1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER: 0-22179
SPECTRX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 58-2029543
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
6025A UNITY DRIVE
NORCROSS, GEORGIA 30071
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(770) 242-8723
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant (1)
has filed all reports required to be filed
by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding
12 months (or for such shorter period
that the registrant was required to file
such reports) and (2) has been subject
to such requirements for the past 90 days.
YES [X] NO [ ]
The number of issued and outstanding shares
of the Registrant's Common Stock, $0.001
par value, as of March 31, 2000, was
8,471,339.
2
SPECTRX, INC.
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION.......................... 3
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS -
DECEMBER 31, 1999 AND MARCH 31, 2000........... 3
STATEMENTS OF OPERATIONS -
THREE MONTHS ENDED MARCH 31, 1999 AND 2000..... 4
STATEMENTS OF CASH FLOWS -
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 .... 5
NOTES TO FINANCIAL STATEMENTS.................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.. 7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.................................... 18
PART II. OTHER INFORMATION.............................. 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............... 19
SIGNATURES.............................................. 20
EXHIBIT INDEX........................................... 21
3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPECTRX, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, MARCH 31,
1999 2000
----------- ---------
ASSETS
CURRENT ASSETS
Cash & Cash Equivalents.............................. $ 2,143 $ 8,042
Accounts Receivable.................................. 952 399
Inventory............................................ 541 416
Subscription Receivable.............................. 2,500 0
Other Current Assets................................. 204 319
-------- -------
Total Current Assets.............................. 6,340 9,176
PROPERTY & EQUIPMENT, Net of Accumulated
Depreciation of $1,124 and $1,206 in 1999
and 2000 respectively................................. 839 993
-------- -------
OTHER ASSETS
Other Assets......................................... 15 8
Due from related parties............................. 499 507
-------- -------
Total Other Assets................................ 514 515
-------- -------
TOTAL ASSETS........................................... $ 7,693 $10,684
======== =======
LIABILITIES & STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Accounts Payable.................................... $ 534 $ 351
Accrued Liabilities................................. 1,044 1,002
------- -------
Total Current Liabilities........................ 1,578 1,353
CUSTOMER ADVANCE...................................... 381 381
REDEEMABLE CONVERTIBLE PREFERRED STOCK................ 5,264 5,343
STOCKHOLDERS' EQUITY
Common Stock........................................ 8 8
Additional paid-in-capital.......................... 25,888 30,756
Deferred comp....................................... (58) (39)
Accumulated deficit................................. (25,337) (27,087)
Notes Receivable from officers...................... (31) (31)
-------- -------
Total Stockholders' equity....................... 470 3,607
-------- -------
TOTAL LIABILITIES & EQUITY............................ $ 7,693 $ 10,684
======== ========
4
SPECTRX, INC.
UNAUDITED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS
ENDED MARCH 31
--------------------
1999 2000
------- -------
REVENUE
Product Sales $ 306 $ 561
Collaborative agreements 100 500
------- -------
TOTAL 406 1,061
EXPENSES
Cost of Sales 355 530
Research & development 1,133 1,555
Sales & marketing 185 218
General & administrative 599 519
------- -------
Total 2,272 2,822
------- -------
Operating (loss) (1,866) (1,761)
OTHER EXPENSE (INCOME) (55) (21)
INTEREST EXPENSE (INCOME) (0) (69)
NET LOSS $(1,811) $(1,671)
Preferred Stock Dividends 0 (79)
------- -------
Loss Available to Common Shareholders (1,811) (1,750)
======= =======
Net (Loss) Per Share
Basic $ (0.23) $ (0.21)
======= =======
Diluted $ (0.23) $ (0.21)
======= =======
Weighted Common Equivalent
Shares Outstanding
Basic 8,017 8,256
======= =======
Diluted 8,017 8,256
======= =======
5
SPECTRX, INC.
UNAUDITED STATEMENT OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS
ENDED MARCH 31,
------------------
1999 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss.................................................... $(1,811) $(1,671)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 91 86
Amortization of deferred compensation................... 19 19
Changes in assets and liabilities:
Accounts receivable................................... 413 553
Inventory............................................. (5) 125
Other assets.......................................... (98) (123)
Subscription Receivable............................... 0 2,500
Accounts payable...................................... (46) (183)
Accrued liabilities................................... 392 (42)
------- -------
Total adjustments................................... 766 2,935
Net cash used in operating activities............... (1,045) (1,264)
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment............... (66) (233)
------- -------
Net cash used in investing activities............... (66) (233)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock (net of issuance costs).......... 2 4,868
------- -------
Net cash provided by financing activities........... 2 4,868
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (1,109) 5,899
CASH AND CASH EQUIVALENTS, beginning of period.............. 4,962 2,143
------- -------
CASH AND CASH EQUIVALENTS, end of period.................... $ 3,853 $ 8,042
======= =======
6
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The interim financial statements included herein have been prepared by
SpectRx without audit. These statements reflect all adjustments, all of which
are of a normal, recurring nature, which are, in the opinion of management,
necessary to present fairly the consolidated financial position as of March 31,
2000, the consolidated results of operations for the three months ended March
31, 1999 and 2000, and the consolidated cash flows for the three months ended
March 31, 1999 and 2000. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The accounting policies of
SpectRx continue unchanged from December 31, 1999. SpectRx believes that the
disclosures are adequate to make the information presented not misleading. It is
suggested that these financial statements be read in conjunction with the
December 31, 1999 financial statements and notes thereto included in SpectRx's
Annual Report on Form 10K.
The results of operations for the three months ended March 31, 1999 and
2000 are not necessarily indicative of the results to be expected for the full
fiscal year.
2. FLUORRX
In December 1996, SpectRx (the "Company") sublicensed certain technology to
and acquired a 64.8% interest in FluorRx, a corporation organized for the
purpose of developing and commercializing technology related to fluorescence
spectroscopy. SpectRx's interest in FluorRx, Inc. is represented by two seats on
the board of directors and 129,000 shares of convertible preferred stock
purchased for $250,000. In December 1997, March 1998, and August 1998, FluorRx
sold additional convertible preferred stock for net cash proceeds of
$521,000,$429,000, and $511,000 respectively. The issuance of additional
preferred stock reduced SpectRx's ownership (on an as converted basis) to 45%.
Effective with the August 1998 funding, SpectRx began accounting for its
investment in FluorRx under the equity method of accounting. In connection
therewith, SpectRx began suspending the equity losses from its investment in
FluorRx. The accompanying Statement of Operations for the three months ended
March 31, 2000 exclude $69,917 in losses which represents SpectRx's 45% equity
in the loss of FluorRx. Cumulative suspended equity losses as of March 31, 2000
amount to $1,202,917.
3. COMPREHENSIVE INCOME
SpectRx currently has no other Comprehensive Income items as defined by
SFAS No. 130.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements in this report which express "belief", "anticipation" or
"expectation" as well as other statements which are not historical fact are
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. These
forward looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical results or
anticipated results, including those set forth under "Risk Factors" in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in or incorporated by reference into this report. The
following discussion should be read in conjunction with SpectRx's Financial
Statements and Notes thereto included elsewhere in this report.
OVERVIEW
SpectRx was incorporated on October 27, 1992, and since that date has
raised capital through the sale of preferred stock, issuance of debt securities,
the public and private sale of common stock and funding from collaborative
arrangements. Following its initial funding in early 1993, SpectRx immediately
began research and development activities with the objective of commercializing
less invasive diagnostic, screening and monitoring products. As part of its
business strategy, SpectRx has selectively established arrangements with leading
medical device companies for the development, commercialization and introduction
of its products. SpectRx has entered into collaborative arrangements with Abbott
Laboratories, Roche Diagnostics, Respironics (a successor to Healthdyne
Technologies, Inc.) and Welch Allyn for its glucose monitoring, diabetes
detection, infant jaundice and cancer detection products, respectively. In
December 1996, SpectRx sublicensed certain technology to and acquired a 64.8%
interest in FluorRx, Inc., a Delaware corporation formed for the purpose of
developing and commercializing technology related to fluorescence spectroscopy.
At March 31, 2000, as a result of subsequent financings, SpectRx's interest in
FluorRx was 45%.
SpectRx has a limited operating history upon which its prospects can be
evaluated. Such prospects must be considered in light of the substantial risks,
expenses and difficulties encountered by entrants into the medical device
industry, which is characterized by an increasing number of participants,
intense competition and a high failure rate. SpectRx has experienced operating
losses since its inception, and, as of March 31, 2000, SpectRx had accumulated
deficit of approximately $27.1 million. To date, SpectRx has engaged primarily
in research and development efforts. SpectRx first generated revenues from
product sales in 1998 and does not have significant experience in manufacturing,
marketing or selling its products. There can be no assurance that SpectRx's
development efforts will result in commercially viable products, that SpectRx
will be successful in introducing its products, or that required regulatory
clearances or approvals will be obtained in a timely manner, or at all. There
can be no assurance that SpectRx's products will ever gain market acceptance or
that SpectRx will ever generate significant revenues or achieve profitability.
The development and commercialization of its products will require substantial
development, regulatory, sales and marketing, manufacturing and other
expenditures. SpectRx expects its operating losses to continue through 2001 as
it continues to expend substantial resources to complete development of its
products, obtain regulatory clearances or approvals, build its marketing, sales,
manufacturing and finance organizations and conduct further research and
development.
The majority of SpectRx's revenues and profits are expected to be derived
from royalties and manufacturing profits that SpectRx will receive from Abbott,
Roche Diagnostics and Respironics resulting from sales of its glucose
monitoring, diabetes detection and infant jaundice products, respectively.
SpectRx's collaboration with Welch Allyn is more like a joint venture, so
revenues and profits expected to be derived from the sales of cervical cancer
detection products will be sales to distributors and end users. The royalties,
manufacturing profits and distribution profits that SpectRx is expected to
receive from each of its collaborations depend on sales of such products. There
can be no assurance that SpectRx, together with its collaborative partners, will
be able to sell sufficient volumes of SpectRx's products to generate substantial
revenues and profits for SpectRx.
SpectRx has entered into collaborative arrangements with Abbott, Roche
Diagnostics, Respironics, and Welch Allyn. The agreements evidencing these
collaborative arrangements grant a substantial amount of discretion to each
collaborative partner. If one or more of SpectRx's collaborative partners were
to terminate its arrangement with SpectRx, SpectRx would either need to reach
agreement with a replacement collaborative partner or undertake at its own
expense the activities handled by its collaborative partner prior to such
termination, which would require SpectRx to develop expertise it does not
currently possess, would significantly increase SpectRx's capital requirements
and would limit the programs SpectRx could pursue. SpectRx would likely
encounter significant delays in introducing its products and the development,
manufacture and sales of its products would be adversely affected by the absence
of such collaborative arrangements. The termination of any of SpectRx's
collaborative arrangements would have a material adverse effect on SpectRx's
business, financial condition and results of operations.
8
QUARTER OVERVIEW
In addition to the results from operations discussed below, SpectRx
announced several items during the quarter. In January we announced that we had
received $2.75 million from Abbott completing the redeemable convertible
preferred stock financing. Also, in January, we demonstrated a hand-held laser
prototype device which will be part of the continuous glucose monitoring system
we are developing. In March, we completed a private financing of $5.0 million in
common stock. At the end of the quarter we also received a $500,000 milestone
from Abbott for our work on the continuous glucose monitoring product. The
financial results below show revenue from shipments of our Accu-Check
D-Tector(TM) to our partner Roche. These are the first production units to be
shipped and will be used to complete clinical studies for FDA submission.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999.
General. Net losses remained constant at $1.8 million during the three
months ended March 31, 2000 as compared to the same period in 1999 due to an
increase in milestone and product revenues offset by an increase in R&D
spending. SpectRx expects similar net losses to continue.
Revenue. SpectRx has historically received the majority of its revenue from
achieving development milestones with one or more of its strategic partners.
SpectRx began shipping its infant jaundice product to distributors outside of
the United States and Canada during the quarter ended June 30, 1998, and were
able to ship in the United States after FDA approval was received at the end of
the 1st quarter of 1999. In March 2000 we shipped the first Accu-Check
D-Tector(TM) units which will be used in clinical trials. Product revenue
increased to $561,000 for the quarter ended March 31, 2000 from $306,000 for the
same period of 1999. Milestone revenue, which is event-based rather than
sales-based, increased to $500,000 during the three months ended March 31, 2000
from $100,000 during the same period in 1999 primarily due to the milestone
accomplished on SpectRx's glucose monitoring device.
Cost of Sales. Cost of sales was $530,000 for the three months ended March
31, 2000 versus $355,000 during the same period of 1999. While the cost of sales
increase is directly related to product revenue, a portion of the cost of sales
represents excess capacity production charges which were equal to this period in
1999. SpectRx expects excess capacity to exist for the remainder of this year.
Research and Development Expenses. Research and development expenses
increased to approximately $1,555,000 during the three months ended March 31,
2000 from approximately $1,133,000 during the same period in 1999. The increase
in research and development expenses was primarily due to expansion of research
in glucose monitoring and cancer detection, including increases in costs to
conduct clinical trials, salaries, consulting and contracted research for its
developmental products.SpectRx expects research and development expenses to
remain at a high level this year as it continues development and expands
clinical trials for its products.
Sales and Marketing Expenses. Sales and marketing expenses increased
slightly to $218,000 during the three months ended March 31, 2000 from
approximately $185,000 during the same period in 1999. Marketing expenses are
expected to increase in the future as BiliChek(TM) sales expand geographically.
General and Administrative Expenses. General and administrative expenses
decreased to approximately $519,000 during the three months ended March 31, 2000
compared to the approximately $599,000 incurred during the same period in 1999.
The decrease is primarily due to reduced compensation expense and lower legal
fees than in the first quarter of 1999. General and Administrative expenses,
however, are expected to increase in the future.
9
Net Interest and Other Income. Net interest and other income increased to
$90,000 during the three months ended March 31, 2000 from $55,000 during the
same period in 1999. This increase is due to a higher amount of interest being
earned on higher cash balances.
10
LIQUIDITY AND CAPITAL RESOURCES
SpectRx has financed its operations since inception primarily through
private sales of its debt and private and public sales of its equity securities.
From October 27, 1992 (inception) through March 31, 2000, SpectRx received
approximately $36.0 million in proceeds from sales of its debt and equity
securities. At March 31, 2000, SpectRx had cash of approximately $8.0 million
and working capital of approximately $7.8 million. SpectRx completed an initial
public offering of its common stock on July 7, 1997 which resulted in net
proceeds received by SpectRx, before expenses related to the transaction, of
approximately $14.0 million. SpectRx issued $5.25 million of redeemable
convertible preferred stock in November 1999 in conjunction with the amendment
to its agreement with Abbott which was signed at the same time. SpectRx also
issued common stock in a private placement in February 2000, which resulted in
gross proceeds of $5.0 million.
SpectRx currently invests its excess cash balances primarily in short-term,
investment-grade, interest-bearing obligations until such funds are utilized in
operations. Substantial capital will be required to develop SpectRx's products,
including completing product testing and clinical trials, obtaining all required
United States and foreign regulatory approvals and clearances, commencing and
scaling up manufacturing and marketing its products. Any failure of SpectRx's
collaborative partners to fund its development expenditures would have a
material adverse effect on SpectRx's business, financial condition and results
of operations. In addition to funds that SpectRx expects to be provided by its
collaborative partners, SpectRx may be required to raise additional funds
through public or private financing, additional collaborative relationships or
other arrangements. Assuming SpectRx meets its milestones under its agreements
with its strategic collaborators SpectRx believes that its existing capital
resources will be sufficient to satisfy its funding requirements for at least
the next twelve months, but may not be sufficient to fund SpectRx's operations
to the point of commercial introduction of its glucose monitoring product.
However, there can be no assurance that SpectRx will meet its milestones or
receive payments from its strategic collaborators.
OTHER MATTERS
Year 2000 Issue Update
We did not experience any significant malfunctions or errors in our
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, we do not expect any significant impact to our
ongoing business as a result of the year 2000 issue. However, it is possible
that the full impact of the date change has not been fully recognized. We
believe that any such problems are likely to be minor and correctable. In
addition, we could still be negatively affected if our customers or suppliers
are adversely affected by year 2000 or similar issues. Currently we are not
aware of any significant year 2000 or similar problems that have arisen for our
customers and suppliers. Expenditures related to year 2000 compliance efforts
were less than $40,000.
Legal Proceedings
In March 2000, SpectRx filed a Demand for Arbitration of certain disputes
arising under its License Agreement with Altea/NIMCO and a former
officer-employee of SpectRx, Jonathan Eppstein, who is also a principal in
Altea/NIMCO. SpectRx seeks an interpretation of certain portions of the License
Agreement relating to SpectRx's obligation to assign future intellectual
property rights and seeks relief and damages for these and other issues. Altea
has subsequently sent a letter to SpectRx purporting to give notice of material
breach of the License Agreement for failure to assign certain intellectual
property rights to Altea or NIMCO and to participate in a joint development
program. As part of the arbitration process, SpectRx and Altea have agreed that
the cure period for the purported default will be held in abeyance pending a
final resolution of the arbitration proceedings. The company believes that
Altea's claims are without merit, but intends to abide by the decision of the
Arbitration panel as to the proper scope of SpectRx's duties to assign future
intellectual property rights under the License Agreement and to participate in a
joint development program.
11
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information presented in this report. This report contains forward
looking statements that involve risks and uncertainties. SpectRx's actual
results may differ significantly from the results discussed in the forward
looking statements. Factors that might cause such differences include, but are
not limited to, the following risk factors.
Limited Operating History; History of Losses and Expectations of Future Losses
SpectRx has a limited operating history upon which its prospects can be
evaluated. Such prospects must be considered in light of the substantial risks,
expenses and difficulties encountered by entrants into the medical device
industry, which is characterized by an increasing number of participants,
intense competition and a high failure rate. SpectRx has experienced operating
losses since its inception, and, as of March 31, 2000, SpectRx had an
accumulated deficit of approximately $27.1 million. To date, SpectRx has engaged
primarily in research and development efforts. SpectRx has only generated
limited revenues from product sales and does not have significant experience in
manufacturing, marketing or selling its products. There can be no assurance that
SpectRx's development efforts will result in commercially viable products, that
SpectRx will be successful in introducing its products, or that required
regulatory clearances or approvals will be obtained in a timely manner, or at
all. There can be no assurance that SpectRx's products will ever gain market
acceptance or that SpectRx will ever generate significant revenues or achieve
profitability. The development and commercialization of its products will
require substantial development, regulatory, sales and marketing, manufacturing
and other expenditures. SpectRx expects its operating losses to continue through
2001 as it continues to expend substantial resources to complete development of
its products, obtain regulatory clearances or approvals, build its marketing,
sales, manufacturing and finance organizations and conduct further research and
development.
Government Regulations; No Assurance of Regulatory Approvals
The design, manufacturing, labeling, distribution and marketing of
SpectRx's products will be subject to extensive and rigorous government
regulation in the United States and certain other countries where the process of
obtaining and maintaining required regulatory clearance or approvals is lengthy,
expensive and uncertain. In order for SpectRx to market its products in the
United States, SpectRx must obtain clearance or approval from the FDA. SpectRx
intends to seek clearance to market each of its products, where possible,
through a 510(k) premarket notification supported by clinical data. A 510(k)
premarket notification has been filed with and approved by the FDA, for
clearance to market SpectRx's infant jaundice product. A 510(k) has been filed
for expanded use during phototherapy treatment for the BiliChek(TM). A 510(k)
premarket notification was filed in 1998 with the FDA for clearance to market
the diabetes detection product. The 510(k) was later withdrawn, and discussions
have been held by Roche Diagnostics with the FDA in preparation for clinical
activity and the submission of a PMA for this product to be filed in 2000.
SpectRx has not filed any other 510(k) premarket notification or PMA for
clearance with the FDA. There can be no assurance that any such notifications
will be filed in accordance with this schedule, that the FDA will act favorably
or quickly on such 510(k) submissions, or that significant difficulties and
costs will not be encountered during efforts to obtain FDA clearance or
approval. Specifically, the FDA may request additional data or require
additional clinical studies be conducted to obtain 510(k) clearance for one or
more of SpectRx's products. In addition, there can be no assurance that the FDA
will not require the submission of a premarket approval ("PMA") application to
obtain FDA approval to market other SpectRx products. Preliminary expectations
regarding SpectRx's cancer program and glucose program are that each of those
filings would be a PMA. The PMA process is more rigorous and lengthier than the
510(k) clearance process and can take several years from initial filing and
require the submission of extensive supporting data and clinical information. In
addition, there can be no assurance that the FDA will not impose strict labeling
or other requirements as a condition of its 510(k) clearance or PMA, any of
which could limit SpectRx's ability to market its products. Further, if SpectRx
wishes to modify a product after FDA clearance of a 510(k) premarket
notification or approval of a PMA application, including changes in indications
or other modifications that could affect safety and efficacy, additional
clearances or approvals will be required from the FDA. Any request by the FDA
for additional data or any requirement by the FDA that SpectRx conduct
additional clinical studies or submit to the more rigorous and lengthier PMA
process could result in a significant delay in bringing SpectRx's products to
market and substantial additional research and other expenditures by SpectRx.
Similarly, any labeling or other conditions or restrictions imposed by the FDA
on the marketing of SpectRx's products could hinder SpectRx's ability to
effectively market its products. Any of the foregoing actions by the FDA could
delay or prevent altogether SpectRx's ability to market and distribute its
products and could have a material adverse effect on SpectRx's business,
financial condition and results of operations.
In order for SpectRx to market its products under development in Europe and
certain other foreign jurisdictions, SpectRx and its distributors and agents
must obtain required regulatory registrations or approvals and otherwise comply
with extensive regulations regarding safety, efficacy and quality in those
jurisdictions. Specifically, certain foreign regulatory
12
bodies have adopted various regulations governing product standards, packaging
requirements, labeling requirements, import restrictions, tariff regulations,
duties and tax requirements. These regulations vary from country to country. In
order to commence sales in Europe, SpectRx has obtained ISO 9001 certification
and CE mark certification, which is an international symbol of quality and
compliance with applicable European medical device directives. While SpectRx has
received ISO 9001 and CE mark certification, it must maintain its certifications
in future periods. Failure to receive or maintain ISO 9001 or CE mark
certification or other foreign regulatory approvals could have a material
adverse effect on SpectRx's business, financial condition and results of
operations. There can be no assurance that SpectRx will obtain any other
required regulatory registrations or approvals in such countries or that it will
not be required to incur significant costs in obtaining or maintaining such
regulatory registrations or approvals. Delays in obtaining any registrations or
approvals required to market SpectRx's products, failure to receive these
registrations or approvals, or future loss of previously obtained registrations
or approvals could have a material adverse effect on SpectRx's business,
financial condition and results of operations.
SpectRx and its collaborative partners will be required to adhere to
applicable FDA regulations regarding Good Manufacturing Practice ("GMP") and
similar regulations in other countries, which include testing, control, and
documentation requirements. Ongoing compliance with GMP and other applicable
regulatory requirements will be strictly enforced in the United States through
periodic inspections by state and federal agencies, including the FDA, and in
foreign jurisdictions by comparable agencies. Failure to comply with applicable
regulatory requirements could result in, among other things, warning letters,
fines, injunctions, civil penalties, recall or seizure of products, total or
partial suspension of production, refusal of the government to grant premarket
clearance or premarket approval for devices, withdrawal of approvals previously
obtained and criminal prosecution. The restriction, suspension or revocation of
regulatory approvals or any other failure to comply with regulatory requirements
would have a material adverse effect on SpectRx's business, financial condition
and results of operations.
The Clinical Chemistry Branch of the FDA's Division of Clinical Laboratory
Devices (the "Branch") has traditionally been the reviewing branch for
blood-based personal glucose monitoring products. The Clinical Chemistry and
Clinical Toxicology Devices Panel (the "Panel") is an external advisory panel
that provides advice to the Branch regarding devices that are reviewed by the
Branch. The panel meets from time to time and provides comments to the Branch
regarding guidelines. There can be no assurance that the Panel's comments will
not result in a FDA policy or change in FDA policy that is materially adverse to
SpectRx's regulatory position.
SpectRx will rely upon Abbott, Roche Diagnostics and Respironics to obtain
certain United States and foreign regulatory approvals and clearances for its
glucose monitoring, diabetes detection and infant jaundice products,
respectively, and if such approvals or clearances are obtained SpectRx will rely
upon these collaborative partners to maintain them in full force and effect and
to otherwise remain in compliance with all applicable United States and foreign
regulatory restrictions. The inability or failure of such third parties to
comply with the varying regulations or the imposition of new regulations would
materially adversely affect SpectRx's business, financial condition and results
of operations.
Dependence on Licensed Patent Applications and Proprietary Technology
SpectRx's success depends in large part upon its ability to establish and
maintain the proprietary nature of its technology through the patent process and
to license from others patents and patent applications necessary to develop its
products. SpectRx has licensed from Non-Invasive Monitoring Company, Inc.
("Nimco") one granted patent and know-how related to its glucose monitoring
product, jointly applied with Altea Technologies, Inc. ("Altea") for a U.S.
patent and an international patent related to this device and has licensed this
granted patent and these patent applications to Abbott pursuant to the parties'
collaborative arrangements. SpectRx has license agreements with Georgia Tech
Research Corporation ("GTRC") that give SpectRx the right to use two patents
related to its diabetes detection product, and SpectRx has licensed this
proprietary technology to Roche Diagnostics pursuant to SpectRx's collaborative
arrangement with Roche Diagnostics. SpectRx has license agreements with the
University of Texas M.D. Anderson Cancer Center ("M.D. Anderson") that give
SpectRx access to one patent related to SpectRx's infant jaundice product, and
SpectRx has applied for two patents related to this product. SpectRx has
licensed the one patent and two patent applications to Respironics pursuant to
its collaborative arrangement with that company. In addition, SpectRx has
licensed from Joseph Lakowicz, Ph.D. of the University of Maryland several
granted patents and patent applications related to fluorescence spectroscopy
that it intends to use in its research and development efforts. SpectRx has been
issued, in total, eight U.S. patents. In addition, it has filed for a total of
30 U.S. patents that are still in prosecution.
There can be no assurance that one or more of the patents held directly by
SpectRx or licensed by SpectRx from third parties, including the disposable
components to be used in connection with its glucose monitoring and infant
jaundice products, or processes used in the manufacture of SpectRx's products,
will not be successfully challenged, invalidated or circumvented or that SpectRx
will otherwise be able to rely on such patents for any reason. In addition,
there can be no assurance that competitors, many of whom have substantial
resources and have made substantial investments in competing
13
technologies, will not seek to apply for and obtain patents that prevent, limit
or interfere with SpectRx's ability to make, use and sell its products either in
the United States or in foreign markets. If any of SpectRx's patents are
successfully challenged, invalidated or circumvented or SpectRx's right or
ability to manufacture its products were to be proscribed or limited, SpectRx's
ability to continue to manufacture and market its products could be adversely
affected, which would likely have a material adverse effect upon SpectRx's
business, financial condition and results of operations.
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights. Certain companies in
the medical device industry have instituted intellectual property litigation,
including patent infringement actions, for legitimate and, in certain cases,
competitive reasons. In addition, the United States Patent and Trademark Office
("USPTO") may institute litigation or interference proceedings. There can be no
assurance that SpectRx will not become subject to patent infringement claims or
litigation or interference proceedings instituted by the USPTO to determine the
priority of inventions. The defense and prosecution of intellectual property
suits, USPTO interference proceedings and related legal and administrative
proceedings are both costly and time consuming. Litigation may be necessary to
enforce patents issued to SpectRx, to protect trade secrets or know-how owned by
SpectRx or to determine the enforceability, scope and validity of the
proprietary rights of others. Any litigation or interference proceedings brought
against, initiated by or otherwise involving SpectRx may require SpectRx to
incur substantial legal and other fees and expenses and may require some of
SpectRx's employees to devote all or a substantial portion of their time to the
prosecution or defense of such litigation or proceedings. An adverse
determination in litigation or interference proceedings to which SpectRx may
become a party, including any litigation that may arise against SpectRx, could
subject SpectRx to significant liabilities to third parties, require SpectRx to
seek licenses from third parties or prevent SpectRx from selling its products in
certain markets, or at all. Although patent and intellectual property disputes
regarding medical devices are often settled through licensing or similar
arrangements, there can be no assurance that SpectRx would be able to reach a
satisfactory settlement of such a dispute that would allow it to license
necessary patents or other intellectual property. Even if such a settlement were
reached, the settlement process may be expensive and time consuming and the
terms of the settlement may require SpectRx to pay substantial royalties. An
adverse determination in a judicial or administrative proceeding or the failure
to obtain a necessary license could prevent SpectRx from manufacturing and
selling its products, which would have a material adverse effect on SpectRx's
business, financial condition and results of operations.
In addition to patents, SpectRx relies on trade secrets and proprietary
know-how, which it seeks to protect, in part, through confidentiality and
proprietary information agreements. There can be no assurance that such
confidentiality or proprietary information agreements will not be breached, that
SpectRx would have adequate remedies for any breach, or that SpectRx's trade
secrets will not otherwise become known to or be independently developed by
competitors.
Royalty Rates and Manufacturing Profits
The majority of SpectRx's revenues and profits are expected to be derived
from royalties and manufacturing profits that SpectRx will receive from Abbott,
Roche Diagnostics and Respironics resulting from sales of its glucose
monitoring, diabetes detection and infant jaundice products, respectively.
SpectRx's collaboration with Welch Allyn is more like a joint venture, so
revenues and profits expected to be derived from the sales of cervical cancer
detection products will be sales to distributors and end users. The royalties,
manufacturing profits and distribution profits that SpectRx is expected to
receive from each of its collaborative partners depend on sales of such
products. There can be no assurance that SpectRx, together with its
collaborative partners, will be able to sell sufficient volumes of SpectRx's
products to generate substantial profits for SpectRx. In addition, SpectRx's
profit margins on some of its products are not likely to increase over time
because the royalty rates and manufacturing profit rates on those products are
predetermined.
In addition, it is common practice in the glucose monitoring device
industry for manufacturers to sell their glucose monitoring devices at
substantial discounts to their list prices or to offer customers rebates on
sales of their products. Manufacturers offer such discounts or rebates to expand
the use of their products and thus increase the market for the disposable assay
strips they sell for use with their products. Because Abbott may, pursuant to
its collaborative arrangement with SpectRx, determine the prices at which it
sells SpectRx's glucose monitoring devices, it may choose to adopt this
marketing strategy. If Abbott adopts this marketing strategy and discounts the
prices at which it sells SpectRx's glucose monitoring devices, the amounts
earned by SpectRx in respect of such sales will be less. There can be no
assurance that, if this strategy is adopted, royalties earned by SpectRx on
sales of the disposable cartridges to be used in connection with its glucose
monitoring device will be equal to or greater than the amounts SpectRx would
have earned had its glucose monitoring devices not been sold at a discount. This
possible reduction in sales of SpectRx's glucose monitoring devices could have a
material adverse effect upon SpectRx's business, financial condition and results
of operations.
The collaboration with Welch Allyn is a joint development and
commercialization effort. It is anticipated that both SpectRx and Welch Allyn
would manufacture portions of the cancer detection device and both would share
in the revenues
14
of products sold to customers. There can be no assurance, however, that
SpectRx, together with Welch Allyn, will sell sufficient volumes of these
products to generate substantial revenues.
Uncertainty of Market Acceptance
SpectRx's products are based upon new methods of glucose monitoring,
diabetes detection, infant jaundice monitoring and cervical cancer detection.
There can be no assurance that any of these products will gain market
acceptance. Physicians and individuals will not recommend or use SpectRx's
products unless they determine, based on experience, clinical data, relative
cost, and other factors, that these products are an attractive alternative to
current blood-based or other tests that have a long history of safe and
effective use. To date, SpectRx's products have been utilized by only a limited
number of subjects, and no independent studies regarding SpectRx's products have
been published. The lack of any such independent studies may have an adverse
effect on SpectRx's ability to successfully market its products. In addition,
purchase decisions for products like SpectRx's diabetes detection and infant
jaundice products are greatly influenced by health care administrators who are
subject to increasing pressures to reduce costs. Failure of SpectRx's products
to achieve significant market acceptance would have a material adverse effect on
SpectRx's business, financial condition and results of operations.
Intense Competition
The medical device industry in general, and the markets in which SpectRx
expects to offer products in particular, are intensely competitive. If
successful in its product development, SpectRx will compete with other providers
of personal glucose monitors, diabetes detection tests, infant jaundice and
cancer detection products.
A number of competitors, including Johnson & Johnson, Inc. (which owns
Lifescan, Inc.), Roche Diagnostics, Bayer AG (which owns Miles Laboratories,
Inc.) and Abbott (which owns MediSense, Inc.), are currently marketing
traditional glucose monitors. These monitors are widely accepted in the health
care industry and have a long history of accurate and effective use.
Furthermore, a number of companies have announced that they are developing
products that permit non-invasive and less invasive glucose monitoring.
Accordingly, competition in this area is expected to increase.
Many of SpectRx's competitors have substantially greater financial,
research, technical, manufacturing, marketing and distribution resources than
SpectRx and have greater name recognition and lengthier operating histories in
the health care industry. There can be no assurance that SpectRx will be able to
effectively compete against these and other competitors. In addition, there can
be no assurance that SpectRx's glucose monitoring, diabetes detection, infant
jaundice or cancer detection products will replace any currently used devices or
systems, which have long histories of safe and effective use. Furthermore, there
can be no assurance that SpectRx's competitors will not succeed in developing,
either before or after the development and commercialization of SpectRx's
products, devices and technologies that permit more efficient, less expensive
non-invasive and less invasive glucose monitoring, diabetes detection, infant
jaundice monitoring and cancer detection. It is also possible that one or more
pharmaceutical or other health care companies will develop therapeutic drugs,
treatments or other products that will substantially reduce the prevalence of
diabetes, infant jaundice or cervical cancer or otherwise render SpectRx's
products obsolete. Such competition could have a material adverse effect on
SpectRx's business, financial condition and results of operation.
In addition, there can be no assurance that one or more of SpectRx's
collaborative partners will not, for competitive reasons, reduce its support of
its collaborative arrangement with SpectRx or support, directly or indirectly,
a company or product that competes with SpectRx's product that is the subject
of the collaborative arrangement.
Little Manufacturing Experience; Dependence on Sole Sources of Supply
To date, SpectRx's manufacturing activities have only included its
BiliChek(TM) and BiliCal(TM) products and the Accu-Chek(TM) D-Tector(TM)
diabetes detection product on a limited scale. If SpectRx , together with Roche
Diagnostics obtains FDA clearance and other regulatory approvals to market the
diabetes detection product, SpectRx will undertake to manufacture this product
in significant volumes. SpectRx has no experience manufacturing such products in
the volumes that would be necessary for SpectRx to achieve significant
commercial sales. There can be no assurance that SpectRx will be able to
establish and maintain reliable, full scale manufacturing of these products at
commercially reasonable costs. Although SpectRx has leased space that it plans
to use to manufacture its products, it may encounter various problems in
establishing and maintaining its manufacturing operations, resulting in
inefficiencies and delays. Specifically, companies often encounter difficulties
in scaling up production, including problems involving production yield, quality
control and assurance, and shortages of qualified personnel. In addition,
SpectRx's manufacturing facilities will be subject to GMP regulations, including
possible preapproval inspection, international quality standards and other
regulatory requirements. Difficulties encountered by SpectRx in manufacturing
scale-up or failure by SpectRx to implement and maintain its manufacturing
15
facilities in accordance with GMP regulations, international quality standards
or other regulatory requirements could result in a delay or termination of
production, which could have a material adverse effect on SpectRx's business,
financial condition and results of operations.
The microspectrometer and disposable calibration element, components of
SpectRx's infant jaundice product, and the blue light module and calibration
element, components of SpectRx's diabetes detection product, are each available
from only one supplier and these products would require a major redesign in
order to incorporate a substitute component. Certain other components of the
infant jaundice and diabetes detection products are currently obtained from only
one supplier, but have readily available substitute components that can be
incorporated in the applicable product with minimal design modifications. For
SpectRx's products which require a PMA, the inclusion of substitute components
could require SpectRx to qualify the new supplier with the appropriate
government regulatory authorities. Alternatively, for SpectRx's products which
qualify for a 510(k) premarket notification, the substitute components need only
meet SpectRx's product specifications. Any significant problem experienced by
one of SpectRx's sole source suppliers may result in a delay or interruption in
the supply of components to SpectRx until such supplier cures the problem or an
alternative source of the component is located and qualified. Any delay or
interruption would likely lead to a delay or interruption in SpectRx's
manufacturing operations, which could have a material adverse effect upon
SpectRx's business, financial condition and results of operations.
Little Marketing and Sales Experience
SpectRx is responsible for marketing its infant jaundice product in
countries other than the United Sates and Canada. SpectRx has relatively limited
experience in marketing or selling medical device products and only has a six
person marketing and sales staff. In order to successfully continue to market
and sell its infant jaundice product outside the United States and Canada,
SpectRx must either develop a marketing and sales force or expand its
arrangements with third parties to market and sell this product. While SpectRx
has signed distributor agreements for its BiliCheck(TM) and BiliCal(TM)
products, there can be no assurance that SpectRx will be able to successfully
fully develop a marketing and sales force or that it will be able to enter into
and maintain marketing and sales agreements with third parties on acceptable
terms. If SpectRx develops its own marketing and sales capabilities, it will
compete with other companies that have experienced and well-funded marketing and
sales operations. If SpectRx enters into a marketing arrangement with a third
party for the marketing and sale of its infant jaundice product outside the
United States and Canada, any revenues to be received by SpectRx from this
product will be dependent on this third party, and SpectRx will likely be
required to pay a sales commission or similar amount to this party. Furthermore,
SpectRx is currently dependent on the efforts of Abbott and Roche Diagnostics
for any revenues to be received from its glucose monitoring and diabetes
detection products, respectively. There can be no assurance that the efforts of
these third parties for the marketing and sale of SpectRx's products will be
successful.
Product Liability Risk; Limited Insurance Coverage
The development, manufacture and sale of medical products entail
significant risks of product liability claims. SpectRx currently has no product
liability insurance coverage beyond that provided by its general liability
insurance. Accordingly, there can be no assurance that SpectRx is adequately
protected from any liabilities, including any adverse judgments or settlements,
it might incur in connection with the development, clinical testing, manufacture
and sale of its products. In addition, product liability insurance is expensive
and may not be available to SpectRx on acceptable terms, if at all. A successful
product liability claim or series of claims brought against SpectRx that results
in an adverse judgment against or settlement by SpectRx in excess of any
insurance coverage could have a material adverse effect on SpectRx's business,
financial condition and results of operations.
Need for Additional Capital; Uncertainty of Access to Capital
Substantial capital will be required to develop SpectRx's products,
including completing product testing and clinical trials, obtaining all required
United States and foreign regulatory approvals and clearances, commencing and
scaling up manufacturing and marketing its products. Pursuant to SpectRx's
collaborative arrangements with Abbott, Roche Diagnostics, Respironics and Welch
Allyn, these collaborative partners will either directly undertake these
activities or will fund a substantial portion of these expenditures. The
obligations of SpectRx's collaborative partners to fund SpectRx's capital
expenditures is largely discretionary and depends on a number of factors,
including SpectRx's ability to meet certain milestones in the development and
testing of its products. There can be no assurance that SpectRx will meet such
milestones or that SpectRx's collaborative partners will continue to fund
SpectRx's capital expenditures. Any failure of SpectRx's collaborative partners
to fund its capital expenditures would have a material adverse effect on
SpectRx's business, financial condition and results of operations.
16
In addition to funds that SpectRx expects to be provided by its
collaborative partners, SpectRx may be required to raise additional funds
through public or private financing, additional collaborative relationships or
other arrangements. SpectRx believes that its existing capital resources will be
sufficient to satisfy its funding requirements for at least the next 12 months,
but may not be sufficient to fund SpectRx's operations to the point of
commercial introduction of either of its glucose monitoring product concepts.
There can be no assurance that any required additional funding, if needed, will
be available on terms attractive to SpectRx, or at all, which could have a
material adverse effect on SpectRx's business, financial condition and results
of operations. Any additional equity financing may be dilutive to stockholders,
and debt financing, if available, may involve restrictive covenants.
Uncertainty of Third-Party Reimbursement
In the United States, patients, hospitals and physicians who purchase
medical devices such as SpectRx's products, generally rely on third-party
payors, principally federal Medicare, state Medicaid and private health
insurance plans, to reimburse them for all or a portion of the cost of the
medical device. Reimbursement for devices that have received FDA approval has
generally been available in the United States. In addition, certain health care
providers are gradually adopting a managed care system in which such providers
contract to provide comprehensive health care services for a fixed cost per
person. SpectRx is unable to predict what changes will be made in the
reimbursement methods utilized by third-party health care payors. Although
SpectRx anticipates that patients, hospitals and physicians will justify the use
of SpectRx's products by the attendant cost savings and clinical benefits that
SpectRx believes will be derived from the use of its products, there can be no
assurance that this will be the case. Furthermore, SpectRx could be adversely
affected by changes in reimbursement policies of governmental or private health
care payors. Any inability of patients, hospitals, physicians and other users of
SpectRx's products to obtain sufficient reimbursement from health care payors
for SpectRx's products or adverse changes in relevant governmental policies or
the policies of private third-party payors regarding reimbursement for such
products could have a material adverse effect on SpectRx's business, financial
condition and results of operations.
If SpectRx obtains the necessary foreign regulatory approvals, market
acceptance of SpectRx's products in international markets will be dependent, in
part, upon the availability of reimbursement within prevailing health care
payment systems. Reimbursement and health care payment systems in international
markets vary significantly by country and include both government sponsored
health care and private insurance. Although SpectRx intends to seek
international reimbursement approvals, there can be no assurance that such
approvals will be obtained in a timely manner, if at all. Any failure to receive
international reimbursement approvals could have an adverse effect on market
acceptance of SpectRx's products in the international markets in which such
approvals are sought.
In the United States and elsewhere, sales of medical products are
dependent, in part, on the ability of consumers of these products to obtain
reimbursement for all or a portion of their cost from third-party payors, such
as government and private insurance plans. Third-party payors are increasingly
challenging the prices charged for medical products and services. If SpectRx
succeeds in bringing one or more products to market, there can be no assurance
that these products will be considered cost effective and that reimbursement to
the consumer will be available or sufficient to allow SpectRx to sell its
products on a competitive basis.
Need to Attract and Retain Key Employees
SpectRx's ability to operate successfully and manage its potential future
growth depends in significant part upon the continued service of certain key
scientific, technical, managerial and finance personnel, and its ability to
attract and retain additional highly qualified scientific, technical, managerial
and finance personnel. The officers listed in the Executive Officers and
Directors table included in SpectRx's 2000 Proxy Statement comprise SpectRx's
key personnel. None of these key employees has an employment contract with
SpectRx nor are any of these employees covered by key person or similar
insurance. In addition, if SpectRx, together with its collaborative partners, is
able to successfully develop and commercialize SpectRx's products, SpectRx will
need to hire additional scientific, technical, marketing, managerial and finance
personnel. SpectRx faces intense competition for qualified personnel in these
areas, many of whom are often subject to competing employment offers, and there
can be no assurance that SpectRx will be able to attract and retain such
personnel. The loss of key personnel or inability to hire and retain additional
qualified personnel in the future could have a material adverse effect on
SpectRx's business, financial condition and results of operations.
17
Control by Directors, Executive Officers and Affiliated Entities
SpectRx's directors, executive officers and entities affiliated with them,
in the aggregate, beneficially owned as of March 31, 2000 approximately 30% of
SpectRx's outstanding Common Stock. These stockholders, acting together, would
be able to control substantially all matters requiring approval by the
stockholders of SpectRx, including the election of directors and the approval of
mergers and other business combination transactions.
Potential Volatility of Stock Price
The stock markets have experienced extreme price and volume fluctuations
that have substantially affected small capitalization medical technology
companies, resulting in changes in the market prices of the stocks of many such
companies that may not have been directly related to their operating
performance. Such broad market fluctuations may adversely affect the market
price of SpectRx's Common Stock. In addition, the market price of the Common
Stock may be highly volatile. Factors such as variations in SpectRx's financial
results, changes in SpectRx's collaborative arrangements, comments by security
analysts, announcements of technological innovations or new products by SpectRx
or its competitors, changing government regulations and developments with
respect to FDA submissions, patents and proprietary rights, or litigation may
have a material adverse effect on the market price of the Common Stock.
Anti-Takeover Effect of Certain Charter and Bylaw Provisions on Price of
Common Stock
Certain provisions of SpectRx's Certificate of Incorporation and Bylaws may
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of SpectRx. Such
provisions could limit the price that certain investors might be willing to pay
in the future for shares of SpectRx's Common Stock. Certain of these provisions
allow SpectRx to issue Preferred Stock without any vote or further action by the
stockholders, eliminate the right of stockholders to act by written consent
without a meeting and specify procedures for director nominations by
stockholders and submission of other proposals for consideration at stockholder
meetings. Certain provisions of Delaware law applicable to SpectRx, including
Section 203, which prohibits a Delaware corporation from engaging in any
business combination with any interested stockholders for a period of three
years unless certain conditions are met, could also delay or make more difficult
a merger, tender offer or proxy contest involving SpectRx. The possible issuance
of Preferred Stock, the procedures required for director nominations and
stockholder proposals and Delaware law could have the effect of delaying,
deferring or preventing a change in control of SpectRx, including without
limitation, discouraging a proxy contest or making more difficult the
acquisition of a substantial block of SpectRx's Common Stock. These provisions
could also limit the price that investors might be willing to pay in the future
for shares of SpectRx's Common Stock.
Lack of Dividends
SpectRx has not paid any dividends and does not anticipate paying any
dividends in the foreseeable future.
18
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
SpectRx has not entered into any transactions using derivative financial
instruments and believes its exposure to interest rate risk, foreign currency
exchange rate risk and other relevant market risks is not material.
19
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds
RECENT SALES OF UNREGISTERED SECURITIES
On February 23, 2000, we sold 400,000 shares of our common stock for
an aggregate of $5,000,000 to a small group of private investors. The
transaction was effected as a private placement pursuant to the
exemption of Section 4(2) of the Securities Act of 1933 in reliance
upon the representations of the private investors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Exhibits listed on the accompanying Index to Exhibits are filed as part
hereof, or incorporated by reference into, this Report.
(b) Reports on Form 8-K
The Registrant filed the following Current Report on Form 8-K during the
quarter ended March 31, 2000.
- March 1, 2000 (Private placement of common stock, reported under item 5.
20
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, thereunto duly authorized, in Norcross, Georgia.
SPECTRX, INC.
By: /S/ THOMAS H. MULLER, JR.
--------------------------------
Thomas H. Muller, Jr.
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
Date: May 15, 2000
21
EXHIBIT INDEX
Exhibit
No. DESCRIPTION
- -------------- ---------------------------------------------------------------------------------------------------
3.1 (2) Certificate of Incorporation of SpectRx, as amended, as currently in effect.
3.2 (1) Bylaws of SpectRx.
4.1 (1) Specimen Common Stock Certificate.
4.2 (7) Redeemable Convertible Preferred Stock.
4.3 Second Amendment to the Amended and Restated Registration Rights Agreement dated February 17, 2000.
10.1 (1) 1997 Employee Stock Purchase Plan and form of agreement thereunder.
10.2 (1) 1995 Stock Plan, as amended, and form of Stock Option Agreement thereunder.
10.3 (1) Stock Purchase Agreement, dated June 30, 1994, between Mark A. Samuels and SpectRx.
10.4 (1) Stock Purchase Agreement, dated June 30, 1994, between Keith D. Ignotz and SpectRx.
10.5 (1) Assignment and Bill of Sale, dated February 29, 1996, between Laser Atlanta Optics, Inc. and SpectRx.
10.6 (1) Security Agreement, dated October 31, 1996, between Mark A. Samuels and SpectRx.
10.7 (1) Security Agreement, dated October 31, 1996, between Keith D. Ignotz and SpectRx.
10.11A (1)* License Agreement, dated May 7, 1991, between Georgia Tech Research Corporation and Laser Atlanta
Optics, Inc.
10.11B (1) Agreement for Purchase and Sale of Technology, Sale, dated January 16, 1993, between Laser Atlanta
Optics, Inc. and SpectRx.
10.11C (1) First Amendment to License Agreement, dated October 19, 1993, between Georgia Tech
Research Corporation and SpectRx.
10.12 (1) Clinical Research Study Agreement, dated July 22, 1993, between Emory University and SpectRx.
10.13A (1)* Development and License Agreement, dated December 2, 1994, between Boehringer Mannheim
Corporation and SpectRx.
10.13B (1)* Supply Agreement, dated January 5, 1996, between Boehringer Mannheim and SpectRx.
10.14 (1) Sponsored Research Agreement, No. SR95-006, dated May 3, 1995, between University of Texas, M.D.
Anderson Cancer Center and SpectRx.
10.15 (1) Sole Commercial Patent License Agreement, dated May 4, 1995, between Martin Marietta Energy Systems,
Inc. and SpectRx.
10.16A (1) License Agreement, dated November 22, 1995, between Joseph R. Lakowicz, Ph.D. and SpectRx.
10.16B (1) Amendment of License Agreement, dated November 28, 1995, between Joseph R. Lakowicz, Ph.D. and
SpectRx.
10.16C (1) Second Amendment to License Agreement, dated March 26, 1997, between Joseph R. Lakowicz, Ph.D. and
SpectRx.
10.16D(4) Third Amendment to License Agreement, dated November 20, 1998, between Joseph R. Lakowicz, Ph.D. and
SpectRx.
10.16E(4)** Fourth Amendment to License Agreement, dated November 20, 1998, between Joseph R. Lakowicz, Ph.D. and
SpectRx.
10.17 (1) License and Joint Development Agreement, dated March 1, 1996, between NonInvasive-Monitoring Company,
Inc., Altea Technologies, Inc. and SpectRx.
10.18 (1)* Patent License Agreement, dated March 12, 1996, between the Board of Regents of the University of
Texas System, M.D. Anderson and SpectRx.
10.19A (1)* Purchasing and Licensing Agreement, dated June 19, 1996, between Respironics and SpectRx.
10.19B(4)** Amendment to Purchasing and Licensing Agreement, dated October 21, 1998 between Respironics and
SpectRx.
10.20 1) Research Services Agreement, dated September 3, 1996, between Sisters of Providence in Oregon
doing business as the Oregon Medical Laser Center, Providence St. Vincent Medical
Center and SpectRx.
10.21A (1)* Research and Development and License Agreement, dated October 10, 1996, between Abbott Laboratories
and SpectRx.
10.21B(3) * Letter Agreement, dated December 22, 1997, between Abbott Laboratories and SpectRx.
10.21 C** Third Amendment to Research and Development and License Agreement, dated November 30, 1999 between
Abbott Laboratories and the SpectRx.
10.22A (1) Lease, dated September 21, 1993, between National Life Insurance Company d/b/a Plaza 85 Business Park
and SpectRx, together with amendments 1, 2 and 3 thereto and Tenant Estoppel Certificate,
dated September 20, 1994.
10.24(4)** Development and Commercialization Agreement, dated December 31, 1998, between Welch Allyn, Inc. and
SpectRx.
10.25A**(5) Development and License Agreement, dated July 13, 1999, between Roche Diagnostics Corporation
and SpectRx.
10.25B**(5) Supply Agreement, dated July 13, 1999, between Roche Diagnostics Corporation and SpectRx.
22
EXHIBIT
NO. DESCRIPTION
------- ------------------------------------------------------------------
11.1 Calculation of earnings per share.
21.1(6) Subsidiaries of the Registrant.
23.1(6) Consent of independent accountants.
24.1 Power of Attorney (included at signature page.)
27.1 Financial Data Schedule.
[FN]
___________
* Confidential treatment granted for portions of these agreements.
** Confidential treatment requested for portions of this agreement.
(1) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-1 (No. 333-22429) filed February 27, 1997,
and amended on April 24, 1997, June 11, 1997, and June 30, 1997, which
Registration Statement became effective June 30, 1997.
(2) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 filed
August 12, 1997.
(3) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997, filed March 26,
1998.
(4) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998, filed March 30,
1999.
(5) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 filed
August 13, 1999.
(6) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1999, filed March 30,
2000.
(7) Incorporated by reference to Exhibit 10.21C; Third Amendment to Research
and Development and License Agreement, dated November 30, 1999 between
Abbott Laboratories, as Appendix 5.5 thereto, filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1999, filed
March 30, 2000.
</FN>