SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
September 15, 1998
------------------
Date of Report (Date of earliest event reported)
FIRST SCIENTIFIC, INC.
----------------------
(Exact name of Registrant as specified in its charter)
SPPS FINANCIAL CORPORATION
(Former Name)
Delaware O-24378 33-0611745
---------------------------------------------------------
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification
Incorporation) No.)
1877 West 2800 South, Suite 200
Ogden, Utah 84401
----------------------------------------
(Address of principal executive officers)
(Zip code)
(801) 393-5781
--------------
(Registrant's telephone number, including area code)
1877 West 2800 South, Unit A,
Ogden, Utah 84401
----------------------------------------------------
(former name or address if changed since last report.)
Item 2. Acquisitions or Dispositions of Assets
On October 2, 1998, the Registrant filed a current report on Form 8-K
reporting under Item 2 the exchange by stockholders of Linco Industries,
Inc., a Utah corporation, with the Registrant for shares of its Common
Stock, par value $0.001. This Form 8-K/A amends that report by providing
financial information called for by Item 7.
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired.
See Exhibit Index, Exhibit 99.1
(b) Pro forma financial information.
See Exhibit Index, Exhibit 99.1
(c) Exhibits. The following exhibits are incorporated
herein by this reference:
Exhibit No. Description of Exhibit
----------------------------------
2.1* Agreement and Plan of Reorganization, dated August
10, 1998, between the Registrant, Linco, Linco
Acquisition Corp. and Edward Walker.
3.3* Amendment to Articles of Incorporation changing name
to First Scientific, Inc. and effecting a forward
stock split.
99.1** FIRST SCIENTIFIC, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Unaudited Pro Forma Condensed Consolidated Financial Statements F-2
Unaudited Pro Forma Condensed Consolidated Balance Sheet -
June 30, 1998 F-3
Unaudited Pro Forma Condensed Consolidated Statements of
Operations for Six Months Ended June 30, 1998 and for the
Year Ended December 31, 1997 F-4
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements F-5
First Scientific, Inc.
Report of Independent Certified Public Accountants F-6
Balance Sheets - June 30, 1998 (Unaudited) and December 31,
1997 and 1996 F-7
Statements of Operations for the Six Months Ended June 30,
1998 and 1997 (Unaudited), Cumulative from April 30, 1990
(Date of Inception) through June 30, 1998 (Unaudited), for
the Years Ended December 31, 1997 and 1996 and Cumulative from
April 30, 1990 (Date of Inception) through December 31, 1997 F-8
Statements of Stockholders' Deficit for the Period from
April 30, 1990(Date of Inception) through December 31, 1995,
for the Years Ended December 31, 1996 and 1997 and for the
Six Months Ended June 30, 1998 (Unaudited) F-9
Statements of Cash Flows for the Six Months Ended June 30,
1998 and 1997 (Unaudited), Cumulative from April 30, 1990
(Date of Inception) through June 30, 1998 (Unaudited),
for the Years Ended December 31, 1997 and 1996 and Cumulative
from April 30, 1990 (Date of Inception) through December
31, 1997 F-11
Notes to Financial Statements F-12
SPPS Financial Corporation
Independent Auditors' Report F-19
Statements of Financial Position - March 31, 1998 and 1997 F-20
Statements of Operations for the Years Ended March 31, 1998
and 1997 and Cumulative from Inception to March 31, 1998 F-21
Statement of Changes in Stockholders' Equity from Inception
(June 11, 1992) through March 31, 1998 F-22
Statements of Cash Flows for the Years Ended March 31, 1998
and 1997 and Cumulative from Inception through March 31, 1998 F-23
Notes to Financial Statements F-24
____________________
* Incorporated by reference to the same-numbered exhibit to the Form 8-K
filed October 2, 1998 by the Registrant with the Securities and Exchange
Commission.
** Filed herewith.
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.
FIRST SCIENTIFIC, INC.
Dated: October 23, 1998.
By /s/ Douglas Warren
---------------------
Douglas Warren
President
EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------------------------------------
2.1* Agreement and Plan of Reorganization, dated August 10,
1998, between the Registrant, Linco, Linco Acquisition
Corp. and Edward Walker.
3.3* Amendment to Articles of Incorporation changing name to
First Scientific, Inc. and effecting a forward stock split.
99.1** Index to financial statements.
____________________
* Incorporated by reference to the same-numbered exhibit to the Form 8-K
filed October 2, 1998 by the Registrant with the Securities and Exchange
Commission.
** Filed herewith.
FIRST SCIENTIFIC, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS F-2
Unaudited Pro Forma Condensed Consolidated Balance Sheet -
June 30, 1998 F-3
Unaudited Pro Forma Condensed Consolidated Statements of
Operations for Six Months Ended June 30, 1998 and for the
Year Ended December 31, 1997 F-4
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements F-5
FIRST SCIENTIFIC, INC.
Report of Independent Certified Public Accountants F-6
Balance Sheets - June 30, 1998 (Unaudited) and December 31,
1997 and 1996 F-7
Statements of Operations for the Six Months Ended June 30,
1998 and 1997 (Unaudited), Cumulative from April 30, 1990
(Date of Inception) through June 30, 1998 (Unaudited), for
the Years Ended December 31, 1997 and 1996 and Cumulative from
April 30, 1990 (Date of Inception) through December 31, 1997 F-8
Statements of Stockholders' Deficit for the Period from April
30, 1990 (Date of Inception) through December 31, 1995, for
the Years Ended December 31, 1996 and 1997 and for the Six
Months Ended June 30, 1998 (Unaudited) F-9
Statements of Cash Flows for the Six Months Ended June 30,
1998 and 1997 (Unaudited), Cumulative from April 30, 1990
(Date of Inception) through June 30, 1998 (Unaudited), for the
Years Ended December 31, 1997 and 1996 and Cumulative from
April 30, 1990 (Date of Inception) through December 31, 1997 F-11
Notes to Financial Statements F-12
SPPS FINANCIAL CORPORATION
Independent Auditors' Report F-19
Statements of Financial Position - March 31, 1998 and 1997 F-20
Statements of Operations for the Years Ended March 31, 1998
and 1997 and Cumulative from Inception to March 31, 1998 F-21
Statement of Changes in Stockholders' Equity from Inception
(June 11, 1992) through March 31, 1998 F-22
Statements of Cash Flows for the Years Ended March 31,
1998 and 1997 and Cumulative from Inception through March
31, 1998 F-23
Notes to Financial Statements F-24
FIRST SCIENTIFIC, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
On September 15, 1998, Linco Industries, Inc. (referred to herein as "First
Scientific") entered into and completed an agreement with SPPS Financial
Corporation ("SPPS") pursuant to which SPPS issued 8,798,080 shares of its
common stock in exchange for 100% of the issued and outstanding common
stock of First Scientific and SPPS changed its name to First Scientific,
Inc. In connection with the agreement, First Scientific issued 5,201,920
shares of common stock to Dr. Ed Walker for the rights to technology
relating to two scientific formulations with worldwide sales application (a
non-alcohol based antibacterial sanitizing formulation that removes
bacteria while moisturizing the skin and a topical rash prevention and
treatment formulation that cleanses and moisturizes the skin for use with
incontinent and other skin rash situations) and issued or received
subscriptions for 2,666,666 shares of common stock in exchange for
approximately $2,000,000 of cash and marketable securities. The agreement
between First Scientific and SPPS has been accounted for as the
reorganization of First Scientific and the assumption of the liabilities of
SPPS at historical cost. The following unaudited pro forma condensed
consolidated balance sheet has been prepared to present the consolidated
financial position of the combined companies as though the agreement had
been consummated and the proceeds from the issuance of common stock for
cash and marketable securities had been received on June 30, 1998. The
following pro forma condensed consolidated statements of operations have
been prepared to present the operations of the consolidated companies for
the six months ended June 30, 1998 assuming the agreement had been
completed on January 1, 1998, and for the year ended December 31, 1997
assuming the agreement had been completed on January 1, 1997.
The following financial information was derived from, and should be read in
conjunction with the separate historical financial statements of First
Scientific for the six months ended June 30, 1998 and for the year ended
December 31, 1997 and the financial statements of SPPS for the year ended
March 31, 1998 which are included elsewhere herein. The unaudited pro forma
condensed consolidated balance sheet and statements of operations have been
included herein for comparative purposes only and do not purport to be
indicative of the results of operations which actually would have been
obtained had the agreement been completed on January 1, 1997 or June 30,
1998, or the results of operations which may be obtained in the future. In
addition, future results may vary significantly from the results reflected
in these pro forma financial statements.
F-2
<PAGE>
FIRST SCIENTIFIC, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
First SPPS Pro Forma
Scientific Financial Adjustments Pro Forma
---------- ---------- ----------- -----------
<S> <C> <C> <C><C> <C>
ASSETS
Current Assets
Cash $ 12,673 $ - (B) $ 1,489,361
(D) 30,000 $ 1,532,034
Investment in securities
available-for-sale - - (B) 510,639 510,639
Inventory 31,924 - - 31,924
---------- ---------- ---------- -----------
Total Current Assets 44,597 - 2,030,000 2,074,597
Property and Equipment 567 - - 567
Purchased Technology - - (A) 135,000 135,000
---------- ---------- ----------- -----------
Total Assets $ 45,164 $ - $ 2,165,000 $ 2,210,164
========== ========== =========== ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<S> <C> <C> <C> <C>
Current Liabilities
Accounts payable $ 3,071 $ - $ - $ 3,071
Customer deposits 33,750 - - 33,750
Accrued interest payable 34,131 - - 34,131
Deferred salary payable 86,327 - - 86,327
Deferred income taxes - - (B) 48,460 48,460
Notes payable, current portion 77,712 - - 77,712
Related party notes payable 126,969 - - 126,969
---------- ---------- ----------- -----------
Total Current Liabilities 361,960 - 48,460 410,420
---------- ---------- ----------- -----------
Long-Term Notes Payable 73,812 - - 73,812
--------- ---------- ----------- -----------
Stockholders' Equity (Deficit)
Preferred stock - - - -
Common stock 8,710 3,333 (A) 5,202
(B) 2,667
(D) 88 20,000
Additional paid-in capital 156,895 (1,028) (A) 3,896,238
(B) 1,948,873
(C) 88,060
(D) 29,912
(F) (2,305) 6,116,645
Deficit accumulated during
the development stage (556,213) (2,305) (A) (3,766,440)
(C) (88,060)
(F) 2,305 (4,410,713)
---------- ---------- ----------- -----------
Total Stockholders' Equity (390,608) - 2,116,540 1,725,932
---------- ---------- ----------- -----------
Total Liabilities and
Stockholders' Equity $ 45,164 $ - $ 2,165,000 $ 2,210,164
========== ========== =========== ===========
<FN>
Notes to Unaudited Pro Forma Condensed Consolidated Statements are presented on page F-5.
</FN>
</TABLE>
F-3
<PAGE>
FIRST SCIENTIFIC, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
First SPP Pro Forma
Scientific Financial Adjustments Pro Forma
---------- ---------- ----------- -----------
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<S> <C> <C> <C><C> <C>
Sales $ 7,612 $ - $ - $ 7,612
Cost of sales 4,879 - - 4,879
---------- ---------- ----------- -----------
Gross profit 2,733 - - 2,733
Research and development
expense 12,583 - - 12,583
General and administrative
expense 48,085 60 (A) 45,000
(C) 33,320
(E) 164,718 291,183
Interest expense 16,045 - - 16,045
---------- ---------- ----------- -----------
Total operating expenses 76,713 60 243,038 319,811
---------- ---------- ----------- -----------
Net Loss $ (73,980) $ (60) $ (243,038) $ (317,078)
========== ========== =========== ===========
Basic and Diluted Loss
Per Common Share $ (0.02)
===========
Weighted average common shares
used in per share calculation 19,899,984
==========
FOR THE YEAR ENDED DECEMBER 31, 1997
<S> <C> <C> <C> <C>
Sales $ 12,907 $ - $ - $ 12,907
Cost of sales 8,322 - - 8,322
---------- ---------- ----------- -----------
Gross profit 4,585 - - 4,585
---------- ---------- ----------- -----------
Research and development expense 21,029 - - 21,029
General and administrative
expense 54,546 163 (A) 90,000
(C) 88,060
(E) 336,936 569,705
Interest expense 25,191 - - 25,191
---------- ---------- ----------- -----------
Total operating expenses 100,766 163 514,996 615,925
---------- --------- ----------- -----------
Net Loss $ (96,181) $ (163) $ (514,996) $(611,340)
========== ========= =========== ===========
Basic and Diluted Loss
Per Common Share $ (0.03)
===========
Weighted average common shares
used in per share calculation 19,890,909
===========
<FN>
Notes to Unaudited Condensed Pro Forma Consolidated Statements are presented on page F-5.
</FN>
</TABLE>
F-4
<PAGE>
FIRST SCIENTIFIC, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
A- The Company issued 5,201,920 shares of common stock to acquire certain
technology from Dr. Ed Walker in connection with the reorganization of
the Company. The acquired technology was valued based upon the $0.75
per share price stock was also issued for cash. The acquired technology
was allocated between purchased technology and research and development
expense based upon an evaluation of the status of the components of the
technology and the estimated net future cash flows from the portion of
the technology being used in products presently being sold to
customers. Purchased research and development charged to operations was
a non-recurring item and has been excluded from the pro forma results
of operations. Capitalized purchased technology is being amortized over
a period of 18 months by the straight-line method.
B- To record the issuance of 2,666,666 shares of common stock in a private
offering for cash and marketable securities available-for-sale and a
subscription from the shareholders, net of deferred income tax.
C- To record the grant on September 30, 1998 of options to purchase
1,050,000 common shares at $0.75 per share. The options were granted to
two outside members of the Board of Directors and are exercisable for
five years. The fair value of the options was determined using the
Black-Scholes option pricing model with the following weighted average
assumptions: Dividend yield - 0%, expected volatility - 0%, risk free
interest rate - 5% and expected life of options - 5 years. The options
vest approximately 49% in 1998, 37% in 1999 and 13% in 2000. The
Company is a nonpublic entity and has priced these options without
consideration of expected volatility of its common stock over the
expected life of the options. Its common stock has not traded nor is it
planned to trade during the six months following the date the options
were granted and the Company is not filing nor does it plan to make a
filing with a regulatory agency in preparation for the sale of its
common stock in a public market.
D- To record the issuance of 87,744 shares of common stock for $30,000 in
cash.
E- As a result of the business combination, the Company purchased property
and equipment which will result in $11,880 in annual depreciation
expense and entered into a new office lease resulting in lease expense
in the amount of $21,756 per year. The Company stepped up salaries and
benefits approximately $130,800 annually and other general and
administrative expenses will increase approximately $172,500 annually.
F- To eliminate the accumulated deficit of SPPS at the date of the
reorganization. The acquisition of SPPS was accounted for at
historical cost using the purchase method of accounting.
F-5
<PAGE>
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East 300 South, Suite 200
Member of Summit International Associates Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
First Scientific, Inc.
We have audited the accompanying balance sheets of First Scientific, Inc.,
(formerly Linco Industries, Inc., a development stage enterprise) as of
December 31, 1997 and 1996 and the related statements of operations,
stockholders' deficit, and cash flows for the years ended December 31, 1997
and 1996, and for the cumulative period from April 30, 1990 (date of
inception) through December 31, 1997. 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 generally accepted auditing
standards. 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, based on our audits, the financial statements referred to
above present fairly, in all material respects, the financial position of
First Scientific, Inc. as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for the years ended December 31, 1997 and
1996, and for the cumulative period from April 30, 1990 (date of
inception) through December 31, 1997 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development
stage enterprise engaged in developing chemical products and markets for
those products. It is also engaged in raising capital to fund its
development activities and has subsequently issued common stock for
$1,282,000, as discussed in Note 8. As discussed in Note 1 to the financial
statements, the Company's losses since inception, working capital
deficiency and net capital deficiency raise substantial doubt about its
ability to continue as a going concern at December 31, 1997. Management's
plans and subsequent events concerning these matters are also described in
Note 1. The financial statements do not include any adjustment that might
result from the outcome of this uncertainty.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
October 5, 1998
F-6
<PAGE>
FIRST SCIENTIFIC, INC.
(FORMERLY LINCO INDUSTRIES, INC.)
(A Development Stage Enterprise)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
June 30, -----------------------
1998 1997 1996
---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash $ 12,673 $ 7,938 $ 28,033
Trade receivables - 8,425 18,081
Inventory 31,924 29,881 31,372
Prepaid expenses - 2,934 8,604
---------- ---------- ----------
Total Current Assets 44,597 49,178 86,090
Property and Equipment, Net 567 618 -
---------- ---------- ----------
Total Assets $ 45,164 $ 49,796 $ 86,090
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 3,071 $ 2,399 $ 2,993
Customer deposits 33,750 - -
Accrued interest payable 34,131 23,171 11,162
Deferred salary payable 86,327 83,877 79,600
Notes payable, current portion 77,712 81,688 62,663
Related party notes payable 126,969 106,939 81,869
---------- ---------- ----------
Total Current Liabilities 361,960 298,074 238,287
---------- ---------- ----------
Long-Term Notes Payable 73,812 74,600 74,500
---------- ---------- ----------
Stockholders' Deficit
Preferred stock 1,000,000 shares
authorized, no shares outstanding - - -
Common stock $.001 par value,
50,000,000 shares authorized,
8,710,336 shares, 10,467,581 shares
and 10,467,581 shares issued and
outstanding 8,710 10,468 10,468
Additional paid-in capital 156,895 148,887 148,887
Deficit accumulated during the
development stage (556,213) (482,233) (386,052)
---------- ---------- ----------
Total Stockholders' Deficit (390,608) (322,878) (226,697)
---------- ---------- ----------
Total Liabilities and Stockholders'
Deficit $ 45,164 $ 49,796 $ 86,090
========== ========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-7
<PAGE>
FIRST SCIENTIFIC, INC.
(FORMERLY LINCO INDUSTRIES, INC.)
(A Development Stage Enterprise)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative Cumulative
from April 30, from April 30,
1990 (Date of 1990 (Date of
For the Six Months Inception) For the Years Ended Inception)
Ended June 30, through December 31, through
---------------------- June 30, ---------------------- December 31,
1998 1997 1998 1997 1996 1997
---------- ---------- ---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Sales $ 7,612 $ 3,655 $ 160,459 $ 12,907 $ 59,587 $ 152,847
Cost of Sales 4,879 2,292 104,535 8,322 39,461 99,656
---------- ---------- ---------- ---------- ---------- ----------
Gross Profit 2,733 1,363 55,924 4,585 20,126 53,191
---------- ---------- ---------- ---------- ---------- ----------
Operating Expenses
Research and development
expense 12,583 3,898 188,325 21,029 40,349 175,742
General and administrative
expense 48,085 20,762 334,655 54,546 72,488 286,570
Interest expense 16,045 9,134 89,157 25,191 25,458 73,112
---------- ---------- ---------- ---------- ---------- ----------
Total Operating Expenses 76,713 33,794 612,137 100,766 138,295 535,424
---------- ---------- ---------- ---------- ---------- ----------
Net Loss $ (73,980) $ (32,431) $ (556,213) $ (96,181) $ (118,169) $ (482,233)
========== ========== ========== ========== ========== ==========
Basic and Diluted Loss Per
Common Share $ (0.01) $ (0.00) $ (0.05) $ (0.01) $ (0.01) $ (0.05)
========== ========== ========== ========== ========== ==========
Weighted Average Number
of Shares Used in Per-Share
Calculation 10,888,982 10,467,581 10,647,342 10,467,581 10,370,800 9,971,191
========== ========== ========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-8
<PAGE>
FIRST SCIENTIFIC, INC.
(FORMERLY LINCO INDUSTRIES, INC.)
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION> Deficit
Accumulated
Common Stock Additional Receivable During the Total
---------------------- Paid-in From Development Stockholders'
Shares Amount Capital Shareholders Stage Deficit
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance - April 30, 1990 - $ - $ - $ - $ - $ -
Issuance of shares for receivable
from shareholder, April 30,
1990, $0.00 per share 7,114,350 7,114 7,886 (15,000) - -
Issuance of shares for services,
April 30, 1990, $0.00 per share 2,371,450 2,371 2,629 - - 5,000
Issuance of shares for services,
January 20, 1993, $0.07 per
share 284,574 285 19,070 - - 19,355
Issuance of shares for cash in
private placement, October
7, 1993, $0.07 per share 514,605 515 34,485 - - 35,000
Conversion of shareholder loans
to capital in satisfaction of
receivable from shareholder;
December 31, 1993 - - - 15,000 - 15,000
Shares redeemed in exchange for
release of personal guarantee of
Company debt, December 31,
1994, $0.00 per share (2,371,450) (2,371) 2,371 - - -
Issuance of shares for services,
January 20, 1995, $0.02 per
share 2,371,450 2,371 47,629 - - 50,000
Net loss for the period from
April 30, 1990 (date of inception)
through December 31, 1995 - - - - (267,883) (267,883)
---------- ---------- ---------- ---------- ---------- ----------
Balance - December 31, 1995 10,284,979 10,285 114,070 - (267,883) (143,528)
Issuance of shares for cash in
private placement, March 27,
1996, $0.12 per share 83,001 83 9,917 - - 10,000
Issuance of shares for cash in
private placement, October 10,
1996, $0.25 per share 99,601 100 24,900 - - 25,000
Net loss - - - - (118,169) (118,169)
---------- ---------- ---------- ---------- ---------- ----------
Balance - December 31, 1996 10,467,581 10,468 148,887 - (386,052) (226,697)
Net loss - - - - (96,181) (96,181)
---------- ---------- ---------- ---------- ---------- ----------
Balance - December 31, 1997 10,467,581 10,468 148,887 - (482,233) (322,878)
(Continued)
</TABLE>
F-9
<PAGE>
FIRST SCIENTIFIC, INC.
(FORMERLY LINCO INDUSTRIES, INC.)
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' DEFICIT
(CONTINUED)
<TABLE>
<CAPTION> Deficit
Accumulated
Common Stock Additional Receivable During the Total
---------------------- Paid-in From Development Stockholders'
Shares Amount Capital Shareholders Stage Deficit
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1997 10,467,581 $ 10,468 $ 148,887 $ - $ (482,233) $ (322,878)
Issuance of shares for cash in
private placement, May 7, 1998,
$0.29 per share (Unaudited) 21,343 21 6,229 - - 6,250
Stock redeemed in exchange for
release of personal guarantee of
Company debt and upon execution
of license and royalty agreement,
June 1, 1998, $0.00 per share
(Unaudited) (1,778,588) (1,779) 1,779 - - -
Net loss (Unaudited) - - - - (73,980) (73,980)
---------- ---------- ---------- ---------- ---------- ----------
Balance - June 30, 1998
(Unaudited) 8,710,336 $ 8,710 $ 156,895 $ - $ (556,213) $ (390,608)
========== ========== ========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-10
<PAGE>
FIRST SCIENTIFIC, INC.
(FORMERLY LINCO INDUSTRIES, INC.)
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative Cumulative
from April 30, from April 30,
1990 (Date of 1990 (Date of
For the Six Months Inception) For the Years Ended Inception)
Ended June 30, through December 31, through
---------------------- June 30, ---------------------- December 31,
1998 1997 1998 1997 1996 1997
---------- ---------- ---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $ (73,980) $ (32,431) $ (556,213) $ (96,181) $ (118,169) $ (482,233)
Adjustments to reconcile
net income to net cash provided
by operating activities:
Depreciation 52 52 155 103 - 103
Shares issued for services - - 74,355 - - 74,355
Changes in operating assets
and liabilities:
Accounts receivable 8,425 16,519 - 9,656 (18,081) (8,425)
Inventory (2,043) 746 (31,924) 1,491 (31,372) (29,881)
Prepaid expenses 2,934 2,609 - 5,670 18,114 (2,934)
Accounts payable 671 (594) 3,070 (594) 2,129 2,399
Customer deposits 33,750 - 33,750 - - -
Accrued interest payable 10,960 4,519 34,131 12,009 8,253 23,171
Deferred compensation 2,450 2,139 86,327 4,277 10,225 83,877
---------- ---------- ---------- ---------- ---------- ----------
Net Cash Used in Operating
Activities (16,781) (6,441) (356,349) (63,569) (128,901) (339,568)
Cash Flows From Investing Activities
Cash paid for equipment - (721) (721) (721) - (721)
---------- ---------- ---------- ---------- ---------- ----------
Net Cash Used in
Investing Activities - (721) (721) (721) - (721)
---------- ---------- ---------- ---------- ---------- ----------
Cash Flows From Financing Activities
Proceeds from borrowings 11,050 175 205,975 50,175 70,250 194,925
Payments on notes payable (15,814) (16,025) (54,451) (31,050) (7,587 (38,637)
Proceeds from loans from
stockholders 20,030 1,179 159,034 25,070 58,531 139,004
Payments on loans for
stockholder - - (17,065) - - (17,065)
Proceeds from issuance of
common stock 6,250 - 76,250 - 35,000 70,000
---------- ---------- ---------- ---------- ---------- ----------
Net Cash Provided by
(Used in) Financing
Activities 21,516 (14,671) 369,743 44,195 156,194 348,227
---------- ---------- ---------- ---------- ---------- ----------
Net Increase (Decrease)
in Cash 4,735 (21,833) - (20,095) 27,293 7,938
Cash and Cash Equivalents
at Beginning of Period 7,938 28,033 - 28,033 740 -
---------- ---------- ---------- ---------- ---------- ----------
Cash and Cash Equivalents
at End of Period $ 12,673 $ 6,200 $ 12,673 $ 7,938 $ 28,033 $ 7,938
========== ========== ========== ========== ========== ==========
Supplemental Cash Flow Information - See Note 5
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-11
<PAGE>
FIRST SCIENTIFIC, INC.
(FORMERLY LINCO INDUSTRIES, INC.)
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Information With Respect to June 30, 1998 and the Six Months
Ended June 30, 1998 and 1997 is Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - On April 30, 1990, Linco Industries, Inc. (the
Company) was incorporated under the laws of the State of Utah.
Since that time the Company has endeavored to develop,
manufacture, and distribute a linseed oil based soap. More
recently, the Company developed two scientific formulations with
worldwide sales application. They are a non-alcohol based
antibacterial sanitizing formulation that removes bacteria while
moisturizing the skin and a topical rash prevention and treatment
formulation that cleanses and moisturizes the skin for use with
incontinent and other skin rash situations. On September 15, 1998,
the Company completed a reorganization into a newly-formed
subsidiary of First Scientific, Inc. See Subsequent Events.
BUSINESS CONDITION - The accompanying financial statements have
been prepared in conformity with generally accepted accounting
principles, which contemplate continuation of the Company as a
going concern. However, the Company has suffered losses from
operations and has had negative cash flows from operating
activities during the years ended December 31, 1997 and 1996 and
cumulative from inception through December 31, 1997, which
conditions raise substantial doubt about the Company's ability to
continue as a going concern. Subsequent to December 31, 1997, the
Company completed a reorganization with SPPS Financial
Corporation, as discussed in Note 8, and thereby obtained
approximately $1,282,000 of equity financing and anticipates
additional equity financing in the amount of approximately
$718,000. The Company also converted $181,877 in shareholder loans
payable to capital as described in Note 8. The Company's continued
existence is dependent upon its ability to achieve profitable
operations as well as its ability to obtain additional equity
financing. Subsequent to December 31, 1997, the Company has
received firm orders for its products from a significant new
customer. Management believes this and other similar potential
sales will provide sufficient cash flows for the Company to
continue to meet current obligations and to ultimately establish
profitable operations.
DEVELOPMENT STAGE ENTERPRISE - Since inception, the Company has
spent most of its efforts in developing and marketing various
products; however, it has not yet had sales sufficient to sustain
operations and has relied upon financing from shareholders and
occasional issuance of its common stock. Therefore, the Company
is considered to be in the development stage.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principals requires
management to make estimates and assumptions that affect the
reported amounts in these financial statements and accompanying
notes. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS - The amounts reported as cash, accounts
receivable, accounts payable, and notes payable are considered to
be reasonable approximations of their fair values. The fair value
estimates presented herein were based on market information
available to management at the time of the preparation of the
financial statements.
CONCENTRATION OF RISK - The concentration of business in one
industry subjects the Company to a concentration of credit risk
relating to trade accounts receivable. Historically, the Company
has relied on sales to a small group of domestic customers but has
not been limited by geographic region. The Company generally does
not require collateral from its customers with respect to the
Company's trade receivables, and normally receives a 50% cash
deposit prior to beginning production of significant orders.
During the years ended December 31, 1997 and 1996, sales totaling
$26,506, or 86% of sales, and $39,925, or 96% of sales,
respectively, were to one customer. Management considers accounts
receivable to be fully collectable and has determined not to
provide an allowance for doubtful accounts for the years ended
December 31, 1997 and 1996.
INVENTORY - Inventory is stated at the lower of cost or market.
Cost is determined using the first-in, first-out method.
PROPERTY & EQUIPMENT - Property and equipment is stated at cost.
Maintenance and repairs of equipment are charged to operations and
major improvements are capitalized. Upon retirement, sale, or
other disposition of equipment, the cost and accumulated
depreciation are eliminated from the accounts and gain or loss is
included in operations. Depreciation is computed using the
straight-line method over the estimated useful lives of the
property, which are three to seven years. Depreciation expense
was $103 and $0 for the years ended December 31, 1997 and 1996
respectively. Accumulated depreciation was $155, $103 and $0 at
June 30, 1998 and December 31, 1997 and 1996, respectively.
SALES RECOGNITION - Sales are recognized upon shipment of products
to customers. Customer pre-payments are recorded as a liability
pending completion and shipment of the order, at which time the
liability is removed and the sale recorded.
RESEARCH AND DEVELOPMENT EXPENSE - Current operations are charged
with all research and product development expenses.
LOSS PER SHARE - Basic loss per common share is computed by
dividing net loss by the weighted-average number of common shares
outstanding during the period. Through June 30, 1998, the Company
had no potentially issuable common shares which could dilute the
loss per share and, in the Company's current financial position,
diluted loss per share would be the same as basic loss per share
because potentially issuable common shares would decrease the loss
per share and would be excluded from the calculation.
NEW ACCOUNTING STANDARDS - The Financial Accounting Standards
Board issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information and SFAS No. 132, Employers'
Disclosures About Pensions and Other Postretirement Benefits,
during 1997 and 1998. These statements, which are effective for
fiscal years beginning after December 15, 1997, expand or modify
disclosures and will have no impact on the Company's consolidated
financial position, results of operations, or cash flows. In March
1998, the AICPA issued SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. The
Company is currently analyzing the impact of this statement, which
is required to be adopted in 1999, and does not expect it to have
a material impact on the Company's financial position, results of
operations or cash flows.
INTERIM FINANCIAL STATEMENTS - The accompanying consolidated
financial statements at June 30, 1998 and for the six months ended
June 30, 1998 and 1997 are unaudited. In the opinion of
management, all necessary adjustments (which include only normal
recurring adjustments) have been made to present fairly the
financial position, results of operations and cash flows for the
periods presented. The results of operations for the six month
period ended June 30, 1998 are not necessarily indicative of the
operating results to be expected for the full year.
NOTE 2 - NOTES PAYABLE TO RELATED PARTIES
Since inception the Company has relied on funds advanced by
shareholders to meet its obligations and fund its development
activities. These advances have been classified as related party
notes payable and accrue interest at the rate of 10% per year.
Notes payable to related parties were $106,939 and $81,869 at
December 31, 1997 and 1996, respectively. During September 1998,
the shareholders converted $90,000 of outstanding notes payable
to common stock. See Subsequent Events.
NOTE 3 - NOTES PAYABLE
Notes payable consisted of the following:
December 31,
June 30, ----------------------
1998 1997 1996
---------- ---------- ----------
(Unaudited)
Notes payable to Banks, interest
from 10.5% to 10.75%, guaranteed by
shareholders of the Company, due 1998
and 2003, unsecured. Subsequently
repaid during September 1998. $ 101,524 $ 106,288 $ 137,163
Convertible note payable to an individual,
interest at 19.5%, due November 1998,
subsequently converted along with accrued
interest into 169,781 shares of common
stock during September 1998. 50,000 50,000 -
---------- ---------- ----------
Total 151,524 156,288 137,163
Less Current Portion Due 77,712 81,688 62,663
---------- ---------- ----------
Long-Term Notes Payable $ 73,812 $ 74,600 $ 74,500
========== ========== ==========
LINE OF CREDIT - The Company has a $10,000 bank line of credit
with interest of 10.75%. The principal balance as of December 31,
1997 was $9,150, and is included in notes payable to banks listed
above. The note was due March 26, 1998, was subsequently renewed
and increased during July 1998 and was repaid during September
1998. See Subsequent Events.
NOTE 4 - COMMITMENTS
The Company leases an office and storage facility under a
month-to-month lease. Rent expense for the years ended December
31, 1997 and 1996 was $8,461 and $5,551, respectively. Rent
expense for the six months ended June 30, 1998 was $6,103. During
September 1998, the Company entered into a lease agreement for new
office space; however, the Company will continue to utilize the
old facility on a month-to-month basis. See Subsequent Events.
NOTE 5 - COMMON STOCK
On April 30, 1990, the Company issued 7,114,350 common shares in
exchange for promissory notes from shareholders in the amount of
$15,000. Concurrently, 2,371,450 common shares, valued at $5,000,
based upon the value of the promissory notes, were issued for
legal and accounting services. The founding shareholders
thereafter made loans to the Company to fund operations. On
December 31, 1993, the $15,000 in notes receivable from
shareholders was set off against notes payable to the shareholders.
On January 20, 1993, the Company issued 284,574 shares of common
stock valued at $19,355 were issued in exchange for laboratory and
technical services provided to the Company. The value of the
shares issued was based upon the value of shares issued in an
outside private placement on October 7, 1993 in which 514,065
common shares were issued in exchange for cash in the amount of
$35,000, or $0.07 per share.
During 1994, the Company redeemed 2,371,450 common shares in
exchange for the removal of an original shareholder's personal
guarantee of $75,000 in notes payable. There were no unstated
rights or privileges in connection with this transaction. On
January 20, 1995 the Company issued 2,371,450 common shares for
technical and director services, as well as the for compensation
relating to the shareholder's personal guarantee of notes
payable. The Company determined the fair value of the services
provided to be $50,000.
The Company issued 83,001 and 99,601 common shares to a private
investor for cash proceeds of $10,000 and $25,000, or $0.12 and
$0.25 per share on March 27, and October 10, 1996, respectively.
On May 7, 1998, an additional 21,343 common shares were issued in
a private placement for cash in the amount of $6,250.
On June 1, 1998, the Company redeemed 1,778,588 common shares from
an individual who had served on the Board of Directors and had
developed certain technology for use by the Company including the
primary formulas used by the Company in its products. The Company
also obtained the release of the individual's personal guarantee
of Company debt. The common stock was redeemed in exchange for
the release by the Company of any ownership claim it may have had
to technology. There were no unstated rights or privileges
associated with the redemption. In connection with the redemption,
the Company entered into a license and royalty agreement with the
individual which provided the Company with the use of the
technology. The royalty agreement granted a 25% gross profits
interest in the products the Company sells which are based upon
the formulas. The agreement also provided for a minimum royalty of
$60,000 regardless of the Company's sales volume. On September 15,
1998, the license and royalty agreement was terminated and the
entire ownership of the formulas and associated technology were
transferred to the Company in exchange for 5,201,920 common
shares, as more fully described in Note 8.
NOTE 6 - CASH FLOW INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION - Interest was paid in the
amount of $12,474 and $7,420 during the years ended December 31,
1997 and 1996, respectively.
NONCASH INVESTING AND FINANCING ACTIVITIES - During the years
ended December 31, 1997 and 1996, the Company deferred
compensation to employees of $10,225 and $4,277, respectively. For
the period from April 30, 1990 through December 31, 1997, the
Company deferred compensation to employees in the amount of $83,877.
During the year ended December 31, 1993, the Company set off
related party notes payable in the amount of $15,000 against
receivables from the stockholders in the same amount.
NOTE 7 - INCOME TAXES
There was no benefit or provision for income taxes during any
period presented herein. The following presents the components of
the net deferred tax asset:
December 31,
June 30, --------------------
1998 1997 1996
--------- --------- ---------
Operating loss carryforwards $ 156,323 $ 128,775 $ 94,614
Deferred compensation 32,712 32,712 31,044
--------- --------- ---------
Total deferred tax assets 189,035 161,487 125,658
Less: valuation allowance (189,035) (161,487) (125,658)
--------- --------- ---------
Net Deferred Tax Asset $ - $ - $ -
========= ========= =========
The valuation allowance increased $27,548 during the six months
ended June 30, 1998 and increased $35,829 and $44,014 during the
years ended December 31, 1997 and 1996. The Company had a net
operating loss carryforward of $422,918 at December 31, 1997 which
expires, if unused, in the years 2012 through 2013.
The following is a reconciliation of the income tax benefit
computed at the federal statutory tax rate with the provision for
income taxes for the six months ended June 30, 1998 and for the
years ended December 31, 1997 and 1996:
December 31,
June 30, -----------------------
1998 1997 1996
---------- ---------- ----------
Income tax benefit at statutory
rate (34%) $ (25,153) $ (32,702) $ (40,177)
Change in valuation allowance 27,548 35,829 44,014
State tax, net of federal benefit (2,442) (3,175) (3,899)
Non deductible expenses 47 48 62
----------- ---------- ----------
Provision for Income Taxes $ - $ - $ -
=========== ========== ==========
NOTE 8 - SUBSEQUENT EVENTS
REORGANIZATION - On September 15, 1998, The Company (Linco)
entered into an agreement with SPPS Financial Corporation (SPPS)
to reorganize Linco into SPPS. Under the terms of the agreement, a
newly-formed wholly-owned subsidiary of SPPS was merged into
Linco. The shareholders of Linco exchanged each of their shares of
common stock for 2,371.45 shares of SPPS common stock in
connection with the merger agreement which resulted in SPPS
issuing 8,798,080 shares of its common stock to the Linco
shareholders. Concurrent with the merger, SPPS issued 5,201,920
common shares in exchange for the rights to technology and the
cancellation of a license and royalty agreement central to the
Company's products. As a result of the merger, the Linco
shareholders became the majority shareholders of the Company in a
transaction intended to qualify as a tax-free reorganization.
Concurrent with the reorganization, SPPS changed its name to First
Scientific, Inc.
In contemplation of the reorganization, the Company received a
pre-merger advance in the amount of $50,000 on August 6, 1998, in
order to meet short-term operating expenses. The advance from an
investor was converted into common stock at the date of the
reorganization.
The merger has been considered the reorganization of Linco and the
acquisition of SPPS in a purchase business combination. There was
no market for SPPS's common stock, which was a shell with no
assets; therefore, the 3,333,330 shares of common stock
outstanding at the date of the reorganization will be recorded at
$0. The fair value of the contributed technology is based upon the
fair value of common shares issued for cash following the
reorganization and was preliminarily valued at $3,901,440, or
$0.75 per share. The merger has been accounted for as the
reorganization of Linco with a related 2371.45-for-1 stock split.
The accompanying financial statements have been restated for the
effects of the stock split for all periods presented.
LINE OF CREDIT - On May 29, 1998, the Company increased its bank
line of credit from $10,000 to $20,000. Interest is prime plus 2.5
points, currently 11%. The principal balance is due May 29, 1999.
As of September 15, 1998, the principal balance was $20,000.
During September 1998, the Company repaid the line in full.
LEASE COMMITMENTS - Subsequent to June 30, 1998, the Company
entered into operating lease agreements to lease office space and
a copier, and a capital lease agreement for computer equipment.
The office lease is for a two year term, is renewable on an annual
basis, and currently requires lease payments of $1,676 per month
with annual escalations equal to the lesser of the change in the
consumer price index or 5%. The copier lease is for 36 months with
monthly payments of $146. The capital lease is for a 3-year term
requiring monthly payments of $294. The future minimum lease
payments for these new leases at their inception are as follows:
For the Year Ending
December 31, Capital Operating
------------------- ------- ---------
1998 $ 1,274 $ 7,394
1999 3,523 22,181
2000 3,523 15,476
2001 2,936 1,275
------- ---------
Total Minimum Payments 11,256 $ 46,326
------- =========
Less amount representing interest (3,540)
-------
Present value of net minimum lease payments $ 7,716
=======
CONVERSION OF RELATED PARTY NOTES PAYABLE - On September 14, 1998,
related party notes payable in the amount of $90,000 were
converted into additional paid-in capital without the issuance of
additional shares. Additionally, $91,877 of deferred salary was
also converted into additional paid-in capital without the
issuance of additional shares.
CONVERSION OF NOTE PAYABLE - On September 30, 1998, the Company
issued 169,781 common shares upon the conversion of a $50,000 note
payable together with accrued interest in the amount of $8,049.
PRIVATE PLACEMENT - During September 1998, the Company issued
1,752,129 shares of common stock for $1,011,250 cash and $190,867
in equity securities net of deferred tax of $111,983.
STOCK OPTIONS GRANTED - On September 30, 1998, the Company granted
stock options to two outside directors to purchase a total of
1,050,000 shares of common stock at $0.75 per share. The options
vest according to a schedule over three years and expire September
30, 2003. The options granted were valued at their fair value on
the grant date of $174,194, which will be recognized by the
Company as the options vest with $85,355 charged to operations
during the year ended December 31, 1998, and $64,452 and $24,387
charged during the years ending December 31, 1999 and 2000,
respectively.
The options are valued based upon their fair values according to
the Black-Scholes option pricing model with the following
assumptions: dividend yield of 0.0%, expected volatility of 0.0%,
risk free interest rate of 5.0% and expected life of 5 years. The
expected volatility is assumed to be 0.0% because at the grant
date the Company is deemed to be privately held.
<PAGE>
THURMAN SHAW & CO., L.C.
Certified Public Accountants
James K. Thurman
Jeffrey L. Shaw
Justin R. Shaw
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
SPPS Financial Corporation
We have audited the statements of financial position of SPPS
Financial Corporation (a development stage company) as of March
31, 1998 and 1997, and the related statements of operations,
changes in stockholders' equity and cash flows for the years then
ended and cumulative for the period June 11, 1992 (date of
inception) through March 31, 1998. 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. The financial statements of SPPS
Financial Corporation from inception through March 31, 1994 (not
presented herein), were audited by another auditor whose report,
dated May 26, 1994, expressed an unqualified opinion on those
statements. Our opinion, in so far as it relates to the
cumulative amounts for the period from inception through March 31,
1994, is based solely on the report of the other auditor.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatements. 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 and the report of the other auditor provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of the other
auditor, the financial statements referred to above present
fairly, in all material respects, the financial position of SPPS
Financial Corporation (a development stage company) as of March
31, 1998 and 1997, and the results of its operations, changes in
stockholders' equity and cash flows for the period June 11, 1992
(date of inception) through March 31, 1998, in conformity with
generally accepted accounting principles.
THURMAN SHAW & CO., L.C.
Bountiful, Utah
October 15, 1998
F-19
<PAGE>
SPPS FINANCIAL CORPORATION
(A Development Stage Company)
Statements of Financial Position
March 31, 1998 and 1997
1998 1997
-------- --------
ASSETS
Current assets - cash $ - $ -
Total assets $ - $ -
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities - accounts payable $ - $ 999
-------- --------
Stockholders' equity
Preferred stock, $.001 par value; 1,000,000 shares
authorized; no shares issued and outstanding - -
Common stock, $.001 par value; 50,000,000 shares
authorized; 3,333,330 shares issued and
outstanding 3,333 425
Additional paid-in capital (1,028) 821
Accumulated deficit during the development stage (2,305) (2,245)
Total stockholders' equity - (999)
-------- --------
Total liabilities and stockholders' equity $ - $ -
======== ========
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
SPPS FINANCIAL CORPORATION
(A Development Stage Company)
Statements of Operations
Years Ended March 31, 1998 and 1997
and Cumulative from Inception to March 31, 1998
Cumulative
From
Inception
(June 11, 1992)
To
1998 1997 March 31, 1998
---------- ---------- ----------
Revenues $ - $ - $ -
---------- ---------- ----------
Operating expenses
General and Administrative 60 110 2,210
Amortization - 53 263
---------- ---------- ----------
Total operating expenses 60 163 2,473
---------- ---------- ----------
Net (loss) $ (60) $ (163) $ (2,473)
========== ========== ==========
Basic and diluted (loss) per
common share $ - $ - $ -
========== ========== ==========
Weighted average number of common
shares used in per share
calculation 2,123,000 2,123,000 2,095,000
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
SPPS FINANCIAL CORPORATION
(A Development Stage Company)
Statement of Changes in Stockholders' Equity
From Inception (June 11, 1992) Through March 31, 1998
<TABLE>
<CAPTION>
Accumulated
Deficit
Common Stock Additional During the
----------------------- Paid-In Development
Shares Amount Capital Stage Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Issuance of common stock
for cash, .001 per share
on June 11, 1992 2,000,000 $ 2,000 $ (1,500) $ - $ 500
Net (loss) - - - (269) (269)
---------- ---------- ---------- ---------- ----------
Balances at March 31, 1993 2,000,000 2,000 (1,500) (269) 231
Net (loss) - - - (221) (221)
Contribution to capital,
on September 30, 1993 - - 500 - 500
Sale of shares in private
placement, .001 per share,
on September 30, 1993 123,000 123 123 - 246
---------- ---------- ---------- ---------- ----------
Balances at March 31, 1994 2,123,000 2,123 (877) (490) 756
Net (loss) - - - (1,428) (1,428)
---------- ---------- ---------- ---------- ----------
Balances at March 31, 1995 2,123,000 2,123 (877) (1,918) (672)
Net (loss) - - - (164) (164)
---------- ---------- ---------- ---------- ----------
Balances at March 31, 1996 2,123,000 2,123 (877) (2,082) (836)
Net (loss) - - - (163) (163)
---------- ---------- ---------- ---------- ----------
Balances at March 31, 1997 2,123,000 2,123 (877) (2,245) (999)
Net (loss) - - - (60) (60)
Issuance of stock upon conversion
of promissory note, .001 per
share on March 31, 1998 1,210,330 1,210 (151) - 1,059
---------- ---------- ---------- ---------- ----------
Balances at March 31, 1998 3,333,330 $ 3,333 $ (1,028) $ (2,305) $ -
========== ========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-22
<PAGE>
SPPS FINANCIAL CORPORATION
(A Development Stage Company)
Statements of Cash Flows
Years Ended March 31, 1998 and 1997
and Cumulative from Inception Through March 31, 1998
Cumulative
From Inception
June 11, 1992
To
1998 1997 March 31, 1998
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (60) $ (163) $ (2,305)
Add item not requiring the use
of cash - amortization - 53 263
Increase (decrease) in accounts
payable (999) 110 -
---------- ---------- ----------
Net cash flows from operating
activities (1,059) - (2,042)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Organization costs - - (263)
---------- ---------- ----------
Net cash flows from investing
activities - - (263)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Contribution to capital 500
Sale of common stock 1,059 - 1,805
---------- ---------- ----------
Net cash flows from financing
activities 1,059 - 2,305
---------- ---------- ----------
Net increase in cash - - -
Cash balance at beginning of period - - -
---------- ---------- ----------
Cash balance at end of period $ - $ - $ -
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
SPPS FINANCIAL CORPORATION
(A Development Stage Company)
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Company was incorporated under the laws of the State of
Delaware on June 11, 1992, for the purpose of seeking out
business opportunities, including acquisitions. The Company is
in the development stage and will be very dependent on the
skills, talents, and abilities of management to successfully
implement its business plan. Due to the Company's lack of
capital, it is likely that the Company will not be able to
compete with larger and more experienced entities for business
opportunities which are lower risk and are more attractive for
such entities. Business opportunities in which the Company may
participate will likely be highly risky and speculative. Since
inception, the Company's activities have been limited to
organizational matters. Organizational costs are amortized on a
straight-line basis over five years.
Basic and Diluted Loss Per Share
--------------------------------
In 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No.128, Earnings Per Share. Statement No. 128
revised the manner in which loss per share is calculated. Basic
and diluted loss per common share was restated for all periods
presented; however, the effect of the change to loss per share
as previously presented for those periods was not material.
Basic loss per common share is computed by dividing net loss by
the weighted average number of common shares outstanding during
the period. Diluted loss per share is calculated to give effect
to stock options. There were no stock options outstanding as of
March 31, 1998. Therefore, basic and diluted loss per share is
the same.
Development Stage Enterprise
----------------------------
Since inception, the Company has spent most of its efforts in
developing and marketing various products, however it has not
yet had sales sufficient to sustain operations and has relied
upon financing from shareholders and occasional issuance of its
common stock. Therefore, the Company is considered to be in the
development stage.
Cash and Cash Equivalents
-------------------------
The Company considers all short-term investments with an
original maturity of three months or less to be cash equivalents.
Estimates
---------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could
differ from those estimates.
2. RELATED PARTY TRANSACTIONS
The officer and director of the Company currently serves without
compensation. An officer of the Corporation has advanced
certain expenses on behalf of the Company. As of March 31,
1995, 1996, 1997 and 1998 such expenses totaled $779, $889, $999
and $1,059. The Company has given the officer a demand
promissory note convertible into 242,066 shares of common stock
at the officer's option, which was converted into common stock
in the year ended March 31, 1998.
3. INCOME TAXES
The fiscal year end of the Company is March 31st and an income
tax return has not been filed. However, if an income tax return
had been filed, the Company would have a net operating loss
carryforward of $2,305 that would begin expiring in the year 2010.
4. STOCK OPTION PLAN
The Company has stock option plans for directors, officers,
employees, advisors, and employees of companies that do business
with the Company, which provide for non-qualified and qualified
stock options. The Stock Option Committee of the Board
determines the option price which cannot be less than the fair
market value at the date of the grant of 110% of the fair market
value if the Optionee holds 10% or more of the Company's common
stock. The price per share of share subject to a Non-Qualified
Option shall not be less than 85% of the fair market value at
the date of the grant. Options generally expire either three
months after termination of employment, or ten years after date
of grant (five years if the optionee holds 10% or more of the
Company's common stock at the time of grant).
Options Outstanding:
Shares allocated 2,000,000
==========
Option price $ 0.50
==========
Balance at inception -
Granted 40,000
----------
Balance outstanding at March 31, 1993 40,000
Granted -
----------
Balance outstanding at March 31, 1994 40,000
Granted 20,000
Lapsed (20,000)
----------
Balance outstanding at March 31, 1995 40,000
Granted -
----------
Balance outstanding at March 31, 1996 40,000
Granted -
----------
Balance outstanding at March 31, 1997 40,000
Granted -
Lapsed (40,000)
----------
Balance outstanding at March 31, 1998 -
==========
5. STOCK SPLIT
On July 1, 1998, pursuant to a resolution of the board of
directors, the Company forward split it stock five shares to
one. The Company's financial statements have been restated
for all periods presented for effects of the stock split.
