FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment - 1
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the period ended April 30, 1995 .
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 Commission file number for the transition period from
_________________ to _______________
NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 86-0460312
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Suite 1750
3200 North Central Avenue
Phoenix, Arizona 85012
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (602) 230-7575
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [ X ] No [ ].
The number of shares of the Issuer's Common Stock outstanding at June 2, 1995
was 4,163,636 Shares.
<PAGE>
NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC. AND SUBSIDIARIES
INDEX TO FORM 10-QSB/A
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM I. Consolidated Financial Statements
Consolidated Balance Sheet at April 30,1995 3
Consolidated Statements of Operations for
the three months ended April 30, 1995 and 1994 4
Consolidated Statements of Cash Flows for
the three months ended April 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 9
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 12
Signatures 16
<PAGE>
NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET- APRIL 30, 1995
(Unaudited)
ASSETS
April 30 ,1995
---------------
CURRENT ASSETS:
Cash and cash equivalents, including a $ 500,000
compensating balance (Note 2) $ 1,160,498
Accounts receivable, less allowance for doubtful
accounts of $ 612,432 (Note 2) 3,314,921
Prepaid expenses and supplies 781,211
---------
Total current assets 5,256,630
CAPITALIZED SOFTWARE DEVELOPMENT COSTS, less
accumulated amortization of $ 695,496 668,068
PROPERTY AND EQUIPMENT (net) 798,857
EXCESS OF PURCHASE PRICE OVER RELATED NET
ASSETS ACQUIRED 612,119
OTHER ASSETS 61,733
---------
$ 7,397,407
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of notes payable and obligations $ 891,946
under capital leases ( Note 2)
Accounts payable 958,785
Accrued liabilities (Note 3) 2,648,017
Deferred revenues 2,205,336
---------
Total current liabilities 6,704,084
NOTES PAYABLE AND OBLIGATIONS UNDER CAPITAL LEASES,
excluding current installments (Note 2) 186,442
DEFERRED REVENUES , net of current portion 273,164
STOCKHOLDERS' EQUITY
Convertible Preferred stock, $.001 par value
1,000,000 shares authorized and 125,000 issued and
outstanding - liquidation preference over common
stockholders of $2.40 per share (Note 4) 125
Common stock, $.001 par value, 5,000,000
shares authorized, 4,163,636 shares issued
and 3,791,220 outstanding 3,791
Capital contributed in excess of par value 3,440,301
Accumulated deficit (3,206,935)
Less treasury stock, 3,568 shares at cost (3,565)
---------
Stockholders' equity 233,717
---------
$ 7,397,407
=========
See accompanying notes to the consolidated financial statements.
3
<PAGE>
NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended April 30,
1995 1994
---- ----
REVENUES
Initial license fees $ 1,678,863 $ 1,888,914
Support, marketing services
and material sales 1,825,789 1,703,134
--------- ---------
Total revenues 3,504,652 3,592,048
OPERATING EXPENSES
Cost of license fees 545,666 565,921
Cost of marketing services
and materials sold 294,094 436,518
Selling, product support
and development 2,271,944 1,769,108
General and administrative 390,893 335,613
Depreciation and amortization 179,872 78,853
Provision for doubtful accounts 45,000 56,400
--------- ---------
Total operating expenses 3,727,468 3,242,413
--------- ---------
Income ( loss ) before income taxes (222,816) 349,635
Income taxes - -
--------- ---------
NET INCOME (LOSS) $ (222,816) $ 349,635
========= =========
Net income (loss) per common share ($0.06) $0.07
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING(*) 3,791,220 4,902,826
========= =========
(*) Adjusted to reflect a two for one stock split in January 1996.
See accompanying notes to the consolidated financial statements.
4
<PAGE>
NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended April 30,
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (222,816) $ 349,635
------- -------
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 179,872 78,853
Provision for doubtful accounts 45,000 56,400
(Increase) decrease in accounts receivable 988 (1,143,338)
(Increase) decrease in prepaid expenses and supplies (367,923) (14,476)
Increase (decrease) in accounts payable (364,450) 90,197
Increase (decrease) in accrued liabilities 670,324 20,275
Increase (decrease) in deferred revenues (62,253) 222,497
(Increase) decrease in other assets 407,235 -
------- -------
Net cash provided by (used in) operating activities 285,977 (339,957)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in capitalized software development costs - (35,450)
Purchases of property and equipment (41,549) (2,696)
------- -------
Net cash used in investing activities (41,549) (38,146)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options - 14,380
Proceeds from line of credit 775,000 400,000
Principal payments on line of credit (1,275,000) (150,000)
Principal payments on notes payable (64,695) (24,948)
Payments on preferred dividend - (42,431)
---------- --------
Net cash provided by (used in) financing activities (564,695) 197,001
---------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (320,267) (181,102)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,480,765 1,199,597
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,160,498 $ 1,018,495
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Note 1
In connection with the preparation of the Company's financial statements for the
fiscal year ended January 31, 1996, the Company determined that the application
of its accounting policy regarding recognizing revenues on its sales of its
software products and related services did not comply in all instances with the
technical requirements and interpretations of Statement of Position 91-1,
"Software Revenue Recognition." Accordingly, the Company has reevaluated and
revised its revenue recognition for the affected transactions and has restated
its previously reported accumulated deficit for the cumulative effect of these
matters. Additionally, the Company's fiscal 1995 annual consolidated financial
statements and its fiscal 1996 quarterly consolidated financial statements have
also been restated. The effect of the change on the Company's operating results
for the quarter ended April 30, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
Quarter ended April 30
1995 1994
--------------------------------------- --------------------------------------
As Reported As Restated As Reported As Restated
<S> <C> <C> <C> <C>
Total revenues $ 4,227,795 $ 3,504,652 $ 3,268,874 $ 3,592,048
Income (loss) before provision for income taxes $ 168,119 $ (222,816) $ 140,884 $ 349,635
Net income (loss) $ 168,119 $ (222,816) $ 140,884 $ 349,635
Income (loss) per share (*) $ .03 $ (.06) $ .03 $ .07
(*) After giving effect for a 2 for 1 stock split completed in January 1996.
</TABLE>
The consolidated financial statements, which include the accounts of National
Health Enhancement Systems, Inc. and its wholly owned subsidiaries (collectively
the "Company"), have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of the Company, the
accompanying unaudited financial statements contain all adjustments (consisting
of only normal recurring adjustments) necessary to present fairly its financial
position, results of its operations, and cash flows for the periods presented.
Certain financial statement items from prior periods have been reclassified to
be consistent with the current period financial statement presentation. It is
suggested that these financial statements be read in conjunction with the
financial statements and the related disclosures contained in the Company's
Annual Report on Form 10-KSB/A filed for the fiscal year ended January 31, 1995
with the Securities and Exchange Commission.
The results of operations for the period ended April 30, 1995, are not
necessarily indicative of the results to be expected for the full fiscal year.
<TABLE>
<CAPTION>
Note 2
Notes Payable and Obligations Under Capital Leases:
April 30, 1995
<S> <C>
Bank lines of credit, interest at the bank's prime rate payable monthly
(see below) $ 500,000
Note payable to bank, interest at the bank's prime rate plus 1.5% with an
8.0% floor (8.0% at April 30, 1995) 11,390
Note payable to bank, interest at the bank's prime rate plus 3.0%,
matures October 1995, guaranteed by two officers of FSG, secured
by accounts
receivable and equipment 6,461
Note payable to preferred stockholder, interest at 12% matures October
1995, unsecured 84,151
Obligations under capital leases, interest rates ranging from 11% to
28%, maturities through November 1999,
secured by computer and other equipment 476,386
---------
1,078,388
Less Current installments (891,946)
-----------
$ 186,442
===========
</TABLE>
The lines of credit bear interest at prime plus 1% (with a 7.5% floor) payable
monthly, are due on demand, and are secured by a compensating cash deposit and
by the Company's accounts receivable.
At January 31, 1995, the Company was not in compliance with certain covenants
under these agreements. The bank has waived compliance with these convenants
through the maturity dates of these agreements (May 1995). As a result the
aggregate amount available under the lines was reduced from $1 million at
January 31 ,1995 to $725,000. One line of credit for $325,000 has been reduced
to $225,000 and has been renewed through July 31, 1995. The bank has renewed the
other $500,000 line of credit through May 16, 1996. The bank lines of credit are
collateralized by a $500,000 deposit with the bank and accounts receivable. The
deposit is included in cash and cash equivalents in the accompanying
consolidated financial statements.
Future maturities of notes payable and capital leases are as follows as of April
30, 1995:
Notes Payable Capital Leases
------------- ---------------
1996 $ 602,002 $ 301,895
1997 - 208,067
1998 - 33,491
1999 - 6,288
2000 and later - 3,369
------------- --------------
602,002 553,110
Less: Amount Representing Interest - (76,724)
------------- --------------
$ 602,002 $ 476,386
============== ==============
Note 3
Accrued Liabilities consist of the following:
April 30, 1995
--------------
Accrued product cost of sales $ 990,827
Accrued commissions 246,880
Accrued royalties 795,350
Other accrued liabilities 614,960
-------------
$ 2,648,017
=============
Note 4 Convertible Preferred Stock
On August 18, 1992 the Company issued 125,000 shares of Series A Convertible
Preferred Stock (the "Preferred Stock") at $2.40 per share. The Company was
required to pay a quarterly dividend equal to a certain percentage of the
Company's gross quarterly revenue (the cumulative percentage based dividend as
defined in the Preferred Stock Agreement) through January 31, 2001. Effective
February 1, 1994, the Preferred Stock Agreement was amended. Pursuant to the
amendment, each share of the Preferred Stock shall be, at the option of the
holder, convertible into four shares of the Company's common stock. In addition,
the holder of the Preferred Stock is entitled to four votes for each share of
Preferred stock. Upon liquidation or dissolution of the Company, the holder of
the Preferred Stock shall have liquidating preferences equal to $2.40 per share.
The amendment eliminated all rights to receive dividends subsequent to the
effective date.
8
<PAGE>
Note 5 Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards (SFAS No. 109), "Accounting for Income Taxes",
SFAS No. 109 requires deferred income tax assets and liabilities to be computed
based upon cumulative temporary differences in financial reporting and taxable
income, carry forwards available and enacted tax law.
The components of deferred taxes as of April 30, 1995 are as follows:
Allowance for doubtful accounts $ 245,000
Tax depreciation in excess
of book depreciation (78,000)
Capitalized software costs (264,000)
Accrued Liabilities 275,000
Deferred revenues 578,000
Net operating loss carry forward 376,000
Valuation allowance (1,132,000)
----------
$ 0
==========
A valuation allowance is provided when it is uncertain that some or all of the
deferred tax asset will be recognized. As of April 30, 1995 the increase in the
valuation allowance since Janaury 31, 1995 results from changes in temporary
differences and net operating loss carryforwards..
9
<PAGE>
NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC. AND SUBSIDIARIES
ITEM 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Restatement of Financial Statements
In connection with the preparation of its financial statements for the year
ended January 31, 1996, the Company determined that the application of its
accounting policy regarding recognizing revenues on its sales of software
products and related services did not comply in all instances with the technical
requirements and interpretations of Statement of Position 91-1, "Software
Revenue Recognition." Accordingly, the Company has reevaluated and revised its
revenue recognition for the affected transactions and has restated its
previously reported accumulated deficit for the cumulative effect of these
matters. Additionally, the Company's fiscal 1995 annual consolidated financial
statements and fiscal 1996 quarterly consolidated financial statements have also
been restated. See Note 1 of Notes to consolidated financial statements. The
information in the following discussion is presented after restatement of the
financial statements.
Results of Operations
Income. For the quarter ended April 30, 1995, the Company had net loss of
$222,816 compared to net income of $349,635 for the quarter ended April 30,
1994.
During the past fiscal year ended January 31, 1995, and continuing through the
first quarter ended April 30, 1995 the Company invested resources to expand and
improve its sales and client services functions and also invested to support its
product development efforts which were primarily focused on the development of
its new WindowTM-based Centramax and Centramax Plus products, development of an
expanded interactive voice response product line and a Pediatric product line.
As a result, operating expenses increased and are expected to continue at
current or increasing levels. The Company believes it will be necessary to
continue to invest resources to support the Company's growth plans and client
obligations. The investment in the sales and client services functions (which
are designed to enable the Company to improve product sales to its existing
client network) and the investment in product development is part of
management's strategy to increase revenues. While management believes this
strategy will result in increased revenues, there are no assurances that future
revenues will increase.
The Company's operations are also currently being affected by consolidation,
alliances and mergers in the healthcare market. Nonetheless, and while there are
no assurances, the Company's management believes that its competitive strengths
will permit it to continue to compete in its targeted market and that the
Company is positioned favorably to take advantage of future opportunities in the
healthcare market The Company's management believes that healthcare reform at
the federal government level has decelerated; however, the Company believes that
healthcare reform will result in a shift to managed care at the local level. The
Company's management also believes its products help healthcare providers
improve their services and also help reduce healthcare costs by providing
objective information on healthcare issues to individuals thereby enabling them
to make informed choices about when, where and how to seek healthcare services
and reduce healthcare costs while providing healthcare providers with a
favorable return on their investment in the Company's products. Nonetheless, the
Company's operations may be materially and adversely affected by continuing
consolidation, alliances and mergers in the healthcare industry, healthcare
reform in the private or public sector, and by future economic conditions.
10
<PAGE>
Revenues and operating results depend primarily on the volume and timing of
orders received during each fiscal quarter, which are difficult to forecast.
Historically, the Company has often recognized a substantial portion of its
license revenues in the last month of each fiscal quarter, frequently in the
last week. Because a significant portion of the Company's operating expenses are
relatively fixed with personnel levels and other expenses based upon anticipated
revenues, a substantial portion of which may not be generated until the end of
each fiscal quarter, the Company may not be able to reduce spending in response
to sales shortfalls or delays. These factors could cause variations in operating
results from quarter to quarter.
Revenues. Total revenues decreased approximately 2% to $3,504,652 for the
quarter ended April 30, 1995 from $3,592,048 for the quarter ended April 30,
1994. The decrease was attributed primarily to a decrease in revenues generated
from license fees.
License fees consist primarily of revenues from the initial sale of the
Company's products: Centramax, Centramax Plus, The Professionals, the Profit
Acceleration System(TM) ("PAS") (which includes nine health screening and
education products), and three voice response products. Revenue from license
fees decreased approximately 11% to $1,678,863 for the quarter ended April 30,
1995, from $1,888,914 for the quarter ended April 30, 1994.
Support fees, marketing services and material sales revenue increased
approximately 7% to $1,825,789 for the quarter ended April 30, 1995, from
$1,703,134 for the quarter ended April 30, 1994. Support fees represent charges
to the Company's licensees, as provided for in the Company's license agreements,
for a continued license to use the products and for ongoing software maintenance
and enhancement to the products. The support fees generally begin within six to
twelve months after a customer executes a license agreement. Revenue generated
from support fees increased for the quarter ended April 30, 1995 compared to the
quarter ended April 30, 1994, primarily as a result of the increase in the
number of customers. The Company believes that as the number of customers it has
for all products increases, revenues generated from support fees will continue
to increase. Revenues generated from the sale of materials represent the sale of
printed questionnaires and reports from the Company's PAS and Health Direct
products. The revenue from the sale of materials for the quarter ended April 30,
1995 decreased from the quarter ended April 30, 1994. The Company presently does
not expect any significant increase or decrease in future revenues associated
with the PAS product and Health Direct products. Marketing services represents
revenue from strategic and creative services provided and generated by FSG.
Revenues from marketing services for the quarter ended April 30, 1995 were
comparable to the quarter ended April 30, 1994.
Operating Expense. Total operating expenses increased approximately 15% to
$3,727,468 for the quarter ended April 30, 1995 from $3,242,413 for the quarter
ended April 30, 1994. Total operating expenses increased primarily due to
increases in the costs associated with certain selling, product support and
development expenses due to an increase in the Company's sales staff, customer
base and related product support obligations and expenses associated with FSG
operations.
Cost of License Fees and Materials Sold. The cost of initial license fees
decreased to $545,666 for the quarter ended April 30, 1995 from $565,921 for the
quarter ended April 30, 1994. The decrease is due to a decrease in variable
costs associated with the decrease in initial fee revenue.
Cost of materials sold, which includes the cost of printed report forms and
questionnaires sold to PAS licensees and the costs of materials associated with
the Health Direct product decreased to $294,094 for the quarter ended April 30,
1995 from $436,518 for the quarter ended April 30, 1994. The decrease is also a
result of a reduction of outside services associated with the revenues generated
from the marketing services.
Selling, Product Support and Development. Selling, product support and
development expenses increased to $2,271,944 for the quarter ended April 30,
1995 from $1,769,108 for the quarter ended April 30, 1994. The increase is
primarily attributable to increases in the Company's sales, product development
and client support staff and services functions and FSG operations.
General and Administrative. General and administrative operating expenses
increased to $390,892 for the quarter ended April 30, 1995 from $335,613 for the
quarter ended April 30, 1994. The increase is attributable
11
<PAGE>
to general inflationary increases and to general increases in office space rent,
professional liability insurance, professional services and other general
operating expenses associated with FSG.
Depreciation and Amortization. Depreciation and amortization expense increased
to $179,872 for the quarter ended April 30, 1995 from $78,853 for the quarter
ended April 30, 1994. This increase is primarily attributed to the amortization
expense associated with the Company's WindowTM - based product which was
released in January 1995.
12
<PAGE>
Liquidity and Capital Resources.
As of April 30, 1995, the Company had a working capital deficit (current assets
minus current liabilities) of $1,447,454, compared to a working capital deficit
of $1,704,367 as of January 31, 1995. The improvement in working capital was
primarily caused by the Company's operating loss for the fiscal quarter and a
reclassification of certain long term receivables to current. The Company's
accounts receivable balance decreased to $3,314,921 at April 30, 1995 from
$3,681,909 (which includes $321,000 in long term accounts receivable) at January
31, 1995. During the first nine months of the Company's fiscal year it
experienced that payment of the initial license fees was often deferred, on a
negotiated basis, for a period after the license agreements were executed.
During the Company's last quarter of its fiscal year ended January 31, 1995, the
Company has taken steps to reduce payment terms and as a result of these steps
the number of days to collect payment of the initial fees has begun to decrease.
The Company has two lines of credit with a bank providing an aggregate amount of
$725,000 as of April 30, 1995. A $225,000 credit line is secured by accounts
receivable and a $500,000 line of credit is secured by cash balances equal to
the amount borrowed. Interest is paid monthly on the unpaid balance at an annual
rate of one percentage point above the bank's prime rate with a 7.5% floor. Due
to the Company's fiscal 1995 operating loss and resulting noncompliance with
certain borrowing covenants, the bank had reduced the line of credit secured by
accounts receivable from $500,000 to $225,000. This $225,000 line of credit
expires on July 31, 1995. If the Company is not successful in securing an
extension on the line of credit and in obtaining an increase in the line of
credit, it will have to seek additional sources of capital for general working
capital purposes.
The Company is currently dependent on the established bank lines of credit for
its daily operational cash requirements. The Company is in the process of
evaluating opportunities to reduce the number of days it takes to collect the
initial fee accounts receivable. If the credit line is further reduced or
terminated, or if the Company is not successful in reducing the number of days
to collect on its outstanding accounts receivable, additional capital will be
required. The Company continues to seek alternative sources to raise additional
capital to support its general working capital needs. There are no assurances
that the Company will be successful in obtaining additional capital, and the
failure to obtain additional capital would have an adverse impact on the
Company's ability to meet its operating requirements and the Company would have
to materially cut back its operations.
In each of its fiscal years ending January 31, 1995 and 1994, the Company
offered a discount to its PAS users to prepay monthly support fees for a one
year period. In each of these fiscal years, the Company generated approximately
$300,000 in cash from the program. Cash from this prepayment program is
recognized as revenue over the period benefited, generally a 12-month period.
Effective June 14, 1994 the Company amended the applicable Certificate of
Designation, which eliminated the Company's obligation to pay preferred
dividends on the Series A Convertible Preferred Stock, including all accrued and
unpaid dividends. Elimination of the preferred dividends will reduce cash
outflows by approximately $285,000 in future periods. The amendment also
increased the number of common shares into which each preferred share is
convertible from one share to four shares and eliminated the Company's
redemption right.
On October 7, 1994 the Company issued a promissory note to the Series A
Convertible Preferred Stockholder in the amount of $100,000. The amount is due
and payable on October 16, 1995. The interest rate is twelve percent (12%) per
annum, and the note is unsecured. The note was issued to fund advance royalties
to a third party to secure the distribution rights to certain pediatric triage
guidelines.
The Company's operating results continue to be inconsistent on a month-to-month
basis and are dependent upon retention and performance of the Company's sales
staff, long product sales cycles related in part to pricing of the Company's
products and customer budget requirements, and to other factors, such as
uncertainties associated with the healthcare market and economic conditions,
beyond the control of the Company. The Company, however, will continue to
evaluate methods to improve and increase its product distribution channels and
to enhance or expand its current product lines.
13
<PAGE>
The Company has expanded and will continue to improve and enhance its product
lines in order to be more responsive to the market. The Company's management
believes that quarterly operating results are dependent and will continue to be
dependent on the initial license fee revenues in the foreseeable future. The
Company will continue to focus its efforts on improving cash from operations,
recurring revenue and increasing its operating income. The recurring monthly
revenue from support fees, material sales and services is currently not
sufficient to maintain a break-even level of the Company's current operating
expense levels.
Additional support staff requirements and related operating expenses will be
dependent on sales levels of the Company's products. The Company expects that
additional space will be taken and staff will be hired during its current fiscal
year (ending January 31, 1996) and additional capital resources will be needed
to fund this growth and expansion. In the past the Company has funded its growth
primarily through cash from operations and its existing bank line of credit. The
Company believes that while its current operations can be supported by available
resources, provided that adequate working capital financing arrangements are
obtained, growth of the Company's business may no longer be funded solely by
internal operations. The Company is currently evaluating ways to generate
additional sources of capital, including obtaining a line of credit through
asset-based financing of its accounts receivable and a future secondary stock
offering. Although management believes that available borrowings, the additional
working capital arrangements currently being sought, coupled with cash flow from
operations will be adequate for its operating needs for fiscal 1996, there are
no assurances the Company will be successful at raising additional capital.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits required by Item 601 of Regulation S-B.
NONE
15
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
National Health Enhancement Systems, Inc.
(Registrant)
Date: May 14, 1996 /s/ Gregory J. Petras
-------------------- ----------------------
Gregory J. Petras, President and
Chief Executive Officer
Date: May 14, 1996 /s/ Jeffrey T. Zywicki
---------------------- -----------------------
Jeffrey T. Zywicki, Senior Vice President
Finance and Treasurer
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> APR-30-1995
<EXCHANGE-RATE> 1
<CASH> 1,160,498
<SECURITIES> 0
<RECEIVABLES> 3,314,921
<ALLOWANCES> 612,432
<INVENTORY> 0
<CURRENT-ASSETS> 5,256,630
<PP&E> 798,857
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,397,407
<CURRENT-LIABILITIES> 6,704,084
<BONDS> 0
0
0
<COMMON> 125
<OTHER-SE> 233,717
<TOTAL-LIABILITY-AND-EQUITY> 7,397,407
<SALES> 3,504,652
<TOTAL-REVENUES> 3,504,652
<CGS> 839,760
<TOTAL-COSTS> 3,727,468
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 45,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (222,816)
<EPS-PRIMARY> ($0.06)
<EPS-DILUTED> 0
</TABLE>
