SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(Mark One)

    [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
        OF 1934

                  For the fiscal year ended: DECEMBER 31, 2000
                                             -----------------

    [ ] 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.
                              --------------------
                 (Name of small business issuer in its charter)

         MINNESOTA                                        41-1448837
         ---------                                        ----------
         (State of incorporation)           (I.R.S. Employer Identification No.)

14405 21ST AVENUE N, SUITE 111, MINNEAPOLIS, MINNESOTA      55447
------------------------------------------------------      -----
       (Address of principal executive offices)           (Zip Code)

                    Issuer's telephone number: (763) 745-4120
                                               --------------

         Securities registered under Section 12(b) of the Exchange Act:
                                      NONE

         Securities registered under Section 12(g) of the Exchange Act:
                          COMMON STOCK, $.25 PAR VALUE
                          ----------------------------
                                (Title of Class)

                        -------------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 _____

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]

Issuer's revenues for its fiscal year ended December 31, 2000 were:  $0

As of February 28, 2001, the number of outstanding shares of the Registrant's
Common Stock, par value $.25 per share, was 7,004,438. The aggregate market
value of the voting stock held by non-affiliates of the registrant was
approximately $28,795,536 based on the last reported closing sale price of $4.50
on February 28, 2001.

Transitional Small Business Disclosure Format (Check one): Yes _____  No __X__

Portions of the Registrant's Proxy Statement relating to its Annual Meeting of
Shareholders to be held May 10, 2001 are incorporated by reference in Part III.

<PAGE>


                              SPECTRASCIENCE, INC.

                                   FORM 10-KSB

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

PART I                                                                         3

   Item 1.   Business..........................................................3

   Item 2.   Description of Property..........................................15

   Item 3.   Legal Proceedings................................................15

   Item 4.   Submission of Matters to a Vote of Security Holders..............15

PART II                                                                       16

   Item 5.   Market for Common Equity and Related Shareholder Matters.........16

   Item 6.   Management's Discussion and Analysis of Financial Condition
             and Results of Operations........................................16

   Item 7.   Financial Statements and Supplemental Data.......................20

   Item 8.   Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure.........................................20

PART III                                                                      20

   Item 9.   Directors, Executive Officers, Promoters and Control Persons;
             Compliance with Section 16(a) of the Exchange Act................20

   Item 10.  Executive Compensation...........................................20

   Item 11.  Security Ownership of Certain Beneficial Owners and
             Management.......................................................21

   Item 12.  Certain Relationships and Related Transactions...................21

   Item 13.  Exhibits and Reports on Form 8-K.................................21

SIGNATURES                                                                    24


                                     Page 2
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                              SPECTRASCIENCE, INC.

                                   FORM 10-KSB
                   For the fiscal year ended December 31, 2000

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

         This Annual Report on Form 10-KSB contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of he Securities Exchange Act of 1934, as amended. When used in this
Annual 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 under
the "Cautionary Statement" filed as exhibit 99.1 to our 2000 Annual Report on
Form 10-KSB.


                                     PART I

ITEM 1.       BUSINESS

GENERAL

         Our principal executive offices are located at 14405 21st Avenue N,
Suite 111, Minneapolis, Minnesota 55447. You can reach us by telephone at (763)
745-4120; by fax at (763) 745-4126; or by email at admin@spectrascience.com. We
have a web-site at http://www.spectrascience.com. The information contained on
our web site is not deemed to be a part of this document.

DEVELOPMENT OF THE BUSINESS

         SPECTRASCIENCE 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. Since 1996 the Company has been focused on developing the
Optical Biopsy(TM) System. The Optical Biopsy(TM) System is a proprietary,
minimally invasive "spectroscopic system" that optically scans tissue in
real-time to distinguish between normal, and pre-cancerous or cancerous tissue
without the need to remove tissue from the body. This first developed and
approved to market product is used during endoscopy of the colon when screening
for colon cancer.

PRODUCTS AND MARKETS

INDUSTRY OVERVIEW

COLORECTAL CANCER

         The American Cancer Society estimates that 130,200 new cases of
colorectal cancer are detected in the United States annually, and that more than
56,300 people died of colorectal cancer in the United States in 2000. Colorectal
cancer accounts for approximately 10% of cancer deaths and is second only to
lung cancer as the leading cause of cancer deaths in the United States. Because
of age or other factors, 80 to 90 million people are considered at average risk
for colorectal cancer and are eligible for colorectal cancer screening.


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<PAGE>


Using current techniques to detect and treat colorectal cancer, the five-year
survival rate is as follows:

         *  91% if detected and treated at an early stage;
         *  35 to 66% if the cancer spreads outside the colon to the lymph
            nodes;
         *  less than 10% for those patients in whom the cancer has spread
            further to the liver or other organs.

Early detection of colorectal cancer is essential to increase the patients'
chances for long-term survival. Unfortunately, only 37% of colorectal cancer is
currently detected early.

         Colorectal cancer is primarily diagnosed through the detection and
analysis of polyps. Colon polyps are small masses of tissues in the colon that
may be either benign or malignant. Since most polyps are asymptomatic, they are
usually found incidentally during a preliminary endoscopic screening examination
called a flexible sigmoidoscopy. Current management guidelines officially
endorsed by the American Society for Gastrointestinal Endoscopy and the American
Gastroenterological Association provide that the size of the polyp is the most
important factor in determining appropriate therapy. Large polyps are usually
removed by polypectomy, whereas small polyps require individual analysis and
treatment before a course of action is chosen.

         During a flexible sigmoidoscopy or colonoscopy, the endoscopist first
makes a subjective, visual assessment of the polyp to evaluate it for size,
texture, color, location and thus the potential pathology. The endoscopist
determines visually whether the polyp is large (greater than 1.0 cm) or small
(less than 0.5 cm), without physical measurement. If the polyp is considered to
be large, the patient will be referred on for a full therapeutic colonoscopy
where the polyp will be removed and the entire colon will be examined for
additional polyps. If a polyp is considered to be small, the endoscopist must
make a further determination as to the best course of action. Based on the
determination, the endoscopist may refer the patient on for a full therapeutic
colonoscopy, perform a biopsy (if the examining endoscopist performs biopsies),
or place the patient under surveillance. Generally, if a polyp is deemed to be
benign, no further colonoscopy or therapy is indicated and surveillance may be
recommended. If it is deemed to be malignant or potentially malignant, a
colonoscopy and subsequent removal is indicated.

         Human error on the part of the endoscopist can occur at various stages
during a colon cancer screening examination: (i) in visually determining the
size of a polyp, (ii) in visually assessing whether a small polyp is benign or
malignant, and (iii) if a biopsy is indicated, which polyps should be sampled
and where to sample them. Medical literature reports that accuracy rates among
endoscopists in visually determining polyp size range from 6%-82%; and accuracy
rates in determining the potential malignancy of polyps range from 50%-80%. In
both cases, the accuracy is dependent on the interpretive skills of the
endoscopist. SPECTRASCIENCE's clinical studies confirm the accuracy of the
endoscopist in visually assessing polyps as either benign or malignant is
approximately 88%. When the Optical Biopsy(TM) System was used the endoscopist's
accuracy to distinguish a cancer or pre-cancer increased to 96%. Accurate
characterization of a polyp is critical because recent data has shown that
40%-60% of small polyps are either malignant or potentially malignant.

         With such important consequences resulting from the evaluation of a
polyp as benign or malignant, the endoscopist may perform a tissue biopsy or
refer the patient on to full therapeutic colonoscopy, even if such a procedure
might otherwise appear to be unnecessary. Typical clinical management guidelines
for biopsy of multiple small polyps are that the endoscopist would take a random
representative sample for histology and pathologic interpretation. Since the
endoscopist must still rely on a subjective judgment of where and which polyps
to sample, the potential for human error still exists.


                                     Page 4
<PAGE>


OPTICAL BIOPSY(TM) SYSTEM

         The Optical Biopsy(TM) System allows the endoscopist to distinguish in
real time whether colon tissue is normal, as opposed to pre-cancerous or
cancerous, by optically scanning tissue with an optical fiber and obtaining an
instant analysis as demonstrated by our clinical studies. Use of our system can
significantly improve the endoscopist's diagnostic accuracy, enabling the
endoscopist to immediately determine the best course of treatment for the
patient, reducing the need for additional procedures, minimizing the number of
biopsies taken and, in some cases, permitting the physician to combine a
diagnostic and therapeutic procedure in one visit.

         The Optical Biopsy(TM)System has three components:


         *  a console which houses the laser, spectrophotometer, and a computer,
         *  an optical biopsy forceps which incorporates an optical probe that
            transmits and collects light energy when connected to the console,
            and
         *  a proprietary tissue recognition algorithm software that manages
            system operations and provides data analysis and interpretation of
            the collected data.

         The Optical Biopsy(TM) System operates by transmitting low level
monochromatic laser light from the console through the optical fiber and
directly to the tissue being analyzed. The tissue in contact with the optical
fiber absorbs the light, and the resulting tissue autofluorescence is collected
by the same optical fiber and transmitted back to the spectrophotometer for
analysis. The result of the analysis is then immediately displayed on the
monitor for the endoscopist's use in making a clinical decision.

         The console consists of a laser, a spectrophotometer, a computer, a
graphic user interface and a power supply, all of which are incorporated into a
mobile rack system on lockable wheels for safe and easy movement and setup. The
software includes diagnostic modules that check the system for intrinsic faults
or errors that could affect system performance or results. The modules provide
the user with specific information allowing them to either resolve the problem
or contact us for support and service. The proprietary forceps component, which
can be reusable or disposable, is essentially a standard non-electrical biopsy
forceps. The forceps includes a central lumen that allows the optical fiber to
be easily positioned during the procedure. The optical fiber, when connected to
the forceps, serves as an optical conduit between the console and the tissue
being examined. The forceps affords the endoscopist the added capability to
collect a physical biopsy or do a complete polyp removal without having to
remove the optical fiber and replace it with a standard biopsy forceps.

         We believe that our core technology can be applied to other medical
specialties to differentiate between normal, and pre-cancerous or cancerous
tissues in other areas of the body. We are currently conducting clinical
feasibility studies with the Optical Biopsy(TM) System to determine the
viability of our technology as it applies to Barrett's esophagus and the changes
that esophageal tissue undergoes as it becomes a cancerous condition.

         We can provide no assurance that the Optical Biopsy(TM) System will be
commercialized, that we will capture the market share we anticipate, or that we
will successfully adapt the Optical Biopsy(TM) System for use in other medical
specialties.

BARRETT'S ESOPHAGUS

         Barrett's esophagus is generally linked with a common disorder known as
gastro-esophageal reflux disease (GERD), the most common symptom of which is
heartburn. Barrett's esophagus is also known as the precursor to esophageal
cancer which is one of the most lethal and rapidly increasing cancers. The
incidence of Barrett's esophagus has tripled over the last 20 years. Over 60
million Americans experience heartburn at


                                     Page 5
<PAGE>


least once a month, and some studies have suggested that over 15 million
Americans experience heartburn symptoms each day. Individuals suffering from
several years of chronic heartburn are potential candidates for having Barrett's
esophagus and should be screened.

         Barrett's patients suffer from chronic acid reflux, which eventually
causes pathologic changes in the lower esophagus. The "normal" lining of the
esophagus is distinctly different in appearance compared to Barrett's. Within
Barrett's esophagus are additional changes that are indicative of how active the
pathological changes are. These tissue changes are considered to be the
precursor of cancer of the lower esophagus and are not visually apparent during
endoscopic examination.

         Currently there are no objective methods available in real time to
assist the endoscopist other than random biopsy to evaluate the status of the
patient. Screening for tissue changes is done by taking four random excisional
biopsies at one centimeter intervals throughout the length of the Barrett's
esophagus. We believe that use of our Optical Biopsy(TM) System will provide the
endoscopist with additional objective information regarding how actively the
tissue is changing and will allow the endoscopist to focus attention on only
those areas with known active changes. The Optical Biopsy(TM) System is designed
to facilitate collecting the most definitive tissue samples, resulting in taking
fewer biopsies.

CLINICAL STUDIES

COLORECTAL CANCER

         SPECTRASCIENCE conducted clinical studies using the Optical Biopsy(TM)
System to aid endoscopists in the detection of colorectal cancer at three major
medical centers and one group practice:

         *  The Mayo Clinic in Rochester, Minnesota,
         *  Massachusetts General Hospital in Boston, Massachusetts,
         *  Hennepin County Medical Center in Minneapolis, Minnesota, and
         *  Minnesota Gastroenterology PA, which has 48 gastroenterologists
            practicing at multiple sites in both Minneapolis and St. Paul,
            Minnesota and surrounding areas.

         The results of our clinical studies demonstrated that the accuracy of
the endoscopist alone, in determining a cancer or pre-cancer was 82% compared to
96% when the endoscopist used the Optical Biopsy(TM) System. The clinical study
results were submitted to the FDA as part of the product approval process, and
in November 2000, the Optical Biopsy(TM) System was approved by the FDA for use
during endoscopy of the colon to aid the physician in distinguishing a cancer.

         Similar information was submitted to the European Union regulatory
agencies to obtain marketing approvals in Europe. On October 10, 2000 we
received CE Mark authorization and are now allowed to offer the system for sale
in the European Union.

BARRETT'S ESOPHAGUS

         We conducted a Phase I multi-center clinical study for the detection of
esophageal cancer/Barrett's esophagus at the Mayo Clinic and the University of
California at San Francisco (UCSF). In general, Barrett's esophagus is a known
risk factor for esophageal cancer. This clinical trial was designed to determine
the viability of using spectroscopic techniques to detect esophageal cancer in
Barrett's patients, and to develop and demonstrate the feasibility of the
Optical Biopsy(TM) System for this type of application. We plan to begin a Phase
II clinical study in the third quarter of 2001.


                                     Page 6
<PAGE>


PRODUCT RESEARCH AND DEVELOPMENT

         Our research and development expenditures for the year ended December
31, 2000 were $1,655,927 and $1,356,986 for the year ended December 31, 1999.
Management intends to continue to make significant investments in research and
development. Research and development activities are performed by our employees
and outside consultants.

         Our research and development efforts during the past three years have
been focused primarily on (i) designing and developing our proprietary biopsy
forceps, (ii) designing and developing the Optical Biopsy(TM) System to aid the
endoscopist in differentiating between normal and pre-cancerous or cancerous
tissue in the colon, and (iii) conducting and monitoring clinical trials at
multiple sites. In addition, Phase I clinical studies to detect esophageal
cancer were conducted at two sites.

         Having received FDA approval, our current research and development
efforts are focused on conducting post-FDA clearance outcome-based clinical
studies, and development of next generation products. The purpose of the outcome
studies is to collect and measure cost-effectiveness data necessary to market
the Optical Biopsy(TM) System to managed care, as well as support and establish
reimbursement codes for the Optical Biopsy(TM) System. In addition, we plan to
expand the gastrointestinal applications for the Optical Biopsy(TM) System to
patients with Barrett's esophagus.

         There can be no assurance that we will be successful in establishing
third-party reimbursement for the Optical Biopsy(TM) System, or be able to
develop other applications for the Optical Biopsy(TM) System.

GOVERNMENT REGULATIONS

UNITED STATES

         Extensive government regulation, both in the United States and
internationally, controls the design, manufacture, labeling, distribution and
marketing of our products, particularly regarding product safety and
effectiveness. In the United States, medical devices are subject to review and
clearance by the FDA. The FDA regulates the clinical testing, manufacture,
labeling, distribution and promotion of medical devices. If we fail to comply
with applicable requirements we could face:

         *  fines, injunctions, or civil       *  total or partial suspension of
            penalties                             production
         *  recall or seizure of our products  *  inability to obtain pre-market
         *  criminal prosecution                  clearance/approval for our
         *  a recommendation that we not be       devices
            allowed to contract with the       *  withdrawal of marketing
            government                            approvals

The Food, Drug, and Cosmetic Act, the Public Health Service Act, and Safe
Medical Devices Act of 1990 and other federal statutes and regulations also
govern or influence the testing, manufacture, safety, labeling, storage,
recordkeeping, clearance, advertising and promotion of such products.

         In the United States, medical devices are assigned to one of three
classes depending on the controls the FDA deems necessary to ensure the safety
and effectiveness of the device. The Optical Biopsy(TM) System is a Class III
device. In addition to adhering to general controls to which all medical devices
are subject, and special controls such as performance standards, post-market
surveillance and patient registries, a Class III device must receive
pre-marketing approval to ensure its safety and effectiveness prior to
commercialization.

         FDA approval to distribute a new device can be obtained in one of two
ways. If a new or significantly modified device is "substantially equivalent" to
an existing legally marketed device, the new device can be commercially
introduced after filing a 510(k) pre-market notification with the FDA and the
subsequent issuance


                                     Page 7
<PAGE>


by the FDA of an order permitting commercial distribution. Changes to existing
devices that do not significantly affect safety or effectiveness may be made
without an additional 510(k) notification. We received 510(k) clearance from the
FDA for our disposable and reusable Optical Biopsy Forceps in December 1996.

         A second, more comprehensive approval process applies to a Class III
device that is not substantially equivalent to an existing product. First, the
applicant must conduct clinical trials in compliance with testing protocols
approved by the Institutional Review Board at each participating research
institution. These boards oversee and approve all clinical studies at their
institutions. Second, a pre-market approval application must be submitted to the
FDA describing (i) the clinical trial results; (ii) the device and its
components; (iii) the methods, facilities and controls used for manufacture of
the device; (iv) proposed labeling, and (v) the demonstration that the product
is safe and effective. Finally, the manufacturing site for the product subject
to the pre-market approval must pass an FDA pre-approval inspection.

         A pre-market approval application, also referred to as a PMA
application, must be supported by valid scientific evidence to demonstrate
safety and efficacy of the device, and, if applicable, must contain:

         *  results of all relevant bench       *  laboratory and animal studies
            tests                               *  a complete description of the
         *  pre-clinical and human clinical        device and its components
            trial data                          *  proposed labeling
         *  a detailed description of the       *  advertising literature
            methods, facilities and controls
            used to manufacture the device
         *  training methods, if required

         Certain devices require an Investigation Device Exemption application
to be filed. The Optical Biopsy(TM) System is considered a "non-significant
risk" device and therefore does not require an IDE application.

         If the FDA determines, upon receipt of the pre-market approval
application, that the application is sufficiently complete to permit a
substantive review, they will accept the application for filing. They then begin
an in-depth review of the application. This review typically can take from six
months to two years from the date the application is accepted for filing, but
could be significantly longer. The review time is often significantly extended
by the FDA asking for more information or clarification of information
previously submitted. During the review period, a panel primarily composed of
clinicians and acting as an advisory committee, will likely be convened to
review and evaluate the application. The panel will provide recommendations to
the FDA as to whether the device should be approved, but the FDA is not bound by
those recommendations. Toward the end of the application review process, the FDA
generally will conduct an inspection of the manufacturer's facilities to ensure
that the facilities are in compliance with the applicable Quality System
Regulations requirements.

         If FDA evaluations of both the pre-market approval application and the
manufacturing facilities are favorable, the FDA will issue either an approval
letter or a conditional approval letter which contains a number of conditions
that must be satisfied in order to secure final approval of the pre-market
approval application. When and if those conditions are fulfilled to the
satisfaction of the FDA, they will issue a pre-market approval letter,
authorizing commercial marketing of the device for certain indications. If the
FDA's evaluation of the pre-market approval application or manufacturing
facilities is not favorable, the FDA will deny approval of the application or
issue a "not approvable letter." The FDA may also determine that additional
clinical trials are necessary, in which case pre-market approval could be
delayed for several years while additional clinical trials are conducted and
submitted in an amendment to the pre-market approval application. The pre-market
approval process can be expensive, uncertain and lengthy, and a number of
devices for which FDA approval has been sought by other companies have never
been approved for marketing.

         THE OPTICAL BIOPSY(TM) SYSTEM APPLICATION FOR MARKET CLEARANCE WAS
APPROVED BY THE FDA IN MID NOVEMBER 2000. THE INDICATIONS FOR USE AS STATED IN
OUR FDA APPLICATION IS FOR THE OPTICAL BIOPSY(TM) SYSTEM TO BE USED BY
PHYSICIANS PERFORMING ENDOSCOPY OF THE COLON DURING CANCER SCREENING.


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         Any products manufactured or distributed pursuant to FDA clearances or
approvals, are subject to pervasive and continuing regulation by the FDA,
including record-keeping requirements and reporting of adverse experiences when
using the product. Device manufacturers are required to register their
establishments and list their devices with the FDA and certain state agencies,
and are subject to periodic inspections by the FDA and certain state agencies.
The Food Drug and Cosmetic Act requires devices to be manufactured in accordance
with Quality System Requirements regulations, which impose procedural and
documentation requirements upon a manufacturer and any of its contract
manufacturers with respect to manufacturing and quality assurance activities.
Quality System Requirements regulations also require design controls and
maintenance of service records. Changes in existing requirements or adoption or
new requirements or policies could adversely affect our ability to comply with
regulatory requirements. Failure to comply with regulatory requirements could
have a material adverse effect on our business, financial condition or results
of operations.

         SPECTRASCIENCE is also subject to numerous federal, state and local
laws relating to such matters as safe working conditions, manufacturing
practices, environmental protection, fire hazard control and disposal of
hazardous or potentially hazardous substances. SPECTRASCIENCE will be subject to
additional federal, state and local environmental laws when commercial
development and production of the Optical Biopsy(TM) System begins. Management
is not aware of any manufacturing methods for the Optical Biopsy(TM) System that
will require extensive or costly compliance with environmental regulations.
However, since laws change over time there can be no assurance that (i)
SPECTRASCIENCE will not be required to incur significant costs to comply with
all applicable laws and regulations in the future, or (ii) the impact of changes
in those laws or regulations or adoption of new laws and regulations will not
have a material adverse effect upon SPECTRASCIENCE's ability to do business.

EUROPEAN UNION AND OTHER COUNTRIES

         The European Union consists of 15 countries encompassing most of the
major countries in Europe, including SPECTRASCIENCE's principal anticipated
international markets. The European Union has adopted numerous directives and
standards regulating the design, manufacture, clinical trial, labeling, and
adverse event reporting for medical devices. The principal directive prescribing
the laws and regulations pertaining to medical devices in the European Union is
the Medical Devices Directive, 93/42/EEC.

         Devices that comply with the requirements of the Medical Devices
Directive will be entitled to bear the CE mark, indicating that the device
complies with the essential requirements of the applicable directive. In order
to sell a medical device in the European Union, the product must have the CE
mark. Generally, companies go through the ISO certification process in order to
obtain the CE mark. SPECTRASCIENCE RECEIVED ISO 9001 CERTIFICATION ON JULY 27,
2000. In order to maintain ISO 9001 certification SPECTRASCIENCE must undergo a
yearly audit to assure the European Union regulatory agencies of our compliance
with ISO 9001 standards. WE ALSO RECEIVED CE MARK AUTHORIZATION ON OCTOBER 10,
2000. There can be no assurance that we will be able to maintain ISO 9001
certification or CE mark authorization for any of our products or product
components. Furthermore, even though a device bears the CE Mark, practical
complications have arisen with respect to market introduction because of
differences among countries in areas such as labeling requirements.
SPECTRASCIENCE may be required to spend significant amounts of capital in order
to comply with the various regulatory requirements of foreign countries.

         Other areas of the world such as Japan, Asia, South America, etc., will
be targeted for regulatory compliance once European and domestic sales begin.
Each additional country will have its own regulatory approval process that
SPECTRASCIENCE will have to comply with in order to make sales.


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DISTRIBUTION, MARKETING AND CUSTOMERS

         At this time, we are expanding our marketing and sales capabilities.
SPECTRASCIENCE's primary objective is to become a leader in the development and
commercialization of advanced proprietary diagnostic products with the
capability to differentiate in real time between healthy, and pre-cancerous or
cancerous tissue. In order to accomplish this we will need to strengthen our
marketing capabilities. Our initial marketing efforts are focused on the
following areas:

         *  BE FIRST TO MARKET WITH A OPTICAL BIOPSY(TM) SYSTEM. Management
            believes that SPECTRASCIENCE will be the first to introduce and
            market an endoscopic optical biopsy system that will improve the
            endoscopist's diagnostic accuracy by providing objective, real-time
            feedback as to the pathology of suspect tissue.

         *  DEMONSTRATE TO THIRD PARTY PAYORS (MEDICARE, BLUECROSS AND
            BLUESHIELD ETC.) THE CLINICAL UTILITY AND EFFICACY OF THE OPTICAL
            BIOPSY(TM)SYSTEM. SPECTRASCIENCE intends to demonstrate to third
            party payors through outcome-based clinical studies that the use of
            the Optical Biopsy(TM)System will improve patient outcomes through
            early detection and decrease patient care costs. SPECTRASCIENCE
            plans to demonstrate the clinical utility and efficacy of the
            Optical Biopsy(TM)System to key physician opinion leaders targeted
            by management, including those practicing at major cancer centers
            throughout the United States. Management believes outcome-based
            trials that demonstrate better clinical outcomes and the acceptance
            of the Optical Biopsy(TM)System by key opinion leaders in the health
            care industry will be critical elements in gaining market acceptance
            and third party reimbursement for the Optical Biopsy(TM) System.

         *  DEMONSTRATE TO PHYSICIANS AND OTHER HEALTH CARE PROVIDERS THE EASE
            OF USE OF THE OPTICAL BIOPSY(TM)SYSTEM. SPECTRASCIENCE intends to
            demonstrate to endoscopists and other health care providers that the
            Optical Biopsy(TM)System employs familiar medical technology and
            equipment, such as the forceps, that are virtually identical to
            those currently used by endoscopists in performing traditional
            tissue biopsies. Management believes that demonstration of the ease
            of use of the Optical Biopsy(TM)System, together with demonstration
            of better clinical outcomes, will aid in gaining market acceptance
            of the Optical Biopsy(TM)System. Training seminars will be conducted
            as necessary to educate endoscopists and other health care providers
            regarding the proper use of the Optical Biopsy(TM)System.

         *  SEEK TO ESTABLISH STRONG SALES DISTRIBUTION. SPECTRASCIENCE will
            seek out leading distributors in its target markets both
            domestically and internationally. These distributors will typically
            have significant resources and strong franchises which, when coupled
            with our technology, will increase the likelihood of commercial
            success. We will also develop an in-house sales and marketing staff
            for two purposes: (i) to manage and optimize our distribution
            networks, and (ii) to develop and implement marketing strategies. We
            can provide no assurance that we will be able to enter into such
            strategic partnerships on favorable terms or at all.

THIRD-PARTY REIMBURSEMENT

         We plan to market and sell the Optical Biopsy(TM) System and other
products primarily through hospitals and clinics. In the United States, the
purchasers of medical devices generally rely on Medicare, Medicaid, private
health insurance plans, health maintenance organizations and other sources of
third party reimbursement for health care costs, to reimburse all or part of the
cost of the procedure in which the medical device is used. Sales of the Optical
Biopsy(TM) System and other proposed products will, in part, be dependent on the
availability of adequate reimbursement from these third party payors for
procedures carried out using our products. Sales of the Optical Biopsy(TM)
System to managed care will, in part, be dependent on our ability to demonstrate
cost-effectiveness. Regardless of the type of reimbursement system, management
believes that physician advocacy of our products will be required to obtain
reimbursement. We believe that less


                                     Page 10
<PAGE>


invasive procedures generally provide less costly overall therapies compared to
conventional drugs, surgery and other treatments. We anticipate that hospital
administrators and physicians will justify the use of our products by the cost
and time savings recognized, and clinical benefits that we believe will be
derived from the use of our products.

         Third party payors determine whether to provide coverage for a
particular procedure and reimburse health care providers for medical treatment
at a fixed rate based on the diagnosis-related group established by the United
States Health Care Financing Administration. The fixed rate of reimbursement is
based on the procedure performed and is unrelated to the specific type or number
of devices used in a procedure. If a procedure is not covered by a
diagnosis-related group, payors may deny reimbursement. If reimbursement for a
particular procedure is approved, third party payors will reimburse health care
providers for medical treatment based on a variety of methods, including a lump
sum prospective payment system based on a diagnosis-related group or per diem, a
blend between the health care provider's reported costs and a fee schedule, a
payment for all or a portion of charges deemed reasonable and customary, or a
negotiated per capita fixed payment.

         Optical biopsies are not currently approved for reimbursement by
third-party payors, and there can be no assurance that the Optical Biopsy(TM)
System will be approved for any third party reimbursement, even if it proves to
play a significant role in improving the endoscopist's ability to accurately
differentiate among polyps in the colon, thereby leading to early detection and
subsequent treatment of colorectal cancer. However, diagnosis-related group
reimbursement for endoscopic procedures such as flexible sigmoidoscopy,
colonoscopy and polypectomy, including fees for biopsies, has been established.

         Medical equipment capital costs incurred by hospitals are reimbursed
separately from diagnosis-related group payments. Changes in federal
legislation, or policies of the government or third-party payors that reduce
reimbursements under capital cost pass through systems, could adversely affect
the market for our products.

         Funding for Medicare and Medicaid is subject to limits set by Congress.
In 1997, as part of the Balanced Budget Act of 1997, Congress approved Medicare
coverage for preventive colorectal cancer screening tests. Because studies have
shown that colorectal cancer screening can prevent 20%-40% of potential
colorectal cancers and 30%-50% of colorectal cancer deaths, management believes
that such funding should lead to (i) greater awareness of colorectal cancer
among the general population, (ii) larger budgets for screening, (iii) higher
reimbursement levels, and (iv) potentially the establishment of new
reimbursement codes for new technologies like the Optical Biopsy(TM) System.
This does not, however, provide any assurances that the increased funding will
lead to third party reimbursement for the Optical Biopsy(TM) System.

         Management expects that there will be continued pressure on
cost-containment throughout the United States health care system. Cost
reduction, cost containment, managed care, capitation pricing (pricing based on
a fixed price per procedure, rather than on the number of disposable products or
hospital supplies used), and consignment sales are becoming more and more
common, not only in the United States but also in many European countries and
Japan. Limits on third-party reimbursements that lead to cuts in reimbursements
for new or experimental procedures would affect the ability of smaller companies
with new technologies, to compete with larger established firms.

         Reimbursement systems in international markets vary significantly by
country and by region within some countries, and reimbursement approvals must be
obtained on a country-by-country basis. Many international markets have
government managed health care systems that control reimbursement for new
products and procedures. In most markets, there are private insurance systems as
well as government managed systems. Market acceptance of SPECTRASCIENCE's
products will depend on the availability and level of reimbursement in
international markets we target. There can be no assurance that we will obtain
reimbursement in any country within a particular time, for a particular time,
for a particular amount, or at all.


                                     Page 11
<PAGE>


         We are unable to predict what additional legislation or regulation
relating to the health care industry or third-party coverage and reimbursement
may be enacted in the future, if any, or what effect it might have on us.
Reforms may include (i) mandated basic health care benefits, (ii) controls on
health care spending through limitations on the growth of private health
insurance premiums and Medicare and Medicaid spending, (iii) greater reliance on
prospective payment systems, (iv) the creation of large insurance purchasing
groups, and (v) fundamental changes to the health care delivery system.
Management anticipates that Congress and state legislatures will continue to
review and assess alternative health care delivery systems and payment
mechanisms. Due to uncertainties regarding the ultimate features of reform
initiatives and their enactment and implementation, we cannot predict which
reform proposals, if any, will be adopted, when they may be adopted or what
impact they may have on SPECTRASCIENCE. Failure by hospitals and other users of
our products to obtain reimbursement from third-party payors, or changes in
government and private third-party payors' policies toward reimbursement for
procedures employing our products, could have a material adverse effect on our
business, financial condition and results of operations.

MANUFACTURING AND SOURCES OF SUPPLY

         To date, our manufacturing activities have consisted of assembling a
limited number of Optical Biopsy(TM) Systems for use in various clinical trials.
We do not have experience in manufacturing our products in commercial quantities
or with the yields that will be necessary for us to achieve significant
commercial sales. Currently, we complete the basic assembly of the Optical
Biopsy(TM) System console in-house. We assemble the components, many of which
are widely available, and inspect and test the completed systems at our
facilities, which are adequate for manufacturing commercial quantities of our
products. The forceps are produced by a leading U.S. contract manufacturer of
medical forceps.

         Our Optical Biopsy(TM) System will have to be manufactured in
accordance with current Quality System Regulations requirements in order for us
to sell our products in the U.S., and ISO 9001 standards in order for us to sell
our products in the European Union. These requirements impose certain procedural
and documentation requirements upon us with respect to manufacturing and quality
assurance activities, as well as upon those third parties with whom we contract
to perform certain manufacturing processes.

         Many of the raw materials or components used in the manufacture of our
products are "off the shelf" items and are available from more than one vendor.
We do have certain components needed for the manufacture of our product, such as
the laser light source, spectrophotometer and Optical Biopsy Forceps, that are
available only from sole or limited source suppliers. The process of qualifying
additional or replacement vendors for certain components or services can be
time-consuming and expensive, especially in the medical device industry.

         We currently have an agreement with a leading contract manufacturer of
medical forceps in the United States, under which they have agreed to supply us
with the quantities of forceps that we require. This agreement expires no
earlier than March 2004 but may be renewed by the contract manufacturer for an
additional two years upon six months' notice. Even though the performance of the
suppliers of the forceps and other components and raw materials has generally
been satisfactory, they may not continue to perform up to our standards, meet
government regulations or handle labor unrest, if any.

COMPETITION

         The medical device industry is highly competitive. We believe we have
few direct competitors in applying spectroscopy for the differentiation of
normal and cancerous tissues in the colon; however, the development of products
using spectroscopic diagnostics for various medical specialties is rapidly
growing. To the best of our knowledge, no other competitors have completed FDA
clinical studies or submitted a pre-market approval application to the FDA for
the detection of colorectal cancer.


                                     Page 12
<PAGE>


         The companies that are listed below have developed or are in the
process of developing products that use spectroscopic technology that could
potentially compete with our products or technologies.

         *  Xillix Technologies (Richmond, British Columbia, Canada) has an
            approved product for detection of cancer in the lungs, the LIFE-Lung
            system, which it began to commercialize in 1998. This product uses
            light-based spectroscopy to detect and localize lung cancer. Xillix
            continues to develop a LIFE-GI system to detect gastrointestinal
            cancers of the esophagus, stomach, intestines and colon.

         *  SpectRx (Norcross, GA) is focused on the development and manufacture
            of painless and bloodless spectrophotometry based alternatives to
            currently available medical diagnostic and monitoring procedures.
            Their first fully developed product, BiliCheck, is for the
            monitoring of infant jaundice and began to be commercialized in
            1999. They are developing other spectroscopy systems that offer less
            invasive and painless alternatives to blood tests currently used for
            glucose monitoring, and diabetes screening which are in various
            stages of development.

         *  MediSpectra, Inc. (Lexington, MA) has been focused on developing a
            system that improves on the current standards for cervical cancer
            detection. The system they are developing is an in-vivo, non-contact
            device that simultaneously uses UV fluorescence and white light to
            scan the cervix in a single measurement.

         *  Mediscience Technology (Cherry Hill, New Jersey) has conducted
            feasibility clinical studies for oral leukopakia, a pre-cancerous
            condition of the mouth, with a prototype product called CD SCAN.
            They also plan to conduct clinical studies in the areas of breast
            cancer and Barrett's esophagus with products using spectroscopic
            technology.

         *  Lasertec International, Inc. (Atlanta, Georgia) expects to have
            results from ongoing human trials of its Photo Therapic Resonancy
            System in several months. Their technology is currently focused on
            the diagnosis and treatment of bladder cancer, but they plan to
            expand their technology to the diagnosis of laryngeal cancer.

         *  Lifespex (Kirkland, Washington) is a development stage company that
            has successfully completed clinical studies with its cervical cancer
            detection device called CERVISCAN. Lifespex is also conducting
            initial testing for its skin cancer detection device.

         *  Polartechnics, Inc (Sidney, Australia) is developing a tissue
            auto-fluorescence probe for cervical cancer detection called the
            TruScan. The company has initiated clinical trials in Europe for the
            detection of cervical cancer. Polartechnics' second product,
            SkinPolarprobe, a melanoma detection device, has been placed in
            clinics in Australia for testing and development.

         *  BioLuminate (San Jose, California) is in the process of developing a
            smart probe product for more accurate breast cancer detection. This
            probe has sensors on the tip that measure specific optical,
            electrical and chemical properties known to differ between healthy
            and cancerous tissues.

         Many of them have substantially greater resources than we do, either
internally or in combination with strategic partners. These resources may allow
them to develop, market and distribute technologies or


                                     Page 13
<PAGE>


products that could be more effective than those developed or marketed by us, or
that would render our technologies and products obsolete. The resource
advantages they may have are:

         *  greater capital resources         *  greater resources and expertise
         *  greater manufacturing resources      in the areas of research and
         *  greater resources and expertise      development
            in testing products in clinical   *  greater expertise in obtaining
            trials                               regulatory approvals
                                              *  greater resources for marketing
                                                 and sales activities

PATENTS

         Our ability to obtain and maintain patent protection for our products,
preserve our trade secrets and operate without infringing on the proprietary
rights of others will directly affect how successful our operations will be.
There are certain technological aspects of our products that are not covered by
any patents or patent applications. Our strategy regarding the protection of our
proprietary rights and innovations is to seek patents on those portions of our
technology that we believe are patentable, and to protect as trade secrets other
confidential information and proprietary know-how. We seek to protect our trade
secrets and proprietary know-how by obtaining confidentiality and invention
assignment agreements in connection with employment, consulting and advisory
relationships.

         We currently own exclusive rights to a total of five issued, allowed
and pending U.S. patents and applications, and four pending international patent
applications. SPECTRASCIENCE has four issued U.S. patents and one related
pending U.S. patent application. The issued patents are entitled "Optical Biopsy
Forceps" (U.S. Patents 5,762,613 and 6,129,683), "Optical Biopsy Forceps System
and Method of Diagnosing Tissue" (U.S. Patent 6,006,102) and "Optical Biopsy(TM)
System and Methods for Tissue Diagnosis" (U.S. Patent 6,174,291). SPECTRASCIENCE
is the exclusive licensee through The Massachusetts General Hospital of U.S.
Patent 5,843,000 entitled "Optical Biopsy Forceps and Method of Diagnosing
Tissue" and a pending international patent application. The patents expire
between November 2012 and May 2018. Three of the issued patents and the pending
patent application are directed to types of forceps having an optical fiber and
biopsy jaws which are positioned to take samples for biopsy from the precise
area of view of the optical fiber, and methods of tissue diagnosis using these
forceps. The remaining issued patent pertains to the Optical Biopsy(TM) System
and methods of use. Each of the international applications designates twenty
countries for patent protection. The additional pending U.S. patent application
pertains to various apparatus and methods for diagnosing tissue; and providing
the physician with additional information regarding whether it is necessary to
take a biopsy sample.

         We have a licensing arrangement with Massachusetts General Hospital's
Wellman Laboratories of Photomedicine. The arrangement provides that certain
patents that result from the Wellman Lab's research on cancer detection will be
licensed exclusively to us. The Massachusetts General Hospital license is
exclusive through the life of the licensed patents, subject to customary
diligence requirements for commercially reasonable best efforts to introduce
products in the United States, Europe and Japan within three years, or such
revised period as may reasonably be needed due to technical difficulties or
delays in clinical studies or regulatory processes. SPECTRASCIENCE has also
signed an exclusive license agreement with Advanced Photodynamic Therapies for
the rights to certain proprietary spectrophotometric technology.

         The patent and trade secret positions of medical device companies like
SPECTRASCIENCE, are uncertain and involve complex and evolving legal and factual
questions. To date, no claims have been brought against SPECTRASCIENCE alleging
that our technology or products infringe intellectual property rights of others.
Often, patent and intellectual property disputes in the medical device industry
are settled through licensing or similar arrangements. However, there can be no
assurance that necessary licenses from other parties would be available to us on
satisfactory terms, if at all. The costs associated with such arrangements may
be substantial and could include ongoing royalties.


                                    Page 14
<PAGE>


         United States patent applications are secret until patents are issued
or corresponding foreign applications are published in other countries. Since
publication of discoveries in the scientific or patent literature often lags
behind actual discoveries, management cannot be certain that SPECTRASCIENCE was
the first to invent the inventions covered by each of its pending patent
applications, or that it was the first to file patent applications for such
inventions. In addition, the laws of some foreign countries do not provide the
same degree of intellectual property right protection as do the laws of the
United States. Litigation associated with patent or intellectual property
infringement or protection can be lengthy and prohibitively costly. There can be
no assurance that SPECTRASCIENCE would have the financial resources to defend
its patents from infringement or claims of invalidity; or to successfully defend
itself against intellectual property infringement claims by third parties.

EMPLOYEES

         As of March 1, 2001, SPECTRASCIENCE had 15 full-time employees, ten of
whom were engaged in product engineering design and development, manufacturing,
and regulatory affairs, and five of whom were engaged in sales and marketing,
and finance and administration. SPECTRASCIENCE is not subject to any collective
bargaining agreement and management believes that employee relations are
generally satisfactory.

         SPECTRASCIENCE relies heavily on external consultants in the financial,
regulatory, software development and design engineering areas. Management has
been successful in attracting and retaining qualified technical personnel. There
can be no assurance, however, that we will be able to continue to attract or
retain the skilled employees we require for profitable operations.


ITEM 2.       DESCRIPTION OF PROPERTY

         SPECTRASCIENCE leases its principal executive offices at 14405 21st
Avenue North, Suite 111, Minneapolis, Minnesota. This facility consists of
approximately 13,282 square feet of office, research and development,
manufacturing, quality testing, and warehouse space. The lease provides for
monthly rental payments of $8,502 for the next 24 months. The current rent
including a pro rata share of operating expenses and real estate taxes is
approximately $12,686 per month. The lease expires at the end of January 2003.
Management believes this facility provides the necessary space needed for
anticipated manufacturing and ramp-up activities for the commercialization of
the Optical Biopsy(TM) System, and has no present plans to perform any
improvements to the facility. Management believes that appropriate levels of
standard property and casualty insurance coverage on its property are being
maintained.

ITEM 3.       LEGAL PROCEEDINGS

         We are not currently party to any material legal proceedings.


ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         There have been no matters submitted to a vote of the security holders
during the fourth quarter of 2000.


                                    Page 15
<PAGE>


                                     PART II

ITEM 5.       MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

MARKET INFORMATION

         Since March 18, 1999, our common stock has been trading on the
Over-The-Counter Bulletin Board under the symbol "SPSI." The common stock
originally traded under the symbol "GVMI." In September 1992, the stock symbol
was changed from "GVMI" to "SPSC." The stock symbol was subsequently changed to
"SPSI" in June 1994. On February 28, 2001, the last reported bid price of the
common stock was $4.375.

         The following table sets forth, for the periods indicated, the high and
low bid prices as reported by NASDAQ and OTC Bulletin Board. To the best of our
knowledge, we believe that the information obtained from these sources is
accurate.

                                 2000 Stock Prices (1)    1999 Stock Prices (1)
                                 ---------------------   -----------------------
         QUARTER ENDED            High Bid    Low Bid     High Bid      Low Bid
         ---------------------   ---------------------   -----------------------
         March 31                  $11.125     $4.000      $6.0625       $3.500
         June 30                    $9.000     $5.750      $5.0000       $3.250
         September 30               $9.375     $3.750      $5.7500       $3.000
         December 31               $12.375     $5.000      $8.3125       $3.750
         -----------------------------------------------------------------------

         (1)      The prices of the common stock reflect inter-dealer prices and
                  do not necessarily reflect the prices of actual transactions.
                  The sales prices reflect prices without retail mark-up,
                  mark-down or commission and may not represent actual
                  transactions.

HOLDERS

         On February 28, 2001, we had approximately 950 registered shareholders
of record of 7,004,438 shares of our Common Stock, excluding shareholders that
are registered in "street-names." We estimate that there are approximately 4,200
beneficial shareholders of our Common Stock.

DIVIDENDS

         To date, SPECTRASCIENCE has not declared or paid cash dividends on the
common stock. The current policy of the Board of Directors is to retain any
earnings to fund development of its business. Consequently, no cash dividends
are expected to be paid on the common stock in the foreseeable future.


ITEM 6.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS.

         The following discussion and analysis provides information that
management believes is relevant to assess and understand our results of
operations and financial condition. This discussion should be read in
conjunction with the financial statements and footnotes that follow.

PLAN OF OPERATION

         For the past three years SPECTRASCIENCE has been focused on the design,
development, clinical testing, regulatory approval, and initial
commercialization of the Optical Biopsy(TM) System. As discussed in the product
research and development section in Item 1 above, we have begun sales and
marketing efforts with the commencement of outcome-based clinical studies.


                                    Page 16
<PAGE>


         The purpose of the outcome-based clinical studies is to collect
cost-effectiveness data. SPECTRASCIENCE must have cost effectiveness data for
the Optical Biopsy(TM) System to present to HCFA and other governmental agencies
in order to obtain reimbursement codes. In addition, this same data is one of
several pieces of information that managed care will require when making a buy
decision. The secondary accomplishments of the outcome based clinical studies
are integrated with our marketing efforts. They provide an opportunity to
demonstrate to key opinion leaders the clinical utility and ease of use of the
Optical Biopsy(TM) System. This in turn should help drive clinical acceptance.

         During the next year SPECTRASCIENCE intends to:

         *  complete outcome based clinical studies, both in the United States
            and the United Kingdom,
         *  submit to HCFA, an application for reimbursement codes for the
            Optical Biopsy(TM) System upon completion of the outcome based
            clinical study in the United States,
         *  continue to develop the market with key physician opinion leaders,
            both international and domestic, for our product,
         *  begin sales both domestically and internationally,
         *  continue to develop strategic relationships for distribution and
            marketing,
         *  refine manufacturing processes for our products, and
         *  develop a next generation product and expand the applications for
            our current products.

         The cash position of SPECTRASCIENCE on December 31, 2000 was
$3,734,422. Company management believes this amount of cash is sufficient to
fund basic operations through fiscal year 2001, based upon the current business
plan and projections, in light of anticipated costs and expenditures and demand
for our products. Company management is currently exploring financing
alternatives and may need to complete a financing transaction in 2001 in order
to be able to financially execute the current business plan beyond basic
operations. If significant sales occur ramp up activity and subsequent costs
will increase beyond our current plan and projections. We believe we will be
able to implement the above strategies without the need to purchase or lease
significant pieces of equipment or additional plant space. We believe we will
need to hire additional employees in 2001 to support the manufacturing,
marketing and sales, research and development, and administrative functions.

RESULTS OF OPERATIONS

         The following discussion of SPECTRASCIENCE's financial condition and
results of operations should be read in conjunction with the Financial
Statements and the notes thereto included in this Form 10-KSB.

FISCAL YEAR ENDED DECEMBER 31, 2000 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1999

         REVENUE. We recorded no revenue for the years ended December 31, 2000
and 1999. We anticipate that we will begin generating revenue during fiscal year
2001 from sales of the Optical Biopsy(TM) System.

         RESEARCH AND DEVELOPMENT. Research and development expenses for the
year ended December 31, 2000 totaled $1,655,927, compared to $1,356,986 for the
year ended December 31, 1999. This represented an increase of $298,941, or 22%.
While awaiting FDA clearance to begin commercialization of the Optical
Biopsy(TM) System, we focused our efforts on developing next generation products
and exploring additional applications. The increased costs can be primarily
attributed to increased expenses related to the development of next generation
products, particularly design engineering expenses and consulting expenses
related to software development. We also had increased legal expenses related to
additional patent filings, and increased rent expense related to a larger
facility. During 1999 the Optical Biopsy(TM) System was moved


                                    Page 17
<PAGE>


through the clinical trial phase towards the production phase. Because of this,
we had lower contract expenses related to clinical trials in 2000.

         SELLING, GENERAL & ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the year ended December 31, 2000 totaled $997,320,
compared to $794,221 for the year ended December 31, 1999. This represented an
increase of $203,099, or 25.6%. The majority of the increased expenses were due
to increased marketing and sales related activities. We had increased salary
expenses in 2000 compared to 1999 primarily due to the hiring of a marketing and
sales vice president. This position was vacant the first seven months of 1999.
We also had increased expenses related to conventions, seminars and travel. The
increased marketing and sales expenses were partially offset by reduced legal
expenses. In 1999, due to changes in management, we incurred increased
consulting expenses in the areas of financial management and investor relations
consulting. During 2000, we were able to reduce our consulting expenses in these
areas.

         INTEREST AND OTHER INCOME (EXPENSE). Interest and other income for the
year ended December 31, 2000 totaled $244,959, compared to ($28,626) for the
year ended December 31, 1999. This represented an increase of $273,585. We had
higher interest income due to higher cash balances throughout 2000 compared to
1999. In addition, we had reduced other expenses due to the termination of the
lease on the facility we previously occupied.

         NET LOSSES. As a result of the above factors, we reported a net loss of
$2,408,288 for the year ended December 31, 2000, compared to a net loss of
$2,179,833 for the year ended December 31, 1999. This represents an increase of
$228,455, or 10.5%, and was primarily due to increased research and development
expenses and increased expenses related to marketing and sales activities as
previously discussed. The net loss was $.37 per share for the year ended
December 31, 2000, compared to a net loss of $.41 per share for the year ended
December 31, 1999. We anticipate that our net loss will increase at least
through fiscal year 2001 as we commercialize the Optical Biopsy(TM) System,
continue our research and development efforts as they pertain to next generation
products, and develop additional applications for the Optical Biopsy(TM) System.

FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1998

         REVENUE. We recorded no revenue for the years ended December 31, 1999
and 1998. We do not expect to begin generating revenue until after FDA clearance
has been obtained for the Optical Biopsy(TM) System.

         RESEARCH AND DEVELOPMENT. Research and development expenses for the
year ended December 31, 1999 totaled $1,356,986, compared to $1,719,171 for the
year ended December 31, 1998. This represented a decrease of $362,185, or 21.1%.
The lower costs can be primarily attributed to the fact that a majority of the
design and development costs of the Optical Biopsy(TM) System were incurred in
1998, as well as a substantial portion of the related clinical trial expenses.
During 1999 the product was moved through the clinical trial phase towards the
production phase. This phase of our products' development is more labor
intensive than the initial design and development phase.

         Therefore, our salary expense and tools and supplies expense was higher
in 1999, but was more than offset by lower expenses in the areas of consulting,
design engineering, purchased services and contract payments. We had
substantially lower legal expenses related to intellectual property filings, and
increased facilities expenses due to our relocation into a larger facility. We
also had expenses related to an inventory revaluation in 1998 that we did not
have in 1999. The inventory revaluation was due to the replacement of the SGS
Console with second generation technology currently utilized in our Optical
Biopsy(TM) System.

         SELLING, GENERAL & ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the year ended December 31, 1999 totaled $794,221,
compared to $746,953 for the year ended December 31,


                                    Page 18
<PAGE>


1998. This represented an increase of $47,268, or 6.3%. The resignation of Mr.
Chew, our former CFO, in July 1998, coupled with the untimely death of Mr.
McMahon, our former President and CEO, in December 1998 required management to
incur increased expenses in the areas of financial management and investor
relations consulting. The increased consulting expenses were partially offset by
lower salary expenses and lower travel expenses. We had increased legal expenses
due to fund raising activities and our delisting from the Nasdaq SmallCap
Market. We had increased shareholder relations expenses due to our fund raising
activities and increased costs for our annual meeting.

         INTEREST AND OTHER INCOME (EXPENSE). Interest and other income for the
year ended December 31, 1999 totaled ($28,626), compared to $51,982 for the year
ended December 31, 1998. This represented a decrease of $80,608, or 155.1%. We
had higher interest income due to higher cash balances throughout 1999 compared
to 1998. However, the interest income was completely offset by other expenses.

         NET LOSSES. As a result of the above factors, we reported a net loss of
$2,179,833 for the year ended December 31, 1999, compared to a net loss of
$2,414,142 for the year ended December 31, 1998. This represented a decrease of
$234,309, or 9.7%, and was primarily due to decreased research and development
costs. The net loss was $.41 per share for the year ended December 31, 1999,
compared to a net loss of $.52 per share for the year ended December 31, 1998.
We anticipate that our net loss will increase at least through fiscal year 2000
as we begin to commercialize the Optical Biopsy(TM) System, continue our
research and development efforts to develop applications for the Optical
Biopsy(TM) System in other medical specialties and investigate other potential
opportunities for our technologies.

LIQUIDITY AND CAPITAL RESOURCES

         SPECTRASCIENCE has financed its operations since 1992 principally
through private placements of its common and preferred stock. From October 1992,
when we began development of our current products and changed our name, until
December 31, 2000, we had obtained funds aggregating approximately $16.2 million
in net proceeds from the issuance of common stock and preferred stock. As of
December 31, 2000, SPECTRASCIENCE had cash and cash equivalents of $3,734,422
and working capital of $3,571,776.

         In 1999, SPECTRASCIENCE completed two private placements of common
stock. In March 1999, a private placement of 293,750 shares of its common stock
at $4.00 per share was completed. In December 1999, multiple closings placed
995,285 shares of common stock at $3.50 per share. This private placement was
completed in January 2000 after issuing an additional 13,000 shares of common
stock at $3.50 per share. Management plans to continue using these funds (i) to
commercialize the Optical Biopsy(TM) System, (ii) to continue development of new
applications for the Optical Biopsy(TM) System, and (iii) for general corporate
purposes, including working capital.

         Net cash used in operating activities was approximately $2.45 million
for the year ended December 31, 2000, and $2.14 million for the year ended
December 31, 1999. The net cash used in operating activities resulted primarily
from net losses. Net cash used in investing activities was $56,161 for the year
ended December 31, 2000, and $126,927 for the year ended December 31, 1999. The
net cash used in investing activities was primarily attributable to the purchase
of network infrastructure, marketing equipment, and equipment for research and
development and manufacturing. Net cash provided by financing activities was
$1,877,565 for the year ended December 31, 2000, and $6,326,320 for the year
ended December 31, 1999. The net cash provided by financing activities in 2000
was primarily attributable to the exercise of warrants and stock options.
SPECTRASCIENCE received a total of $1,349,021 during 2000 pursuant to the
exercise of stock options to purchase 295,053 shares of common stock.
SPECTRASCIENCE also received a total of $508,750 from the exercise of warrants
to purchase 104,250 shares of common stock.

         SPECTRASCIENCE expects to incur significant additional operating losses
through at least 2001, as outcome-based clinical studies are conducted, research
and development activities continue, and sales and


                                    Page 19
<PAGE>


marketing efforts to commercialize the Optical Biopsy(TM) System continue.
Company management anticipates that it has sufficient cash and cash equivalents
to fund basic operations through fiscal year 2001. Company management is
currently exploring financing alternatives and may need to complete a financing
transaction in 2001 in order to be able to financially execute the current
business plan beyond basic operations.

         SPECTRASCIENCE's future liquidity and capital requirements will depend
upon a number of factors, including but not limited to:

         *  the timing and progress of outcome-based clinical trials,
         *  the timing and extent to which SPECTRASCIENCE's products gain market
            acceptance,
         *  the timing and expense of product introduction,
         *  the timing and expense of developing marketing and distribution
            channels,
         *  the progress and expense of developing next generation products and
            new applications for the Optical Biopsy(TM)System,
         *  the potential requirements and related costs for product
            modifications,
         *  the timing and expense of various U.S. and foreign regulatory
            filings, and
         *  the maintenance of various U.S. and foreign government approvals, or
            the timing of receipt to obtain additional approvals, and
         *  the status and maintenance of SPECTRASCIENCE's patent portfolio.


ITEM 7.       FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

         Audited financial statements for each of the three years ended December
31, 1998, 1999 and 2000 are filed as part of this Form 10-KSB. See Index to
Financial Statements on Page F.


ITEM 8.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE.

         None.


                                    PART III

ITEM 9.       DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
              COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

         The information required by this item is incorporated by reference to
the information set forth in the Proxy Statement of SPECTRASCIENCE in connection
with its 2001 Annual Meeting of Shareholders, which will be filed with the
Securities and Exchange Commission on or prior to March 31, 2001.


ITEM 10.      EXECUTIVE COMPENSATION.

         The information required by this item is incorporated by reference to
the information set forth in the Proxy Statement of SPECTRASCIENCE in connection
with its 2001 Annual Meeting of Shareholders, which will be filed with the
Securities and Exchange Commission on or prior to March 31, 2001.


                                    Page 20
<PAGE>


ITEM 11.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The information required by this item is incorporated by reference to
the information set forth in the Proxy Statement of SPECTRASCIENCE in connection
with its 2001 Annual Meeting of Shareholders, which will be filed with the
Securities and Exchange Commission on or prior to March 31, 2001.


ITEM 12.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         None.


ITEM 13.      EXHIBITS AND REPORTS ON FORM 8-K.

FINANCIAL STATEMENTS

         Audited financial statements for each of the three years ended December
31, 1998, 1999 and 2000 are filed as part of this Form 10-KSB. See Index to
Financial Statements on Page F.

REPORTS ON FORM 8-K.

         None.

EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-B:

Exhibit
Number      Description
------      --------------------
3.1         Articles of Incorporation, as amended. (Incorporated by reference to
            the Company's Quarterly Report on Form 10-QSB, Exhibit 3.1, for the
            quarter ended June 30, 2000.)
3.2         Bylaws, as amended. (Incorporated by reference to the Company's
            Annual Report on Form 10-KSB, Exhibit 3.2, for the year ended
            December 31, 1995.)
10.1        SPECTRASCIENCE, Inc. 1991 Stock Plan adopted by the Company's Board
            of Directors on July 11, 1991 and shareholders on January 30, 1992.
            (Incorporated by reference to the Company's Annual Report on Form
            10-K, Exhibit 10.12, for the year ended December 31, 1991.)
10.2        Amendment to SPECTRASCIENCE, Inc. 1991 Stock Plan adopted by the
            Company's Board of Directors on July 11, 1991 and shareholders on
            January 30, 1992. (Incorporated by reference to the Company's Form
            8-K Report filed with the Securities and Exchange Commission on or
            about February 3, 1992.)
10.3        Amendment to SPECTRASCIENCE, Inc. 1991 Stock Plan adopted by the
            Company's shareholders on June 28, 1995. (Incorporated by reference
            to the Company's Registration Statement on Form S-8, Commission File
            No. 033-63047, as filed on September 28, 1995.)
10.4        Amendment to SPECTRASCIENCE, Inc. 1991 Stock Plan adopted by the
            Company's Board of Directors on October 4, 1995. (Incorporated by
            reference to the Company's definitive Proxy Statement for its 1996
            Annual Meeting of Shareholders.)
10.5        Amendment to SPECTRASCIENCE, Inc. 1991 Stock Plan adopted by the
            Company's shareholders on March 28, 1996. (Incorporated by reference
            to the Company's Registration Statement on Form S-8, Commission File
            No. 333-4393, as filed on May 23, 1996.)
10.6        Amendment to SPECTRASCIENCE, Inc. 1991 Stock Plan as it pertains to
            Section 5(k) of the Plan regarding Directors options, adopted by the
            Company's Board of Directors on October 9, 1996. (Incorporated by
            reference to the Company's Annual Report on Form 10-KSB, Exhibit
            10.10, for the year ended December 31, 1996.)
10.7        Amendment to SPECTRASCIENCE, Inc. 1991 Stock Plan as it pertains to
            Section 3 of the Plan, adopted by the Company's Board of Directors
            on March 9, 1998. (Incorporated by reference to the Company's Annual
            Report of Form 10-K for the year ended December 31, 1997.)


                                    Page 21
<PAGE>


10.8        Self-Insurance Trust Agreement between the Company and Richfield
            Bank and Trust Co., as trustee dated March 5, 1987. (Incorporated by
            reference to the Company's Annual Report on Form 10-K for the year
            ended December 31, 1986.)
10.9        Form of Indemnification Agreement for all officers and directors.
            (Incorporated by reference to the Company's Annual Report on Form
            10-K for the year ended December 31, 1986.)
10.10       Employment Agreement and Severance Agreement between the Company and
            Brian T. McMahon dated September 30, 1992. (Incorporated by
            reference to the Company's Annual Report on Form 10-KSB, Exhibit
            10.23, for the year ended December 31, 1993.)
10.11       Severance (Change in Control) Agreement between the Company and
            Brian T. McMahon dated November 26, 1996. (Incorporated by reference
            to the Company's Annual Report on Form 10-KSB, Exhibit 10.15, for
            the year ended December 31, 1996.)
10.12       Severance (Change in Control) Agreement between the Company and
            Ching-Meng Chew dated November 26, 1996. (Incorporated by reference
            to the Company's Annual Report on Form 10-KSB, Exhibit 10.16, for
            the year ended December 31, 1996.)
10.13       Severance (Change in Control) Agreement between the Company and
            Chester E. Sievert, Jr. dated May 21, 1997. (Incorporated by
            reference to the Company's Annual Report of Form 10-K for the year
            ended December 31, 1997.)
10.14       Five-Year Lease Agreement between the Company and St. Paul
            Properties, Inc. dated October 10, 1996 (Incorporated by reference
            to the Company's Annual Report on Form 10-KSB, Exhibit 10.17, for
            the year ended December 31, 1996.)
10.15       Clinical Research Agreement between The General Hospital
            Corporation, doing business as Massachusetts General Hospital, and
            the Company dated June 1, 1995. (Incorporated by reference to the
            Company's Annual Report on Form 10-KSB, Exhibit 10.15, for the year
            ended December 31, 1995.)
10.16       Bridge Loan Agreement, including form of Promissory Note and form of
            Warrant by and between the Company and Qualified Lenders, dated
            September 30, 1994. (Incorporated by reference to the Company's
            Annual Report on Form 10-KSB, Exhibit 10.28, for the year ended
            December 31, 1994.)
10.17       Form of Promissory Note that was issued in conjunction with the
            Bridge Loan Agreement by and between the Company and Qualified
            Lenders, dated September 30, 1994. (Incorporated by reference to the
            Company's Annual Report on Form 10-KSB, Exhibit 10.28, page 45, for
            the year ended December 31, 1994.)
10.18       Form of Promissory Note that was issued in conjunction with the
            Bridge Loan Agreement by and between the Company and Qualified
            Lenders, dated September 30, 1994. (Incorporated by reference to the
            Company's Annual Report on Form 10-KSB, Exhibit 10.28, page 45, for
            the year ended December 31, 1994.)
10.19       Form of Warrant. (Incorporated by reference to the Company's Annual
            Report on Form 10-KSB, Exhibit 10.28, for the year ended December
            31, 1994.)
10.20       List of Lenders in the Bridge Loans, and Investors in the Company's
            Preferred Stock. (Incorporated by reference to the Company's Form
            S-3 Registration Statement under The Securities Act of 1933 as filed
            with the Securities and Exchange Commission and declared effective
            on June 7, 1996, Commission File No. 333-1149.)
10.21       Form of Subscription Agreement that was used in conjunction with the
            private placements of the Company's Preferred Stock. (Incorporated
            by reference to the Company's Annual Report on Form 10-KSB, Exhibit
            10.20, for the year ended December 31, 1995.)
10.22       Manufacturing and Sales Agreement, dated June 23, 1997, between
            Portlyn Corporation and the Company. (Incorporated by reference to
            Exhibit 10.28 to Amendment No. 1 to the Company's Registration
            Statement on Form SB-2, dated October 7, 1998, Commission File No.
            333-59395.)
10.23       Lease Agreement between the Company and Urologix, Inc. dated
            September 23, 1999. (Incorporated by reference to the Company's
            Annual Report on Form 10-KSB, Exhibit 10.23, for the year ended
            December 31, 1999.)
10.24       Form of Warrant, as amended, exercised in January 1999 by investors
            who participated in the Company's private placement of Convertible B
            Preferred Stock. (Incorporated by reference to Exhibit 10.14 to
            Amendment No. 1 to the Company's Registration Statement on Form
            SB-2, dated April 14, 2000, Commission File No. 333-84213.)


                                    Page 22
<PAGE>


10.25       Form of Warrant issued to investors who exercised their amended
            warrants in January 1999. (Incorporated by reference to Exhibit
            10.15 to Amendment No. 1 to the Company's Registration Statement on
            Form SB-2, dated April 14, 2000, Commission File No. 333-84213.)
10.26       Form of Warrant issued to Qualified Lenders who exercised their
            warrants in March 1999. (Incorporated by reference to Exhibit 10.16
            to Amendment No. 1 to the Company's Registration Statement on Form
            SB-2, dated April 14, 2000, Commission File No. 333-84213.)
10.27       Form of Warrant issued to investors in the March 1999 private
            placement of the Company's common stock. (Incorporated by reference
            to Exhibit 10.17 to Amendment No. 1 to the Company's Registration
            Statement on Form SB-2, dated April 14, 2000, Commission File No.
            333-84213.)
10.28       Form of Warrant issued to investors in the December 1999 private
            placement of the Company's common stock. (Incorporated by reference
            to Exhibit 10.18 to Amendment No. 1 to the Company's Registration
            Statement on Form SB-2, dated April 14, 2000, Commission File No.
            333-84213.)
10.29       Amendment to SPECTRASCIENCE, Inc. 1991 Stock Plan adopted by the
            Company's shareholders on May 17, 2000. (Incorporated by reference
            to the Company's definitive Proxy Statement for its 2000 Annual
            Meeting of Shareholders.)
10.30       SPECTRASCIENCE Inc, 2001 Stock Plan adopted by the Company's Board
            of Directors on February 12, 2001. (Incorporated by reference to the
            Company's definitive Proxy Statement for its 2001 Annual Meeting of
            Shareholders.)
10.31       Severance (Change in Control) Agreement between the Company and
            Scott G. Anderson dated July 15, 2000, filed herewith.
23.1        Consent of Independent Auditors, filed herewith.
99.1        Cautionary Statement, filed herewith.


                                    Page 23
<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of Sections 13 and 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                                      SPECTRASCIENCE, INC.
                                      --------------------
                                          (Registrant)


Date:    March 12, 2001               By: /S/ CHESTER E. SIEVERT, JR.
                                          ----------------------------
                                      CHESTER E. SIEVERT, JR.
                                      PRESIDENT AND CHIEF EXECUTIVE OFFICER
                                      PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER


          Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.



/s/ CHESTER E. SIEVERT, JR.                 March 12, 2001
-------------------------------------
Chester E. Sievert, Jr.
President and Chief Executive Officer
(Principal Executive Officer)



/s/ JOHAN A.P.M DEHOND                      March 12, 2001
-------------------------------------
Johan A.P.M. De Hond
Director



/s/ TERRENCE W. GLARNER                     March 12, 2001
-------------------------------------
Terrence W. Glarner
Director



/s/ DELWIN K. OHRT                          March 12, 2001
-------------------------------------
Delwin K. Ohrt
Director


                                    Page 24
<PAGE>


                              SpectraScience, Inc.

                          Audited Financial Statements


                  Years ended December 31, 2000, 1999 and 1998




                                    CONTENTS

Report of Independent Auditors.................................................1

Audited Financial Statements

Balance Sheets.................................................................2
Statements of Operations.......................................................3
Statement of Changes in Stockholders' Equity...................................4
Statements of Cash Flows.......................................................5
Notes to Financial Statements..................................................6


                                     Page F
<PAGE>


                         Report of Independent Auditors

Board of Directors
SpectraScience, Inc.

We have audited the accompanying balance sheets of SpectraScience, Inc. as of
December 31, 2000 and 1999, and the related statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SpectraScience, Inc. at
December 31, 2000 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States.

                                             /s/ Ernst & Young LLP

February 16, 2001
Minneapolis, Minnesota


                                    Page F-1
<PAGE>


                              SpectraScience, Inc.

                                 Balance Sheets

<TABLE>
<CAPTION>
                                                                        DECEMBER 31
                                                                   2000             1999
                                                            ----------------------------------
<S>                                                           <C>               <C>
ASSETS
Current assets:
   Cash and cash equivalents                                  $  3,734,422      $  4,362,120
   Inventory                                                       258,303           143,660
   Interest receivable                                                  --            13,314
   Prepaid expenses                                                 79,315            83,756
   Other current assets                                              8,563            11,508
                                                            ----------------------------------
Total current assets                                             4,080,603         4,614,358

Fixed assets:
   Office furniture and equipment                                  320,662           288,665
   Machinery and equipment                                         575,861           560,669
   Leasehold improvements                                           11,186            11,186
                                                            ----------------------------------
                                                                   907,709           860,520
   Less accumulated depreciation                                  (639,017)         (566,774)
                                                            ----------------------------------
                                                                   268,692           293,746
Other assets                                                        20,742            20,000
                                                            ----------------------------------
Total assets                                                  $  4,370,037      $  4,928,104
                                                            ==================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                           $    117,563      $    150,094
   Note payable - trade creditors                                   47,597            66,109
   Note payable to related party                                        --           600,005
   Accrued compensation and taxes                                  249,985           162,457
   Accrued expenses                                                 68,020            90,158
   Accrued clinical research fees                                   25,662            47,399
                                                            ----------------------------------
Total current liabilities                                          508,827         1,116,222

Long-term portion of lease commitment                                   --            45,660

Stockholders' equity:
   Common stock, $.25 par value:
     Authorized shares--17,000,000
     Issued and outstanding shares--7,004,438 in 2000 and
       6,420,705 in 1999                                         1,751,110         1,605,176
Additional paid-in capital                                      53,249,591        50,892,249
Accumulated deficit                                            (51,139,491)      (48,731,203)
                                                            ----------------------------------
Total stockholders' equity                                       3,861,210         3,766,222
                                                            ----------------------------------
Total liabilities and stockholders' equity                    $  4,370,037      $  4,928,104
                                                            ==================================
</TABLE>

SEE ACCOMPANYING NOTES.


                                    Page F-2
<PAGE>


                              SpectraScience, Inc.

                            Statements of Operations

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31
                                                    2000              1999              1998
                                             ----------------------------------------------------
<S>                                            <C>               <C>               <C>
EXPENSES
Research and development                       $  1,655,927      $  1,356,986      $  1,719,171
Selling, general and administrative                 997,320           794,221           746,953
                                             ----------------------------------------------------
Net loss from operations                         (2,653,247)       (2,151,207)       (2,466,124)

OTHER (INCOME) EXPENSE
Interest and other (income) expense                (244,959)           28,626           (51,982)
                                             ----------------------------------------------------

Net loss                                       $ (2,408,288)     $ (2,179,833)     $ (2,414,142)
                                             ====================================================

Net loss per share                             $       (.36)     $       (.41)     $       (.52)

Weighted average common shares outstanding        6,641,958         5,288,974         4,663,559
</TABLE>


SEE ACCOMPANYING NOTES.


                                    Page F-3
<PAGE>


                              SpectraScience, Inc.

                  Statement of Changes in Stockholders' Equity

<TABLE>
<CAPTION>
                                                            COMMON STOCK         ADDITIONAL
                                                     --------------------------    PAID-IN    ACCUMULATED
                                                         SHARES       AMOUNT       CAPITAL       DEFICIT         TOTAL
                                                     ----------------------------------------------------------------------
<S>                                                    <C>        <C>           <C>           <C>            <C>
Balance, December 31, 1997                             4,506,559  $  1,126,640  $ 44,620,283  $(44,137,228)  $  1,609,695
   Exercise of Series A preferred stock detachable
     warrants into common stock                          148,445        37,111       705,114            --        742,225
   Exercise of stock options                              82,800        20,700       261,262            --        281,962
   Net loss                                                   --            --            --    (2,414,142)    (2,414,142)
                                                     ----------------------------------------------------------------------
Balance, December 31, 1998                             4,737,804     1,184,451    45,586,659   (46,551,370)       219,740
   Exercise of warrants into common stock                174,998        43,749       481,251            --        525,000
   Exercise of Series B preferred stock detachable
     warrants into common stock                           87,668        21,917       463,490            --        485,407
   Exercise of stock options                             131,200        32,800       375,910            --        408,710
   Private placement of common stock                   1,289,035       322,259     3,984,939            --      4,307,198
   Net loss                                                   --            --            --    (2,179,833)    (2,179,833)
                                                     ----------------------------------------------------------------------
Balance, December 31, 1999                             6,420,705     1,605,176    50,892,249   (48,731,203)     3,766,222
   Private placement of common stock                      13,000         3,250        42,250            --         45,500
   Exercise of Series A preferred stock detachable
     warrants into common stock                           10,000         2,500        27,500            --         30,000
   Exercise of Series B preferred stock detachable
     warrants into common stock                           79,250        19,813       376,437            --        396,250
   Conversion of note payable to related party
     into common stock                                   171,430        42,858       557,147            --        600,005
   Exercise of Private Placement detachable
     warrants into common stock                           15,000         3,750        78,750            --         82,500
   Exercise of stock options                             295,053        73,763     1,275,258            --      1,349,021
   Net loss                                                   --            --            --    (2,408,288)    (2,408,288)
                                                     ----------------------------------------------------------------------
Balance, December 31, 2000                             7,004,438  $  1,751,110  $ 53,249,591  $(51,139,491)  $  3,861,210
                                                     ======================================================================
</TABLE>


SEE ACCOMPANYING NOTES.


                                    Page F-4
<PAGE>


                              SpectraScience, Inc.

                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31
                                                                        2000             1999            1998
                                                                 --------------------------------------------------
<S>                                                                <C>              <C>              <C>
OPERATING ACTIVITIES
Net loss                                                           $ (2,408,288)    $ (2,179,833)    $ (2,414,142)
Adjustments to reconcile net loss to net cash used in operating
   activities:
     Depreciation                                                        81,215           79,566          141,083
     (Gain) loss on lease settlement                                    (19,954)          95,886               --
     Loss on disposal of fixed assets                                        --            1,146               --
     Changes in operating assets and liabilities:
       Interest receivable                                               13,314          (13,314)              --
       Inventory                                                       (114,643)          41,965         (219,536)
       Note receivable from related party                                    --           24,030          (24,030)
       Prepaid expenses                                                   4,441          (33,118)           7,297
       Other current assets                                               2,203          (20,923)          29,899
       Accounts payable and accrued expenses                            (33,096)        (134,648)         138,222
                                                                 --------------------------------------------------
Net cash used in operating activities                                (2,474,808)      (2,139,243)      (2,341,207)

INVESTING ACTIVITIES
Purchases of fixed assets                                               (56,161)        (126,927)         (19,183)
                                                                 --------------------------------------------------
Net cash used in investing activities                                   (56,161)        (126,927)         (19,183)

FINANCING ACTIVITIES
Note payable to related party                                                --          600,005               --
Proceeds from issuance of common stock                                1,903,271        5,726,315        1,024,187
                                                                 --------------------------------------------------
Net cash provided by financing activities                             1,903,271        6,326,320        1,024,187
                                                                 --------------------------------------------------

Net (decrease) increase in cash and cash equivalents                   (627,698)       4,060,150       (1,336,203)
Cash and cash equivalents at beginning of year                        4,362,120          301,970        1,638,173
                                                                 --------------------------------------------------
Cash and cash equivalents at end of year                           $  3,734,422     $  4,362,120     $    301,970
                                                                 ==================================================

SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS
Transfer of inventory to equipment                                 $         --     $         --     $    214,385
Conversion of note payable to related party to common stock             600,005               --               --
</TABLE>

SEE ACCOMPANYING NOTES.


                                    Page F-5
<PAGE>


                              SpectraScience, Inc.

                          Notes to Financial Statements

                                December 31, 2000

1. BUSINESS

The Company was incorporated on May 4, 1983 as GV Medical, Inc. and was engaged
in the development of laser angioplasty catheter systems. Subsequently, the
Company changed its name to SpectraScience, Inc. on October 16, 1992, which was
approved by the shareholders on May 13, 1993. The Company is now focused on the
development and manufacturing of innovative, minimally invasive spectroscopic
systems to facilitate real-time differentiation and diagnosis of cancerous and
diseased tissue by utilizing advanced spectroscopy, fiber optics, computer
hardware and software.

The Company has cash on hand of $3,734,422 at December 31, 2000. Management
believes this amount of cash is sufficient to fund basic operations through
2001, based upon the current business plan and projections, in light of
anticipated costs and demand for its products. The Company is currently
exploring financing alternatives and may need to complete a financing
transaction in 2001 to be able to financially execute the current business plan
beyond basic operations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH EQUIVALENTS

The Company considers highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents. Cash equivalents are carried at
cost which approximates market value.

FIXED ASSETS

Fixed assets are stated at cost. The Company depreciates the cost of the
property over its estimated useful life of five years using the straight-line
method. Leasehold improvements are depreciated over the related lease term or
estimated useful life, whichever is shorter.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to undiscounted future net cash
flows expected to be generated by the assets. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined on a
first-in, first-out basis. The majority of the inventories consists of purchased
components.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from the estimates.


                                    Page F-6
<PAGE>


                              SpectraScience, Inc.

                    Notes to Financial Statements (continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

STOCK-BASED COMPENSATION

The Company follows Accounting Principles Board Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES ("APB 25"), and related interpretations in accounting
for its stock options. Under APB 25, when the exercise price of stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.

INCOME TAXES

The Company accounts for income taxes under the liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statement carrying
amount of assets and liabilities and their respective tax bases.

NET LOSS PER SHARE

Basic earnings per share is based on weighted average shares outstanding and
excludes any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share for the Company is the same as basic earnings per
share because the effect of options and warrants is anti-dilutive.

RECLASSIFICATION

Certain amounts in the 1999 financial statements have been reclassified to
conform to the 2000 presentation.

3. CAPITAL STOCK AND WARRANTS

During 1994 and 1995, the Company granted warrants to the participants in the
bridge financing agreements it had entered into to purchase 174,998 shares of
the Company's common stock at $3.00 per share. The warrants were exercised in
March 1999, resulting in net proceeds to the Company of $525,000. Upon
exercising the warrants, the holders received additional warrants to purchase
87,503 shares of common stock at $5.00 per share. These warrants expire in March
2002.

During 1995, the Company issued warrants to the placement agent to purchase
20,000 shares of the Company's common stock at $3.00 per share. In 1997, 10,000
warrants were exercised at $3.00 per share. In 2000, the remaining 10,000
warrants were exercised, resulting in proceeds to the Company of $30,000.

In December 1995, the Company also issued warrants to the placement agent to
purchase 79,250 shares of the Company's common stock at $5.00 per share. In
2000, these options were exercised at $5.00, resulting in proceeds to the
Company of $396,250.

In March 1999, the Company sold 293,750 shares of common stock in a private
placement for $1,175,000 less related costs of $17,500. Holders of the common
stock also received warrants to purchase 146,875 shares of common stock for
$5.00 per share. All warrants remain outstanding and expire in March 2001.


                                    Page F-7
<PAGE>


                              SpectraScience, Inc.

                    Notes to Financial Statements (continued)

3. CAPITAL STOCK AND WARRANTS (CONTINUED)

In December 1999, the Company sold 995,285 shares of common stock for $3,483,498
less related costs of $338,800. Holders of the common stock also received
warrants to purchase 497,643 shares of common stock for $5.50 per share. In
September 2000, 15,000 warrants were exercised, resulting in proceeds to the
Company of $82,500. The remaining warrants are outstanding and expire in
December 2001.

In January 2000, the Company sold 13,000 shares of common stock for $45,500.
Holders of the common stock also received warrants to purchase 6,500 shares of
common stock for $5.50 per share. All warrants remain outstanding and expire in
January 2002.

4. STOCK OPTIONS

The Company has one stock option plan, the 1991 Stock Plan, under which selected
employees and non-employees may be granted incentive and non-qualified options
to purchase common stock of the Company. The options granted are exercisable
over a period of no longer than ten years and are granted at the higher of the
fair market value of the Company's common stock or a ten-day rolling average of
the fair market value of the common stock as of the date of grant. The Company
has reserved 2,140,000 shares for issuance under the Plan.

The following table summarizes the stock option activity for the plan:

<TABLE>
<CAPTION>
                                                                            WEIGHTED
                                 SHARES                      NON-PLAN       AVERAGE
                                AVAILABLE   PLAN OPTIONS      OPTIONS       EXERCISE
                                FOR GRANT   OUTSTANDING     OUTSTANDING  PRICE PER SHARE
                               ---------------------------------------------------------
<S>                             <C>           <C>              <C>         <C>
Balance, December 31, 1997       239,287      1,026,644             --     $     4.19
  Amendment to Plan              140,000             --             --             --
  Options granted               (508,167)       508,167             --           4.53
  Options exercised                   --        (82,800)            --           3.41
  Options canceled               499,580       (499,580)            --           3.94
                               ---------------------------------------------------------
Balance, December 31, 1998       370,700        952,431             --           4.54
  Options granted               (251,000)       251,000             --           4.26
  Options exercised                   --       (131,200)            --           3.12
  Options canceled                29,300        (29,300)            --           3.00
                               ---------------------------------------------------------
Balance, December 31, 1999       149,000      1,042,931             --           4.68
  Amendment to Plan              500,000             --             --             --
  Options granted               (183,000)       183,000        367,000           5.36
  Options exercised                   --       (278,553)       (16,500)          4.57
  Options canceled                58,999        (58,999)            --           6.16
                               ---------------------------------------------------------
Balance, December 31, 2000       524,999        888,379        350,500     $     4.94
                               =========================================================
</TABLE>


                                    Page F-8
<PAGE>


                              SpectraScience, Inc.

                    Notes to Financial Statements (continued)

4. STOCK OPTIONS (CONTINUED)

The weighted average fair value of options granted in 2000, 1999 and 1998 was
$3.05, $2.62 and $3.79, respectively. The exercise price of options outstanding
at December 31, 2000 ranged from $2.50 to $11.25 per share, as summarized in the
following table:

<TABLE>
<CAPTION>
                                 OPTIONS OUTSTANDING                      OPTIONS EXERCISABLE
                  -------------------------------------------------   ----------------------------
                                        WEIGHTED
                                         AVERAGE       WEIGHTED                        WEIGHTED
                        OPTIONS         REMAINING       AVERAGE        NUMBER OF       AVERAGE
    RANGE OF         OUTSTANDING AT    CONTRACTUAL   EXERCISE PRICE     OPTIONS     EXERCISE PRICE
 EXERCISE PRICE    DECEMBER 31, 2000      LIFE        PER OPTION      EXERCISABLE     PER OPTION
--------------------------------------------------------------------------------------------------
<S>                    <C>              <C>              <C>             <C>            <C>
 $2.50 - $ 5.00          823,300        7.3 years        $ 4.17          512,963        $ 3.90
  5.01 -   8.00          382,079        8.7 years          6.14          324,078          6.03
  8.01 -  11.25           33,500        2.8 years         10.20           27,500         10.35
                     -------------                                   -------------
 Total                 1,238,879                                         864,541
                     =============                                   =============
</TABLE>

The Company has elected to follow Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25"), and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION ("Statement 123"), requires use of
option valuation models that were not developed for use in valuing employee
stock options.

Pro forma information regarding net loss and loss per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of Statement 123. The fair
value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions for 2000, 1999 and 1998, respectively: risk-free interest rates
ranging from 5.05% to 6.30%; volatility factors of the expected market price of
the Company's common stock ranging from .763 to .851 and an expected life of the
option of five to seven years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which vest by one-third each year from the date of
the grant and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions. Because the Company's
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:

<TABLE>
<CAPTION>
                                         2000             1999              1998
                                    --------------------------------------------------
<S>                                   <C>             <C>               <C>
 Pro forma net loss                   $3,373,448      $(2,964,845)      $(3,079,739)
 Pro forma net loss per share           $(.52)           $(.56)            $(.66)
</TABLE>


                                    Page F-9
<PAGE>


                              SpectraScience, Inc.

                    Notes to Financial Statements (continued)

4. STOCK OPTIONS (CONTINUED)

These pro forma amounts may not be indicative of future years' amounts since the
Statement provides for a phase-in of option values beginning with those granted
in 1995.

5. COMMITMENTS

The Company moved to a new location in Minneapolis in October 1999 and entered
into a new building lease agreement that has a term extending through January
2003. This lease requires annual base rents of $101,772, $102,024 and $8,502,
plus a sharing of certain expenses, for the years 2001, 2002 and 2003,
respectively.

Various other equipment operating leases have been entered into and expire
during future years.

Future lease commitments are as follows:

 2001                                                         $110,537
 2002                                                          104,000
 2003                                                            8,502
                                                            ------------
 Total                                                        $223,039
                                                            ============

The Company incurred total lease and rental expenses of $160,000, $106,600 and
$74,000 for the years ended December 31, 2000, 1999 and 1998, respectively.

6. INCOME TAXES

The tax effect of the Company's deferred tax assets is as follows:

                                                  DECEMBER 31
                                            2000               1999
                                     -----------------------------------

 Net operating loss carryforward       $ 18,820,000       $ 17,567,000
 Accrued liabilities                         58,000            108,000
 Inventory reserve                           13,000              3,000
 Tax credits                                602,000            903,000
                                     -----------------------------------
                                         19,493,000         18,581,000
 Valuation allowance                    (19,493,000)       (18,581,000)
                                     -----------------------------------
                                       $         --       $         --
                                     ===================================

At December 31, 2000, the Company had net operating loss carryforwards of
approximately $47,050,000 that expire beginning in 2001 through 2020. In
addition, the Company has research and development tax credits that expire
beginning in 2001 through 2015. As a result of previous stock transactions, the
Company's ability to utilize its net operating loss carryforwards to offset
future taxable income is subject to certain limitations under Section 382 of the
Internal Revenue Code due to changes in equity ownership of the Company.


                                    Page F-10
<PAGE>


                              SpectraScience, Inc.

                    Notes to Financial Statements (continued)

7. EMPLOYEE BENEFIT PLAN

The Company has a 401(k) profit sharing and savings plan covering substantially
all employees. The plan allows employees to defer up to 15% of their annual
earnings. The Company will match 50% of the first 6% of the employee
contributions. The contributions by the Company totaled approximately $15,000,
$14,300 and $21,000 for 2000, 1999 and 1998, respectively.

8. NOTE PAYABLE TO RELATED PARTY

The Company issued a convertible demand note for $600,005 on December 30, 1999
to a related party. A member of the board of directors of the Company is also a
member of the board of directors of the payee. The note bore an annual interest
rate of 6%, and was payable upon maturity, demand or conversion. During 2000,
the note was converted into 171,430 shares of the Company's common stock at
$3.50 per share with warrants to purchase 85,715 shares of common stock
exercisable at $5.50 per share. These warrants are exercisable at any time and
expire two years from the date of conversion.


                                    Page F-11
<PAGE>


EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-B:

Exhibit
Number      Description
------      --------------------
3.1         Articles of Incorporation, as amended. (Incorporated by reference to
            the Company's Quarterly Report on Form 10-QSB, Exhibit 3.1, for the
            quarter ended June 30, 2000.)
3.2         Bylaws, as amended. (Incorporated by reference to the Company's
            Annual Report on Form 10-KSB, Exhibit 3.2, for the year ended
            December 31, 1995.)
10.1        SPECTRASCIENCE, Inc. 1991 Stock Plan adopted by the Company's Board
            of Directors on July 11, 1991 and shareholders on January 30, 1992.
            (Incorporated by reference to the Company's Annual Report on Form
            10-K, Exhibit 10.12, for the year ended December 31, 1991.)
10.2        Amendment to SPECTRASCIENCE, Inc. 1991 Stock Plan adopted by the
            Company's Board of Directors on July 11, 1991 and shareholders on
            January 30, 1992. (Incorporated by reference to the Company's Form
            8-K Report filed with the Securities and Exchange Commission on or
            about February 3, 1992.)
10.3        Amendment to SPECTRASCIENCE, Inc. 1991 Stock Plan adopted by the
            Company's shareholders on June 28, 1995. (Incorporated by reference
            to the Company's Registration Statement on Form S-8, Commission File
            No. 033-63047, as filed on September 28, 1995.)
10.4        Amendment to SPECTRASCIENCE, Inc. 1991 Stock Plan adopted by the
            Company's Board of Directors on October 4, 1995. (Incorporated by
            reference to the Company's definitive Proxy Statement for its 1996
            Annual Meeting of Shareholders.)
10.5        Amendment to SPECTRASCIENCE, Inc. 1991 Stock Plan adopted by the
            Company's shareholders on March 28, 1996. (Incorporated by reference
            to the Company's Registration Statement on Form S-8, Commission File
            No. 333-4393, as filed on May 23, 1996.)
10.6        Amendment to SPECTRASCIENCE, Inc. 1991 Stock Plan as it pertains to
            Section 5(k) of the Plan regarding Directors options, adopted by the
            Company's Board of Directors on October 9, 1996. (Incorporated by
            reference to the Company's Annual Report on Form 10-KSB, Exhibit
            10.10, for the year ended December 31, 1996.)
10.7        Amendment to SPECTRASCIENCE, Inc. 1991 Stock Plan as it pertains to
            Section 3 of the Plan, adopted by the Company's Board of Directors
            on March 9, 1998. (Incorporated by reference to the Company's Annual
            Report of Form 10-K for the year ended December 31, 1997.)
10.8        Self-Insurance Trust Agreement between the Company and Richfield
            Bank and Trust Co., as trustee dated March 5, 1987. (Incorporated by
            reference to the Company's Annual Report on Form 10-K for the year
            ended December 31, 1986.)
10.9        Form of Indemnification Agreement for all officers and directors.
            (Incorporated by reference to the Company's Annual Report on Form
            10-K for the year ended December 31, 1986.)
10.10       Employment Agreement and Severance Agreement between the Company and
            Brian T. McMahon dated September 30, 1992. (Incorporated by
            reference to the Company's Annual Report on Form 10-KSB, Exhibit
            10.23, for the year ended December 31, 1993.)
10.11       Severance (Change in Control) Agreement between the Company and
            Brian T. McMahon dated November 26, 1996. (Incorporated by reference
            to the Company's Annual Report on Form 10-KSB, Exhibit 10.15, for
            the year ended December 31, 1996.)
10.12       Severance (Change in Control) Agreement between the Company and
            Ching-Meng Chew dated November 26, 1996. (Incorporated by reference
            to the Company's Annual Report on Form 10-KSB, Exhibit 10.16, for
            the year ended December 31, 1996.)
10.13       Severance (Change in Control) Agreement between the Company and
            Chester E. Sievert, Jr. dated May 21, 1997. (Incorporated by
            reference to the Company's Annual Report of Form 10-K for the year
            ended December 31, 1997.)
10.14       Five-Year Lease Agreement between the Company and St. Paul
            Properties, Inc. dated October 10, 1996 (Incorporated by reference
            to the Company's Annual Report on Form 10-KSB, Exhibit 10.17, for
            the year ended December 31, 1996.)
10.15       Clinical Research Agreement between The General Hospital
            Corporation, doing business as Massachusetts General Hospital, and
            the Company dated June 1, 1995. (Incorporated by reference to the
            Company's Annual Report on Form 10-KSB, Exhibit 10.15, for the year
            ended December 31, 1995.)

<PAGE>


10.16       Bridge Loan Agreement, including form of Promissory Note and form of
            Warrant by and between the Company and Qualified Lenders, dated
            September 30, 1994. (Incorporated by reference to the Company's
            Annual Report on Form 10-KSB, Exhibit 10.28, for the year ended
            December 31, 1994.)
10.17       Form of Promissory Note that was issued in conjunction with the
            Bridge Loan Agreement by and between the Company and Qualified
            Lenders, dated September 30, 1994. (Incorporated by reference to the
            Company's Annual Report on Form 10-KSB, Exhibit 10.28, page 45, for
            the year ended December 31, 1994.)
10.18       Form of Promissory Note that was issued in conjunction with the
            Bridge Loan Agreement by and between the Company and Qualified
            Lenders, dated September 30, 1994. (Incorporated by reference to the
            Company's Annual Report on Form 10-KSB, Exhibit 10.28, page 45, for
            the year ended December 31, 1994.)
10.19       Form of Warrant. (Incorporated by reference to the Company's Annual
            Report on Form 10-KSB, Exhibit 10.28, for the year ended December
            31, 1994.)
10.20       List of Lenders in the Bridge Loans, and Investors in the Company's
            Preferred Stock. (Incorporated by reference to the Company's Form
            S-3 Registration Statement under The Securities Act of 1933 as filed
            with the Securities and Exchange Commission and declared effective
            on June 7, 1996, Commission File No. 333-1149.)
10.21       Form of Subscription Agreement that was used in conjunction with the
            private placements of the Company's Preferred Stock. (Incorporated
            by reference to the Company's Annual Report on Form 10-KSB, Exhibit
            10.20, for the year ended December 31, 1995.)
10.22       Manufacturing and Sales Agreement, dated June 23, 1997, between
            Portlyn Corporation and the Company. (Incorporated by reference to
            Exhibit 10.28 to Amendment No. 1 to the Company's Registration
            Statement on Form SB-2, dated October 7, 1998, Commission File No.
            333-59395.)
10.23       Lease Agreement between the Company and Urologix, Inc. dated
            September 23, 1999. (Incorporated by reference to the Company's
            Annual Report on Form 10-KSB, Exhibit 10.23, for the year ended
            December 31, 1999.)
10.24       Form of Warrant, as amended, exercised in January 1999 by investors
            who participated in the Company's private placement of Convertible B
            Preferred Stock. (Incorporated by reference to Exhibit 10.14 to
            Amendment No. 1 to the Company's Registration Statement on Form
            SB-2, dated April 14, 2000, Commission File No. 333-84213.)
10.25       Form of Warrant issued to investors who exercised their amended
            warrants in January 1999. (Incorporated by reference to Exhibit
            10.15 to Amendment No. 1 to the Company's Registration Statement on
            Form SB-2, dated April 14, 2000, Commission File No. 333-84213.)
10.26       Form of Warrant issued to Qualified Lenders who exercised their
            warrants in March 1999. (Incorporated by reference to Exhibit 10.16
            to Amendment No. 1 to the Company's Registration Statement on Form
            SB-2, dated April 14, 2000, Commission File No. 333-84213.)
10.27       Form of Warrant issued to investors in the March 1999 private
            placement of the Company's common stock. (Incorporated by reference
            to Exhibit 10.17 to Amendment No. 1 to the Company's Registration
            Statement on Form SB-2, dated April 14, 2000, Commission File No.
            333-84213.)
10.28       Form of Warrant issued to investors in the December 1999 private
            placement of the Company's common stock. (Incorporated by reference
            to Exhibit 10.18 to Amendment No. 1 to the Company's Registration
            Statement on Form SB-2, dated April 14, 2000, Commission File No.
            333-84213.)
10.29       Amendment to SPECTRASCIENCE, Inc. 1991 Stock Plan adopted by the
            Company's shareholders on May 17, 2000. (Incorporated by reference
            to the Company's definitive Proxy Statement for its 2000 Annual
            Meeting of Shareholders.)
10.30       SPECTRASCIENCE Inc, 2001 Stock Plan adopted by the Company's Board
            of Directors on February 12, 2001. (Incorporated by reference to the
            Company's definitive Proxy Statement for its 2001 Annual Meeting of
            Shareholders.)
10.31       Severance (Change in Control) Agreement between the Company and
            Scott G. Anderson dated July 15, 2000, filed herewith.
23.1        Consent of Independent Auditors, filed herewith.
99.1        Cautionary Statement, filed herewith.