SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission File Number 0-28745
NATIONAL SCIENTIFIC CORPORATION
Texas 86-0837077
(State or other jurisdiction (IRS Employer
of incorporation or organization Identification Number)
4455 East Camelback Road, E160, Phoenix, AZ 85018
(Address of principal executive offices) (Zip Code)
602-954-1492
(Registrant's phone number, including area code)
Indicate by check mark 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 [ ]
There were 45,154,018 shares of Common Stock, par value $.01 per share, were
outstanding at August 4, 2000.
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
<PAGE>
NATIONAL SCIENTIFIC CORPORATION
FORM 10-QSB
INDEX
Part I - Financial Information ............................................. 3
Item 1 - Financial statements (unaudited) ............................. 3
Balance Sheet - June 30, 2000 .................................... 3
Statements of Operations - Three Months ended June
30, 2000 and 1999 and Nine Months ended June 30,
2000 and 1999 and Cumulative from October 1, 1997
(Inception) through June 30, 2000 ................................ 4
Statements of Cash Flows - Nine Months ended June
30, 2000 and 1999 and Cumulative from October 1,
1997 (Inception) through June 30, 2000 ........................... 5
Statements of Changes in Shareholders' Equity -
Fiscal Years ended September 30, 1999 and 1998 and
nine months ended June 30, 2000 .................................. 6
Notes to Financial Statements .................................... 9
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations ......................... 11
Part II - Other Information ................................................ 12
Item 2 - Changes in Securities and Use of Proceeds .................... 12
Item 5 - Other Information ............................................ 13
Item 6 - Exhibits and reports on Form 8-K ............................. 13
Signatures ................................................................. 14
2
<PAGE>
PART I - FINANCIAL INFORMATION
NATIONAL SCIENTIFIC CORPORATION
(A Development Stage Company)
Unaudited Condensed Balance Sheet
June 30, 2000
ASSETS
2000
-----------
Current assets:
Cash and cash equivalents $ 1,814,095
Loans to shareholder 200,000
Other assets 76,568
-----------
Total current assets 2,090,663
Property and equipment, net 2,338
-----------
$ 2,093,001
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 22,863
-----------
Total current liabilities 22,863
-----------
Shareholders' equity:
Preferred stock, $.10 par value; 4,000,000 shares authorized
No shares issued and outstanding --
Common stock, par value $.01; 80,000,000 shares authorized,
44,907,040 shares issued and outstanding 449,070
Additional paid-in-capital 7,264,725
Deficit accumulated during the development stage (3,248,977)
Accumulated deficit (2,394,680)
-----------
2,070,138
-----------
$ 2,093,001
===========
See accompanying notes to financial statements
3
<PAGE>
NATIONAL SCIENTIFIC CORPORATION
(A Development Stage Company)
Unaudited Condensed Statements of Operations
For the Quarters Ended and Nine Months Ended June 30, 2000 and 1999, and
For the Period from October 1, 1997 (Inception of Development Stage)
Through June 30, 2000
<TABLE>
<CAPTION>
Three Month Three Month Nine Months Nine Months Cumulative
Ended Ended Ended Ended Development
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999 Stage
------------- ------------- ------------- ------------- -----
<S> <C> <C> <C> <C> <C>
Revenues $ -- -- -- -- --
--------- ---------- ---------- ---------- ----------
Costs and expenses
Consulting fees, related party 86,887 77,550 607,427 155,500 1,138,202
Salaries and benefits -- -- -- -- 73,706
Research and development 706,768 32,982 1,003,054 89,278 1,454,584
Stock compensation -- -- 50,320 -- 155,276
Other 47,530 12,135 151,145 42,920 423,406
--------- ---------- ---------- ---------- ----------
841,185 122,667 1,811,946 287,698 3,245,174
--------- ---------- ---------- ---------- ----------
Net loss from operations (841,185) (122,667) (1,811,946) (287,698) (3,245,174)
--------- ---------- ---------- ---------- ----------
Other income (expense)
Interest and other income 26,628 -- 39,788 -- 41,068
Interest expense -- (2,749) (5,189) (5,507) (16,316)
Loss on disposal of assets -- -- -- -- (28,555)
--------- ---------- ---------- ---------- ----------
26,628 (2,749) 34,599 (5,507) (3,803)
--------- ---------- ---------- ---------- ----------
Net loss before income tax benefit (814,557) (125,416) (1,777,347) (293,205) (3,248,977)
Provision for income taxes (benefit) -- -- -- -- --
--------- ---------- ---------- ---------- ----------
Net loss $(814,557) (125,416) (1,777,347) (293,205) (3,248,977)
========= ========== ========== ========== ==========
Net loss per common share, basic and diluted $ (0.02) -- $ (0.04) (0.01)
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
NATIONAL SCIENTIFIC CORPORATION
(A Development Stage Company)
Unaudited Condensed Statements of Cash Flows
For the Nine Months Ended June 30, 2000 and 1999, and
For the Period from October 1, 1997 (Inception of Development Stage)
Through June 30, 2000
<TABLE>
<CAPTION>
Nine Months Nine Months Cumulative
Ended Ended Development
June 30, 2000 June 30, 1999 Stage
------------- ------------- -----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss (1,777,347) (293,205) (3,248,977)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 1,002 1,002 9,229
Loss on disposal of assets -- -- 28,555
Stock issued for services 1,115,257 65,913 1,833,234
Decrease in receivables -- 12,500 30,000
Increase in other assets (76,568) (1,060) (65,997)
Increase(decrease) in accounts payable
and accrued expenses 2,946 (11,725) 284
Increase (decrease) in accrued interest expense (8,530) 5,500 --
---------- -------- ----------
Net cash used in operating activities (743,240) (221,075) (1,413,672)
---------- -------- ----------
Cash flows from investing activities:
Proceeds from the sale of furniture and equipment -- -- 4,660
---------- -------- ----------
-- -- 4,660
---------- -------- ----------
Cash flows from financing activities:
Loans to shareholder (200,000) -- (210,000)
Repayment of notes payable (110,000) -- (110,000)
Repayment of capital lease obligations -- -- (1,819)
Proceeds from the issuance of common stock 2,773,000 -- 2,771,181
Proceeds from the issuance of preferred stock -- 220,000 482,500
Proceeds from exercise of common stock options 32,150 15,650 287,627
---------- -------- ----------
Net cash provided by financing activities 2,495,150 235,650 3,219,489
---------- -------- ----------
Net increase in cash and cash equivalents 1,751,910 14,575 1,810,477
Cash and cash equivalents, beginning of period 62,185 21,735 3,618
---------- -------- ----------
Cash and cash equivalents, end of period 1,814,095 36,310 1,814,095
========== ======== ==========
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
NATIONAL SCIENTIFIC CORPORATION
(A Development Stage Company)
Unaudited Statements of Changes in Shareholders' Equity
For the Years Ended September 30, 1999 and 1998, and
For the Nine Months Ended June 30, 2000
<TABLE>
<CAPTION>
Common Stock Preferred Stock
----------------------- ----------------- Additional Development
Number of Number of Paid-In Accumulated Stage
Shares Amount Shares Amount Capital Deficit Deficit Total
------ ------ ------ ------ ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance September 30, 1997 17,847,292 $ 178,473 -- -- 2,160,780 (2,394,680) -- (55,427)
Stock issued for services 3,487,557 34,875 -- -- 335,473 -- -- 370,348
Private placement of
preferred stock -- -- 49,500 4,950 242,550 -- -- 247,500
Exercise of warrants and
options 547,000 5,470 -- -- 100,888 -- -- 106,358
Conversion of preferred to
common stock 3,450,000 34,500 (34,500) (3,450) (31,050) -- -- --
Contributed capital -- -- -- -- 14,850 -- -- 14,850
Net loss -- -- -- -- -- -- (772,545) (772,545)
----------- --------- ------- ------ ---------- ---------- ---------- ----------
Balance, September 30, 1998 25,331,849 253,318 15,000 1,500 2,823,491 (2,394,680) (772,545) (88,916)
----------- --------- ------- ------ ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
NATIONAL SCIENTIFIC CORPORATION
(A Development Stage Company)
Statements of Changes in Shareholders' Equity, continued
For the Years Ended September 30, 1999 and 1998, and
For the Nine Months Ended June 30, 2000
<TABLE>
<CAPTION>
Common Stock Preferred Stock
----------------------- ----------------- Additional Development
Number of Number of Paid-In Accumulated Stage
Shares Amount Shares Amount Capital Deficit Deficit Total
------ ------ ------ ------ ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1998 25,331,849 253,318 15,000 1,500 2,823,491 (2,394,680) (772,545) (88,916)
Stock issued for services 3,165,000 31,650 -- -- 315,979 -- -- 347,629
Preferred stock offering -- -- 47,000 4,700 230,300 -- -- 235,000
Exercise of warrants and
options 496,000 4,960 -- -- 27,490 -- -- 32,450
Private placement of common
stock 400,000 4,000 -- -- 96,000 -- -- 100,000
Conversion of preferred to
common stock 6,200,000 62,000 (62,000) (6,200) (55,800) -- -- --
Common stock issued to
collateralize loan 500,000 5,000 -- -- -- -- -- 5,000
Stock converted by director's
family member 451,440 4,515 -- -- (4,515) -- -- --
Net loss -- -- -- -- -- -- (699,085) (699,085)
----------- --------- ------- ------ ---------- ---------- ---------- ----------
Balance, September 30, 1999 36,544,289 365,443 -- -- 3,432,945 (2,394,680) (1,471,630) (67,922)
----------- --------- ------- ------ ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
NATIONAL SCIENTIFIC CORPORATION
(A Development Stage Company)
Statements of Changes in Shareholders' Equity, continued
For the Years Ended September 30, 1999 and 1998, and
For the Nine Months Ended June 30, 2000
<TABLE>
<CAPTION>
Common Stock Preferred Stock
----------------------- ----------------- Additional Development
Number of Number of Paid-In Accumulated Stage
Shares Amount Shares Amount Capital Deficit Deficit Total
------ ------ ------ ------ ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1999 36,544,289 365,443 -- -- 3,432,945 (2,394,680) (1,471,630) (67,922)
Stock issued for services 1,678,151 16,781 -- -- 1,148,796 -- -- 1,165,577
Exercise of warrants and
options 2,291,000 22,910 -- -- 1,981,920 -- -- 2,004,830
Private placement of common
stock 3,765,000 37,650 -- -- 712,350 -- -- 750,000
Stock converted by director's
family member 1,128,600 11,286 -- -- (11,286) -- -- --
Common stock to collateralize
loan - retired (500,000) (5,000) -- -- -- -- -- (5,000)
Net loss -- -- -- -- -- -- (1,777,347) (1,777,347)
----------- --------- ------- ------ ---------- ---------- ---------- ----------
Balance, June 30, 2000 44,907,040 449,070 -- -- 7,264,725 (2,394,680) (3,248,977) 2,070,138
=========== ========= ======= ====== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
NATIONAL SCIENTIFIC CORPORATION
(A Development Stage Company)
Notes to Financial Statements
June 30, 2000 and 1999
1. Basis of Presentation
The accompanying financial statements have been prepared by the Company,
without audit, and reflect all adjustments that are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods. The statements have been prepared in accordance with generally
accepted accounting principles for interim financial reporting and
Securities and Exchange Commission regulations. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion
of management, the financial statements reflect all adjustments (of a
normal and recurring nature) which are necessary for a fair presentation of
the financial position, results of operations and cash flows for the
interim periods. The results of operations for the nine months ended June
30, 2000 are not necessarily indicative of the results to be expected for
the entire fiscal year.
These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's registration
statement on Form 10-SB for the fiscal year ended September 30, 1999.
2. Issuance of Common Stock
During the nine months ended June 30, 2000, the Company received $750,000
from a private placement of common stock. In conjunction with the offering,
the Company issued 600,000 shares of restricted stock valued at $72,000 to
a principal and a consultant of the Company. The Company also issued
1,078,151 shares of restricted common stock to consultants as compensation
for services. The stock was valued at 50% of the market price of the stock
on the dates granted and earned.
3. Stock Options
The Company from time to time issues stock options for the purchase of
restricted stock to directors, officers, employees and consultants. The
Company does not have a qualified stock option plan for its executives and
employees.
The Company adopted Statement of Financial Accounting Standards No. 123
(FAS 123), "Accounting for Stock-Based Compensation," which permits
entities to recognize as expense over the vesting period the fair value of
all stock-based awards on the date of grant. Under the terms of the
Company's stock options granted to certain directors, officers and
consultants, the Board of Directors, at its sole discretion, will determine
when certain options granted shall be fully vested and exercisable. At June
30, 2000, all outstanding stock options had been deemed vested, and were
fully exercisable at fiscal year end.
9
<PAGE>
NATIONAL SCIENTIFIC CORPORATION
(A Development Stage Company)
Notes to Financial Statements
June 30, 2000 and 1999
3. Stock Options, continued
In accordance with SFAS 123, the fair value of option grants is estimated
on the date of grant using the Black-Scholes option-pricing model for
proforma footnote purposes with the following assumptions used for grants
in all years; dividend yield of 0%, risk-free interest rate of 6%, and
expected option life of 2.5 years. Expected volatility was assumed to be
50% as of the date of issue.
Weighted
Number Average
Of Exercise
Shares Price
------ -----
Options Outstanding, September 30, 1999 92,000 $ .10
Granted 256,000 .09
Exercised (328,000) .09
--------
Options Outstanding, June 30, 2000 20,000 .10
=========
4. Shareholder Loan
During the quarter the Company entered in to a loan with a Director and
Officer for $200,000, bearing interest at 10% per annum and due on December
1, 2000.
5. Net Loss Per Share
Net loss per share is computed by dividing the loss attributable to common
shareholders by the weighted average number of shares outstanding during
the period, which was assumed to be 42,794,744 and 29,429,246 for the nine
months ended June 30, 2000 and 1999, respectively. Stock options and
warrants are considered anti-dilutive and were not considered in the
calculation.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SAFE HARBOR STATEMENT
Certain statements in this Form 10-QSB, including information stated under Item
2 Management's Discussion and Analysis of Financial Condition and Results of
Operations constitute "forward-looking statements' within the meaning of the
Private Securities Litigation Reform Act of 1995 (the Act). We desire to make
available to ourselves certain "safe harbor" provisions of the Act and we are
including this special note to enable us to do so.
Forward-looking statements in the Form 10-QSB or those included in other
publicly available documents filed with the Securities and Exchange Commission,
reports to our stockholders and other publicly available statements issued or
released by us involve known and unknown risks, uncertainties and other factors
which could cause our actual results, performance (financial or operating) or
achievements to differ from the future results, performance (financial or
operating) or achievements expressed or implied by such forward-looking
statements. Such future results are based upon management's best estimates based
upon current conditions and the most recent results of operations.
Nine Months Ended June 30, 2000 Compared to Nine Months Ended June 30, 1999
We are a development stage company and, therefore, have no revenues to report
for the periods indicated above.
During the nine months ended June 30, 2000, we completed our private offering of
August 1, 1999. We raised a total of $830,000 for the entire offering, with
$750,000 of this coming in the quarter ended December 31, 1999.
We believe that our cash position of $1,814,095 as of June 30, 2000, to be
sufficient to continue operations for the next twelve months without the need to
raise additional funds. Such future requirements are based upon management's
best estimates based upon current conditions and the most recent results of
operations.
In the next twelve months, we expect to increase research and development
expenditures with additional staffing under our chief technical consultant, Dr.
El-Sharawy. The purpose of these additional expenditures is to bring our
existing products closer to the point of market readiness by producing working
prototypes along with design and process specifications. There can be no
assurance that we will be successful in completing these tasks in the time
period estimated.
Operating expenses for the nine months ended June 30, 2000 of $1,811,946 are up
from the similar period ended June 30, 1999, which were $287,698. This increase,
over the similar period last year, was primarily due to the increase in stock
compensation to consultants and a principal for the completion of specific
patent related projects and completion of the August 1, 1999 private offering,
along with an increase in research and development costs.
11
<PAGE>
Liquidity and Capital Resources
On December 31, 1999, we completed our private offering of August 1, 1999. The
gross proceeds of the offering were $830,000. We believe we presently have
sufficient capital to fund our operations. Additional capital of $1,843,000 was
received for the nine months ended June 30, 2000, as a result of the exercise of
a portion of the warrants to acquire 9,650,000 shares of restricted common
stock. The warrants expire on December 31, 2000 and were issued in conjunction
with our private offering of March 15, 1998, at an exercise price of $1.00 per
share. We expect that more of these warrants will be exercised prior to their
expiration; however, there can be no assurance that any more of these warrants
will be exercised.
Additionally, $180,000 was received for the nine month period ended June 30,
2000, as a result of the exercise of a portion of the warrants to acquire
4,250,000 shares of restricted common stock. The warrants expire on December 31,
2001 and were issued in conjunction with our private offering of August 1, 1999,
at an exercise price of $1.50 per share. We expect that more of these warrants
will be exercised prior to their expiration; however, there can be no assurance
that any more of these warrants will be exercised.
Cash used in operations was $743,240 for the nine months ended June 30, 2000
compared with $221,075 for the nine month period ended June 30, 1999. A
substantial portion of this increase can be attributed to the costs associated
with the work done to bring about the filing of our Form 10-SB on December 30,
1999, along with requirements of on-going development of our SRAM memory
product.
Year 2000
We have conducted a review to identify which systems, both internal and
external, may be affected by the "Year 2000" problem. The majority of our
business processing applications operate on individual personal computer
systems. We believe that the hardware and operating systems are now Year 2000
compliant as of December 31, 1999. If the current systems are not fully Year
2000 compliant, we estimate that the cost associated with becoming Year 2000
compliant will not materially affect our future operating results or financial
condition.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On December 31, 1999, we completed our private offering of August 1, 1999. A
total of $830,000 was raised during the offering. We sold 4,165,000 shares of
restricted common stock at an average price of $.20 per share for the entire
offering. Of these totals, $750,000 was raised and 3,765,000 shares were sold
for the quarter ended December 31, 1999.
12
<PAGE>
As part of this offering, we also issued 4,250,000 warrants to purchase a
restricted share of common stock at a price of $1.50 for each warrant. These
warrants are immediately exercisable and they all expire on December 31, 2001.
One hundred twenty thousand (120,000) warrants have been exercised as of the
date of this filing. The shares were sold in reliance on the exemption provided
by Sections 4 (2) and 4 (6) of the Securities Act of 1933 and Rule 506 of
Regulation D.
During the nine months ended June 30, 2000, there were 1,843,000 warrants
exercised at $1.00 each. These represent a portion of the 9,650,000 warrants
issued in conjunction with our Private Offering of March 15, 1998. These
warrants expire on December 31, 2000. Since June 30, 2000 and prior to the
filing of this report, an additional 402,500 of these warrants have been
exercised. The shares were sold in reliance on the exemption provided by
Sections 4 (2) and 4 (6) of the Securities Act of 1933 and Rule 506 of
Regulation D.
In addition, during the nine months ended June 30, 2000, 1,678,151 restricted
shares of common stock were issued to consultants and a principal for services,
including 600,000 restricted shares issued to a consultant and a principal for
their completion of the private offering of August 1, 1999; 328,000 restricted
shares of common stock were issued due to the exercising of options granted to
consultants; and 1,128,600 restricted shares of common stock were issued to a
principal as final payment for use of his family's unrestricted common stock for
the private offering of August 1, 1999.
ITEM 5. OTHER INFORMATION
Since the filing of Form 10-SB on December 30, 1999, our Form 10-SB amendment on
January 19, 2000, our Form 10-QSB on February 14, 2000 and prior to filing both
our Form 10-QSB on May 5, 2000 and this Form 10-QSB, we have learned that the
U.S. Patent and Trademark Office has issued a Notice of Allowance on our Static
Memory Cell With Load Circuit Using A Tunnel Diode patent application. We expect
the patent number to be issued by the end of August 2000. We have also been
informed that the U.S. Patent and Trademark Office has issued a Notice of
Allowance on our Dielectric Resonator.
On April 7, 2000, the Board of Directors appointed James R. Upchurch to fill one
of the outside director positions and Vernon M. Traylor, Corporate Secretary, to
fill one of the vacant inside director positions. Mr. Upchurch is currently a
Vice President/General Manager for Lucent Technologies in Phoenix, Arizona.
On April 13, 2000, a personal loan was made to L. L. Ross for $200,000.00. The
note is due and payable in full on December 1, 2000 and carries an interest rate
of ten percent (10%) per annum.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the
quarter.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL SCIENTIFIC CORPORATION
August 14, 2000 /s/ L.L. Ross
DATE ----------------------------------------
L.L Ross
Chairman of the Board, President & Chief
Executive Officer
/s/ Vernon M. Traylor
----------------------------------------
Vernon M. Traylor
Corporate Secretary
14
