<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended July 31, 1997
---------------------
[ NO FEE REQUIRED]
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
------------------ -------
Commission file Number 33-9396-LA
-----------------------
National Health Enhancement Systems, Inc.
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Delaware 86-0460312
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
17th Floor
3200 North Central Avenue
Phoenix, Arizona 85012
(Address of principal executive offices) (Zip Code)
Issuer's telephone number 602-230-7575
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ] No [ ].
The number of shares of the Registrant's common stock issued and outstanding was
5,584,362 at July 31, 1997.
Transitional Small Business disclosure format (check one):
Yes [ ] No [ X ].
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheet as of July 31, 1997 3
Consolidated Statements of Operations for the three months and six months ended
July 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the six months ended July 31, 1997 and
1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 4. Submission of matters to a vote of security holders 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. - CONSOLIDATED FINANCIAL STATEMENTS
NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF JULY 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,679,444
Accounts receivable, net of allowance
for doubtful accounts of $1,026,054 10,540,643
Prepaid expenses, deferred costs and supplies 2,267,428
-----------
Total current assets 15,487,515
CAPITALIZED SOFTWARE DEVELOPMENT COSTS,
net of accumulated amortization of $3,763,503 1,397,905
PROPERTY AND EQUIPMENT, net 2,377,030
EXCESS OF COST OVER
FAIR VALUE OF NET ASSETS ACQUIRED, net 675,705
OTHER ASSETS, net 426,943
-----------
$20,365,098
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of notes payable and
obligations under capital leases $ 794,271
Accounts payable 1,341,771
Accrued liabilities 5,053,431
Deferred revenue 6,853,449
-----------
Total current liabilities 14,042,922
-----------
NOTES PAYABLE AND OBLIGATIONS UNDER CAPITAL LEASES,
net of current installments 298,944
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 10,000,000
shares authorized, 5,905,422 shares issued
and 5,584,362 shares outstanding 5,584
Capital contributed in excess of par value 7,055,704
Accumulated deficit (1,034,491)
Treasury stock, 3,565 shares, at cost (3,565)
-----------
6,023,232
-----------
$20,365,098
===========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
3
<PAGE> 4
NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
--------------------------- ---------------------------
1997 1996 1997 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Initial license fees and computer
hardware $3,652,059 $2,869,178 $ 6,622,564 $ 6,504,737
Support fees, marketing services,
material sales and other 4,552,523 2,866,078 9,151,699 5,158,713
---------- ---------- ----------- -----------
Total revenues 8,204,582 5,735,256 15,774,263 11,663,450
---------- ---------- ----------- -----------
OPERATING EXPENSES:
Cost of initial license fees
and computer hardware 1,125,307 1,043,350 1,998,646 2,229,183
Cost of support, marketing services,
materials sales and other 1,441,385 1,252,992 2,947,768 2,226,994
Product development 705,787 608,901 1,443,381 1,163,149
Sales and marketing 2,796,290 2,071,524 5,505,069 4,295,711
General and administrative 1,113,850 776,165 2,030,766 1,323,107
Depreciation and amortization 474,589 352,478 918,516 665,568
Provision for doubtful accounts 52,000 75,000 103,369 130,000
---------- ---------- ----------- -----------
Total operating expenses 7,709,208 6,180,410 14,947,515 12,033,712
---------- ---------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 495,374 (445,154) 826,748 (370,262)
PROVISION FOR INCOME TAXES (140,589) -- (257,071) --
---------- ---------- ----------- -----------
Net income (loss) $ 354,785 $ (445,154) $ 569,677 $ (370,262)
========== ========== =========== ===========
NET INCOME (LOSS) AVAILABLE
FOR COMMON STOCKHOLDERS $ 354,785 $ (445,154) $ 569,677 $ (370,262)
========== ========== =========== ===========
NET INCOME (LOSS) PER
COMMON SHARE $ 0.05 $ (0.10) $ 0.09 $ (0.09)
========== ========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 6,631,398 4,305,146 6,598,543 4,269,819
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE> 5
NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JULY 31, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $569,677 $(370,262)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities-
Depreciation and amortization 918,516 665,567
Provision for doubtful accounts 103,369 130,000
Changes in assets and liabilities-
Accounts receivable 276,898 (44,157)
Prepaid expenses, deferred costs and supplies (745,676) (737,349)
Accounts payable (879,994) 408,257
Accrued liabilities 100,456 1,150,348
Deferred revenue 217,802 799,937
---------- ----------
Net cash provided by operating activities 561,048 2,002,341
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (539,813) (479,093)
Payments for capitalized software
development costs (585,371) (377,898)
Increase in other assets (134,080) (166,505)
---------- ----------
Net cash used in investing activities (1,259,264) (1,023,496)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 815,819
Proceeds from exercise of stock options 68,692 24,350
Net proceeds (payments) on credit facilities 341,344 (1,306,423)
Principal payments on capital leases (206,436) (465,434)
---------- ----------
Net cash provided by (used in)
financing activities 203,600 (931,688)
---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (494,616) 47,157
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD 3,174,060 1,477,769
---------- ----------
CASH AND CASH EQUIVALENTS
END OF QUARTER $2,679,444 $1,524,926
========== ==========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ 61,915 $ 92,544
========== ==========
Cash paid for income taxes $ 360,000 $ 44,700
========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND
INVESTING ACTIVITIES:
Property and equipment acquired
Under capital leases $ 16,000 $ 253,245
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 6
NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
(1) ORGANIZATION AND BASIS OF PRESENTATION:
National Health Enhancement Systems, Inc. (the Company) was incorporated in July
1983 as AHI Limited for the purpose of developing, licensing and marketing
health evaluation programs to hospitals, medical groups, clinics and physicians.
In October 1986, the Company changed its name to National Health Enhancement
Systems, Inc. and reincorporated in the state of Delaware. The Company
specializes in products and services used in the delivery of nurse triage and
care management via telephone.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiaries, First Strategic Group, Ltd. (FSG), NHE
Systems, Inc. (NHE) and Expert Systems, Inc. (ESI), as well as Health
Enhancements International, Inc. (HEI) which is 90% owned by the Company. All
significant intercompany transactions have been eliminated in consolidation.
INTERIM FINANCIAL REPORTING
The accompanying unaudited Consolidated Financial Statements of the Company have
been prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q. Accordingly,
they do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows for the periods presented have been made. The results of operations
for the six month period ended July 31, 1997, are not necessarily indicative of
the operating results that may be expected for the entire fiscal year ending
January 31, 1998. Certain prior period amounts have been reclassified to conform
to the July 31, 1997 presentation. These financial statements should be read in
conjunction with the Company's Form 10-KSB for the fiscal year ended January 31,
1997.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosures of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported periods. Actual results
could differ from those estimates.
ACQUISITION OF EXPERT SYSTEMS, INC.
On February 18, 1997 the Company completed the acquisition of Expert Systems,
Inc. (ESI), a developer and distributor of telephone and database technologies
to create voice features for computer telephone applications. Under the terms of
the acquisition, accounted for as a pooling of interests in accordance with
Accounting Principles Board Opinion No. 16, the Company issued 465,299
restricted shares, and 59,701 options to purchase shares, of the Company's
common stock for all of ESI's outstanding shares and options at an exchange rate
of .09537 shares of the Company's common stock for each share of ESI stock. Of
the shares issued in the transaction, 46,529 are escrowed securing an indemnity
obligation in favor of the Company.
The results of operations of the Company and ESI were combined as of the date of
acquisition and all prior periods presented have been restated to give effect to
the acquisition, as if it occurred at the beginning of each period presented.
(2) NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share and common share equivalent is computed by
dividing the net income (loss) by the weighted average number of common shares
and common share equivalents assumed outstanding during the period. The
difference between primary and fully diluted net income (loss) per common share
is not material.
6
<PAGE> 7
(3) RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings Per Share, which supersedes Accounting Principal Board Opinion No. 15,
the existing authoritative guidance. SFAS No. 128 is effective for financial
statements for both interim and annual periods ending after December 15, 1997
and requires restatement of all prior-period earnings per share data presented.
The new statement modifies the calculations of primary and fully diluted
earnings per share and replaces them with basic and diluted earnings per share.
The following table sets forth the pro-forma effect on net income (loss) per
common share for the three and six months ended July 31, 1997 and 1996 assuming
the Company had adopted SFAS No. 128 at the beginning of each period presented:
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
--------------------------- ---------------------------
1997 1996 1997 1996
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Basic $0.07 $(0.10) $0.11 $(0.09)
Diluted $0.05 $(0.10) $0.09 $(0.09)
</TABLE>
(4) EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
The excess of the cost over the fair value of net assets acquired resulted from
the acquisition of FSG, and is being amortized over ten years using the
straight-line method. During the second quarter, 47,696 shares of Common Stock,
valued at $244,591, were released from escrow pursuant to a purchase agreement
and were allocated to excess of cost over fair value of net assets acquired.
7
<PAGE> 8
PART I. FINANCIAL INFORMATION
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except as noted herein, all references to the Company or NHES include the
Company and its consolidated subsidiaries.
National Health Enhancement Systems, Inc. (the Company), is a leading health
information and technology company specializing in products and services used in
the delivery of nurse triage and care management via telephone. These products
include clinical software used by licensed health care professionals 24 hours
per day, 7 days per week to assist telephone callers with their medical
concerns. NHES has over 700 clients nationwide, including hospitals, integrated
delivery systems, physician group practices, HMO's, indemnity insurance
companies and self-insured employers as part of its installed base of clients.
In addition to the health care organizations previously described, clients and
prospects also include PPO's, CHAMPUS, government programs, children's
hospitals, Medicare/Medicaid and military organizations. The Company also
utilizes its own software and employs its own licensed health care professionals
to deliver nurse triage and care management under outsourcing arrangements
through its recently established Medical Call Center Services Division.
Results of Operations
Net income for the second quarter of 1997 was $354,785 compared to a net loss of
$445,154 for the second quarter of 1996, an increase of 180%. For the first six
months of 1997, the Company had net income of $569,677 compared with a net loss
of $370,262 for the same period during 1996, an increase of 254%. For the second
quarter of 1997, net income per common share was $.05 compared with a net loss
per common share of $.10 for the second quarter of 1996. For the first six
months of 1997, net income per share was $.09 compared with a net loss per
common share of $.09 for the first six months of 1996. This improvement can be
primarily attributed to improved initial license fee sales and continued growth
in the Company's recurring revenue base. The Company is continuing to refocus
its sales resources to more effectively sell core products and call center
services. The increase in the weighted average shares outstanding reflects two
private placement transactions in the latter part of fiscal 1997 and outstanding
options which were not included in the prior year calculations because of the
antidilutive effect they would have on the net loss.
REVENUES. Total revenues for the second quarter of 1997 increased 43% to
$8,204,582 compared to total revenues of $5,735,256 for the second quarter of
1996. For the first six months of 1997, revenues were up 35% to $15,774,263
compared with revenues for the first six months of 1996 of $11,663,450. This
increase is primarily related to growth in core software products, call center
revenue for which there was no corresponding amount in the prior periods
(started in September 1996), increase in maintenance and support, and consulting
services. Initial license fee revenue is derived primarily from the licensing of
the Company's core software and audio products -- Centramax.M(TM), Centramax.M
Plus(TM), Pediatric Triage and Advice System(TM), Parent Advice Line(TM), and
Voicemax Plus(TM) -- and the Company's value-added products and services -- such
as Patient Assessment System(TM) and Newcomer Program (TM). Revenue from
Support, Marketing, Material Sales and Other represents primarily post-contract
software maintenance and support, creative marketing services, medical call
center revenue and consulting services.
COST OF INITIAL LICENSE FEES AND COMPUTER HARDWARE. Cost of initial license fees
and computer hardware costs increased to $1,125,307 for the second quarter of
1997 from $1,043,350 for the second quarter of 1996, an increase of $81,957 or
8%. For the first six months of 1997, these costs were $1,998,646 compared with
$2,229,183 over the same period during 1996, which is a decrease of $230,537 or
10%. These costs represent costs incurred to implement and install the Company's
core products, including hardware costs and training. The fluctuation between
periods relates to a change in the product sales mix and expense reduction
initiatives including favorable changes to royalty agreements, lower cost of
hardware and recovery of training costs.
COST OF SUPPORT, MARKETING SERVICES, MATERIALS SALES AND OTHER. Cost of support,
marketing services, materials sales and other increased to $1,441,385 for the
second quarter of 1997 compared to $1,252,992 for the second quarter of 1996, an
increase of $188,393 or 15%. For the first six months of 1997, these costs were
$2,947,768 compared to $2,226,994 for the same period in 1996, which is an
increase of $720,774 or 32%. These costs represent expenses associated with
providing annual support including third party license fees and technical
assistance, variable costs associated with services provided by the Company's
subsidiary FSG, and printing costs associated with the Patient Assessment
System(TM) and Health Direct products. The increase is a direct result of the
growth of the Company's recurring revenue base.
PRODUCT DEVELOPMENT COSTS. Product development costs were $705,787 for the
second quarter of 1997 compared to $608,901 for the second quarter of 1996. For
the first six months of 1997, these costs were $1,443,381 compared to $1,163,149
for the same period during 1996. Product development costs relate to the
technological improvements and enhancements being made to the Company's product
mix and costs incurred to establish the technological feasibility of products
currently under development. The increase is the result of the Company's
continued investment in product enhancement and expansion.
8
<PAGE> 9
SALES AND MARKETING. Sales and marketing expenses were $2,796,290 for the second
quarter of 1997 compared to $2,071,524 for the second quarter of 1996. For the
first six months of 1997, these expenses were $5,505,069 compared to $4,295,711
the same period during 1996. This increase reflects the Company's continued
investment in selling and marketing resources.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $1,113,850
for the second quarter of 1997 compared to $776,165 for the second quarter of
1996. For the first six months of 1997 these expenses were $2,030,766 compared
to $1,323,107 for the same period during 1996. As a percent of revenues, these
expenses remained constant at approximately 13.5% for the second quarter of 1997
compared with the same period in 1996 and slightly increased to 12.9% from 11.3%
for the first six months of 1997 as compared with the same period in 1996. The
increase in general and administrative expenses reflects the additional support
needed for the overall rapid growth of the Company, including the new Medical
Call Center Services Division and other product expansion.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $474,589 for
the second quarter of 1997 compared to $352,478 for the second quarter of 1996.
For the first six months of 1997 total depreciation and amortization was
$918,516 compared to $665,568 for the same period during 1996. This increase in
depreciation and amortization is due to the addition of furniture and equipment
needed for new hires, predominantly in the Medical Call Center Services Division
and sales divisions.
The Company's operations are affected by consolidation, alliances and mergers in
the health care market. 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 health care industry. The Company's
management also believes its products help health care providers improve their
services and also help reduce health care costs by providing objective
information on health care issues to individuals, thereby enabling them to make
informed choices about when, where and how to seek health care services and
reduce health care costs while providing providers and payors with a favorable
return on their investment in the Company's products. Nonetheless, the Company's
operations may be materially and adversely affected by consolidation, alliances
and mergers in the health care industry, health care reform in the private or
public sector, and by future economic conditions.
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. 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, which may result in volatility in the price of the Company's common
stock.
LIQUIDITY AND CAPITAL RESOURCES.
As of July 31, 1997, the Company had working capital of $1,444,593 compared to a
deficiency in working capital of $1,478,167 at July 31, 1996. The improvement in
working capital was a result of the Company's private equity placements in
fiscal year 1997 and to the significant improvement in results of operations.
Cash provided by operating activities was $561,048 for the period ended July 31,
1997, compared to $2,022,341 for the period ended July 31, 1996.
On October 23, 1996 the Company obtained a revolving line of credit providing up
to $2,500,000. The revolving line of credit bears interest at prime plus 2%, and
is secured by accounts receivable and matures on October 22, 1997. The
availability of borrowing on the revolving line of credit is subject to
available eligible accounts receivable and certain other covenants. If
necessary, the Company believes it will be able to renew or replace the
revolving line of credit by October 22, 1997, the date at which the current
revolving line agreement expires, although there are no assurances. The Company
also obtained an "interest only" borrowing line of $250,000 from the same lender
at prime plus 2% secured by equipment, and is convertible to an amortizing loan.
As of July 31, 1997, the Company maintains an outstanding balance of $241,000 on
this loan.
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 health care market and economic conditions,
beyond the control of the Company. The Company, however, has and will continue
to evaluate methods to improve and increase its product distribution channels
and to enhance or expand its current product lines. The Company has expanded,
and will seek to continue to improve and enhance its product lines in order to
be more responsive to the market. The Company believes that quarterly operating
results are dependent, and will continue to be dependent, on the initial license
fee revenues in the foreseeable future as well as the continued growth of the
recurring revenue base. The Company will continue to focus its efforts on
improving cash from
9
<PAGE> 10
operations, increasing support revenues, increasing revenue in the new call
center division as well as developing international sales opportunities. The
recurring monthly revenue from support fees, material sales, services and other,
is currently not sufficient to maintain a breakeven level at the Company's
current operating expense levels.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The discussion above includes statements which constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, which are statements other than historical fact, that involve risks and
uncertainties. In addition to the factors discussed elsewhere herein, important
factors may cause the Company's actual results to differ materially from these
and any future forward-looking statements by or on behalf of the Company. Those
factors include, among others, uncertainties and delays in the development and
marketing of new products and services, product and services demand and market
acceptance risks, the Company's ability or inability to obtain additional
financing, the impact of competitive products, services and pricing, continued
rapid change and consolidation in the health care market, general changes in
economic conditions not presently contemplated, and other factors detailed in
the Company's Securities and Exchange Commission filings.
10
<PAGE> 11
PART II. OTHER INFORMATION
Item 4. - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On June 10, 1997, the Company held its annual meeting of stockholders. In
addition to electing directors at the annul meeting, the stockholders approved
the adoption of the 1997 Equity Incentive Plan which initially reserves 250,000
shares and 150,000 shares of incentive stock options and other stock options,
respectively. Of the common stock entitled to vote at the meetings, 4,513,516
shares were voted in favor of the 1997 Equity Incentive Plan, 53,541 shares were
voted against and 14,489 shares abstained from voting.
All the nominees for directors of the Company as listed in the proxy statement
were elected as follows:
<TABLE>
<CAPTION>
DIRECTORS VOTES FOR VOTES AGAINST
--------- --------- -------------
<S> <C> <C>
Gregory J. Petras 4,583,447 19,194
Gardiner S. Dutton 4,583,447 19,194
James W. Myers 4,582,249 20,394
Steve D. Wood, Ph.D. 4,583,447 19,194
W. Cal McGraw 4,583,447 19,194
Mark E. Liebner 4,580,047 22,594
</TABLE>
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
A. All other schedules have been omitted because of the absence of conditions
under which they are required or because the required material information is
included in the Financial Statements or Notes to the Financial Statements
included herein.
(1) Exhibits required by Item 601 of Regulation S-B are set forth
on the Exhibit Index to this report which is hereby
incorporated herein by this reference.
B. Reports on Form 8-K for the quarter ended July 31, 1997
None.
11
<PAGE> 12
SIGNATURES
In accordance with the Exchange Act, the registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
National Health Enhancement Systems, Inc.
(Registrant)
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Gregory J. Petras Chairman and Chief Executive 09-12-97
-------------------------- Officer
Gregory J. Petras
/s/ Earl E. Bray Chief Financial Officer 09-12-97
--------------------------
Earl E. Bray
</TABLE>
12
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE OR
NUMBER DESCRIPTION METHOD OF FILING
------ ----------- ----------------
<S> <C> <C>
27 Financial Data Schedule Filed Herewith
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JUL-31-1997
<CASH> 2,679,444
<SECURITIES> 0
<RECEIVABLES> 11,566,697
<ALLOWANCES> 1,026,054
<INVENTORY> 0
<CURRENT-ASSETS> 15,487,515
<PP&E> 4,595,901
<DEPRECIATION> 2,218,871
<TOTAL-ASSETS> 20,365,098
<CURRENT-LIABILITIES> 14,042,922
<BONDS> 0
0
0
<COMMON> 5,584
<OTHER-SE> 6,017,648
<TOTAL-LIABILITY-AND-EQUITY> 20,365,098
<SALES> 15,774,263
<TOTAL-REVENUES> 15,774,263
<CGS> 4,946,414
<TOTAL-COSTS> 14,947,515
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 826,748
<INCOME-TAX> 257,071
<INCOME-CONTINUING> 569,677
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 569,677
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
