-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GR8KzbbYMQddRc44C3jbpHydWtgFxk6cV8/jTocXgB7NXU5fqdtXqbO05llydHg1 /P8YmSFINWEyXia4cIHt3g== 0001144204-09-043721.txt : 20090814 0001144204-09-043721.hdr.sgml : 20090814 20090814163013 ACCESSION NUMBER: 0001144204-09-043721 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20090630 FILED AS OF DATE: 20090814 DATE AS OF CHANGE: 20090814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECTRASCIENCE INC CENTRAL INDEX KEY: 0000727672 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 411448837 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13092 FILM NUMBER: 091016295 BUSINESS ADDRESS: STREET 1: 11568 SORRENTO VALLEY ROAD STREET 2: SUITE 11 CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: (858) 847-0200 MAIL ADDRESS: STREET 1: 11568 SORRENTO VALLEY ROAD STREET 2: SUITE 11 CITY: SAN DIEGO STATE: CA ZIP: 92121 FORMER COMPANY: FORMER CONFORMED NAME: GV MEDICAL INC /MN DATE OF NAME CHANGE: 19931119 FORMER COMPANY: FORMER CONFORMED NAME: GV MEDICAL INC DATE OF NAME CHANGE: 19920703 10-Q 1 v157627_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

Form 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-13092

SPECTRASCIENCE, Inc.

(Exact name of small business issuer

as specified in its charter)

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

11568 Sorrento Valley Rd., Suite 11

San Diego, California 92121

(Address of principal executive offices)

(858) 847-0200

(Issuer's telephone number)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer o	Accelerated filer o

Non-accelerated filer o	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO þ

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES þ NO ¨

The number of shares of the Registrant’s common stock, par value $0.01 per share, outstanding on August 14, 2009 was 69,707,615 with an additional 4,650,000 shares of Series B Convertible Preferred Stock, par value $0.01 per share, outstanding. As of this date the Registrant also had outstanding warrants to purchase 3,577,966 shares of common stock at a weighted average price of $0.42 per share.

SPECTRASCIENCE, INC.

FORM 10-Q

For the Quarterly Period Ending June 30, 2009

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION:	3

Item 1.	Financial Statements (Unaudited)	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14

Item 4.	Controls and Procedures	14

Item 4T.	Controls and Procedures	15

PART II	OTHER INFORMATION	16

Item 1.	Legal Proceedings	16

Item 1A.	Risk Factors	16

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16

Item 3.	Defaults Upon Senior Securities	16

Item 4.	Submission of Matters to a Vote of Security Holders	16

Item 5.	Other Information	16

Item 6.	Exhibits	16

SIGNATURES		17

PART I FINANCIAL INFORMATION:

Item 1. Financial Statements (Unaudited)

SpectraScience, Inc. and Subsidiary

Consolidated Balance Sheets

	June 30, 2009			December 31, 2008
	(Unaudited)			(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	757,707		$	1,618,181
Accounts Receivable (net)		61,635			23,877
Inventories (net of allowances)		319,507			465,881
Prepaid expenses and other current assets		287,019			85,344
Total current assets		1,425,868			2,193,283
Fixed assets, net		1,871,058			1,876,738
Patents, net		3,040,766			3,165,550
TOTAL ASSETS	$	6,337,692		$	7,235,571

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	226,048		$	345,762
Accrued liabilities		67,584			88,081
Total current liabilities		293,632			433,843

STOCKHOLDERS’ EQUITY

Series B Convertible Preferred Stock, $.01 par value:
Authorized – 15,000,000; shares issued and outstanding – 2,650,000 shares at June 30, 2009 (no shares at December 31, 2008) $530,000 liquidation value plus accumulated and unpaid dividends of $3,318 as of June 30, 2009		26,500			-
Common stock, $.01 par value:
Authorized—110,000,000 shares
Issued and outstanding 69,707,615 shares at June 30, 2009 (68,613,598 shares at December 31, 2008)		697,076			686,136
Additional paid-in capital		19,202,431			17,835,865
Accumulated (deficit)		(13,881,947	)		(11,720,273	)
TOTAL STOCKHOLDERS’ EQUITY		6,044,060			6,801,728
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	6,337,692		$	7,235,571

Note: The balance sheet at December 31, 2008 has been derived from the audited financial statements at that date but does not include all of the information required by accounting principles generally accepted in the United States of America for complete financial statements.

See accompanying notes to unaudited condensed financial statements.

SpectraScience, Inc. and Subsidiary

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008

Revenue	$	71,281		$	4,750		$	120,391		$	8,550
Cost of revenue		58,645			2,336			80,780			5,052
Gross profit		12,636			2,414			39,611			3,498

Operating expenses:
Research and development		268,319			578,818			734,163			1,069,266
General and administrative		525,537			619,923			990,312			1,307,706
Sales and marketing		(2,429	)		223,629			184,107			425,835
Total operating expenses		791,427			1,422,370			1,908,582			2,802,807
Operating (loss)		(778,791	)		(1,419,956	)		(1,868,971	)		(2,799,309	)

Other expense (income), net		3,585			(53,577	)		748			89,090
Net (Loss)		(782,376	)		(1,366,379	)		(1,869,719	)		(2,710,219	)

Deemed Dividend on Preferred Stock		(291,955	)		-			(291,955	)		-

Net (loss) applicable to common stockholders	$	(1,074,331	)		(1,366,379	)	$	(2,161,674	)	$	(2,710,219	)
Basic and diluted net (loss) per share	$	(0.02	)	$	(0.02	)	$	(0.03	)	$	(0.04	)
Weighted average common shares outstanding		69,707,615			69,971,390			69,616,447			64,302,705

See accompanying notes to unaudited condensed financial statements.

SpectraScience, Inc. and Subsidiary

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the six months ended June 30, 2009

(Unaudited)

	Preferred Stock				Common Stock				Additional Paid-In		Accumulated (Deficit)			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital					Equity

Balance, December 31, 2008		-	$	-		68,613,598	$	686,136	$	17,835,865	$	(11,720,273	)	$	6,801,728

Stock based compensation - consultants		-		-		-		-		67,848		-			67,848
Stock based compensation - employees		-		-		-		-		304,299		-			304,299
Issuance of Common Stock						1,094,017		10,940		262,564					273,504
Sale of Series B Preferred Stock and warrants		2,650,000		-		-		-		466,400		-			466,400
Deemed Dividend on Preferred Stock		-		26,500		-		-		265,455		(291,955	)		-
Net loss		-		-		-		-				(1,869,719	)		(1,869,719	)
Balance, June 30, 2009		2,650,000	$	26,500		69,707,615	$	697,076	$	19,202,431	$	(13,881,947	)	$	6,044,060

See accompanying notes to unaudited condensed financial statements.

SpectraScience, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2009			2008
OPERATING ACTIVITIES:
Net (loss)	$	(1,869,719	)	$	(2,710,219	)
Adjustments to reconcile net (loss) to net cash used in operating activities:
Depreciation and amortization		187,464			137,362
Stock-based compensation employees		304,299			547,672
Stock-based compensation consultants		67,848			53,177
Fair market value of stock issued for services		-			7,500
Changes in operating assets and liabilities:
Accounts receivable		(37,758	)		-
Inventory		146,374			-
Prepaid expenses and other current assets		14,829			(152,014	)
Accounts payable		(119,714	)		(84,568	)
Accrued liabilities		(20,497	)		65,624
Net cash (used in) operating activities		(1,326,874	)		(2,135,466	)

INVESTING ACTIVITIES:
Purchase of certificate of deposit		-			(1,000,000	)
Purchases of fixed assets		-			(35,034	)
Net cash (used in) investing activities		-			(1,035,034	)

FINANCING ACTIVITIES
Proceeds from issuance of common stock		-			445,351
Proceeds from issuance of preferred stock		466,400			-
Proceeds from exercise of stock options		-			3,000
Net cash provided by financing activities		466,400			448,351
Net increase (decrease) in cash and cash equivalents		(860,474	)		(2,722,149	)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		1,618,181			5,188,177

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	757,707		$	2,466,028

Supplemental disclosure of non-cash operating and financing activities:
Stock issued at fair value for prepaid stock issuance cost	$	273,504		$	-

See accompanying notes to unaudited condensed financial statements.

SpectraScience, Inc.

Notes to Unaudited Condensed Financial Statements

June 30, 2009

1. Nature of Business and Basis of Presentation

Description of Business

SpectraScience, Inc. was incorporated in the State of Minnesota on May 4, 1983 as GV Medical, Inc. In October 1992, GV Medical discontinued its prior business, refocused its development efforts and changed its name to SpectraScience, Inc. From 1996, the Company primarily focused on developing the WavSTAT ® Optical Biopsy System (“WavSTAT System”). The “Company” refers to SpectraScience, Inc. and its wholly owned subsidiary Luma Imaging Corporation.

The Company has developed and received FDA approval to market a proprietary, minimally invasive technology that optically scans tissue in real-time to distinguish between normal, pre-cancerous or cancerous cells without the need to physically remove tissue from the body to make such determination. The WavSTAT System operates by using cool, safe laser light to analyze tissue, enabling the physician to make an instant diagnosis during endoscopy and, if warranted, to begin immediate treatment during the same procedure. The WavSTAT is FDA approved for colon cancer detection.

On November 6, 2007, the Company acquired the assets of Luma Imaging Corporation (“LUMA ® ”) and operates LUMA as a wholly owned subsidiary of the Company. LUMA had acquired the assets from a predecessor company that had developed and received FDA approval for, a non-invasive diagnostic imaging system that can detect cervical cancer precursors and which utilizes an underlying technology that is similar to that of the WavSTAT System. The addition of the LUMA technology to the existing WavSTAT technology provides the Company with a broad suite of fluorescence-based intellectual property and know-how. LUMA received FDA approval as an adjunct to colposcopy in March 2006.

Basis of Presentation

The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q as they are prescribed for smaller reporting companies. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the financial statements not misleading have been included. Operating results for the six month period ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. These statements should be read in conjunction with the financial statements and related notes, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Liquidity and Going Concern

The Company has recently begun marketing its products. As of June 30, 2009, the Company had working capital of $1,132,236 and a cash balance of $757,707. In addition, for the six month period ending June 30, 2009, the Company used ($1,326,874) to fund operating activities.

In May and June 2009, the Company sold 2,650,000 shares of Series B Convertible Preferred Stock to accredited investors at a price of $0.20 per share for an aggregate consideration of $530,000. The Company received net cash proceeds of $466,400 after the payment of finder’s fees and expenses of $63,600. The Series B Convertible Preferred Stock was sold as a component of a Unit offering described in more detail under the “Shareholders’ Equity” paragraph below.

On January 30, 2009, the Company entered into a Common Stock Purchase Agreement with Fusion Capital Fund II. Under the Purchase Agreement, Fusion Capital is obligated, under certain conditions, to purchase shares from us in an aggregate amount of $6.0 million from time to time over a twenty-four (24) month period. If the Company does not receive these funds in a timely manner, the Company may not be able to continue as a going concern. The Company may not be able to find alternative capital on terms that are acceptable. Management believes that if funding under the Fusion Capital Agreement occurs, the proceeds will be sufficient to allow the Company to sustain operations until it attains profitability and positive cash flows from operations. However, the Company may incur unknown expenses and may not be able to obtain equity or debt on terms that are acceptable.

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

2. Summary of Significant Accounting Policies

Revenue recognition

We recognize revenue, net of discounts, from sales of our medical devices and sales of disposable supplies related to our medical devices when items have been shipped, when title transfers, when the selling price is fixed or determinable, and when collection of the resulting receivable is reasonably assured. Terms of sale are generally FOB origin, reflecting that title and risk of loss are assumed by the purchaser at the shipping point.

Consolidation

The accompanying consolidated financial statements include the accounts of SpectraScience, Inc. and its wholly-owned subsidiary Luma Imaging Corporation. All significant intercompany balances and transactions have been eliminated in consolidation.

Risks and Uncertainties

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

Use of Estimates

The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes to the financial statements. Significant estimates made by management include, among others, realization of long-lived assets, assumptions used to value stock options, and assumptions used to value the consideration issued, the assets acquired in the Luma acquisition and the realization of intangible assets. Actual results could differ from those estimates.

Stock-Based Compensation

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards, (“SFAS”) No. 123(R), “Share-Based Payment”, (“SFAS 123(R)”) which establishes standards for transactions in which an entity exchanges its equity instruments for goods or services. SFAS 123(R) requires an issuer to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. SFAS 123(R) became effective for the Company commencing January 1, 2006.

In accordance with the provisions of SFAS No. 123 “Accounting for Stock-Based Compensation”, (“SFAS 123”) and Emerging Issues Task Force (“EITF”) No. 96-18, “Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods or Services,” all other issuances of common stock, stock options or other equity instruments to non-employees as the consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued (unless the fair value of the consideration received can be more reliably measured). Any options issued to non-employees are recorded in expense and additional paid-in capital in stockholders’ equity over the applicable service periods using variable accounting through the vesting dates based on the fair value of the options at the end of each period.

For the six months ended June 30, 2009 and 2008, stock-based compensation was approximately $372,000 and $601,000, respectively. Stock-based compensation expense of approximately $126,000 and $288,000 was recognized in research and development expenses for the six months ended June 30, 2009 and 2008, respectively. Stock-based compensation of approximately $297,000 and $294,000 was recognized in general and administrative expenses for the six months ended June 30, 2009 and 2008, respectively. Stock-based compensation expense of approximately ($51,000) and $19,000 was recognized in sales and marketing expense for the six months ended June 30, 2009 and 2008, respectively. The benefit recorded in sales and marketing stock option expense was the result of recapturing previously recognized expense as a result of option holder’s terminations. The Company previously adopted the fair value recognition provisions of SFAS 123 prospectively for all employee and consultant awards granted, modified, or settled by the Company on August 2, 2004. Accordingly, SFAS 123(R) has not had a material impact on the comparability of Company’s financial statements.

As of June 30, 2009, the Company had one stock-based employee compensation plan (the “Option Plan"). The Option Plan provides for the grant of incentive stock options (“ISOs") to full-time employees (who may also be directors) and nonqualified stock options ("NSOs") to non-employee directors, consultants, customers, vendors or providers of services and expires on January 30, 2011. The exercise price of any ISO may not be less than the fair market value of the common stock on the date of grant and the term shall not exceed ten years. The amount reserved under the Option Plan equals 15% of the outstanding shares of the Company, totaling 10,456,142 reserved at June 30, 2009. At June 30, 2009 the Company had outstanding 7,150,000 options under the Option Plan representing approximately 10.3% of the outstanding shares (4,333,333 of which were exercisable), with 3,306,142 available for future issuance. Awards under the Company’s Option Plan generally vest over three years.

The fair value of options granted were estimated at the date of grant using a Black-Scholes option-pricing model which includes several variables including expected life, risk free interest rate, expected stock price volatility, stock option exercise patterns and expected dividend yield. The Company also must estimate forfeitures for employee stock options. These models and assumptions are emerging and may change future expenses by increasing or decreasing stock-based compensation expense. Management used the following weighted average assumptions to value all stock options for the six months ending June 30, 2009 and 2008:

	2009	2008
Expected life	5 years	5 years
Risk-free interest rate	2.13%	3.85%
Expected volatility	123%	161%
Expected dividend yield	0%	0%

In addition to the above, management estimated the forfeitures on employee options under the Option Plan would have negligible effects because such forfeitures would be a very small percentage. Recent foreclosures are due to layoffs which were not expected to occur at the grant date of these options. Management believes that options granted to remaining employees have been to a group of individuals that have a high desire to see the Company succeed and have aligned themselves to that end.

The expected life used in the calculations were selected by management based on past experience, forward looking profit forecasts and estimates of what the trading price of the Company’s stock might be at different future dates.

The risk-free interest rates are the 5-year U.S. Treasury rate as published at the time of making the calculations.

Volatility is a calculation based on the Company’s stock price since the beginning of the Successor Company. Management computed and tested this volatility calculation for reasonableness and found it to be acceptable based on a number of factors including the Company’s current market capitalization, comparables to other companies in our area of interest, the current development stage of the Company and management’s estimate of the net present value of forward looking profits that has been compiled (for which there is no assurance).

	Options Available For Grant		Plan Options Outstanding			Weighted Average Exercise Price Share		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding December 31, 2008		2,142,040		8,150,000		$	0.58		8.38
Options granted		-		-			-		-
Options exercised		-		-			-		-
Additional options available		164,102
Forfeited or expired		1,000,000		(1,000,000	)
Outstanding at June 30, 2009		3,306,142		7,150,000		$	0.58		7.71	$	-
Exercisable at June 30, 2009				4,333,333		$	0.65		6.82	$	-

There were no options exercised during the six months ended June 30, 2009 and $13,000 (intrinsic value) of options exercised during the 6 months ended June 30, 2008. At June 30, 2009, total unrecognized estimated employee and director compensation cost related to non-vested stock options granted prior to that date is approximately $860,036, which is expected to be recognized over the next two years.

Impairment or Disposal of Long-Lived Assets

SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), addresses financial accounting and reporting for the impairment or disposal of long-lived assets (such as our patents). SFAS 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the cost basis of a long-lived asset is greater than the projected future undiscounted net cash flows from such asset (excluding interest), an impairment loss is recognized. Impairment losses are calculated as the difference between the cost basis of an asset and its estimated fair value. SFAS 144 also requires companies to separately report discontinued operations and extends that reporting requirement to a component of an entity that either has been disposed of (by sale, abandonment or in a distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or the estimated fair value less costs to sell. The Company adopted SFAS 144 on August 2, 2004. The provisions of this pronouncement relating to assets held for sale or other disposal generally are required to be applied prospectively after the adoption date to newly initiated commitments to plan to sell or dispose of such asset, as defined, by management. As a result, management cannot determine the potential effects that adoption of SFAS 144 will have on the Company's consolidated financial statements with respect to future disposal decisions, if any. Management believes no impairment exists at June 30, 2009.

Inventories

Inventories consisted of the following at June 30, 2009 and December 31, 2008:

	June 30, 2008		December 31, 2008
Raw materials	$	77,098	$	205,651
Finished goods		242,409		260,230
Totals	$	319,507	$	465,881

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period of computation. Diluted earnings (loss) per share is computed similarly to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and only if the additional common shares would be dilutive. Basic and diluted loss per share are the same for the six months ended June 30, 2009 and 2008, since any additional common stock equivalents would be antidilutive. Potentially dilutive shares of common stock that have been excluded from the calculation of the weighted average number of dilutive common shares for the three and six months ended June 30, 2009 include exercisable stock options, convertible preferred stock and outstanding warrants. As of June 30, 2009, there were 2,650,000 shares of Series B Convertible Preferred Stock, warrants to purchase 3,577,966 shares of Common Stock and 7,150,000 stock options outstanding. If converted under the treasury method, these instruments would have resulted in an additional approximate 3,415,000 equivalent common shares outstanding.

For the three and six month periods ended June 30, 2008, approximately 1,377,000 potentially dilutive shares of common stock have been excluded from the calculation of weighted average number of dilutive common shares which are comprised of exercisable stock options and warrants to purchase common stock.

Recent Accounting Pronouncements

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB 28-1”) FSP FAS 107-1 and APB 28-1 require disclosures about fair value of financial instruments in interim and annual financial statements. FSP FAS 107-1 and APB 28-1 are effective for periods ending after June 15, 2009. The Company adopted FSP 107-1 and APB 28-1 effective for the quarter ending June 30, 2009. The adoption did not have an impact on the Company’s financial position or results of operations.

In May 2009, the FASB issued FASB Statement 165, “Subsequent Events” (“SFAS No. 165”). SFAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. The Company adopted this statement for the quarter ending June 30, 2009.

In June 2009, the FASB issued Statement No. 168, “The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162.” Under the Statement, The FASB Accounting Standards Codification (Codification) will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. In the FASB’s view, the issuance of this Statement and the Codification will not change GAAP, except for those nonpublic nongovernmental entities that must now apply the American Institute of Certified Public Accountants Technical Inquiry Service Section 5100, “Revenue Recognition,” paragraphs 38 – 76. The Company does not expect that the adoption of this Statement will have a material impact on the Company’s financial statements.

Fair Value of Financial Instruments

The carrying amount of the Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their estimated fair values due to the short-term maturities of those financial instruments.

3. Stockholders Equity

Common Stock

On January 30, 2009, we entered into a Common Stock Purchase Agreement with Fusion Capital Fund II, an Illinois limited liability company. Under the Purchase Agreement, Fusion Capital is obligated, under certain conditions, to purchase shares from us in an aggregate amount of $6.0 million from time to time over a twenty-four (24) month period. Under the terms of the Purchase Agreement, on the date we entered into the agreement, we issued Fusion Capital a commitment fee consisting of 1,094,017 shares of our common stock.

Series B Convertible Preferred Stock and Warrants

On June 22, 2009, the Board of Directors designated 15,000,000 of the Company’s undesignated capital stock as Series B Convertible Preferred Stock (the “Preferred”) with par value of $0.01 per share. The Preferred is convertible into an equal number of shares of the Company’s Common Stock based upon an initial conversion price of $0.20 per share and carries a liquidation preference of like amount plus declared but unpaid cumulative dividends. The Preferred is entitled to receive cumulative dividends in preference to any dividend which may be declared on the Common Stock at the rate of 8% of the original issue price. In addition, the Preferred has rights which provide for (i) dividend payments senior to those with respect to common shares, (ii) voting rights equal to the number of common shares into which the Preferred is convertible and (iii) adjustments to the conversion price in the event of stock dividends, stock splits or other effective stock subdivisions. The Preferred is subject to automatic conversion in the event of (a) an underwritten public offering exceeding $10 million in gross proceeds to the Company or, (b) the approval of 67% of the Preferred holders or (c) in the event that the underlying conversion shares become freely tradable and the average daily trading volume of the underlying stock is not less than 50,000, nor the average closing price of the underlying stock is not less than the conversion price then in effect for 10 consecutive trading days.

In May and June 2009, as a part of a Units offering, the Company sold 2,650,000 shares of its Preferred to accredited investors for an aggregate consideration of $530,000. The Company received net cash proceeds of $466,400 after the payment of finders’ fees and expenses of $63,600. In addition, the Company issued five-year warrants to purchase 1,325,000 additional shares of Common Stock at an initial exercise price of $0.30 per share. The convertible feature of the Preferred and the terms of the warrants provide for a rate of conversion or exercise that was below market value at issuance. Such feature, as it specifically relates to the convertible feature of the Preferred, is characterized as a “Beneficial Conversion Feature” (“BCF”). Pursuant to EITF Issue No. 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios” (“EITF 98-5”) and EITF No. 00-27, “Application of EITF Issue No. 98-5 to Certain Convertible Instruments,” the estimated relative fair values of the BCF and the warrants, in approximate amounts of $292,000 and $238,000, respectively, were calculated. The value of the BCF was determined utilizing an intrinsic value method with the fair value of the warrants determined using the Black-Scholes option-pricing model at the date of issuance. The warrant fair values were determined assuming a five-year term, stock volatility of approximately 124% and risk-free interest rates of between 1.98% and 2.74%. The stand-alone fair value of the BCF was then determined to be higher than the remaining proceeds received and, accordingly, the value assigned to the BCF was limited to the gross proceeds received from the offering net of the fair value of the warrants. Per the guidance of EITF 98-5, the value of the BCF is treated as a deemed dividend to the Preferred stockholders and, due to the potential immediate convertibility of the Preferred stock at issuance, this value is recorded as an increase to both additional-paid-in-capital and accumulated deficit at the time of issuance.

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

4. Subsequent Events

Subsequent events have been evaluated through August 14, 2009, the date the financial statements are filed with the Securities and Exchange Commission. Through that date, there were no events requiring disclosure, except for the sale to accredited investors of an additional 2,000,000 shares of Series B Convertible Preferred Stock, including Common Stock purchase warrants to stock, including Common Stock purchase warrants to purchase 1,000,000 shares at $0.30 per share. The Company received $400,000 gross proceeds from the sale, and net proceeds of $350,000 after payment of $48,000 in finders’s fees.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

This Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in this Report, or in our future filings with the SEC, in our press releases and in oral statements made with the approval of an authorized executive officer, the words or phrases “anticipates,” “estimates,” “expects,” “will likely result,” “projects,” “believes,” “intends,” or similar expressions are intended to identify such forward-looking statements, but are not the exclusive means of identifying such statements. These forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from the results discussed in the forward-looking statements.

We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date made. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances after the date of such statements. Readers are urged to carefully review and consider the various disclosures made by us in this Report and other reports we file with the SEC that attempt to advise interested parties of the risks and factors that may affect our business. Such forward-looking statements are qualified in their entirety by the cautions and risk factors set forth in our Annual Report on Form 10-K covering the year ended December 31, 2008.

Business

SpectraScience, Inc. develops and manufactures innovative Laser Induced Fluorescence spectrophotometry systems capable of determining whether tissue is normal, pre-cancerous or cancerous without removing tissue from the body. The WavSTAT ® Optical Biopsy System (“WavSTAT”) is SpectraScience's first fully developed product to incorporate its proprietary Laser Induced Fluorescence technology for worldwide clinical use. It is approved by the FDA for use during endoscopy of the colon when screening for colon cancer. The Company’s second application of this technology for detecting pre-esophageal cancer is undergoing a clinical trial at four institutions. Upon completion of the trial, the Company plans to file with the FDA seeking permission to begin marketing for that indication for use. SpectraScience believes its core technology is a hardware platform technology that can be developed for use in many areas of the human body such as early detection of pre-cancers in the lung.

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

Plan of Operation

The Company currently has FDA approval to market the WavSTAT System for detecting pre-cancerous and cancerous tissue in the colon and to market the LUMA System for use as an adjunct to colposcopy in the detection of early stage cancer and pre-cancer of the cervix. Our plan is to add another indication for use in detecting pre-cancer and cancer in the esophagus. Over the next twelve months, SpectraScience intends to:

Continue selling the WavSTAT System in the US and international markets for the detection and treatment of pre-cancer and cancer of the colon.

Complete WavSTAT System clinical trials related to the diagnosis of esophageal cancers.

Continue marketing and selling the WavSTAT System in international markets for the detection of pre-cancer and cancer of the esophagus and in the US market after FDA approval.

Continue selling or renting the LUMA System in the US as an adjunct to colposcopy to specialized OB/GYN clinics, managed care organizations (early detection and future cost avoidance), teaching hospitals and medical environments where nurse practitioners and/or medical clinicians can leverage our technology for effective early diagnosis.

Enhance our San Diego facility and grow our organization to allow for a larger manufacturing base for both WavSTAT and LUMA Systems and also to continue the design and planning for the next generation of fluorescence-based systems.

Recent Accounting Pronouncements

Results of Operations

In response to the global economic recession, SpectraScience eliminated all but the essential expenses required to focus on manufacturing, selling and marketing the WavSTAT System in international markets, primarily Europe. As a result, in all expense categories described below, expenses are materially lower in the current period as compared to the prior period one year ago.

For the Three Months ended June 30, 2009 and 2008

The Company recognized revenue of $71,281 and $4,750 for the three months ended June 30, 2009 and 2008, respectively. The increase is a result of the Company beginning to ramp up its sales primarily as a result of the completion of the WavSTAT System platform for sale and the introduction of the product in Europe, as compared to the quarter one year ago.

Overall research and development expenses for the three months ended June 30, 2009 and 2008 were approximately $268,000 and $579,000, respectively. The $311,000 decrease in research and development expenses related to approximate decreases in payroll expense of $136,000, clinical expense of $38,000, engineering development expense of $44,000, stock compensation expense of $39,000, consulting expense of $26,000 and all other expense of $28,000. The reduction in all expense categories is a result of a concerted effort to minimize expenses due to the global economic recession.

General and administrative expenses for the three months ended June 30, 2009 and 2008 were approximately $525,000 and $620,000, respectively. The $95,000 decrease for the three months ended June 30, 2009 compared to the three months ended June 30, 2008 was due to approximate decreases of $72,000 in professional fees expense, $37,000 in payroll expense, $34,000 in consulting expense, $20,000 in travel expense and $12,000 in other expense, offset by approximate increases of $46,000 in stock compensation expense and $34,000 in amortization of financing fee expense. The overall decreases were a result of headcount and discretionary expense reductions due to the Company’s response to the downturn in the overall economy.

Sales and marketing expenses for the three months ended June 30, 2009 and 2008 were ($2,000) and $224,000, respectively. The negative expense amount for the current period is primarily as a result of employee headcount reductions and the reversal of previously recorded option expense for unvested options which did not vest due to employee turnover prior to the vesting date. The overall expense decrease of $226,000 was due to approximate decreases of $81,000 in payroll expense, $80,000 in stock compensation expense, $24,000 in trade show expense, $14,000 in advertising expense, $14,000 in consulting expense and $13,000 in all other expenses. The overall decreases were a result of headcount and discretionary expense reductions due to the Company’s response to the downturn in the overall economy.

Other income, net, for the three months ended June 30, 2009 and 2008 was $3,585 and $53,577, respectively. The decrease was primarily due to a decrease in interest income due to lower comparative interest bearing cash balances during the three months ended June 30, 2009 as compared to the same quarter one year ago.

As a result of the above, the net loss for the three months ended June 30, 2009 and 2008 was ($782,376) and ($1,366,379), respectively. The decreased net loss was due to decreases in overall operating expense as a result of planned expense reductions taken as a result of the overall recessionary market environment. Of the net loss for the quarter ended June 30, 2009 approximately $134,000 was comprised of non-cash stock-option expense.

For the Six Months ended June 30, 2009 and 2008

The Company recognized revenue of $120,391 and $8,550 for the six months ended June 30, 2009 and 2008, respectively. The increase is a result of the Company beginning to ramp up its sales primarily as a result of the completion of the WavSTAT System platform for sale and the introduction of the product in Europe, as compared to the quarter one year ago.

Overall research and development expenses for the six months ended June 30, 2009 and 2008 were approximately $734,000 and $1,069,000, respectively. The $335,000 decrease was comprised of decreases of approximately $161,000 in stock compensation expense, $146,000 in payroll expense, $47,000 in engineering development expense, $43,000 in consulting expense and $37,000 in clinical trials expense, offset by increases of approximately $99,000 in other expenses. The reduction in overall expenses is a result of a concerted effort to minimize expenses due to the global economic recession.

General and administrative expenses for the six months ended June 30, 2009 and 2008 were approximately $990,000 and $1,308,000, respectively. The $318,000 reduction was comprised of decreases of approximately $110,000 in payroll expense, $111,000 in professional fee expense, $82,000 in consulting expense, $49,000 in travel expense and $16,000 in other expense, offset by approximate increases of $57,000 in financing fee amortization. The overall decreases were a result of headcount and discretionary expense reductions due to the Company’s response to the downturn in the global economy.

Sales and marketing expenses for the six months ending June 30, 2009 and 2008 were approximately $184,000 and $426,000, respectively. The $242,000 reduction was comprised of approximate decreases of $80,000 in stock compensation expense, $62,000 in payroll expense, $58,000 in advertising and trade shows and $42,000 in consulting expense. The reduction in stock compensation expense is primarily the result of employee headcount reductions and the associated re-capture of previously recognized stock compensation expense. These decreases were a result of a reduction in sales headcount and related sales expenses in response to the overall economic downturn.

Other income, net, for the six months ended June 30, 2009 and 2008 was $748 and $89,090, respectively. The decrease was primarily due to a decrease in interest income due to lower comparative interest bearing cash balances during the six months ended June 30, 2009 as compared to the same quarter one year ago.

As a result of the above, the net loss for the six months ended June 30, 2009 and 2008 was ($1,869,719) and ($2,710,219), respectively. The decreased net loss was due to decreases in overall operating expense as a result of planned expense reductions taken as a result of the overall recessionary market environment. Of the net loss for the six months ended June 30, 2009 approximately $372,000 was comprised of non-cash stock-option expense.

Liquidity and Capital Resources

On June 30, 2009, the Company had a cash balance of $757,707 as compared with a cash balance of $1,618,181 at December 31, 2008, representing a decrease of ($860,474) in cash for the period. The cash balances decreased primarily due to working capital used in operations. There have been minimal capital equipment expenditures and none are foreseen.

On January 30, 2009, the Company entered into a Common Stock Purchase Agreement with Fusion Capital Fund II. Under the Purchase Agreement, Fusion Capital is obligated, under certain conditions, to purchase shares from us in an aggregate amount of $6.0 million from time to time over a twenty-four (24) month period. However, if the Company does not receive these funds in a timely manner, the Company may not be able to continue as a going concern. The Company may not be able to find alternative capital or raise capital or debt on terms that are acceptable. Management believes that if the Fusion Capital Agreement occurs as expected, such proceeds will be sufficient to allow the Company to sustain operations until it attains profitability and positive cash flows from operations. However, the Company may incur unknown expenses, and may not be able to obtain equity capital or debt on terms that are acceptable.

SpectraScience expects to incur significant additional operating losses through at least 2009, as we complete clinical trials, begin outcome-based clinical studies and increase sales and marketing efforts to commercialize the WavSTAT systems. If we do not receive additional funding in a timely manner, the Company may be unable to continue as a going concern. We may incur unknown expenses or we may not be able to meet our revenue forecast, and one or more of these circumstances would require us to seek additional capital. We may not be able to obtain equity capital or debt funding on terms that are acceptable. Even if the Company receives additional funding, such proceeds may not be sufficient to allow the Company to sustain operations until it attains profitability and positive cash flows from operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required

Item 4. Controls and Procedures

Not Required

Item 4T. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2009 (the “Evaluation Date”). We reviewed in particular whether the information required to be disclosed is recorded, processed, summarized and reported appropriately within the required time periods and was accumulated and communicated to management in a timely manner. We conducted our evaluation consistent with the COSO review framework. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures provide reasonable assurance that:

Financial records are maintained in reasonable detail to accurately and fairly reflect the transactions and dispositions of the Company.

Transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and receipts and expenditures are being made in accordance with authorizations of management and directors of the Company.

Internal controls provide reasonable assurance to prevent or detect in a timely manner unauthorized acquisitions, use or dispositions of the Company that could have a material effect on the financial statements

Evaluation of Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with authorization of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Under supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework within the Internal Control-Integrated Framework, management concluded that our internal control over financial reporting was effective as of June 30, 2009.

Management’s assessment of the effectiveness of our internal control over financial reporting as of June 30, 2009 has not been attested to by McGladrey & Pullen, LLP, the Company’s independent registered public accounting firm.

Changes in Internal Financial Controls

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated any changes to our internal controls over financial reporting which may have occurred during the quarter ended June 30, 2009. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that there were no changes in the Company’s internal controls over financial reporting during the quarter ended June 30, 2009 which have materially affected, or are likely to materially affect our internal controls over financial reporting.

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings
	None

Item 1A.	Risk Factors
	No response required of smaller reporting companies

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	In May and June 2009, the Company sold 2,650,000 shares of Series B Convertible Preferred Stock to accredited investors at a price of $0.20 per share for an aggregate consideration of $530,000. The Company received net cash proceeds $466,400 after the payment of finder’s fees and expenses of $63,600.

	These transactions were exempt from registration pursuant to Regulation D promulgated under the Securities Act of 1933.

Item 3.	Defaults Upon Senior Securities
	None

Item 4.	Submission of Matters to a Vote of Security Holders
	None

Item 5.	Other Information
	None

Item 6.	Exhibits

Exhibit 4.4	Certificate of Designation of Rights and Preferences of Series B Preferred Stock of SpectraScience, Inc.

Exhibit 4.5	Forms of warrant to purchase Common Stock of Spectra Science, Inc.

Exhibit 31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SpectraScience, Inc.

FORM 10-Q

June 30, 2009

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SpectraScience, Inc.
	(Registrant)

Date August 14, 2009	/s/ James Hitchin
	James Hitchin
	President, Chief Executive Officer
	(Principal executive officer)

Date August 14, 2009	/s/ James Dorst
	James Dorst
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-4.4 2 v157627_ex4-4.htm

Exhibit 4.4

CERTIFICATE OF DESIGNATION

OF RIGHTS AND PREFERENCES OF

SERIES B PREFERRED STOCK

OF SPECTRASCIENCE, INC.

(PURSUANT TO MINNESOTA STATUTES, SECTION 302A.401, SUBD. 3(B))

The undersigned, being the Secretary of SpectraScience, Inc., a corporation organized and existing under the laws of the State of Minnesota (the “Company”), in accordance with the provisions of Minnesota Statutes, Section 302A.401, Subd. 3(b), does hereby certify that pursuant to the authority vested in the Company’s Board of Directors by the Company’s Amended and Restated Articles of Incorporation (the “Articles”), the Board of Directors on June 22, 2009, in accordance with Minnesota Statutes, Section 302A.401, Subd. 3 and Section 2.01 of the Articles duly adopted the following resolution establishing the Series B Preferred Stock of the Company:

RESOLVED, that pursuant to the authority vested in the Board of Directors of the Company by the Articles, the Board of Directors hereby establishes a class of preferred stock entitled the Series B Preferred Stock, and hereby states the designation and number of shares, and fixes the relative rights and preferences, of the Series B Preferred Stock as follows:

1.	Designation and Rank.

Fifteen Million (15,000,000) shares of the Company’s undesignated stock authorized by Article 2.01 of the Articles are designated as Series B Preferred Stock, par value $0.1 per share, (the “Series B Stock”). The Series B Stock shall rank, with respect to dividends and rights upon liquidation, winding up and dissolution, senior to the Common Stock of the Company.

2.	Definitions.

For purposes of this Certificate of Designation (“Certificate”) the following definitions shall apply and shall be equally applicable to both the singular and plural forms of the defined terms:

2.1 “Conversion Shares” shall mean the securities issued or issuable upon conversion of the Series B Stock.

2.2 “Free Trading” shall mean that (i) Conversion Shares consist of Common Stock and are freely tradable by non-affiliates of the Company (subject only to the volume limitations imposed by Rule 144 under the Securities Act of 1933) and (ii) over a period of ten consecutive trading days immediately prior to the Mandatory Conversion Date (as defined in Section 5.2 hereof) the Common Stock has had (A) an average closing price not less than the Conversion Price then in effect and (B) average daily trading volume of not less than 50,000 shares.

2.3 “Original Issue Price” shall mean $.20 per share of Series B Stock (subject to appropriate adjustments for stock splits and other combinations of the Series B Stock in the same manner as set forth in Section 5.6).

2.4 “Person” shall include all natural persons, corporations, business trusts, associations, limited liability companies, partnerships, joint ventures and other entities, governments, agencies and political subdivisions.

2.5 “Qualified Public Offering” shall mean the closing of the first underwritten public offering pursuant to an effective registration statement filed under the Securities Act after June 1, 2009 covering the offering and sale of Common Stock for the account of the Company on a firm commitment basis in which (i) the aggregate gross proceeds to the Company arising from the sale of securities solely for cash is at least $10,000,000 before deduction of underwriters’ commissions and expenses and (ii) prior to or as a result of such offering, the Common Stock is listed for trading on the New York Stock Exchange, the American Stock Exchange, the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market, or any other “exchange” recognized by rule of the Securities and Exchange Commission.

2.6 “Series B Stock” shall mean Series B Preferred Stock of the Company.

2.	Voting Rights.

2.1 General. At all meetings of the shareholders of the Company and in the case of any actions of shareholders in lieu of a meeting, each holder of the Series B Stock shall have that number of votes on all matters submitted to the shareholders that is equal to the number of whole shares of Common Stock into which such holder’s shares of Series B Stock are then convertible, as provided in Section 5 hereof, at the record date for the determination of the shareholders entitled to vote on such matters or, if no such record date is established, at the date such vote is taken or any written consent of such shareholders is effected. Except as may be otherwise provided in this Certificate, by agreement, or by law, the holders of the Common Stock and the holders of the Series B Stock shall vote together as a single class on all actions to be taken by the shareholders of the Company.

2.2 Additional Class Votes by the Series B Stock. For so long as at least 35% of the shares of Series B Stock originally issued remain outstanding, the Company shall not, without the affirmative vote of at least 67% of the then outstanding shares of the Series B Stock, with each share of the Series B Preferred entitled to one vote in each instance:

(i)

take any action, including, without limitation, any action that constitutes or results in an amendment or waiver of any provision of the Company’s Articles of Incorporation or Bylaws, if such action in any way affects, alters or changes any existing rights, preferences, privileges or provisions relating to the Series B Stock or the holders thereof, or results in any increase or decrease in the authorized number of shares of the Series B Stock;

(ii)

authorize, issue or otherwise create (by reclassification or otherwise) any new class of additional shares of capital stock of the Company having rights, preferences or privileges that are senior to or on priority with the Series B Stock (including any additional shares of the Series B Stock).

3.	Dividends.

3.1 Dividends. No dividend or other distribution shall accrue or be paid with respect to any shares of capital stock of the Company for any period, whether before or after the effective date of this Certificate, unless and until all accrued dividends on the Series B Stock are paid in full. The Series B Stock shall be entitled to receive cumulative dividends in preference to any dividend which may be declared on the Common Stock at the rate of 8% of the Original Issue Price (subject to any adjustment for stock splits, stock dividends or other recapitalizations). Dividends on shares of capital stock of the Company shall be payable only out of funds legally available therefor. Dividends on the Series B Stock shall be due and payable annually on the last business day of December and shall be payable in cash, or at the option of the Company, in shares of Common Stock.

3.2 Non-Cash Dividends. Whenever a dividend provided for in this Section 3 shall be payable in property other than cash (including without limitation Common Stock), the value of such dividend shall be deemed to be the fair market value of such property as determined in good faith by the Board.

3.3 Payments on Conversion. If the Company shall have accrued but unpaid cash dividends with respect to any of the Series B Stock upon its conversion as provided in Section 5 hereof, then all such accrued but unpaid dividends on such converted shares shall be canceled.

4.	Liquidation Rights.

4.1 Preference of the Series B Stock. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of the Series B Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its shareholders, whether such assets are capital, surplus, or earnings, before any payment or declaration and setting apart for payment of any amount shall be made in respect of the Common Stock or any other class or series of shares ranking junior to the Series B Stock, an amount equal to (a) the Original Issue Price (subject to appropriate adjustments for stock splits, stock dividends, recapitalizations and other combinations in the same manner as set forth in Section 5) plus (b) declared but unpaid dividends to and including the date full payment shall be tendered to the holders of the Series B Stock (the “Liquidation Price”) with respect to such liquidation, dissolution or winding up. If, upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, the assets to be distributed to the holders of the Series B Stock shall be insufficient to permit the payment to such shareholders of the full preferential amounts aforesaid, then all of the assets of the Company shall be distributed ratably to the holders of the Series B Stock based upon the full Liquidation Price payable with respect to such shares of the Series B Stock if such liquidation preference was paid in full.

4.2 Reorganization; Sale of Assets. The merger, acquisition or consolidation of the Company into or with any other entity or entities which results in the exchange of outstanding shares of the Company for securities or other consideration issued or paid or caused to be issued or paid by any such entity or affiliate thereof pursuant to which the shareholders of the Company immediately prior to the transaction do not own a majority of the outstanding shares of the surviving corporation immediately after the transaction, or any sale, lease, license (on an exclusive basis) or transfer by the Company of all or substantially all its assets, shall be deemed to be a liquidation, dissolution or winding up of the Company within the meaning of the provisions of this Section 5 unless this provision is waived by the affirmative vote of the holders of at least 50% of the Series B Stock then outstanding.

4.3 Notice. Written notice of such liquidation, dissolution or winding up, stating a payment date and the place where said payments shall be made, shall be given by mail, postage prepaid, or by telephone facsimile to non-U.S. residents, not less than 20 days prior to the earlier of (i) the shareholders’ meeting called to approve such transaction or (ii) the closing of such transaction, to the holders of record of the Series B Stock, such notice to be addressed to each such holder at its address as shown by the records of the Company. The first of such notices shall describe all material terms and conditions of the transaction and of Section 4.2 hereof (including, without limiting the generality of the foregoing, a description of the value of the consideration, if any, being offered to the holders of the Series B Stock in the transaction and the amount to which such holders would be entitled if such transaction were (as described in Section 4.2 hereof) to be deemed a liquidation, dissolution or winding up of the Company) and the Company shall thereafter give such holders prompt notice of any material changes to such terms and conditions. The transaction shall in no event take place sooner than 20 days after the mailing by the Company of the first notice provided for herein or sooner than 10 days after the mailing by the Company of any notice of material changes as provided for herein; provided that such periods may be reduced upon the written consent of the holders of a majority in interest of the Series B Stock then outstanding, voting together as a single class on an as-if-converted basis.

5. Conversion. The holders of the Series B Stock shall have the following conversion rights(the “Conversion Rights”):

5.1 Optional Conversion of the Series B Stock. The Series B Stock shall be convertible, in whole or in part, without the payment of any additional consideration by the holder thereof and at the option of the holder thereof, at any time after the date of this Certificate at the office of the Company into that number of shares of Common Stock as is determined by dividing $.20 by the Conversion Price (as defined below) in effect at the time of conversion and then multiplying such quotient by each share of the Series B Stock to be converted. The price at which the shares of Common Stock shall be deliverable upon conversion without payment of any additional consideration by the holder thereof shall be initially $.20 per share (the “Conversion Price”). The Conversion Price shall be subject to adjustment, in order to adjust the number of shares of the Common Stock into which the Series B Stock is convertible, as hereinafter provided.

5.2 Automatic Conversion of the Series B Stock. If at any time (a) the Company shall complete a Qualified Public Offering, or (b) the holders of at least 67% of the outstanding Series B Stock shall consent in writing to the conversion of the Series B Stock into shares of the Common Stock, or (c) the Conversion Shares upon issurance will be Free Trading, then effective upon (i) the closing of the sale of such shares by the Company pursuant to such Qualified Public Offering, (ii) such consent of the holders of the Series B Stock, or (iii) notice by the Company to the holders of the Series B Stock that the Conversion Shares are Free Trading, as the case may be, all outstanding shares of Series B Stock shall automatically convert into shares of the Common Stock at the Conversion Price as of a date specified by the Company (the “Mandatory Conversion Date”).

5.3 Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series B Stock. In lieu of any fractional share to which any holder would otherwise be entitled upon conversion of some or all of the Series B Stock owned by such holder, the Company shall, at the discretion of the Board, pay cash equal to such fraction multiplied by the then effective Conversion Price or round up to the nearest whole share.

5.4 Mechanics of Optional Conversion. Before any holder of the Series B Stock shall be entitled to convert the same into full shares of Common Stock, such holder shall surrender the certificate or certificates therefor, endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder or by such holder’s attorney duly authorized in writing, at the office of the Company and shall give written notice to the Company at such office that such holder elects to convert the same and shall state therein such holder’s name or the name of the nominees in which such holder wishes the certificate or certificates for shares of the Common Stock to be issued. The Company shall, as soon as practicable thereafter, issue and deliver at such office to such holder of the Series B Stock, or to such holder’s nominee or nominees, a certificate or certificates for the number of shares of the Common Stock to which such holder shall be entitled as aforesaid, together with cash if any, to be delivered in lieu of any fraction of a share. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of the Series B Stock to be converted, and the person or persons entitled to receive the shares of the Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such shares of the Common Stock on such date. From and after such date, all rights of the holder with respect to the Series B Stock so converted shall terminate, except only the right of such holder, upon the surrender of his, her or its certificate or certificates therefor, to receive certificates for the number of shares of the Common Stock issuable upon conversion thereof, certificates for the number of shares of the Series B Stock remaining and cash for fractional shares.

5.5 Mechanics of Automatic Conversion. All holders of record of shares of the Series B Stock will be given at written notice of the date of any automatic conversion pursuant to Section 5.2 hereof not later than three business days’ following the actual date of such automatic conversion. Each such notice shall designate a place for exchange of all of the shares of such Series B Stock. Such notices will be sent by mail, first class, postage prepaid to each record holder of the Series B Stock at such holder’s address appearing on the Company’s stock register, or by overnight courier service in the case of the notice prior to the actual date of conversion. Each holder of shares of the Series B Stock shall surrender such holder’s certificate or certificates for all such shares to the Company at the place designated in such notice, and shall thereafter receive certificates for the number of shares of the Common Stock or other securities to which such holder is entitled. Failure to provide such notice or untimely notice shall not affect the validity of automatic conversion hereunder. On the date fixed for conversion, all rights with respect to the Series B Stock will terminate, except only the rights of the holders thereof, upon surrender of their certificate or certificates therefor, to receive certificates for the number of shares of the Common Stock or other securities into which such Series B Stock has been converted and cash for fractional shares. If so required by the Company, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder or by her, his or its attorney duly authorized in writing. All certificates evidencing shares of the Series B Stock which are required to be surrendered for conversion in accordance with the provisions hereof shall, from and after the date such certificates are so required to be surrendered, be deemed to have been retired and canceled and the shares of the Series B Stock represented thereby converted into the Common Stock for all purposes, notwithstanding the failure of the holder or holders thereof to surrender such certificates on or prior to such date; provided that the Company may require the holder to provide adequate protection to the Company for the loss of such certificate(s) prior to issuing certificates for shares of Common Stock to such holder. As soon as practicable after the date of such automatic conversion and the surrender of the certificate or certificates for the Series B Stock as aforesaid, the Company shall cause to be issued and delivered to such holder, or to her, his or its written order, a certificate or certificates for the number of full shares of the Common Stock or other securities issuable on such conversion in accordance with the provisions hereof and cash as provided in Section 5.3 hereof in respect of any fraction of a share of Common Stock otherwise issuable upon such conversion.

5.6 Certain Adjustments to Conversion Price for Stock Splits, Dividends, Mergers, Reorganizations, Etc.

(a) Adjustment for Stock Splits, Stock Dividends and Combinations of Common Stock. In the event the outstanding shares of Common Stock shall, after the filing of this Certificate, be further subdivided (split), or combined (reverse split), by reclassification or otherwise, or in the event of any dividend or other distribution payable on the Common Stock in shares of Common Stock, the applicable Conversion Price in effect immediately prior to such subdivision, combination, dividend or other distribution shall, concurrently with the effectiveness of such subdivision, combination, dividend or other distribution, be proportionately adjusted.

(b) Adjustment for Merger or Reorganization, Etc. In the event of a reclassification, reorganization or exchange (other than described in Section 5.6(a) above) or any merger, acquisition, consolidation or reorganization of the Company with another company or entity (other than a merger, acquisition or other consolidation or reorganization as defined in Section 4.2 hereof, which is considered a liquidation pursuant to Section 4 above), each share of the Series B Stock shall thereafter be convertible into the number of shares of stock or other securities or property to which a holder of the number of shares of the Common Stock of the Company deliverable upon conversion of the Series B Stock would have been entitled upon such reclassification, reorganization, exchange, consolidation, merger or conveyance had the conversion occurred immediately prior to the event; and, in any such case, appropriate adjustment (as determined by the Board) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of the Series B Stock, to the end that the provisions set forth herein (including provisions with respect to changes in and other adjustments of the applicable Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of the Series B Stock.

(c) Duration of Adjusted Conversion Price. Following each computation or readjustment of an adjusted Conversion Price as provided above in this Section 5, the new adjusted Conversion Price shall remain in effect until a further computation or readjustment thereof is required by this Section 5.

(d) Other Action Affecting the Common Stock. In case, after the filing of this Certificate, the Company shall take any action affecting the Common Stock, other than an action described above in this Section 5, which in the good faith opinion of the Board would have a materially adverse effect upon the Conversion Rights of the Series B Stock granted herein, the Conversion Price shall be adjusted in such manner and at such time as the Board may in good faith determine to be equitable in the circumstances.

(e) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 5, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of the applicable Series B Stock a certificate setting forth such adjustment or readjustment and showing in reasonable detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request, at any time, of any holder of the Series B Stock, furnish or cause to be furnished to such holder a like certificate setting forth: (i) such adjustments and readjustments; (ii) the applicable Conversion Price at the time in effect; and (iii) the number of shares of the Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of such Series B Stock.

5.7 Notices of Record Date. In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters) or other distribution, any capital reorganization of the Company, any reclassification or recapitalization of the Company’s capital stock, any consolidation or merger with or into another Company, any transfer of all or substantially all of the assets of the Company or any dissolution, liquidation or winding up of the Company, the Company shall mail to each holder of the Series B Stock at least 10 days prior to the date specified for the taking of a record, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution.

5.8 Common Stock Reserved. The Company shall reserve and keep available out of its authorized but unissued Common Stock such number of shares of the Common Stock as shall from time to time be sufficient to effect conversion of the Series B Stock.

5.9 Payment of Taxes. The Company will pay all taxes (other than taxes based upon income) and other governmental charges that may be imposed with respect to the issue or delivery of shares of the Common Stock upon conversion of shares of the Series B Stock, other than any tax or other charge imposed in connection with any transfer involved in the issue and delivery of shares of the Common Stock in a name other than that in which the shares of the Series B Stock so converted were registered.

5.10 No Impairment. The Company will not through any reorganization, transfer of assets, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series B Stock against impairment. Notwithstanding the foregoing, nothing in this Section 5.10 shall prohibit the Company from amending its Articles with the requisite consent of its shareholders and the Board of Directors.

2.	Status of Series B Stock Upon Retirement.

Shares of Series B Stock which are acquired or redeemed by the Company or converted pursuant to Section 5 shall become authorized undesignated shares and may be redesignated and reissued by the Board of Directors as provided in the Articles.

IN WITNESS WHEREOF, the Company has caused this Certificate to be signed by Jim Hitchin, its Secretary, this 23rd day of July, 2009.

	SPECTRASCIENCE, INC.

	By:	/s/ Jim Hitchin
	Name:	Jim Hitchin
	Its:	Secretary

EX-4.5 3 v157627_ex4-5.htm

Exhibit 4.5

THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") NOR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW HAS BECOME EFFECTIVE WITH RESPECT THERETO, OR (2)RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT OR APPLICABLE STATE SECURITIES LAW IS NOT REQUIRED IN CONNECTION WITH THE PROPOSED TRANSFER.

Void after 5:00 p.m. Central Standard Time, on ____________ ___, 20__

Warrant to Purchase ____________Shares of Common Stock.

FORM OF WARRANT TO PURCHASE COMMON STOCK

SPECTRASCIENCE, INC.

This is to Certify That, FOR VALUE RECEIVED, _____________________("Holder") is entitled to purchase, subject to the provisions of this Warrant, from SpectraScience, Inc., a Minnesota corporation ("Company"), _______________fully paid, validly issued and nonassessable shares of Common Stock, $0.01 par value per share, of the Company ("Common Stock") at an initial price of $0.30 per share at any time or from time to time during the period from the date hereof to 5:00 p.m. Central Standard Time, on _____________ __, 20__. The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for each share of Common Stock may be adjusted from time to time as hereinafter set forth. The exercise price and the number of shares issuable upon exercise of the Warrants will be proportionately adjusted for stock splits, stock dividends, recapitalizations and similar transactions. The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter sometimes referred to as "Warrant Shares" and the exercise price of a share of Common Stock in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the "Exercise Price".

(a)

EXERCISE OF WARRANT.

(1) This Warrant may be exercised in whole or in part at any time or from time to time on or after the date hereof and until 5:00 p.m. Central Standard Time on ___________ __, 20__; provided, however, that if either such day is a day on which banking institutions in the State of California are authorized by law to close, then on the next succeeding day which shall not be such a day. This Warrant may be exercised by presentation and surrender hereof to the Company at its principal office with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price for the number of Warrant Shares specified in such form. The Exercise Price may be paid in cash or in Common Stock of the Company (cashless exercise). As soon as practicable after each such exercise of the warrants, but not later than seven (7) days from the date of such exercise, the Company shall issue and deliver to the Holder a certificate or certificate for the Warrant Shares issuable upon such exercise, registered in the name of the Holder or its designee. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable thereunder. Upon receipt by the Company of this Warrant at its office in proper form for exercise, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be physically delivered to the Holder.

(b)

RESERVATION OF SHARES. The Company shall at all times reserve for issuance and/or delivery upon exercise of this Warrant such number of shares of its Common Stock as shall be required for issuance and delivery upon exercise of the Warrants.

(c)

FRACTIONAL SHARES. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of a share, determined as follows:

(1) If the Common Stock (or the common stock of the Company that would be exchanged or admitted to unlisted trading privileges on such exchange or listed for trading on the NASDAQ system, the current market value shall be the last reported sale price of the Common Stock on such exchange or system on the last business day prior to the date of exercise of this Warrant or if no such sale is made on such day, the average closing bid and asked prices for such day on such exchange or system; or

(2) If the Common Stock is not so listed or admitted to unlisted trading privileges, the current market value shall be the mean of the last reported bid and asked prices reported by the National Quotation Bureau, Inc. on the last business day prior to the date of the exercise of this Warrant; or

(3) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current market value shall be an amount, not less than the book value thereof as at the end of the most recent fiscal year of the Company ending prior to the date of the exercise of the Warrant, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company.

(d)

EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company for other warrants of different denominations entitling the holder thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Upon surrender of this Warrant to the Company at its principal office with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be cancelled. This Warrant may be divided or combined with other warrants which carry the same rights upon presentation hereof at the principal office of the Company together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any Warrants into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone.

(e)

RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein.

(f)

ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time and the number and kind of securities purchasable upon the exercise of the Warrants shall be subject to adjustment from time to time upon the happening of certain events as follows:

(1)

In case the Company shall (i) declare a dividend or make a distribution on its outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be adjusted so that the Exercise Price shall be proportionately increased (as in the case of (iii), above) or decreased (as in the case of (i) or (ii), above). Such adjustment shall be made successively whenever any event listed above shall occur.

(2)

Whenever the Exercise Price payable upon exercise of each Warrant is adjusted pursuant to Subsections (1) above, the number of Shares purchasable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the number of Shares initially issuable upon exercise of this Warrant by the Exercise Price in effect on the date hereof and dividing the product so obtained by the Exercise Price, as adjusted.

(3)

No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least two cents ($0.02) in such price; provided, however, that any adjustments which by reason of this Subsection (5) are not required to be made shall be carried forward and taken into account in and subsequent adjustment required to be made hereunder. All calculations under this Section (f) shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Anything in this Section (f) to the contrary notwithstanding, the Company shall be entitled, but shall not be required, to make such changes in the Exercise Price, in addition to those required by this Section (f), as it shall determine, in its sole discretion, to be advisable in order that any dividend or distribution in shares of Common Stock, or any subdivision, reclassification or combination of Common Stock, hereafter made by the Company shall not result in any Federal income tax liability to the holders of Common Stock or securities convertible into Common or Common Stock (including Warrants).

(4)

Whenever the Exercise Price is adjusted, as herein provided, the Company shall promptly but no later than 20 days after any request for such an adjustment by the Holder, cause a notice setting forth the adjusted Exercise Price and adjusted number of Shares issuable upon exercise of each Warrant, and, if requested, information describing the transactions giving rise to such adjustments, to be mailed to the Holder at his last address appearing in the Warrant Register, and shall cause a certified copy thereof to be mailed to its transfer agent, if any. The Company may retain a firm of independent certified public accountants selected by the Board of Directors (who may be the regular accountants employed by the Company) to make any computation required by this Section (t), and a certificate signed by such firm shall be conclusive evidence of the correctness of such adjustment.

(5)

In the event that at any time, as a result of an adjustment made pursuant to Subsection (1) above, the Holder of this Warrant thereafter shall become entitled to receive any shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Subsections (1) to (4), inclusive above.

(6)

Irrespective of any adjustments in the Exercise Price or the number or kind of shares purchasable upon exercise of this Warrant, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the similar Warrants initially issuable pursuant to this Agreement.

(g)

OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted as required by the provisions of the foregoing Section, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office an officer's certificate showing the adjusted Exercise Price determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment, including a statement of the number of additional shares of Common Stock, if any, and such other facts as shall be necessary to show the reason for and the manner of computing such adjustment. Each such officer's certificate shall be made available at all reasonable times for inspection by the Holder or any holder of a Warrant executed and delivered pursuant to Section (a) and the Company shall, forthwith after each such adjustment, mail a copy by certified mail of such certificate to the Holder or any such holder.

(h)

NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be outstanding, (i) if the Company shall pay any dividend or make any distribution upon the Common Stock or (ii) if the Company shall offer to the holders of Common Stock for subscription or purchase by them any share of any class or any other rights or (iii) if any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, sale, lease or transfer of all or substantially all of the property and assets of the Company to another corporation, or voluntary or involuntary dissolution, liquidation or winding up of the Company shall be effected, then in any such case, the Company shall cause to be mailed by certified mail to the Holder, at least fifteen days prior to the date specified in (x) or (y) below, as the case may be, a notice containing a brief description of the proposed action and stating the date on which (x) a record is to be taken for the purpose of such dividend, distribution or rights, or (y) such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any is to be fixed, as of which the holders of Common Stock or other securities shall receive cash or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up.

(i)

RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company, or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing corporation and which does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in case of any sale, lease or conveyance to another corporation of the property of the Company as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that the Holder shall have the right thereafter by exercising this Warrant at any time prior to the expiration of the Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock which might have been purchased upon exercise of this Warrant immediately prior to such reclassification, change, consolidation, merger, sale or conveyance. Any such provision shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section (i) shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. In the event that in connection with any such capital reorganization or reclassification, consolidation, merger, sale or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, in whole or in part, for a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Subsection (1) of Section (f) hereof.

(k)

RESTRICTIVE LEGEND. Each Warrant Share, when issued, shall include a legend in substantially the following form:

THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") NOR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR OTHERWISE TRANSFERRED UNTIL A (1) REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW HAS BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT OR APPLICABLE STATE SECURITIES LAW IS NOT REQUIRED IN CONNECTION WITH THE PROPOSED TRANSFER.

The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against impairment.

Dated: ____________ __, 2009

	SPECTRASCIENCE, INC.

Attest:
	By:
James Hitchin	James Hitchin
Title: Chairman and CEO	Title: Secretary

PURCHASE FORM

Dated _____________ 20__

The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of Purchasing ________ shares of Common Stock and hereby makes payment of ______________ in payment of the actual exercise price thereof.

___________________

INSTRUCTIONS FOR REGISTRATION OF STOCK

Name ___________________________________________________________________________

(Please typewrite or print in block letters)

Address ___________________________________________________________________________

Signature __________________________________________________________________________

________________________

ASSIGNMENT FORM

FOR VALUE RECEIVED, _____________________________________ hereby sells, assigns and transfers unto

Name _____________________________________________________________________________

(Please typewrite or print in block letters)

Address ___________________________________________________________________________

the right to purchase Common Stock represented by this Warrant to the extent of _________ shares as to which such right is exercisable and does hereby irrevocably constitute and appoint ______________ Attorney, to transfer the same on the books of the Company with full power of substitution in the premises.

Date _________, 20___

Signature _______________________

EX-31.1 4 v157627_ex31-1.htm

EXHIBIT 31 .1

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

Certification

I, James Hitchin, Chief Executive Officer of SpectraScience, Inc. certify that:

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

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

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

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

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

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

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

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

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

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

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

August 14, 2009

Signature:	/s/ James Hitchin
Name:	James Hitchin
	President, Chief Executive Officer

EX-31.2 5 v157627_ex31-2.htm

Exhibit 31.2

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

Certification

I, James Dorst, Chief Financial Officer and Principal Accounting Officer of SpectraScience, Inc. certify that:

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

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

August 14, 2009

Signature:	/s/ James Dorst
Name:	James Dorst
	Chief Financial Officer

EX-32.1 6 v157627_ex32-1.htm

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of SpectraScience, Inc. (the “Company”) on Form 10-Q for the six months ended June 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James Hitchin, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/ James Hitchin

James Hitchin

Chief Executive Officer

August 14, 2009

EX-32.2 7 v157627_ex32-2.htm

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of SpectraScience, Inc. (the “Company”) on Form 10-Q for the six months ended June 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James Dorst, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/ James Dorst

James Dorst

Chief Financial Officer

August 14, 2009

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