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 December 31, 1999
[ ] 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
(Exact name of small business issuer as specified in its Charter)
Texas 86-0837077
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4455 East Camelback Road, E160, Phoenix, AZ 85018
(Address of Principal Executive Offices, including Zip Code)
Issuer's telephone number: 602-954-1492
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 [ ]
42,930,889 shares of Common Stock, par value $.01 per share, were outstanding at
February 15, 2000.
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
<PAGE>
NATIONAL SCIENTIFIC CORPORATION
FORM 10-QSB
INDEX
Part I - Financial Information
Item 1 - Financial statements (unaudited)
Balance Sheet - December 31, 1999 3
Statements of Operations - Three Months ended
December 31, 1999 and 1998 and Cumulative from
October 1, 1997 (Inception) through December 31, 1999 4
Statements of Cash Flows - Three Months ended
December 31, 1999 and 1998 and Cumulative from
October 1, 1997 (Inception) through December 31, 1999 5
Statements of Changes in Shareholders' Equity -
Fiscal Years ended September 30, 1999 and 1998
and Quarter ended December 31, 1999 6
Notes to Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II - Other Information
Item 2 - Changes in Securities and Use of Proceeds 11
Item 5 - Other Information 11
Item 6 - Exhibits and reports on Form 8-K 11
Signatures 12
<PAGE>
PART I - FINANCIAL INFORMATION
NATIONAL SCIENTIFIC CORPORATION
(A Development Stage Company)
Unaudited Condensed Balance Sheet
December 31, 1999
ASSETS
1999
-----------
Current assets:
Cash and cash equivalents $ 702,521
-----------
Total current assets 702,521
-----------
Property and equipment, net 3,006
-----------
$ 705,527
===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 15,546
Accrued interest 11,280
Note payable 110,000
-----------
Total current liabilities 136,826
-----------
-----------
Shareholders' equity, (deficit):
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, 42,930,889 shares issued and outstanding 429,309
Additional paid-in-capital 4,605,049
Deficit accumulated during the development stage (2,065,977)
Accumulated deficit (2,394,680)
Receivable for return of stock (5,000)
-----------
568,701
-----------
$ 705,527
===========
See Accompanying notes to financial statements
3
<PAGE>
NATIONAL SCIENTIFIC CORPORATION
(A Development Stage Company)
Unaudited Condensed Statements of Operations
For the Quarters Ended December 31, 1999 and 1998, and
For the Period from October 1, 1997 (Inception of Development Stage)
Through December 31, 1999
<TABLE>
<CAPTION>
Cumulative
Development
1999 1998 Stage
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ -- $ -- $ --
----------- ----------- -----------
Costs and expenses
Consulting fees, related party 405,000 44,450 935,775
Salaries and benefits -- -- 73,706
Research and development 78,027 17,877 529,557
Stock compensation 50,320 -- 155,276
Other 62,324 16,833 334,585
----------- ----------- -----------
595,671 79,160 2,028,899
----------- ----------- -----------
Net loss from operations (595,671) (79,160) (2,028,899)
----------- ----------- -----------
Other income (expense)
Interest and other income 4,074 -- 5,354
Interest expense (2,750) -- (13,877)
Loss on disposal of assets -- -- (28,555)
----------- ----------- -----------
1,324 -- (37,078)
----------- ----------- -----------
Net loss before income tax benefit (594,347) (79,160) (2,065,977)
Provision for income taxes (benefit) -- -- --
----------- ----------- -----------
Net loss $ (594,347) $ (79,160) $(2,065,977)
=========== =========== ===========
Net loss per common share, basic and diluted $ (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 Quarters Ended December 31, 1999 and 1998, and
For the Period from October 1, 1997 (Inception of Development Stage)
Through December 31, 1999
<TABLE>
<CAPTION>
Cumulative
Development
1999 1998 Stage
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (594,347) $ (79,160) $(2,065,977)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 334 334 8,561
Loss on disposal of assets -- -- 28,555
Stock issued for services 474,820 20,413 1,192,797
Decrease in receivables -- 12,500 30,000
Decrease in prepaid expenses and deposits -- -- 10,571
Decrease in accounts payable and accrued expenses (4,371) (5,606) (7,033)
Increase in accrued interest 2,750 -- 11,280
----------- ----------- -----------
Net cash used in operating activities (120,814) (51,519) (791,246)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from the sale of furniture and equipment -- -- 4,660
----------- ----------- -----------
Cash flows from financing activities:
Repayment of shareholder loans -- -- (10,000)
Proceeds from the issuance of common stock 750,000 -- 748,181
Proceeds from the issuance of preferred stock -- 55,000 482,500
Proceeds from exercise of common stock options 11,150 -- 264,808
----------- ----------- -----------
Net cash provided by financing activities 761,150 55,000 1,485,489
----------- ----------- -----------
Net increase in cash and cash equivalents 640,336 3,481 698,903
Cash and cash equivalents, beginning of year 62,185 21,735 3,618
----------- ----------- -----------
Cash and cash equivalents, end of year $ 702,521 25,216 702,521
=========== =========== ===========
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ -- $ -- $ 2,597
=========== =========== ===========
Cash paid during the year for income taxes $ -- $ -- $ --
=========== =========== ===========
</TABLE>
SUMMARY OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During 1998, the Company sold equipment for $4660 in cash, with the purchaser
assuming $9,252 in lease obligations.
During the year-ended September 30, 1999, the Company issued 451,440 shares of
restricted common stock to a Director in exchange for 320,000 shares of
unrestricted common stock.
During the quarter-ended December 31, 1999, the Company issued 1,128,600 shares
of restricted common stock to a Director in exchange for 580,000 shares of
unrestricted common stock.
See Accompanying notes to financial statements
5
<PAGE>
NATIONAL SCIENTIFIC CORPORATION
(A Development Stage Company)
Unaudited Statements of Changes in Shareholders' Equity (Deficit)
For the Years Ended September 30, 1999 and 1998, and
For the Quarter Ended December 31, 1999
<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)
---------- -------- ------- ------ ---------- ---------- ---------- --------
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)
---------- -------- ------- ------ ---------- ---------- ---------- --------
Stock issued for services 1,375,000 13,750 -- -- 461,070 -- -- 474,820
Preferred stock offering -- -- -- -- -- -- -- --
Exercise of warrants and options 118,000 1,180 -- -- 9,970 -- -- 11,150
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) -- -- --
Net loss -- -- -- -- -- -- (594,347) (594,347)
---------- -------- ------- ------ ---------- ---------- ---------- --------
Balance, December 31, 1999 42,930,889 429,309 -- -- 4,605,049 (2,394,680) (2,065,977) 573,701
========== ======== ======= ====== ========== ========== ========== ========
Receivable for return of stock (5,000)
--------
568,701
========
</TABLE>
See Accompanying notes to financial statements
6
<PAGE>
NATIONAL SCIENTIFIC CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1999 and 1998
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 three months ended December 31, 1999 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, as amended, for the fiscal year ended September 30, 1999.
2. ISSUANCE OF COMMON STOCK
During the quarter ended December 31, 1999, 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 500,000
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 December 31, 1999,
all outstanding stock options had been deemed vested, and were fully
exercisable at fiscal year end.
7
<PAGE>
3. STOCK OPTIONS, CONTINUED
In accordance with FAS 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% in 1999.
Weighted
Number Average
of Exercise
Shares Price
------ -----
Options Outstanding, September 30, 1999 92,000 $ .10
Granted 256,000 .09
Exercised (118,000) .09
---------
Options Outstanding, December 31, 1999 230,000 .10
=========
4. 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 40,532,808 and 27,321,904 for the quarters
ended December 31, 1999 and 1998, respectively. Stock options and warrants
are considered anti-dilutive and were not considered in the calculation.
8
<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.
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1998
We are a development stage company and, therefore, have no revenues to report
for the periods indicated above.
During the quarter ended December 31, 1999, 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 $702,521 as of December 31, 1999, 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 three months ended December 31, 1999 of $595,671 are
up from the similar period ended December 31, 1998, which were $79,160. 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.
9
<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 may be received as
a result of the exercise of 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. There can be no assurance, however, that any of these warrants
will be exercised.
Cash used in operations was $120,814 for the three months ended December 31,
1999 compared with $51,519 for the three month period ended December 31, 1998. 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.
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.
10
<PAGE>
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.
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.
No 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.
In addition, during the quarter ending December 31, 1999, 1,375,000 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; 118,000 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 and prior to the filing of this Form 10-QSB, we have learned
that the U.S. Patent and Trademark Office has issued two additional patents on
the company's behalf; patent 6,008,694 for our Distributed Amplifier And Method
Therefor was issued on December 28, 1999 and patent 6,013,939 for our Monolithic
Inductor With Magnetic Flux Lines Guided Away From Substrate was issued on
January 11, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 -- Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter.
11
<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
Date: February 15, 2000 /s/ L.L. Ross
----------------------------------------
L.L Ross
Chairman of the Board, President & Chief
Executive Officer
/s/ Vernon M. Traylor
----------------------------------------
Vernon M. Traylor
Corporate Secretary
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 702,521
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 702,521
<PP&E> 6,680
<DEPRECIATION> 3,674
<TOTAL-ASSETS> 705,527
<CURRENT-LIABILITIES> 26,826
<BONDS> 110,000
0
0
<COMMON> 429,309
<OTHER-SE> 139,392
<TOTAL-LIABILITY-AND-EQUITY> 705,527
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 595,671
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,750
<INCOME-PRETAX> (594,347)
<INCOME-TAX> 0
<INCOME-CONTINUING> (594,347)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (594,347)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
