SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 33-18099-NY and 33-23169-NY
PHASEOUT OF AMERICA, INC.
(Exact Name of small business issuer as specified in its charter)
DELAWARE 11-2873662
(State or other jurisdiction of (IRS Employer I.D. No.)
Incorporation or organization)
140, Broadway, Lynbrook, New York 11563
(Address of principal executive offices)
Issuer's telephone number, including area code: (516) 599-1900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934, during
the preceding 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 _____
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the last practicable date.
Class Outstanding at June 30, 1996
----- ----------------------------
Common Stock, par value
$.00003 per share 86,776,462
<PAGE>
PART 1 FINANCIAL INFORMATION
Item 1, financial statements
PHASE-OUT OF AMERICA, INC.
FINANCIAL STATEMENTS (Unaudited)
June 30, 1996
Financial Statements
Accountant's Disclaimer of Opinion F2
Balance Sheets F3 to F4
Statements of Operations F5
Statements of Cash Flows F6
Schedules of General and Administrative Expenses F7
Notes to Financial Statements F8 to F10
Management's Discussion and Analysis F11 to F12
-F1
<PAGE>
Stewart W. Robinson
Certified Public Accountant
450 Seventh Ave., Suite 1009
New York, NY 10123
Tel (212) 629-7323 Fax (212) 629-7052
ACCOUNTANT'S DISCLAIMER OF OPINION
Shareholders and
Board of Directors
Phase-Out of America, Inc.
Lynbrook, New York
The accompanying balance sheet of Phase-Out of America, Inc. as of June 30, 1996
and the related statements of operations, and cash flows, and schedule of
general and administrative expenses for the 6 and 3 months ended June 30, 1996
and 1995 were not audited by me and, accordingly, I do not express an opinion or
any other form of assurance on them.
STEWART W. ROBINSON
New York, New York
July 19, 1996
-F2
<PAGE>
PHASE-OUT OF AMERICA, INC.
BALANCE SHEETS (Unaudited)
June 30, December 31,
1996 1995
-------- --------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $124,266 $176,818
Restricted cash balances and escrow funds (A) 166,359
Accounts receivable-net of allowance for doubt-
ful accounts of $0 (1996) and $0 (1995) 48,072 71,967
Inventory -- stated at the lower of cost
or market - first-in first-out 124,524 99,300
Prepaid expenses 4,857 9,852
Other current assets -- 18,592
-------- --------
TOTAL CURRENT ASSETS 468,078 376,529
FIXED ASSETS, at cost, net of accumulated
depreciation of $15,575 (1996), $13,975 (1995) 5,950 7,550
SECURITY DEPOSITS 3,710 3,542
PATENTS - at cost, net of accumulated
amortization of $5,265 (1996) and $3,795 (1995) 41,735 43,205
OTHER ASSETS 108
-------- --------
$519,581 $430,826
======== ========
(A) Restricted cash balances and escrow funds consists of $55,000 held by a
lawyer related to "temporary media funding" and $111,359 held by a lawyer as
escrow related to the arbitration against the former television marketing firm
(see Note 6).
(continued on next page ...)
See accountant's disclaimer and notes to financial statements
-F3
<PAGE>
PHASE-OUT OF AMERICA, INC.
BALANCE SHEETS (Unaudited) -- Continued
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Temporary media funding (see restricted cash) $ 225,000 $ --
Senior subordinated convertible debentures, including
accrued interest of $26,958 (1996) and $24,958 (1995) 76,958 459,958
1992 convertible debentures - including accrued
interest of $7,926 (1996) and $8,265 (1995) 25,426 29,765
Accounts payable and accrued expenses 914,493 582,159
Taxes payable 8,674 8,077
Accrued officer compensation -- 144,160
Loans from Officer/Shareholder 22,650 31,650
Other current liabilities -- 26,176
----------- -----------
TOTAL CURRENT LIABILITIES 1,273,201 1,281,945
----------- -----------
STOCKHOLDERS' DEFICIENCY
Series A Convertible Preferred Stock, par
value $.001 per share -- authorized 600,000
shares -- no shares issued and outstanding
Series B Convertible Preferred Stock, par
value $.001 per share -- authorized 5,000,000
shares -- no shares issued and outstanding
Common stock, $0.00003 par value:
Authorized shares -- 100,000,000
Issued and outstanding shares --
86,776,462 at June 30, 1996
74,859,319 at December 31, 1995 2,604 2,246
Capital in excess of par 2,508,190 1,937,688
Accumulated deficit (3,264,414) (2,791,053)
----------- -----------
(753,620) (851,119)
----------- -----------
Related party transactions -- Note 4
Commitments and other comments -- Note 6
Subsequent events -- Note 7
$ 519,581 $ 430,826
=========== ===========
</TABLE>
See accountant's disclaimer and notes to financial statements
-F4
<PAGE>
PHASE-OUT OF AMERICA, INC.
STATEMENTS OF OPERATIONS AND DEFICIT (Unaudited)
Six Months Ended June 30,
1996 1995
----------- -----------
REVENUES:
Sales -- net $ 1,082,047 $ 214,522
Cost of sales 187,636 78,765
----------- -----------
Gross Profit 894,411 135,757
Selling expenses 903,362 246,552
General and administrative 408,275 348,199
----------- -----------
1,311,637 594,751
----------- -----------
(417,226) (458,994)
OTHER INCOME AND EXPENSES:
Interest expense (56,260) (12,552)
Other income -- 16,223
Interest income 125 62
----------- -----------
(56,135) 3,733
----------- -----------
Net loss (473,361) $(455,261)
===========
Deficit at beginning of year (2,791,053)
-----------
Deficit at end of quarter $(3,264,414)
===========
Loss per share $ (0.01) $ (0.01)
=========== ==========
Weighted average number
of shares outstanding 77,000,000 54,000,000
=========== ==========
See accountant's disclaimer and notes to financial statements
-F5
<PAGE>
PHASE-OUT OF AMERICA, INC.
STATEMENTS OF OPERATIONS AND DEFICIT (Unaudited)
Quarter Ended June 30,
1996 1995
---------- ----------
REVENUES:
Sales -- net $ 454,203 $ 169,840
Cost of sales 79,432 65,954
---------- ----------
Gross Profit 374,771 103,886
Selling expenses 363,613 138,963
General and administrative 197,969 155,594
---------- ----------
561,582 294,557
---------- ----------
(186,811) (190,671)
OTHER INCOME AND EXPENSES:
Interest expense (34,459) (7,382)
Other income --
Interest income 113 8
---------- ----------
(34,346) (7,374)
---------- ----------
Net loss $ (221,157) $ (198,045)
========== ==========
Loss per share $ NIL $ NIL
========== ==========
Weighted average number
of shares outstanding 80,000,000 55,000,000
========== ==========
See accountant's disclaimer and notes to financial statements PHASE-OUT
-F6
<PAGE>
OF AMERICA, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(473,361) $(455,261)
Adjustments to reconcile net income to cash used for operating activities:
Depreciation and amortization 3,070 2,871
(Increase) decrease in accounts receivable 23,895 (50,369)
(Increase) decrease in inventories (25,224) 78,765
Decrease (increase) in prepaid and other current 23,479 881
Increase (decrease) in accounts payable
accrued expenses and other current liabilities 306,158 41,506
(Decrease) increase in taxes payable 597 5,010
Increase in accrued officer compensation 67,083
Bond discount amortization 200
(Decrease) increase in amounts due affiliate (62,188)
Accrued interest on debentures and bonds (4,339)
Funds placed in escrow (111,359)
Expenses paid through the issuance of restricted common stock 43,700 220,150
--------- ---------
CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES (213,384) (151,352)
INVESTING ACTIVITIES
Acquisition of fixed and other assets (168)
--------- ---------
CASH (USED FOR)INVESTING ACTIVITIES (168)
--------- ---------
FINANCING ACTIVITIES
Payments on capital leases (1,551)
Proceeds of sales of Common Stock 50,000
Proceeds net of conversions on senior subordinated debentures 186,228
Repayment of advances from officer/stockholder (9,000)
Temporary media funds received, net of repayments
and client fund account balances 170,000
--------- ---------
CASH PROVIDED (USED FOR) BY FINANCING ACTIVITIES 161,000 234,677
--------- ---------
(DECREASE) INCREASE IN CASH (52,552) 83,325
Cash at beginning of year 176,818 24,541
--------- ---------
Cash at end of period $ 124,266 $ 107,866
========= =========
SUPPLEMENTAL INFORMATION
Interest paid during the year $ 35,560 $ 450
========= =========
Temporary media funds received $ 265,000 $ --
========= =========
Debt conversions to common stock $ 383,000 $ --
========= =========
Conversion of accrued officer salary to common stock $ 144,160 $ --
========= =========
</TABLE>
See notes to financial statements
-F7
<PAGE>
PHASE-OUT OF AMERICA, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
June 30,
1996 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(221,157) $(198,045)
Adjustments to reconcile net income to cash
used for operating activities:
Depreciation and amortization 1,535 1,435
(Increase) decrease in accounts receivable 17,527 (34,631)
(Increase) decrease in inventories (90,344) 65,954
Decrease (increase) in prepaid and other current 16,201 1,527
Increase (decrease) in accounts payable
accrued expenses and other current liabilities 164,625 40,315
(Decrease) increase in taxes payable (1,219) (290)
Increase in accrued officer compensation 26,083
Bond discount amortization 100
(Decrease) increase in amounts due affiliate (45,297)
Accrued interest on debentures and bonds 4,060
Funds placed in escrow (111,359)
Expenses paid through the issuance of restricted common stock 43,700 111,459
--------- ---------
CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES (176,431) (31,390)
INVESTING ACTIVITIES
FINANCING ACTIVITIES
Payments on capital leases (801)
Proceeds of sales of Common Stock 50,000
Proceeds on senior subordinated debentures, net of conversions 51,436
Repayment of advances from officer/stockholder (31,250)
Temporary media funds received, net of repayments
and client fund account balances 170,000
--------- ---------
CASH PROVIDED (USED FOR) BY FINANCING ACTIVITIES 138,750 100,635
--------- ---------
(DECREASE) INCREASE IN CASH (37,681) 69,245
Cash at beginning of quarter 161,947 38,621
--------- ---------
Cash at end of quarter $ 124,266 $ 107,866
========= =========
SUPPLEMENTAL INFORMATION
Interest paid during the quarter $ 14,810 $ 225
========= =========
Temporary media funds received $ 265,000 $ --
========= =========
Debt conversions to common stock $ 383,000 $ --
========= =========
Conversion of accrued officer salary to common stock $ 144,160 $ --
========= =========
</TABLE>
See notes to financial statements
-F8
<PAGE>
PHASE-OUT OF AMERICA, INC.
SCHEDULE OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Unaudited)
Six Months Ended
June 30,
1996 1995
-------- --------
SELLING EXPENSES:
Television marketing expense $221,250 $ --
Advertising and promotion 54,568 164,159
Fulfillment and credit card 127,492 15,715
Commissions and royalties 294,747 18,992
Travel and entertainment 45,177 21,233
Auto lease 18,127 10,984
Auto expense 6,164 7,046
Postage and shipping - net 39,203 8,423
Radio marketing expense 52,564 --
Royalty expense 44,070 --
-------- --------
$903,362 $246,552
======== ========
ENERAL AND ADMINISTRATIVE EXPENSES:
Officers' compensation $101,700 $150,795
Salaries 49,811 35,562
Consulting fees 3,400 76,731
Insurance expense 28,295 18,940
Professional fees 123,426 12,806
Telephone 18,331 11,394
Payroll taxes and employee benefits 24,955 7,357
Financing costs -- 3,126
Office and printing 26,165 10,398
Rent 9,000 6,750
Miscellaneous 11,658 2,834
Depreciation and amortization 3,070 2,869
Utilities 2,174 2,622
Equipment rental 1,004 2,989
Repairs and maintenance 3,040 1,188
Stock transfer fees 1,889 1,395
State Franchise Taxes 357 443
-------- --------
$408,275 $348,199
======== ========
See notes to financial statements
-F9
<PAGE>
PHASE-OUT OF AMERICA, INC.
SCHEDULE OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Unaudited)
Quarter Ended
June 30,
1996 1995
-------- --------
SELLING EXPENSES:
Television marketing expense $173,745 $ --
Advertising and promotion 34,898 92,889
Fulfillment and credit card 38,384 12,286
Commissions and royalties 31,778 5,688
Travel and entertainment 23,580 13,287
Auto lease 9,637 5,742
Auto expense 3,381 4,736
Postage and shipping - net 9,633 4,335
Radio marketing expense 17,712 --
Royalty expense 20,865 --
-------- --------
$363,613 $138,963
======== ========
GENERAL AND ADMINISTRATIVE EXPENSES:
Officers' compensation $ 49,700 $ 63,045
Salaries 24,867 17,802
Consulting fees 2,800 34,330
Insurance expense 12,249 8,522
Professional fees 58,619 657
Telephone 8,957 6,507
Payroll taxes and employee benefits 15,282 5,687
Financing costs -- 1,563
Office and printing 8,588 8,085
Rent 4,500 1,500
Miscellaneous 7,392 2,019
Depreciation and amortization 1,535 1,434
Utilities 775 1,388
Equipment rental 1,004 1,463
Repairs and maintenance 1,081 748
Stock transfer fees 620 401
State Franchise Taxes -- 443
-------- --------
$197,969 $155,594
======== ========
See notes to financial statements
-F10
<PAGE>
PHASE-OUT OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) -- see accountant's disclaimer
June 30, 1996
NOTE 1 -- BACKGROUND AND BASIS OF PRESENTATION
Phase-Out of America, Inc. (the Company) incorporated in Delaware on July 17,
1987 for the purpose of marketing and distributing the Phase-Out System smoking
cessation product (the "Product") nationally after obtaining scientific clinical
credibility through testing.
The financial statements have been prepared assuming that the Company will
continue as a going concern. The Company has, suffered recurring losses from
operations ($473,361 in 1996 and $455,261 in 1995), and has had limited
liquidity causing difficulty in meeting its current operating expense
obligations and debt service requirements. The Company is actively marketing the
product to help improve revenues and is planning to seek additional financing
through private placement of debt and securities. The financial statements do
not include any adjustments that might result should the continued existence of
the Company be threatened by any continued losses or the failure of the above
factors to influence the financial viability of the Company.
The interim statements were prepared pursuant to the requirements for reporting
on Form 10-QSB. The December 31, 1995 balance sheet was derived from audited
financial statements but does not include all disclosures required by generally
accepted accounting principles. The interim financial statements and notes
thereto should be read in conjunction with the financial statements and notes
included in the Company's latest Annual Report on Form 10-KSB for the year ended
December 31, 1995. In the opinion of management, the interim financial
statements reflect all adjustments of a normal recurring nature necessary for a
fair statement of the results for interim periods. The current period results of
operations are not necessarily indicative of the results for the entire year
ending December 31, 1996.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Changes in significant accounting policies:
There were no changes in significant accounting policies during the current
period.
Inventories:
The Company has possession and control (but not title) over a sufficient
quantity of Phase-Out devices to meet foreseeable near term customer orders.
Upon shipment of each item by the fulfillment house, payment is due to the
manufacturer at the agreed upon unit price plus $1.00 per unit to be applied to
old invoices.
NOTE 3 -- STOCKHOLDERS' EQUITY
Stock Issued to Officers, Consultants and Employees:
Through June 30, 1996, the Company issued 3,750,000 shares to officers and
467,143 shares to consultants.
-F11
<PAGE>
PHASE-OUT OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) -- see accountant's disclaimer
June 30, 1996
Conversion of Senior Subordinated Debentures:
In June 1996 (shares issued in July 1996) holders of Senior Subordinated
Debentures aggregating $385,000 in face amount converted the debt into 7,700,000
shares of common stock.
NOTE 4 -- RELATED PARTY TRANSACTIONS
Officers' Compensation:
Compensation and expense reimbursements and allowances for the President and
Vice President were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, Quarter Ended June 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash compensation $101,700 $135,045 $ 49,700 $ 63,045
Bonuses paid by issuance
of restricted common stock -- 15,750 --
-------- -------- -------- --------
$ 49,700 $ 63,045 $ 49,700 $ 63,045
-------- -------- -------- --------
Automobile lease 17,027 10,984 8,537 5,742
Automobile expenses 6,164 7,046 3,381 4,736
Entertainment expenses 45,177 21,233 23,580 13,287
Telephone expenses 4,487 2,250 2,440 750
</TABLE>
Loans from Officer/Stockholders:
An officer/stockholder is owed $22,650 by the Company. The amount is payable on
demand.
Other:
General Counsel to the Company is a relative an officer. The Company incurred
approximately $70,000 of legal fees with his firm in 1996.
NOTE 5 -- LONG TERM DEBT
See subsequent events footnote.
NOTE 6 -- COMMITMENTS, CONTINGENCIES AND OTHER COMMENTS
Dependence on Major Customers and Suppliers:
The Company is dependent on a few major customers and marketing methods affected
by relationships with third party marketers for substantially all of its
revenues. Direct response TV sales represented approximately 58% of of total
sales. A small portion of these sales were made through a marketing firm whose
relationship has terminated and the that Company is presently in litigation
with. Export sales represent approximately 26% of sales with only one export
customer representing more than 10% of total sales.
-F12
<PAGE>
PHASE-OUT OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) -- see accountant's disclaimer
June 30, 1996
The Company is currently dependent on one supplier for their inventory. As of
March 31, 1996, the Company owed this supplier approximately $265,000 for debt
assumed from its affiliate, P&P. The Company has recently made arrangements with
this manufacturer to pay down the liability at the rate of $1.00 for each unit
it ships, plus the unit price. As of June 30, 1996, this supplier is owed
$411,467.
Regulatory matters:
There have been no changes in the status of regulatory inquiries by by the Food
and Drug Administration (FDA) and the Federal Trade Commission (FTC).
Temporary media funding:
In the first quarter of 1996, the Company borrowed $15,000 from an individual
and $25,000 from a director to finance the airing of the Company's television
infomercial. In the second quarter, an additional $250,000 was borrowed.
Litigation:
The Company is party to the following lawsuits:
A former lawyer is suing the Company for unpaid fees and disbursements
approximating $36,000. Management intends to defend vigorously all but
approximately $16,000 of the claim. The balance included in accounts payable is
approximately $16,000.
The Company is in arbitration with a former Television Marketing firm, On-Air
Infonetworks, Inc. The Company is placing funds in escrow to fund the settlement
of this matter. Legal counsel has not been able to give an opinion as to the
ultimate outcome or the amount of any potential settlement. In April 1996,
On-Air obtained a temporary restraining order which has since been lifted upon
the Company's agreement to place funds in escrow. There has been no substantial
change in this matter since the issuance of the December 31, 1995 financial
statements.
NOTE 7 -- SUBSEQUENT EVENTS
Private Placement of Common Stock:
In July 1996, a group of investors acquired 19,557,950 shares of the Company's
common stock (representing 18% of total shares outstanding) for $500,000. In
connection with this investment, the two leaders of this group where elected to
the Board of Directors. Additionally, one of the two leaders of the investment
group was appointed Secretary/Treasurer.
-F13
<PAGE>
Phase-Out Of America, Inc.
Management's Discussion and Analysis
Results of Operations
Six Months Ended June 30, 1996 Compared
to Six Months Ended June 30, 1995
The Company incurred a net loss of $473,361 for the 6 months ended June 30, 1996
as compared to the loss of $455,261 for the 6 months ended June 30, 1995. 6
month revenues increased 5 times compared to the same period last year
(approximately 46,000 units for a total of $1,082,047 in 1996 compared to
approximately 23,500 units for a total of $214,522 in 1995). The improvement in
revenues resulted from retail sales of the product through television direct
response methods. This represents substantially higher unit selling prices as
well as increases in unit volume. Although increased revenues are reflected in
gross profit, there are substantial additional costs associated with
distribution through this channel, substantially reducing the net benefit of the
sales increase to the Company.
Selling expenses increased to $903,362 from $246,552 (an increase of 266%).
General and administrative expenses remained stable at $408,275 from $348,199
(17% increase). Of the total selling general & administrative expenses, $43,700
and $220,150 was paid in the form of restricted common stock (a non-cash item),
respectively for 1996 and 1995. Total officer salaries declined to $101,700 in
1996compared to $150,795 for 1995 because of caps on officer compensation placed
by the Board of Directors.
Television and radio marketing costs, commissions, royalties and fulfillment, in
the aggregate increased 21 times to $740,123 in 1996 form $34,707 due primarily
to the arrangement with On-Air.
The gross profit margin increased to 83% from 63%, due to the high volume of
direct response television sales.
The Company maintains a $500,000 liability insurance policy.
Liquidity and Capital Resources
Cash of $213,384 was used for operations for the 6 months ended June 30, 1996 as
compared to $151,352 used in the same period of last year. Cash decreased during
the 6 months ended June 30, 1996 by $52,552.
Short term liquidity is being affected by the need for cash to maintain a steady
flow of inventory now that sales have increased. The present arrangement with
the manufacturer is that goods are presently held on consignment, with the
obligation to pay only upon shipment to customers. Additionally, the previous
liability to the manufacturer is paid down at the rate of $1 additional dollar
per unit shipped.
The product's domestic success depends heavily on reaching potential customers
through advertising and other marketing methods requiring additional cash flow
for this purpose.
In July 1996, a group of investors acquired 19,557,950 shares of the Company's
common stock (representing 18% of total shares outstanding) for $500,000. This
should alleviate any near term concerns regarding the ability of the Company to
meet its current obligations.
The Company's working capital has deteriorated due to the use of current assets
for operations and
-F14
<PAGE>
Phase-Out Of America, Inc.
Management's Discussion and Analysis
increases in accounts payable. Working capital and current ratios were:
June 30, December 31 June 30,
1996 1995 1995
--------- --------- ---------
Working capital
(deficiency) $(805,123) $(905,416) $(439,249)
Current ratios 0.37:1 0.29:1 0.39:1
Distribution and Marketing
During 1995 the Company's increased television media exposure for the PHASEOUT
device which helped marketing efforts in other marketing venues such as
catalogs, radio, syndication and export sales. The Company has entered into
marketing agreements in several countries already and is in discussion with many
more. Management is of the opinion that international sales will represent the
significant portion of the Company's overall revenues in the near future.
The Company introduced two new product lines last year. The first was a
comprehensive self-help quit smoking program targeting corporations, insurance
companies, HMO's and consumers. This program combines the PhaseOut device with
the latest behavior modification techniques. The second product line consists of
eight consumable products for smokers and former smokers. These initial eight
products are: a stain fighting toothpaste, a breath mint, a weight loss
supplement, a smoker's vitamin, a calcium supplement, an anti-stress product, a
one a day coated aspirin and a alpha-hydroxy skin cream.
The Company, in cooperation with our South Korean distributor, has developed an
upgraded PHASEOUT unit, which was designed primarily for the Japanese market and
for use in South Korea.
Regulatory Matters
There have been no material changes in the status of matters pending before the
Food and Drug Administration (FDA) and the Federal Trade Commission (FTC).
-F15
<PAGE>
PART II -OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been sued by a former attorney for fees it alleges are
due but unpaid in the amount of approximately $36,000. Management
intends to vigorously defend all but approximately $16,000 of the
claim. The financial statements include a liability for $16,000
payable to this party. Legal counsel has not rendered an opinion as to
the ultimate outcome of this matter.
The Company has commenced an action against On-Air Infonetwork for
damages sustained as a result of its failure to perform under the
agreement. During the first half of 1996, in connection with this
matter, the Company set aside $111,000 in a special escrow account
with its legal counsel.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
See notes to the financial statements.
Item 6. Exhibits and Reports
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registration has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHASE-OUT OF AMERICA, INC.
Dated: August 22, 1996
----------------------------------
Irwin Pearl
President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 124,266
<SECURITIES> 0
<RECEIVABLES> 48,072
<ALLOWANCES> 0
<INVENTORY> 124,524
<CURRENT-ASSETS> 468,078
<PP&E> 21,525
<DEPRECIATION> 15,575
<TOTAL-ASSETS> 519,581
<CURRENT-LIABILITIES> 1,273,201
<BONDS> 102,384
0
0
<COMMON> 2,604
<OTHER-SE> (756,224)
<TOTAL-LIABILITY-AND-EQUITY> 519,581
<SALES> 1,082,047
<TOTAL-REVENUES> 1,082,047
<CGS> 187,636
<TOTAL-COSTS> 187,636
<OTHER-EXPENSES> 1,311,637
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,260
<INCOME-PRETAX> (473,361)
<INCOME-TAX> 0
<INCOME-CONTINUING> (473,361)
<DISCONTINUED> 0
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</TABLE>
