Director Compensation Table for fiscal year ended September 30, 2005, and also salary earned in that year but as yet unpaid as of January 31, 2006.2007:
Summary Compensation Table| Name | | Fees Earned or Paid in Cash ($) | | Stock Awards ($) (1) | | Option Awards ($) (1) | | Non-Incentive Plan Compensation ($) | | Non-Qualified Deferred Compensation Earnings ($) | | All Other Compensation ($) | | Total ($) |
| (a) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) |
| | | | | | | | | | | | | | | |
Gregory Szabo (2) | | 1,250 | | 4,000 | | 2,178 | | | | | | | | 7,428 |
_____________
| | | | | | | | | | Long-Term Compensation | | | |
| | | | | Annual Compensation | | Awards | | Payouts | | | |
Name and Principal | | Fiscal | | Salary | | Bonus | | All Other Compensation | | Restricted Stock Award(s) | | Securities Underlying Options/ | | LTIP Payout | | All Other Compensation | |
Position | | Year | | ($)(1) | | ($) | | ($) | | ($)(2) | | SARs (#) | | ($) | | ($)(3) | |
| | | | | | | | | | | | | | | | | |
| Michael A. Grollman | | | 2005 | | | 69,200 | | | – | | | – | | | – | | | – | | | – | | | 110,800 | |
CEO, Chairman (4) | | | 2004 | | | 94,200 | | | – | | | – | | | – | | | – | | | – | | | 70,800 | |
| | | 2003 | | | 64,640 | | | – | | | – | | | – | | | – | | | – | | | 70,360 | |
| Graham L. Clark | | | 2005 | | | 87,000 | | | – | | | – | | | – | | | – | | | – | | | 63,000 | |
President, Director (5) | | | 2004 | | | 101,100 | | | – | | | – | | | – | | | – | | | – | | | 41,400 | |
| | | 2003 | | | 69,639 | | | – | | | – | | | – | | | – | | | – | | | 50,360 | |
| Lou L. Ross | | | 2005 | | | – | | | – | | | – | | | – | | | – | | | – | | | – | |
| Former CEO & | | | 2004 | | | – | | | – | | | – | | | – | | | – | | | – | | | – | |
Chairman (retired) (6) | | | 2003 | | | – | | | – | | | – | | | 17,650 | | | – | | | – | | | – | |
| Sam H. Carr | | | 2005 | | | – | | | – | | | – | | | – | | | – | | | – | | | – | |
Former CFO (7) | | | 2004 | | | – | | | – | | | – | | | – | | | – | | | – | | | – | |
| | | 2003 | | | – | | | – | | | 32,362 | | | – | | | – | | | – | | | – | |
| Gregory Szabo | | | 2005 | | | – | | | – | | | – | | | – | | | – | | | – | | | 1,000 | |
Director (8) | | | 2004 | | | – | | | – | | | – | | | – | | | – | | | – | | | 2,250 | |
_______________
| Unpaid wagesReflects the dollar amount recognized for financial statement reporting purposes for the year ended September 30, 2007 in this table are subject to Agreementsaccordance with listed persons that allow for interest of approximately prime rate plus 2% accruing on those unpaid wages until paid. These accruals for interest are shown as approximate through fiscal year-end September 2005.FAS 123R. |
(2) | Stock grants included in this column are for common stock valued at 90% of the closing sales price for such shares on the date of grant. Closing sales price80,000 options outstanding at fiscal year end September 2005 was approximately $0.045 per share, and closing sales price at fiscal year end September 2004 was approximately $0.075 per share.end. |
(3)
| Includes unpaid salary forgone at the election of executive officers Grollman and Clark pursuant to a registrant program under which stock, stock-based or other forms of non-cash compensation may be received by a named executive in lieu of a portion of annual compensation earned in a covered fiscal year. |
(4)
| Salaries of $110,800, $70,800, and $70,360 were not paid in cash, but deferred to a future period for fiscal years 2005, 2004, and 2003 respectively. In December 2003 Mr. Grollman agreed to convert approximately $150,000 of his back pay and accrued vacation pay to our restricted common stock, at a rate equal to the then currently available private placement share price of $0.10 per share. Mr. Grollman received this stock in January of 2004. On August 17, 2005, Mr. Grollman agreed to convert approximately $34,500 of his back pay to our restricted common stock at the rate of the average market price per share of $0.046. On August 31, 2005, Mr. Grollman agreed to convert approximately $15,190 of his back pay to our restricted common stock at the rate of the average market price per share of $0.035. Also subsequent to fiscal 2005 year-end, Mr. Grollman deferred all of his October, November and January monthly salary of $15,000 and $14,900 of his December salary of $15,000 to a future period. During fiscal 2005 and up to January 2006, Mr. Grollman’s share of contributions to the Company’s health insurance program of $12,740 were deducted from the balance of wages owing, leaving as of the end of January 2006, unpaid wages of $153,817 accrued vacation pay of $31,966 and accrued interest on deferred salary of approximately $21,851 for a combined total of approximately $207,634. |
(5)
| Salaries of $63,000, $41,400, and $50,360 were not paid in cash, but deferred to a future period for fiscal years 2005, 2004, and 2003 respectively. On August 17, 2005, Mr. Clark agreed to convert approximately $23,000 of his back pay to our restricted common stock at the rate of the average market price per share of $0.046. On August 31, 2005, Mr. Clark agreed to convert approximately $9,500 of his back pay to our restricted common stock at the rate of the average market price per share of $0.035. Also subsequent to September 30, 2005 year-end, Mr. Clark deferred $7,350 of his November monthly salary, $4,500 of his December monthly salary and all of his January monthly salary of $12,500 to a future period. During fiscal 2005 and up to January 2006, Mr. Clark’s share of contributions to the Company’s health insurance program of $14,863 were deducted from the balance of wages owing, leaving as of the end of January 2006, unpaid wages of $122,943, accrued vacation pay of $32,359 and accrued interest on deferred salary of $20,885 for a combined total of approximately $176,187. |
(6)
| Other Compensation for 2003 includes common stock grants paid as board service fees. Mr. Ross resigned as an employee in January of 2002 and as a director in September 2003. |
(7)
| Other Compensation for 2003 includes $32,362 of contractor fees for services rendered in the six months to March 2003, of which approximately $31,137 remains unpaid. Mr. Carr resigned in July 2002 as an employee and a director. (See Employment Agreements below). |
(8)
| Other Compensation for 2005 and 2004 of $1,000 and $2,250 is for board fees. |
No individual grants of stock options (whether or not in tandem with SARs), or freestanding SARs (including options and SARs that subsequently have been transferred) were made during the fiscal year ending September 30, 2007, to any of the named executive officers, nor did any of the named executive officers exercise any options or SAR grants during that period.
EMPLOYMENT AGREEMENTS
We engaged Mr. Grollman as an independent contractor from October 7, 2000 until November 30, 2000. He was paid $15,000 monthly for his services as an independent contractor. Effective December 1, 2000, Mr. Grollman became an employee of National Scientific under a one-year contract to serve as our Chief Operating Officer. Mr. Grollman was named President in April 2001. The contract automatically renews for additional one-year terms unless either party chooses to terminate, and it remains in force through at least calendar year 2005.the date of this report. Mr. Grollman’s contract calls for an annual gross salary of $180,000, payable semi-monthly. Also in accordance with the contract, on December 1, 2000, we granted Mr. Grollman 100,000 shares of common stock, subject to risk of forfeiture should Mr. Grollman not fulfill the terms of thishis employment agreement. Also on December 1, 2000, we granted Mr. Grollman 500,000 vested options to purchase common stock at the closing sales price of the common stock on December 1, 2000. Additional option grants are included in Mr. Grollman’s employment contract for each whole dollar amount increase in the market value of our Common Stock. The whole dollar amount increase is measured over a moving two-week average. For each whole dollar amount attained between $1 and $15 inclusive, Mr. Grollman will receive 75,000 options at the whole dollar amount option price. Mr. Grollman is also entitled to additional options at various but declining levels for increases in stock value up to $50 per Common Share. In the event of a change in control or sale of substantially all the assets of National Scientific, the employment agreement between Mr. Grollman and us automatically terminates, and Mr. Grollman is to receive one hundred fifty percent (150%) of the then current year’s annual salary.
In January of 2002 Mr. Grollman agreed to defer 20% of his salary until such a time as cash was more available, reducing his immediately payable cash salary to $12,000 per month. For September, October, and November of 2002, Mr. Grollman deferred 100% of his payable salary, reducing his immediately payable cash salary to $0 per month. Mr. Grollman agreed from January 2003 through December 2003 to reduce his total payable salary for the 2003 year to $120,000 per year. In addition to this reduction, during the year ended September 30, 2003 Mr. Grollman deferred $70,360 of his salary and was paid $64,640 in cash. During the year ended September 30, 2004 Mr. Grollman deferred $70,800 of his salary and was paid $94,200 in cash. For calendar year 2004, Mr. Grollman agreed to defer up to $30,000 of his contracted pay as needed. During the year ended September 30, 2005 Mr. Grollman deferred $110,800 of his salary and was paid $69,200 in cash. .During the year ended September 30, 2006 Mr. Grollman deferred $179,900 of his salary and was paid $100 in cash. During the year ended September 30, 2007 Mr. Grollman deferred $171,000 of his salary and was paid $9,000 in cash. Also subsequent to fiscal 20052007 year-end, Mr. Grollman deferred all of his October November and January monthly salary of $15,000 and $14,900 of his DecemberNovember salary of $15,000 to a future period. During fiscal 2005 and up to January 2006, Mr. Grollman’s share of contributions to the Company’s health insurance program of $12,740 were deducted from the balance of wages owing,period, leaving as of the end of January 2006,November 2007, unpaid wages of $153,817$314,221 accrued vacation pay of $31,966$57,345 and accrued interest on deferred salary of approximately $21,851$70,841 for a combined total of approximately $207,634.$442,047.
In January 2003, under our Stock Retainage Plan ( See Stock Retainage Plan above) initiated in September 2002, our board initiated a restricted stock retainage program (“Stock Retainage Program”) to retain key staff during a periodwe issued 2,550,000 shares of financial difficulty in calendar year 2002. The board allocated approximately $150,000 in common stock from this Stock Retainage Program poolat an average price of shares,$0.06 or 90% of the price on the grant date of September 30, 2002. These grants were provided originally to be granted to key employees duringMichael Grollman, Graham Clark, David Mandala, and Karen Fuhre. Mr. Mandala left the year, subject to National Scientific exceeding sales growth objectivesfirm in mid-2003, and expense reduction objectives in 2003. Failure to meet these objectiveshis shares under the plan were reallocated to Oscar Quadros and Paul Davidson. These stock grants were contingent upon National Scientific achieving sales targets for calendar year 2003. Should these targets not be met, these shares would resultbe forfeited, or we and the employees involved in the forfeiture by staff of this entire stock grant by all participants. Theseprogram would elect to establish new goals were not met infor calendar year 2003.2004, in order to motivate the staff to perform and simultaneously conserve cash resources during the next calendar year, using the same stock grants, as yet unearned, as long term incentive. In January of 2004, our Board extended this program into 2004, and set new sales growth objectives for the year at a level 50% higher than the previous year’s program, giving plan participants an additional year to fully earn this stock grant. On August 19, 2003, a participant of the plan left us and his grant of 800,000 shares were forfeited at the average market price per share of $0.15. On September 30, 2003 the 800,000 shares of common stock resulting from the forfeiture was allocated to the plan. We issued this stock under the terms of the plan to several employees in 2004 who are not officers or directors of National Scientific. In February of 2005, the plan was extended by the board into 2006, with goals set at the same level as 2005. On September 28, 2007, our board extended this program into calendar year 2008 with a sales goal of $1M and removed the risk of forfeiture. As of the date of this report none of these grants have been fully earned, and they remain subjectother than those of Mr. Grollman, which have been declared earned in order to substantial risk of forfeiture.induce his continued loan extensions for Company operations.
Mr. Grollman was granted 750,000 shares of stock from this Employee Stock Retainage ProgramPlan pool of shares, subject to National Scientific achieving in excess of $400,000 in sales in calendar year 2004. Mr. Grollman was granted an additional 500,000 shares of stock under this program, subject to sales exceeding $1,500,000 for calendar year 2004.
In December 2003 Mr. Grollman agreed to convert approximately $150,000 of his back pay and accrued vacation pay to our restricted common stock, at a rate equal to the then currently available private placement share price of $0.10 per share. Mr. Grollman received this stock in January of 2004.
On August 31, 2005, Mr. Grollman agreed to convert approximately $15,190 of his back pay to our restricted common stock, the rate of the average market price per share of $0.035. Mr. Grollman received this stock in September of 2005.
On November 23, 2005, Mr. Grollman agreed to convert approximately $18,000 of our accounts payable and accrued expense indebtedness to him to our restricted common stock, the rate of the average market price per share of $0.036.
On April 7, 2006, Mr. Grollman agreed to convert approximately $16,000 of his back pay to our restricted common stock, the rate of the average market price per share of $0.032.
On March 19, 2007, Mr. Grollman agreed to convert approximately $25,000 of his back pay to our restricted common stock, the rate of the average market price per share of $0.035.
On June 19, 2007, Mr. Grollman agreed to convert approximately $31,700 of his back pay to our restricted common stock, the rate of the average market price per share of $0.020.
On August 20, 2007, Mr. Grollman agreed to convert approximately $60,000 of his back pay to our restricted common stock, the rate of the average market price per share of $0.020.
Mr. Clark was hired in December 2000 as manager of the sales organization. His salary was $120,000 per year base salary, plus commission on sales. He became Vice President of Technology Applications & Sales for us in September 2001, and a director and a corporate officer in August of 2002. In January of 2003, Mr. Clark entered into a one-year employment agreement with National Scientific to serve as Vice President of Technology Applications & Sales. In June of 2003 Mr. Clark was named President of National Scientific. The contract automatically renews for additional one-year terms unless either party chooses to terminate. Mr. Clark’s contract provides for an annual gross salary of $150,000, payable monthly. In the event of a change in control or sale of substantially all our assets, the employment agreement between Mr. Clark and National Scientific automatically terminates, and Mr. Clark is to receive fifty percent (50%) of the then current year’s annual salary.
For September, October, and November of 2002, Mr. Clark deferred 100% of his payable salary, reducing his immediately payable cash salary to $0 per month. During the year ended September 30, 2003 Mr. Clark deferred $50,360 of his salary and was paid $69,640 in cash. During the year ended September 30, 2004 Mr. Clark deferred $41,400 of his salary and was paid $101,100 in cash. During the year ended September 30, 2005 Mr. Clark deferred $63,000 of his salary and was paid $87,000 in cash. During the year ended September 30, 2006 Mr. Clark deferred $124,250 of his salary and was paid $24,750 in cash. During the year ended September 30, 2007 Mr. Clark deferred $98,500 of his salary and was paid $51,500 in cash. Also subsequent to September 30, 20052007 year-end, Mr. Clark deferred $7,350 of his November monthly salary, $4,500 of his December monthly salary and all of his JanuaryOctober and November monthly salary of $12,500 to a future period. During fiscal 2005 and up to January 2006, Mr. Clark’s share of contributions to the Company’s health insurance program of $14,863 were deducted from the balance of wages owing,period leaving as of the end of January 2006,November 2007, unpaid wages of $122,943,$102,173, accrued vacation pay of $32,359$45,917 and accrued interest on deferred salary of $20,885$46,457 for a combined total of approximately $176,187.$194,547.
Mr. Clark was granted 500,000 shares of stock from our Employee Stock Retainage ProgramPlan pool of shares discussed above, subject to National Scientific achieving in excess of $400,000 in sales in calendar year 2004. Mr. Clark was granted an additional 500,000 shares of stock under this program, subject to sales exceeding $1,500,000 for calendar year 2004.
On August 31, 2005, Mr. Clark agreed to convert approximately $9,500 of his back pay to our restricted common stock, the rate of the average market price per share of $0.035. Mr. Clark received this stock in September of 2005.
Throughout fiscal 2000,On March 15, 2006, Mr. Ross was engaged as an independent contractor for National Scientific. As such, Mr. Ross was paid a monthly fee of $9,500, subject to cash availability. Effective December 1, 2001, Mr. Ross became an employee of National Scientific. Throughout fiscal 2001 and continuing into 2003, Mr. Ross served without a written contract and was paid $9,500 monthly. In addition, in connection with an equity transaction involving Mr. Ross and his spouse in September 1999, the Board of Directors granted Mr. Ross the right to receive 4% of our gross revenues. In partial consideration for the forgiveness of this right to 4% of our future revenues, National ScientificClark agreed to issue 500,000convert approximately $15,050 of his back pay to our restricted shares of our common stock, to Mr. Ross. The 500,000 shares are subject to the terms of a Restricted Stock Award Agreement, which required that the shares issued be released only when the market pricerate of the stock exceeds $2.50 per share.
Subsequent to fiscal year end 2001, National Scientific granted Mr. Ross options to purchase an aggregate of 750,000 shares of common stock. The options consist of ten separate groups of 75,000 shares each, whose exercise prices range from $1 to $10 per share, which vest when the previous five day average market price exceeds even dollar levels beginning with $1 per share through $10 per share. of $0.035.
On September 30, 2003, these options were forfeited and returnedMay 25, 2006, Mr. Clark agreed to us.
In Februaryconvert approximately $40,250 of 2002, Mr. Ross resigned as an employee of National Scientific, and became a part-time contractor, paid at a rate of $10,000 per month, of which 20% would be deferred until a future date. The term of the agreement was two years and it required that Mr. Ross provide approximately 80 hours per month management-consulting serviceshis back pay to us and serve as a director. In July 2002 National Scientific and Mr. Ross amended the contract to eliminate mandatory monthly minimum cash payments and minimum hours per month for on-going consulting duties other than his responsibilities as a director. Under this revised contract, Mr. Ross was paid a director’s fee of $2,500 per month in our restricted common stock. In February 2003 this contract was again revised, and from February 2003 to September 30, 2003 Mr. Ross agreed to take a reduction in his director’s fees and accept 50,000 shares of common stock, in lieu of cash for board services for the entire six-month period. Mr. Ross retired from the board on September 30, 2003. His major contract duties as a consultant with us ended in February 2004, although some confidentiality provisions of this agreement continue into 2005.
Mr. Carr served us as an independent contractor from October 15, 2000 until November 30, 2000. He was paid $13,750 monthly for his services. Effective December 1, 2000, Mr. Carr became employed under a one year contract to serve as our Chief Financial Officer. The contract automatically renewed for additional one-year terms unless either party elected to terminate. Mr. Carr’s contract provided for an annual gross salary of $180,000, payable semi-monthly. Also in accordance with the contract, on December 1, 2000, we granted Mr. Carr 100,000 vested options to purchase common stock at a price equal to 25%rate of the closingaverage market price per share on December 1, 2000. Also on December 1, 2000, we grantedof $0.035.
On March 23, 2007, Mr. Carr 500,000 vested optionsClark agreed to purchaseconvert approximately $20,000 of his back pay to our restricted common stock, at the closing sales pricerate of the shares on December 1, 2000. Additional option grants were included inaverage market price per share of $0.035.
On June 14, 2007, Mr. Carr’s employment contract for each whole dollar amount increase in the market value of our Common Shares. The whole dollar amount increase is measured over a moving two-week average. For each whole dollar amount attained between $1 and $15 inclusive, Mr. Carr would receive 75,000 options at the whole dollar amount option price. Mr. Carr was also entitledClark agreed to additional options at various but declining levels for increases in stock value up to $50 per common share.
From January of 2002 through July of 2002, Mr. Carr deferred 20%convert approximately $20,000 of his salary, subjectback pay to future cash availability, reducing his monthly salary cash payments to $12,000 per month.
In July of 2002, Mr. Carr resigned as CFO and also as an employee and a company director, and became a full-time non-employee contractor for us. He signed a one-year contract,our restricted common stock, the terms of which were similar to his previous company employment contracts, although all employee-related benefits were eliminated, and his hourly rate of pay was changed to approximately $97the average market price per hour, or approximately $17,000 per month. In November 2002, National Scientific andshare of $0.020.
On June 19, 2007, Mr. Carr amended this contract to eliminate mandatory monthly payments. Mr. Carr was retained on this basis during the month of December 2002 to assist with preparation of our annual report and other matters, for which he was paid approximately $12,000 in cash. In January 2003 Mr. Carr and National ScientificClark agreed to secureconvert approximately $7,566 of his services as a financial consultant for a minimum retainer of ten hours per month at aback pay to our restricted common stock, the rate of $120the average market price per hour. This retainer agreement ended on April 1, 2003.share of $0.020.
In January 2003, we, underOn August 20, 2007, , Mr. Clark agreed to convert approximately $60,000 of his back pay to our Restricted Stock Retainage Plan initiated in September 2002, issued 2,550,000 shares ofrestricted common stock, at an average price of $0.06 or 90%the rate of the average market price onper share of $0.020.
On September 20, 2007, , Mr. Clark agreed to convert approximately $10,500 of his back pay to our restricted common stock, the grant daterate of September 30, 2002. These grants were provided originally to Michael Grollman, Graham Clark, David Mandala, and Karen Fuhre. Mr. Mandala left the firm in mid-2003, and his shares under the plan were reallocated to Oscar Quadros and Paul Davidson. These stock grants were contingent upon National Scientific achieving sales targets for calendar year 2003. Should these targets not be met, these shares would be forfeited, or we and the employees involved in the program would elect to establish new goals for calendar year 2004, in order to motivate the staff to perform and simultaneously conserve cash resources during the next calendar year, using the same stock grants, as yet unearned, as long term incentive.average market price per share of $0.015.
During the fiscal year ended September 30, 2004, we issued 160,084 shares, of our common stock to our consultants in lieu of cash compensation. During the fiscal year ended September 30, 2005 we generally did not use the services of consultants, therefore, we did not issue shares of our common stock to our consultants in lieu of cash compensation to them. During fiscal 2004, we granted 790,000 options to our consultants and employees to purchase shares of our common stock. The options granted had exercise prices ranging from $0.09 per share to $0.16 per share. The exercise prices were generally below market on the date of grant, and vested. We granted these options as a means of compensation to consultants to conserve operating cash. During fiscal 2005, no options were granted to consultants or employees. The only options granted were issued to an outside director for board fees.
During fiscal 2006, in order to conserve cash, 310,681 stock options were granted to William Sklar, a consultant, for investor relations services. 152,358 stock options were granted to Mr. Sklar on June 26, 2006. The weighted average grant date fair value of these options was $0.0376. 158,323 stock options were granted to Mr. Sklar on September 20, 2006. The weighted average grant date fair value of these options was $0.0259. Stock based compensation of $9,816 was recognized in the financial statements for the year ended September 30, 2006 using the Black-Scholes option pricing model value on the grant date. The options have a life of ten years. Also, during fiscal 2006, 60,000 options granted were issued to an outside director for board fees. During fiscal 2006, no options were granted to employees.
During fiscal 2007, we granted 550,000 options to our contractors and employees to purchase shares of our common stock. The options granted have exercise prices of $0.030 per share, a life of ten years and vested immediately.
REPORT OF AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors (the "Audit Committee") is responsible for, among other things, reviewing and discussing the audited financial statements with management, discussing with the Company's auditors information relating to the auditors' judgments about the quality of the Company's accounting principles, recommending to the Board of Directors that the Company include the audited financials in its Annual Report on Form 10-KSB and overseeing compliance with the Securities and Exchange Commission requirements for disclosure of auditors' services and activities.
Review of Audited Financial statements
Our Board’s audit committee was established in December 2000. The audit committee met two (2) times during calendar year 2005.2007. Mr. Greg Szabo is chairman of our audit committee as an outside director and financial expert, and is currently its sole member. The audit committee has reviewed our financial statements for the fiscal year ended September 30, 2005,2007, as audited by Epstein WeberSemple, Marchal & Conover, PLC,Cooper, LLP, National Scientific’s independent auditors. Epstein WeberSemple, Marchal & Conover, PLCCooper, LLP has discussed these financial statements with management and the audit committee.
The audit committee has reviewed and discussed the audited financial statements with management. The audit committee has discussed with the independent auditors the matters required to be discussed by SAS 61. The audit committee has received the written disclosures and the letter from the independent accountants required by Independence Standards Board Standard No. 1 (Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees) and has discussed with the independent accountant the independent accountant’s independence. Based on the review and these discussions, the audit committee recommended to the boardBoard of directorsDirectors that the audited financial statements be included in the company’s Annual Report on Form 10-KSB for the last fiscal year for filing with the Commission.
Principal Accountant Fees And Services
Fees paid or accrued due, for services performed by our principal accountants, Hurley & Company, during the years ended September 30, 20052007 and 20042006 were as follows:
| | | 2005 | | 2004 | |
| | | | | | |
| Audit fees - audit of annual financial statements and review of financial statements included in our 10-QSB, services normally provided by the accountant in connection with statutory and regulatory filings. | | $ | 23,350 | | $ | 18,700 | |
| Audit-related fees - related to the performance of audit or review of financial statements not reported under “audit fees” above | | | - | | | - | |
| Tax fees - tax compliance, tax advice and tax planning | | | - | | | - | |
| All other fees - services provided by our principal accountants other than those identified above | | | - | | | 1,500 | |
| Total fees paid or accrued to our principal accountants - Hurley & Company | | $ | 23,350 | | $ | 20,200 | |
| | | | | | | | |
No fees were paid to Epstein Weber & Conover, PLC during the fiscal year ended September 30, 2005.| | | 2007 | | | 2006 | |
| | | | | | | |
Audit fees - audit of annual financial statements and review of financial statements included in our 10-QSB, services normally provided by the accountant in connection with statutory and regulatory filings. | | $ | 30,705 | | | $ | 27,850 | |
Audit-related fees - related to the performance of audit or review of financial statements not reported under “audit fees” above | | | – | | | | – | |
Tax fees - tax compliance, tax advice and tax planning | | | – | | | | – | |
All other fees - services provided by our principal accountants other than those identified above | | | – | | | | – | |
Total fees paid or accrued to our principal accountants Semple, Marchal & Cooper, LLP in 2007 and Epstein Weber & Conover, PLC in 2006 | | $ | 30,705 | | | $ | 27,850 | |
Fees paid to the Hurley & Companyprincipal accountants were approved by the Audit Committee.
All other Fees
Hurley & Company billed us, approximately $1,500 for other services during the fiscal year ended September 30, 2004 for audit services in connection with the filing of a registration statement on Form SB-2 with the Securities and Exchange Commission.None.
Fees paid to the auditors were approved by the Audit Committee.
HurleyEpstein Weber & Company,Conover, PLC, Certified Public Accountants, based in California, were our principal auditors for the year ended September 30, 2004 and for part of fiscal year 2005. This firm is licensed to practice public accounting by the State of California, and is also registered with the Public Company Accounting Oversight Board. The senior audit partner Mr. Michael Hurley is also licensed to practice public accounting in Arizona. Our shareholders in each of the previous three fiscal years have ratified the use of this firm.2006. During fiscal year 2005, Hurley2006, Epstein Weber & CompanyConover, PLC reviewed our unaudited financial statements as filed in our form 10-QSB for the quarters ended December 31, 2004,2005, March 31, 20052006 and June 30, 2005.
The Board of Directors believes that under newly adopted regulations and guidelines arising from the Sarbanes-Oxley Act, it may be required to rotate its independent auditors during fiscal year 2005. Accordingly, on November 23, 2005, the Company engaged2006. In 2006, Epstein Weber & Conover, PLC Certified Public Accountants,was purchase by an outside firm, and as we result we filed notice of Scottsdale, Arizona,our intent to change principals auditors or around February 1, 2007. For fiscal year 2007, we secured the services of Semple, Marchal & Cooper, LLP for our annual audit of form 10-KSB, as the independent public accountants for the Company for fiscal 2005 to replace Hurley & Company. The shareholders voted to ratify such engagement at the Company’s Annual Meetingwell as review of Shareholdersinterim financial statements on April 27, 2005. This change in no way reflects on the quality of service provided in the past by Hurley & Company.form 10-SQB.
During the Company’s two most recent fiscal years and any subsequent interim period preceding the departure of HurleyEpstein Weber & Company,Conover, PLC, there were no unresolved disagreements with HurleyEpstein Weber & Company which were not resolvedConover, PLC on any matter concerning accounting principles or practices, financial statement disclosure, or auditing scope or procedure,procedure; which disagreements, if not resolved to the satisfaction of HurleyEpstein Weber & CompanyConover, PLC would have caused HurleyEpstein Weber & CompanyConover, PLC to make reference to the subject matter of the disagreements in connection with its reports. HurleyEpstein Weber & CompanyConover, PLC as the Company’s principal independent accountant, did not provide an adverse opinion or disclaimer of opinion to the Company’s financial statements, nor modify its opinion as to uncertainty, audit scope or accounting principles.
During the Company’s two most recent fiscal years and any subsequent interim period through the date of this statement, there were also no unresolved disagreements with Semple, Marchal & Cooper, LLP on any matter concerning accounting principles or practices, financial statement disclosure, or auditing scope or procedure; which disagreements, if not resolved to the satisfaction of Semple, Marchal & Cooper, LLP would have caused Semple, Marchal & Cooper, LLP to make reference to the subject matter of the disagreements in connection with its reports. Semple, Marchal & Cooper, LLP as the Company’s principal independent accountant, did not provide an adverse opinion or disclaimer of opinion to the Company’s financial statements, nor modify its opinion as to uncertainty, audit scope or accounting principles.
Financial Information Systems Design and Implementation Fees
We did not engage either Hurley & Company or Epstein Weber & Conover, PLC, or Semple, Marchal & Cooper, LLP, to provide services to us regarding financial information systems design and implementation during the fiscal yearyears ended September 30, 2005.2006 and September 30, 2007. The Board of Directors has considered whether the provision of non-audit services is compatible with maintaining HurleySemple, Marchal & Company or Epstein Weber & Conover, PLC’s,Cooper, LLP independence, and has decided not to secure such services from HurleySemple, Marchal & Company or Epstein Weber & Conover,Cooper, LLP, PLC, at this time in that area.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 2002, Mr. Lou Ross, the former Chairman of the Board, and a Director until September 30, 2003, was paid for his services as an active member of the board in shares of restricted common stock, in lieu of cash. The former Chairman received 66,806 restricted common shares at an average price on the date of grant of $0.11 per share.
In June 2003, we entered into an agreement to restructure and repay an outstanding debt to Mr. Lou Ross, a Director of National Scientific. Together with Mr. Ross, we aggregated the value of all sums we currently owed to Mr. Ross. This included notes executed of approximately $75,000, all salary deferred by Mr. Ross in 2002 of approximately $8,300, and all cash board fees deferred in 2002 by Mr. Ross of approximately $3,000, for a total amount payable to Mr. Ross as of June 11, 2003 of approximately $86,500. Mr. Ross agreed to accept one-half of this sum, or $43,250, in restricted common stock issued at the then-current market price of $0.15 cents per share, for a total share grant to Mr. Ross of 288,334 shares. Mr. Ross also agreed to convert the remaining one-half of the total debt outstanding from us to him, or $43,250, into a three-year interest free note, with no payments required by us until the end of the three-year period, and which could be paid by us at any time before the three-year period elapses with either cash or its restricted common stock or a combination of cash and stock. With this agreement, we no longer have any outstanding delinquent notes to Mr. Ross, and our liabilities have been reduced by $43,250, though he remains a significant stockholder of ours.
Mr. Ross also agreed to take a reduction in his Director’s fees for the period from February 2003 to the end of the fiscal year ending in September 2003, and to accept 50,000 shares of our restricted common stock in lieu of cash for these board services, which was paid to him in stock on June 11, 2003. On September 30, 2003, at the point of his resignation from the Board, Mr. Ross surrendered all stock options he had received from us.
On September 30, 2002, we started a restricted Employee Stock Retainage ProgramPlan (See Employee Stock Retainage Plan above) to retain key staff during a period of financial difficulty with significant periods of cash wage deferrals. We allocated approximately 3,350,000 shares with a current market value of $150,000 from this Employee Stock Retainage ProgramPlan pool of shares in fiscal 2002, to be granted to key personnel. Grants from this pool of shares were made to Michael Grollman, Graham Clark, Karen Fuhre, Oscar Quadros, and Paul Davidson. AsOn September 28, 2007, our board extended this program into calendar year 2008 with a sales goal of the date of this report, none of these grants have been fully earned,$1M and they remain subject to substantialremoved the risk of forfeiture.
In December 2004, our Chairman Michael Grollman made personal loans to the Company in the amount of $65,000 to assist us with short-term cash requirements. The loan is evidenced by an unsecured promissory note that provides for repayment within 90 days or less, at no interest. The promissory note also provides that if repayment takes longer than 90 days, then interest accrues at a rate of 6 percent per year until paid in full. We paid this Note in full in February of 2005.
On February 24, 2005, March 28, 2005, May 2, 2005, and May 27, 2005 our Chairman Michael Grollman made new personal loans to the Company totaling $159,000 to assist us with working capital needs. The loans are evidenced by a demand note that provides for repayment within five business days of a demand notice from Mr. Grollman, with interest of 6% compounded annually from June 1, 2005. These loans were secured by an interest in the copyrights in the Company’s iBus software and designs. During the quarter to September 30, 2007, these loans were paid down by $11,000. As of September 30, 2005,2007, these loans were outstanding.had a balance outstanding of $148,000 and the interest rate going forward was adjusted to 8% compounded annually from October 1, 2007.
On March 19, 2007, we issued 714,286 of our restricted common shares to Michael Grollman, at the closing price of $0.035 in lieu of his partial forgiveness of the Company’s back pay indebtedness to him.
On March 23, 2007, we issued 666,667 of our restricted common shares to Graham Clark, at the closing price of $0.035 in lieu of his partial forgiveness of the Company’s back pay indebtedness to him.
On June 14, 2007, we issued 1,000,000 of our restricted common shares to Graham Clark, at the closing price of $0.02 in exchange for his partial forgiveness of the Company’s back pay indebtedness to him.
On June 19, 2007, we issued 378,333 of our restricted common shares to Graham Clark, at the closing price of $0.02 in exchange for his partial forgiveness of the Company’s back pay indebtedness to him.
On June 19, 2007, the Company issued 1,585,714 of our restricted common shares to Michael Grollman, at the closing price of $0.02 in exchange for his partial forgiveness of the Company’s back pay indebtedness to him.
On August 20, 2007, the Company issued 3,000,000 of our restricted common shares to Michael Grollman, at the closing price of $0.02 in exchange for his partial forgiveness of the Company’s back pay indebtedness to him.
On August 20, 2007, the Company issued 3,000,000 of our restricted common shares to Graham Clark, at the closing price of $0.02 in exchange for his partial forgiveness of the Company’s back pay indebtedness to him.
On September 20, 2007, the Company issued 700,000 of our restricted common shares to Graham Clark, at the closing price of $0.015 in exchange for his partial forgiveness of the Company’s back pay indebtedness to him.
On September 30, 2007, the Company converted unpaid interest of $13,300 on demand notes payable to Michael Grollman into a new demand note of $13,300, with interest of 8% compounded annually on October 1st. The note provides for repayment within five business days of a demand notice from Mr. Grollman.
RATIFCATIONRATIFICATION OF INDEPENDENT AUDITORS
(PROPOSAL (PROPOSAL NO. 2)
The Board of Directors has selected Epstein WeberSemple, Marchal & Conover, PLCCooper, LLP as the independent public accountants for the Company for fiscal 2006,2008, and recommends that the shareholders vote for ratification of such appointment. Shareholder ratification of the selection of Epstein WeberSemple, Marchal & Conover, PLCCooper, LLP as the Company’s independent auditors is not required by the Company’s Bylaws or otherwise. However, the Board is submitting the selection of Epstein WeberSemple, Marchal & Conover, PLCCooper, LLP for shareholder ratification as a matter of good corporate practice. Notwithstanding the selection, the Board and its Audit Committee, at its sole discretion, may direct the appointment of a new independent accounting firm at any time during the year if the Board thinks that such a change would be in the best interests of the Company and its shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL.
PROPOSALS FOR 20072009 ANNUAL MEETING
Any shareholder who wishes to present any proposal for shareholder action at the next Annual Meeting of Shareholders to be held in 2007,2009, must send the proposal in time for it to be received by the Company’s Secretary, at the Company’s offices, not later than Wednesday, November 1, 2006,2008, in order to be included in the Company’s proxy statement and form of proxy for that meeting. Such proposals should be addressed to the Corporate Secretary, 14505 North Hayden8361 E. Evans Road, Suite 305,106, Scottsdale, Arizona 85260-6951.85260-3617. If a shareholder proposal is introduced at the 20072009 Annual Meeting of Shareholders without any discussion of the proposal in the Company’s proxy statement, and the shareholder does not notify the Company on or before Wednesday, November 1, 2006,2008, as required by SEC Rule 14(a)-4(c)(1), of the intent to raise such proposal at the 20062009 Annual Meeting of Shareholders, then proxies received by the Company for the 20072009 Annual Meeting will be voted by the persons named as such proxies in their discretion with respect to such proposals. Notice of such proposal is to be sent to the above address.
| Dated: March 18, 2008 | | | By Order of the Board of Directors /s/ Graham L. Clark, Secretary Graham L. Clark, Secretary |
Dated: March 10, 2006 | | | |
REQUESTS FOR FORM 10-KSB
UPON WRITTEN REQUEST, NATIONAL SCIENTIFIC CORPORATION WILL FURNISH, WITHOUT CHARGE TO PERSONS SOLICITED BY THIS PROXY STATEMENT, A COPY OF OUR REPORT ON FORM 10-KSB FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2005.2007. REQUESTS SHOULD BE ADDRESSED TO: NATIONAL SCIENTIFIC CORPORATION, 14505 NORTH HAYDEN8361 E. EVANS ROAD, SUITE 305,106, SCOTTSDALE, ARIZONA 85260-6951, ATTENTION: KAREN FUHRE.85260-3617, ATTENTION ANNUAL REPORTS.