively, the "Warrants"). See "Recent Developments". Preferred A,
Preferred B and the Warrants were issued pursuant to exemptions from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), provided by Section 4(2) thereof. The Shares are being
registered by the Company pursuant to a commitment to the Selling Shareholders
made by the Company in connection with the private placements and the Bridge
Loans. The Selling Shareholders may effect such transactions by selling the
Shares to or through broker-dealers and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Shareholders or the purchasers of the Shares for whom such
broker-dealers may act as agent or to whom they sell as principal or both (which
compensation to a particular broker-dealer might be in excess of customary
commissions.) See "Selling Shareholders" and "Plan of Distribution".
None of the proceeds from the sale of the Shares by the Selling
Shareholders will be received by the Company. However, the Company may receive
gross proceeds of up to $4,900,213 if all the Warrants were exercised. There is
no assurance any of the Warrants will be exercised. The Company has agreed to
bear certain expenses in connection with the registration of the Shares being
offered by the Selling Shareholders.
The Common Stock of the Company is traded over-the-counter under the
symbol "SPSI". On February 14, 1996, the average of the bid and ask prices for
the Common Stock was $7.00 per share.
The Selling Shareholders and any broker-dealers or agents that
participate with the Selling Shareholders in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act, and any commissions received by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
--------------------------------
The Common Stock offered hereby involves a high degree of Risk.
See "RISK FACTORS" commencing on page 4.
--------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The Date of this Prospectus is June 7, 1996
No person has been authorized to give any information or to make any
representations not contained in or incorporated by reference in this Prospectus
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company, the Selling Shareholder or any
other person. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such an offer in such
jurisdiction. Neither the delivery of this Prospectus nor any sale made
thereunder shall, under any circumstances, create any implication that the
information herein is correct as of any time subsequent to the date hereof or
that there has been no change in the affairs of the Company since such date.
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TABLE OF CONTENTS
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Page
AVAILABLE INFORMATION.......................................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................ 3
RISK FACTORS................................................... 4
THE COMPANY.................................................... 8
RECENT DEVELOPMENTS............................................ 8
USE OF PROCEEDS................................................ 9
DILUTION....................................................... 9
SELLING SHAREHOLDERS........................................... 10
PLAN OF DISTRIBUTION........................................... 16
INDEMNIFICATION................................................ 17
DESCRIPTION OF CAPITAL STOCK................................... 18
LEGAL MATTERS.................................................. 19
EXPERTS........................................................ 19
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information concerning the Company filed with the
Commission may be inspected and copied at the public reference facilities
maintained by the Commission at its office at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as at the Regional Offices of the Commission at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company has filed with the Commission a Registration Statement
(which term shall include all amendments, exhibits and schedules thereto) on
Form S-3 under the Securities Act with respect to the securities offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is made to the Registration Statement and the exhibits filed as apart thereof.
Statements contained herein concerning any document filed as an exhibit are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
hereby incorporated by reference into this Prospectus: (a) the Company's Annual
Report on Form 10-KSB, as amended, for the fiscal year ended December 31, 1995,
(b) the Company's Quarterly Report on Form 10-QSB for the quarter ended March
31, 1996, (c) the definitive Proxy Statement dated May 19, 1995, filed in
connection with the Company's 1995 Annual Meeting of Shareholders, (d) a
registration statement on Form S-8 filed on September 28, 1995, in connection
with the registration of Common Stock to be issued upon exercise of certain
stock options issued pursuant to the Company's 1991 Stock Option Plan, as
amended, (e) the description of the Company's Common Stock contained in its
registration statement on Form 8-A filed on March 11, 1985, including any
amendment or report filed for the purpose of updating such description, and (f)
the Company's Report on Form 8-K filed on January 10, 1996.
All other documents filed by the Company pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering shall be incorporated by
reference into this Prospectus from the date of filing of such documents. Any
statement contained in a document incorporated by reference shall be deemed to
be modified or superseded for all purposes to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, upon oral or written request, a copy of any or
all of the documents incorporated herein by reference, other than certain
exhibits to such documents. Requests for such copies should be directed to:
Investor Relations, SpectraScience, Inc., 5909 Baker Road, Suite 580,
Minnetonka, MN 55345, telephone number (612) 931-9000.
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN ADDITION
TO THE OTHER INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE IN THE
PROSPECTUS BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS,
INCLUDING THE INFORMATION INCORPORATED HEREIN BY REFERENCE, CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. ACTUAL
RESULTS COULD DIFFER SIGNIFICANTLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT, IN PART, OF THE RISK FACTORS SET FORTH BELOW. IN
CONNECTION WITH THE FORWARD-LOOKING STATEMENTS WHICH APPEAR IN THESE
DISCLOSURES, PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY SHOULD
CAREFULLY REVIEW THE FACTORS SET FORTH BELOW.
NEED FOR ADDITIONAL CAPITAL; UNCERTAINTY OF ADDITIONAL FINANCING
The development of the Company's products will require the commitment
of substantial funds to conduct research and development, to establish
commercial scale manufacturing capabilities, and to market its products. The
Company's future capital requirements will depend on many factors, including the
progress of the Company's research and development, the scope and results of
clinical trials, the cost and time of obtaining regulatory approvals, the rate
of technological advances, determinations as to the commercial potential of the
Company's products, the status of competitive products and the establishment of
manufacturing capacity. The Company anticipates that its current funds will be
adequate to satisfy its capital requirements until approximately December 1997.
The Company anticipates that it will be required to raise substantial additional
funds, including funds raised through strategic partnerships and additional
public or private financings. No assurance can be given that additional
financing will be available or that, if available, it will be available on terms
favorable to the Company or its shareholders. If the Company is unable to obtain
additional financing when needed, the Company may be required to curtail its
operations significantly or to obtain funds through strategic partners that may
require the Company to relinquish significant rights to its technology or
potential markets.
VOLATILITY OF STOCK PRICE
The market price for securities of high technology medical products
companies have historically been highly volatile, and the market has from time
to time experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. Factors such as
fluctuations in the Company's operating results, announcements of technological
innovations or new diagnostic or therapeutic products by the Company or its
competitors, government regulations, developments in patent or other proprietary
rights, public concern as to the safety of products developed by the Company or
others and general market conditions may have a significant adverse effect on
the market price of the Company's Common Stock.
UNCERTAINTY OF MARKET ACCEPTANCE; NEED FOR REGULATORY APPROVAL
Sales to date have been very limited, and it is not anticipated that
revenues from sales of Company products will be significant for at least another
year. In addition, there can be no assurance that the Company's products will be
acceptable to the market. Moreover, there are many reasons that potential
products that appear promising do not result in successful commercialization.
Newly developed products may not receive regulatory approval or be successfully
introduced and marketed at prices that would permit the Company to operate
profitably. Failure of any of the Company's products to achieve market
acceptance could have a material adverse effect on the Company's business,
financial condition or results of operations.
LACK OF SUFFICIENT DATA TO ESTABLISH SAFETY AND EFFICACY OF PRODUCTS
In June 1995, the Company entered into a two-year collaborative
research agreement for the spectroscopic detection of cancer using minimally
invasive endoscopic and laparoscopic techniques. Applications currently targeted
include the real-time spectroscopic identification and differentiation of
pre-cancerous lesions and cancerous tissues in various areas of the body which
can be accessed less invasively, such as the lung, bladder, prostate, cervix,
upper and lower gastrointestinal tract and colon. There can be no assurance that
clinical results will be encouraging. Other risks attendant with the clinical
trials include the unpredictability of the time frame for completion due to
patient availability, hospital procedures and policies which could change, and
changes in the principal investigators leading the clinical trials.
The Company has also been conducting clinical feasibility studies
designed to lead to the development of a commercial product for cardiovascular
applications. These studies are carried out under Investigational Device
Exemptions ("IDE") approved by the Food and Drug Administration ("FDA") and also
by the hospital's Institutional Review Board ("IRB"). There can be no assurance
such studies or development will prove successful.
DEPENDENCE ON PATENTS, PROPRIETARY RIGHTS AND LICENSES
The Company's success depends and will continue to depend in part on
its ability to maintain patent protection for products and processes, to
preserve its trade secrets and to operate without infringing upon the
proprietary rights of third parties. Although the Company has been awarded a
number of patents that it hopes to commercially exploit, there can be no
assurance that the patents will afford protection against competitors with
similar technology. The validity and breadth of claims covered in medical
technology patents involve complex legal and factual questions and, therefore,
may be highly uncertain. The Company also relies upon unpatented proprietary
technology. No assurance can be given that the Company can meaningfully protect
its rights in such unpatented proprietary technology or that others will not
duplicate or independently develop substantially equivalent technology.
In order to manufacture and market certain products, the Company may be
required to obtain licenses to patents or other proprietary rights of third
parties. There can be no assurance that the Company will be able to license such
technology at a reasonable cost, if at all. If the Company does not obtain such
licenses, it could encounter delays in introducing such products while it
attempts to design around such patents. There can be no assurance that the
Company would be able to design around such patents or, even if successful, the
Company could find that the development, manufacture or sale of such products
could be adversely affected.
In addition, the Company could incur substantial costs in defending
itself in suits brought against it on such patents or in suits in which the
Company's patents may be asserted by it against another party. There has been
substantial litigation regarding patent and other intellectual property rights
in the medical device industry. Litigation, which could result in substantial
cost to and diversion of effort by the Company, may be necessary to enforce
patents issued to the Company, to protect trade secrets or know-how owned by the
Company, to defend the Company against claimed infringement of the rights of
others or to determine the ownership, scope or validity of the proprietary
rights of the Company and others. An adverse determination in any such
litigation could subject the Company to significant liabilities to third
parties, could require the Company to seek licenses from third parties and could
prevent the Company from manufacturing, selling or using its products, any of
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has acquired significant proprietary rights under certain
license agreements that permit the licensor to terminate these agreements in the
event of certain material breaches by the Company. There can be no assurance
that defaults will not occur in the future. If a default occurred and any of
these agreements were terminated in the future, the Company could lose the right
to continue to develop and market one or more products.
DEPENDENCE ON KEY PERSONNEL AND CONSULTANTS
The Company's success is highly dependent on the retention of principal
members of its management and scientific staff, key consulting arrangements and
the recruitment of additional qualified personnel. There is intense competition
from other companies, research and academic institutions and other organizations
for qualified personnel in the areas of the Company's activities. There can be
no assurance that the Company will be successful in hiring or retaining
qualified personnel. The loss of key personnel or the inability to hire or
retain qualified personnel could have an adverse effect on the Company's
business, financial condition and results of operation.
DEPENDENCE ON CONSULTANTS AND CONTRACT MANUFACTURERS
The Company has entered into consulting agreements with a number of
individuals and business organizations who are currently providing management,
software development, and regulatory compliance and submissions. Risks attendant
to the use of consultants include their competence and availability on short
notice. The Company also relies on contract manufacturers. These contract
manufacturers are subject to audit by the FDA, and there can be no assurance
that they will be in compliance with applicable FDA regulations. Additional
risks associated with the use of contract manufacturers include manufacturing
priorities and the resultant ability to obtain products on a timely basis, and
less control over the manufacturing process, costs and inventory control and
maintenance of proprietary information.
OPERATING LOSS AND ACCUMULATED DEFICIT
The Company has incurred net losses since its inception. At fiscal year
ending December 31, 1995, the Company's accumulated deficit was approximately
$40.9 million. Such losses have resulted principally from expenses incurred in
the Company's research and development program, the acquisition of new
technology, and, to a lesser extent, from general and administrative expenses.
The Company incurred a loss of $1,345,910 in fiscal year 1995, and expects to
incur substantial losses for fiscal year 1996 due primarily to additional
research and development expenses. There can be no assurance that the Company
will successfully market its products or ever achieve or sustain profitability.
LIMITED MANUFACTURING AND MARKETING EXPERIENCE FOR PRODUCTS; UNCERTAINTY OF
MARKET ACCEPTANCE
For the Company to be financially successful, it must manufacture its
products in accordance with regulatory requirements, in commercial quantities,
at appropriate quality levels and at acceptable costs. The Company intends to
market and sell some of its products directly, while relying on sales and
marketing expertise of corporate partners for other products. However, the
Company has limited experience in direct marketing of its products, and there
can be no assurance that such direct marketing will be successful.
PRODUCT LIABILITY RISK; LIMITED INSURANCE COVERAGE
The Company faces an inherent business risk of exposure to product
liability claims. Clinical trials or marketing of any of the Company's products
may expose the Company to liability claims resulting from the use of such
products. These claims might be made directly by consumers, health care
providers or by others selling the products. The Company currently maintains $1
million of product liability insurance coverage. There can be no assurance that
the Company will be able to maintain such insurance or, if maintained, that
sufficient coverage can be acquired at a reasonable cost. An inability to
maintain insurance at acceptable cost or at all, could prevent or inhibit the
clinical testing or commercialization of products developed by the Company. In
addition, there can be no assurance, regardless of the availability of product
liability insurance, that the Company will be adequately protected from claims
that may be brought against it. A product liability claim or recall could have a
material adverse effect on the Company's business, financial condition and
results of operations.
ADVERSE EFFECT OF SALES ON MARKET PRICE; DILUTION
Future sales of common shares by existing shareholders and holders of
options and warrants could adversely affect the prevailing market price of the
Company's Common Stock. The price of the Common Stock issued in this offering is
substantially higher than the book value per share of the Company's Common
Stock. Investors purchasing the Company's Common Stock in this offering will
therefore incur immediate, substantial dilution.
UNCERTAINTY OF FINANCIAL PROJECTIONS AND MANAGEMENT PLANS
There are substantial risks and uncertainties associated with the
Company's financial projections, management plans and time schedules. Many of
the objectives and projections of the Company's business may not be achievable.
There could be (i) errors of omission or of estimation in the Company's plans,
(ii) new events or circumstances imposed on the business that require additional
time and/or capital, or (iii) product failures with respect to any number of
tests, government requirements or market requirements, resulting in delays,
redesign or even abandonment of products. Should any of these events, as well as
others currently unforeseen, occur, it could have a material adverse effect on
management's plans for development of the business.
UNCERTAINTY OF HEALTH CARE REIMBURSEMENT AND PROPOSED HEALTH CARE LEGISLATION
The levels of revenue and profitability of medical device companies may
be affected by the continuing efforts of government and third party payors to
reduce the costs of health care through various means. Government and other
third party reimbursement sources are increasingly attempting to contain
healthcare costs by limiting both coverage and the level of reimbursement,
especially for new diagnostic and therapeutic products. If adequate coverage and
reimbursement levels are not provided by government and third party
reimbursement sources for uses of the products to be commercialized by the
Company, market acceptance of these products could be adversely affected.
Furthermore, significant changes in the healthcare system of the United States
could have a substantial impact over time on the manner in which the Company
conducts its business and could have a material adverse effect on the Company's
business, financial condition and results of operations.
THE COMPANY
The Company, a publicly-held company located in Minnetonka, Minnesota,
is a market-driven high technology medical products company that has developed
novel proprietary technology for spectroscopic identification of human tissues.
The Company was incorporated in the state of Minnesota on May 4, 1983 as GV
Medical, Inc. Subsequently the Company changed its name to SpectraScience, Inc.
on October 16, 1992, which was approved by the shareholders on May 13, 1993. The
executive offices of the Company are located at 5909 Baker Road, Suite 580,
Minnetonka, Minnesota 55345. Its telephone number is (612) 931-9000 and its fax
number is (612) 933-9090. The Company's common stock, symbol SPSI, is currently
being traded on the OTC Bulletin Board.
The Company's unique SGS product allows cardiologists performing
catheterization of the coronary arteries to identify and differentiate
atherosclerotic plaques and thrombus. Knowledge of the composition of the plaque
and presence of intracoronary thrombus can help the cardiologist select, in a
cost effective manner, the appropriate lesion specific angioplasty modality,
which may offer significant benefit to the patient in terms of maximizing
success rate, minimizing complications and improving long-term patient outcomes.
The feasibility of the technology having been established, the Company
has received an IDE protocol approval from the FDA for cardiology clinical
studies on the Company's SGS product, which have now commenced at two hospital
sites.
The mission of the Company is to utilize its expertise in the
underlying core technologies of spectroscopy, fiber optics, computer software
and hardware, and minimally-invasive medical delivery systems to design,
develop, manufacture and market medical products for the diagnosis and
facilitation of treatment of a broad range of human diseases. The diseases
currently targeted by the Company are the diagnosis and differentiation of
atherosclerotic plaques and cancerous tissues.
RECENT DEVELOPMENTS
On September 30, 1994, the Company received $300,000 of bridge loan
financing ("Bridge Loans"). The Bridge Loans did not bear interest. In return,
lenders were given 5-year Warrants exercisable at $3.00 per share, to purchase
100,000 shares of Common Stock. During the fiscal first quarter ending March 31,
1995, the Company received $225,000 of additional Bridge Loans. Lenders for this
portion of the Bridge Loans were given 5-year Warrants exercisable at $3.00 per
share, to purchase 74,998 shares of Common Stock. The Bridge Loans were
converted on March 31, 1995 as part of the private placement of Preferred A.
On June 29, 1995, the Company completed the private placement of
674,998 shares of Preferred A and Warrants to purchase 225,000 shares of Common
Stock for $2,025,000, including conversion of Bridge Loans, before offering
costs. The selling agent, R.J. Steichen & Co., received two Warrants: a Warrant
to purchase 20,000 shares and another Warrant to purchase 6,667 shares of the
Company's Common Stock.
On December 28, 1995, the Company completed an additional private
placement of 792,500 shares of Preferred B and Warrants to purchase 264,175
shares of Common Stock for $3,962,500, before offering costs. The selling agent,
Miller, Johnson & Kuehn, received a Warrant to purchase 79,250 shares of Common
Stock and a conditional Warrant to purchase up to an additional 26,418 shares of
Common Stock.
Preferred A and Preferred B (collectively, the "Preferred Stock") and
the Warrants were issued to the Selling Shareholders pursuant to exemptions from
the registration requirements of the Securities Act provided by Section 4(2)
thereof. Preferred A is convertible from time to time on or after March 31, 1996
into 674,998 shares of Common Stock. Preferred B is initially convertible on
December 28, 1996 into 792,500 shares of Common Stock.
The Company granted S-3 registration rights to the Selling Shareholders
covering the resale of Common Stock issuable upon the conversion of the
Preferred Stock and exercise of the Warrants (collectively, the "Shares"). The
Shares are being registered by the Company on a registration statement on Form
S-3, of which this prospectus forms a part, pursuant to which all of the Shares
may be offered from time to time by the Selling Shareholders. In addition, the
Preferred Stock has certain rights, preferences and privileges. (See
"Description of Capital Stock.") Copies of the form of Warrant and the
Amendments to the Company's Articles of Incorporation to designate the rights,
preferences and privileges of the Preferred Stock are incorporated herein.
USE OF PROCEEDS
None of the proceeds from the sale of the Shares by the Selling
Shareholders will be received by the Company. However, the Company may receive
gross proceeds of up to $4,900,213 if all the Warrants were exercised. There is
no assurance any of the Warrants will be exercised.
The Company expects to use a majority of the net proceeds from the
exercise of Warrants to fund development activities, clinical trials, conduct
studies on alternative medical applications, and expansion of marketing, sales
and manufacturing activities for the Company's SGS systems. The balance of the
net proceeds will be used for working capital, general and administrative and
general corporate purposes. Although the Company may use a portion of the net
proceeds for the licensing of new patents, products or technologies from other
entities, the Company currently has no specific plans or commitments in this
regard. The amounts actually expended for each purpose and the timing of such
expenditures may vary significantly depending upon numerous factors, including
the progress of the Company's clinical trials, actions relating to regulatory
and reimbursement matters, the costs and timing of expansion of marketing,
sales, manufacturing and product development activities, the extent to which the
Company's products gain market acceptance and competition. Pending such uses,
the Company intends to invest the net proceeds of this offering in short-term,
interest-bearing investment grade securities.
DILUTION
On December 31, 1995, the number of shares of Common Stock outstanding
was 2,933,348. The net tangible book value on that date was $4,389,601, or $1.50
per share of Common Stock. The net tangible book value per share represents the
amount of the Company's total tangible assets less total liabilities, divided by
the number of shares of Common Stock outstanding.
The total number of shares of Preferred Stock that is convertible to an
equivalent number of shares of Common Stock is 1,467,498. The total number of
Warrants issued in connection with the Bridge Loan, issuance of Preferred A and
issuance of Preferred B, to both participants and selling agents is 796,508. If
all the Preferred Stock and Warrants were converted to Common Stock, then the
total number of shares of Common Stock outstanding would be 5,197,354. The net
assets would also increase by $4,900,213 from the exercise of Warrants. The net
assets would then be $1.79 per share of Common Stock. This represents an
increase of $0.29 net tangible book value per share of Common Stock from the net
tangible book value per share on December 31, 1995.
The table below illustrates the amount of dilution if all the shares of
Preferred Stock were converted to Common Stock, and also if all the outstanding
Warrants were exercised. There can be no assurance that any of the Preferred
Stock or Warrants will be converted or exercised.
Net Tangible
Book Value per
share of Common
Stock
---------------
Net tangible book value on December 31, 1995 $1.50
Decrease as a result of Conversion of All Preferred Stock ($0.50)
Net tangible book value after Conversion of Preferred Stock $1.00
Increase as a result of Exercise of All Warrants $0.79
Net tangible book value after Conversion of All Preferred Stock
and after Exercise of All Warrants $1.79
SELLING SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Common Stock of each Selling Shareholder and as adjusted
to give effect to the sale of the Shares offered hereby. The Shares are being
registered to permit public secondary trading of the Shares, and the Selling
Shareholders may offer the Shares for resale from time to time. (See "Plan of
Distribution.")
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY
PRIOR TO OFFERING SHARES OWNED AFTER OFFERING
-------------------------- BEING OFFERED ---------------------
NAME NUMBER PERCENT FOR SALE(1) NUMBER PERCENT(2)
- ---- --------- ---------- ----------- -------- ----------
Edward Adamek, Jr. &
Eleanore Adamek Trust (3) (3) 6,667 * *
John R. Albers (3) (3) 6,667 * *
Werner W. Amerongen Revocable Trust (3) (3) 6,667 * *
Erika Arneson & Jon Arneson (3) (3) 3,333 * *
Larry Arnold (3) (3) 13,333 * *
Stephen E. Benedict (3) (3) 3,333 * *
Kenneth G. Benson (3) (3) 6,667 * *
Herbert J. Bernick (3) (3) 6,667 * *
George B. Bonniwell (3) (3) 6,667 * *
Kenneth K. Cheng (3) (3) 40,000 * *
Sheldon Chester (3) (3) 6,667 * *
Bruce Christensen (3) (3) 3,333 * *
Clint Hill Partners (3) (3) 6,667 * *
William D. Corneliuson (3) (3) 168,889 * *
Michael R. Dahl (3) (3) 6,667 * *
Richard L. Danielsen (3) (3) 6,667 * *
W. Harold Davis &
Joyce Lee Davis, Joint Tenants (3) (3) 13,333 * *
Jeff Dobbs (3) (3) 26,667 * *
Dan Dryer (3) (3) 3,333 * *
Duane Family Trust (3) (3) 6,667 * *
Thomas L. Dvorak &
Debra D. Dvorak Joint Tenants (3) (3) 6,667 * *
Ellis Limited Partnership (3) (3) 13,333 * *
Donovan A. Erickson Trust (3) (3) 6,667 * *
Ronald A. Erickson &
Kristine S. Erickson, Joint Tenants (3) (3) 13,333 * *
Stephen J. Esser &
Clara Linda Esser Joint Tenants (3) (3) 6,667 * *
Eugene College (3) (3) 13,333 * *
John Feltl (3) (3) 6,667(5) * *
Earl L. Ferris (3) (3) 6,667 * *
William Flies (3) (3) 13,333 * *
Luther O. Forde (3) (3) 13,333 * *
Matthew Frank (3) (3) 17,777 * *
Isadore J. Goldstein Revocable Living Trust (3) (3) 6,667 * *
Danny Gominsky (3) (3) 13,333 * *
Timothy M. Gray (3) (3) 6,667 * *
Doyle D. Gustafson &
Dorothy L. Gustafson, Tenants in Common 127,132 2.4% 66,667 60,465 1.2%
Sandra J. Hale (3) (3) 5,333 * *
Steven Hamm (3) (3) 6,667 * *
Richard Heise (3) (3) 6,667(5) * *
Kenneth B. Heithoff (3) (3) 6,667 * *
William F. Hoefer &
Julia A. Hoefer, Joint Tenants (3) (3) 6,667 * *
Gary S. Holmes (3) (3) 6,667 * *
Industricorp & Co., Inc. (3) (3) 77,777 * *
Neal T. Jansen (3) (3) 13,333 * *
Everett Jensen Revocable Trust (3) (3) 6,667 * *
David B. Johnson (3) (3) 29,719(6) * *
Mark D. Johnson (3) (3) 6,667 * *
Robert A. Johnson (3) (3) 13,333 * *
Dr. William & Marla Kennedy (3) (3) 19,444 * *
William R. Kennedy (3) (3) 6,667 * *
Paul R. Kuehn (3) (3) 29,719(6) * *
Anita H. Kunin (3) (3) 6,667 * *
Thomas Lankton (3) (3) 13,333(5) * *
Christopher Lenzo (3) (3) 26,667 * *
Richard C. Lundell IRA (3) (3) 13,333 * *
Richard Lynch & Marlys Lynch,
Joint Tenants (3) (3) 6,667 * *
James & Eleanor Lyons (3) (3) 19,444 * *
James F. Lyons (3) (3) 2,667 * *
Mark D. Margolis (3) (3) 6,667 * *
Michael R. Marston (3) (3) 6,667 * *
C. Ray McCulloch &
Betty L. McCulloch Joint Tenants (3) (3) 6,667 * *
Thomas R. McGuire &
Susan M. McGuire Joint Tenants (3) (3) 6,667 * *
Kevin McHale (3) (3) 6,667 * *
Metropolitan Endodontics Pension (3) (3) 3,333 * *
Metropolitan Endodontics Profit
Sharing Plan (3) (3) 3,333 * *
Elaine Millard (3) (3) 13,333 * *
Eldon C. Miller (3) (3) 9,906(6) * *
Miller, Johnson & Kuehn (3) (3) 26,418(6) * *
Christopher C. Moritz (3) (3) 6,667 * *
Gerald R. Nelson (3) (3) 6,667 * *
Gerald R. Nelson Keogh Trust (3) (3) 6,667 * *
Earl B. Olson (3) (3) 13,333 * *
Steven J. Olson (3) (3) 6,667 * *
John G. Ordway III (3) (3) 6,667 * *
James N. Owens Revocable Trust (3) (3) 26,667 * *
Kenneth R. Parker (3) (3) 26,667 * *
Penn Dental Center (3) (3) 13,333 * *
Daniel & Patrice Perkins (3) (3) 19,444 * *
Perkins Opportunity Fund 271,333 5.2% 133,333 138,000 2.6%
Richard W. Perkins Trust (3) (3) 38,890 * *
Ellsworth L. Peterson Revocable Trust (3) (3) 13,333 * *
James T. Petersen IRA (3) (3) 6,667 * *
Judy Peterson (3) (3) 6,667 * *
Pyramid Partners (3) (3) 194,444 * *
Quest Venture Partners (3) (3) 20,000 * *
Jeffrey D. Rahm (3) (3) 3,333 * *
Stanley D. Rahm (3) (3) 9,906(6) * *
David E. Riviere (3) (3) 3,333 * *
Richard S. Rog (3) (3) 6,667 * *
Harold Roitenberg IRA (3) (3) 13,333 * *
Roitenberg Investments, Inc. (3) (3) 20,000 * *
H. James Roitenberg (3) (3) 20,000 * *
Steve Romanek (3) (3) 13,333 * *
John F. Rooney (3) (3) 19,444 * *
James Ryan (3) (3) 6,667 * *
Patrick Ryan (3) (3) 6,667 * *
St. Paul Surgeons Ltd. (3) (3) 6,667 * *
Gust R. Sarrack &
Barbara E. Sarrack (3) (3) 13,333 * *
Harold Saunders (3) (3) 6,667 * *
Lawrence Schrader (3) (3) 6,667 * *
Charles W. Schramm (3) (3) 13,333 * *
Larry Serbin IRA (3) (3) 6,667 * *
Lowell R. Singerman (3) (3) 3,333 * *
Edward E. Strickland (3) (3) 19,444 * *
Strickland Family Limited Partnership (3) (3) 6,667 * *
Maurice R. Tayler IRA (3) (3) 6,667 * *
John T. Telford (3) (3) 6,667 * *
Robert Terhaar &
Harriet Terhaar, Joint Tenants (3) (3) 6,667 * *
E. Scott Thatcher (3) (3) 6,667 * *
William P. Treacy (3) (3) 13,333 * *
VBS General Partnership (3) (3) 26,667 * *
Rollin C. Vickers (3) (3) 13,333 * *
Thomas A. Volpe &
Linda C. Volpe Joint Tenants (3) (3) 13,333 * *
S.L. Wallack Revocable Trust (3) (3) 5,333 * *
Thomas B. Wartman (3) (3) 6,667 * *
Kimberly K. Washburn (3) (3) 6,667 * *
Wallace S. Wells (3) (3) 6,667 * *
Lee Wesley (3) (3) 13,333 * *
Dik Wessels 317,333(4) 6.1% 133,333 184,000 3.5%
Robert Wooters IRA (3) (3) 133,333 * *
Wooters Trust (3) (3) 133,333 * *
- -------------------
* Less than 1%.
(1) Includes shares of Common Stock issuable upon conversion of 674,998
shares of Series A Preferred Stock, 792,500 shares of Series B
Preferred Stock and shares issuble upon exercise of Warrants to
purchase 796,508 shares of Common Stock. The Shares being offered by
the Selling Shareholders will be acquired from the Company (i)
following conversion of Preferred A acquired from the Company in
private placement transactions at a purchase price of $3.00 per share,
(ii) following conversion of Preferred B acquired from the Company in
private placement transactions at a purchase price of $5.00 per share,
or (iii) upon exercise of Warrants acquired in connection with the
Bridge Loans, the Preferred A offering and the Preferred B offering, at
prices of $3.00, $5.00 and $9.50 per share, respectively.
(2) Includes shares of Common Stock held by such shareholder after the
offering described herein divided by the total number of outstanding
shares of Common Stock following conversion of Preferred A, Preferred B
and Warrants into Common Stock.
(3) Includes shares issuable upon conversion of Preferred A, Preferred B
and Warrants as specified in the column "Shares being offered for sale"
(as described further in footnote 1 above) plus the number of shares of
Common Stock held by each selling shareholder prior to conversion of
such shares. Except as otherwise specified herein, each selling
shareholder owned less than 1% of the Company's Common Stock prior to
conversion of Preferred A, Preferred B and Warrants.
(4) Includes 184,000 shares of Common Stock owned by Reggeborgh Beheer BV,
of which Mr. Wessels is a controlling shareholder.
(5) In connection with the sale of Preferred A, the selling agent, R.J.
Steichen & Company, received a fee of $60,000 and two Warrants: a
five-year Warrant to purchase 20,000 shares of the Company's Common
Stock at an exercise price of $3.00 per share, and a three-year Warrant
to purchase 6,667 shares of the Company's Common Stock at an exercise
price of $5.00 per share. R.J. Steichen assigned its rights under the
Warrants to Messrs. Lankton, Feltl and Heise.
(6) In connection with the sale of Preferred B, the selling agent, Miller
Johnson & Kuehn, received a fee of $435,875 and received a five-year
Warrant to purchase 79,250 shares of the Company's Common Stock at an
exercise price of $5.00 per share and a conditional five-year Warrant
to purchase up to an additional 26,418 shares of the Company's Common
Stock at $9.50 per share. Miller Johnson & Kuehn assigned its rights
under the five-year Warrant to purchase 79,250 shares of Common Stock
to Messrs. Johnson, Kuehn, Miller and Rahm.
Each Selling Shareholder that purchased Preferred Stock pursuant to a
Purchase Agreement represented to the Company that it would acquire the Shares
for investment and has no present intention of distributing any of such Shares
except pursuant to this Prospectus. The Company has filed with the Commission,
under the Securities Act, a Registration Statement on Form S-3, of which this
Prospectus forms a part, with respect to the resale of the Shares from time to
time on the Nasdaq Small Cap Market, the over-the-counter market, or in
privately-negotiated transactions and has agreed to use its best efforts to keep
such Registration Statement effective until the earlier of (i) the fifth
anniversary of the closing of the offering of the Preferred B shares, (ii) such
date as all of the Shares have been resold, or (iii) such time as all of the
Shares held by the Selling Shareholders can be sold within a given three-month
period without compliance with the registration requirements of the Securities
Act pursuant to Rule 144 under the Securities Act.
PLAN OF DISTRIBUTION
The Company will receive gross proceeds of $4,900,213 if all the
Warrants are exercised, but will not receive any proceeds from the issuance of
shares of Common Stock as a result of the conversion of Preferred Stock.
The Shares offered hereby may be sold by the Selling Shareholders from
time to time in transactions on the Nasdaq Small Cap market, in the
over-the-counter market, in negotiated transactions, or a combination of such
methods of sale, at fixed prices which may be changed, at market prices
prevailing at the time of sale, at prices related to prevailing market prices or
at negotiated prices. The Selling Shareholders may effect such transactions by
selling the Shares to or through broker-dealers, and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Shareholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states, the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
The Selling Shareholders and any broker-dealers or agents that
participate with the Selling Shareholders in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of the Securities Act, and any
commissions received by them and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Shares may not simultaneously engage
in market making activities with respect to the Common Stock of the Company for
a period of two business days prior to the commencement of such distribution. In
addition and without limiting the foregoing, each Selling Shareholder will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation, Rules l0b-6 and l0b-7,
which provisions may limit the timing of purchases and sales of shares of the
Company's Common Stock by the Selling Shareholders.
The Shares were issued to the Selling Shareholders pursuant to
exemptions from the registration requirements of the Securities Act provided by
Section 4(2) thereof. The Company agreed to register the Shares under the
Securities Act and to indemnify and hold the Selling Shareholders harmless
against certain liabilities under the Securities Act that could arise in
connection with the sale by the Selling Shareholders of the Shares. The Company
has agreed to pay all reasonable fees and expenses incident to the filing of
this Registration Statement.
INDEMNIFICATION
Article IX of the By-laws of the Company requires the Company to
indemnify a director or officer to the extent permitted and required by
Minnesota Statutes Section 302A.521. The Company must make advance payments upon
the request of an eligible person if the person signs an affidavit stating that
he or she honestly believes he or she has met the criteria for indemnification
and promises to repay the Company if it is ultimately found that the criteria
were not met. The determination as to whether the criteria are met is made by a
board of disinterested directors, a committee of two or more disinterested
directors, special legal counsel, or the shareholders, depending upon the
circumstances of each case. If a determination is made that the person is not
eligible for indemnification or if no determination is made within sixty days
after the termination of the proceedings or after a request for an advance of
expenses, the person may petition a court for an independent determination. The
shareholders of the Company will be notified in the annual reports of all
indemnification payments made in derivative action suits.
The Company also maintains insurance policies for general officers and
directors liability covering all of the Company's officers and directors in
certain instances where by law they may not be indemnified by the Company.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
DESCRIPTION OF CAPITAL STOCK
The Company has 24,000,000 shares of authorized capital stock, of which
4,000,000 shares have been designated Common Stock, $.25 par value, and
20,000,000 shares have been designated Preferred Stock, $1 par value (the
"Authorized Preferred Stock") of which 5,000,000 shares have been designated
Preferred A and 1,000,000 shares have been designated Preferred B. On December
31, 1995, the Company had outstanding 2,933,348 shares of Common Stock, 674,998
shares of Preferred A, and 792,500 shares of Preferred B.
In the event shareholders of the Company do not approve, on or before
December 15, 1996, the authorization of sufficient additional shares of Common
Stock required for the conversion of Preferred B into shares of Common Stock,
the holders of Preferred B will be entitled to receive an 8% cumulative
dividend, payable quarterly, in preference to the holders of Common Stock. In
addition, in the event of a liquidation, winding up, or change in control of the
Company, the holders of the Preferred Stock are entitled to receive, in
preference to any distribution of funds to the holders of Common Stock, an
amount equal to the par value of the Preferred Stock, plus any accrued but
unpaid dividends.
Each share of Preferred A is convertible into one share of Common
Stock, from time to time commencing March 31, 1996. Each share of Preferred B is
convertible into one share of Common Stock, plus any accrued and unpaid
dividends, at any time on or after December 28, 1996. The consent of the holders
of a majority of the outstanding Authorized Preferred Stock is required for the
amendment of the Company's Articles of Incorporation or By-laws in a manner that
directly affects the Authorized Preferred Stock.
Holders of shares of Common Stock are entitled to one vote per share on
all matters to be voted on by shareholders. Subject to the preferences
applicable to the outstanding Authorized Preferred Stock, holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors in its discretion from funds legally available for such
purpose. Shareholders of Common Stock have no preemptive rights and have no
rights to convert their Common Stock into any other securities. The outstanding
shares of Common Stock and Preferred Stock are, and the Common Stock to be
outstanding upon completion of this offering, will be, fully paid and
nonassessable.
The Company has outstanding Warrants to purchase an aggregate of
796,508 shares of the Company's Common Stock. Of the outstanding Warrants, the
Common Stock issuable upon exercise of Warrants to purchase 796,508 shares of
Common Stock are being registered in this offering (the "Warrants"). Warrants
held by the purchasers of the Preferred Stock, totalling 664,173, are
exercisable at any time from the date of issuance until the third anniversary of
the date of issuance.
The selling agent for Preferred A, received two Warrants: a 5-year
Warrant to purchase 20,000 shares of the Company's Common Stock at an exercise
price of $3.00 per share, and a 3-year Warrant to purchase 6,667 shares of the
Company's Common Stock at an exercise price of $5.00 per share. The selling
agent for Preferred B received a 5-year Warrant to purchase 79,250 shares of the
Company's Common Stock at an exercise price of $5.00 per share and a conditional
Warrant to purchase up to an additional 26,418 shares of the Company's Common
Stock at an exercise price of $9.50 per share. Conditional Warrants issued to
the selling agent for Preferred B are exercisable for a period of 5 years from
the expiration date of the Warrants issued to purchasers of Preferred B. The
exercise price of the Warrants is subject to proportional adjustment in the
event that the Company undertakes a stock split, stock dividend, or
recapitalization.
LEGAL MATTERS
The legality of the securities being offered hereby will be passed upon
for the Company by Stephen P. Kregstein, Esq., Boulder, Colorado.
EXPERTS
The financial statements included in SpectraScience, Inc's Annual
Report on Form 10-KSB, as amended, for the years ended December 31, 1995 and
1994 have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon included therein and incorporated herein by reference.
Such financial statements are incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.