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 September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number: 33-18099-NY and 33-23169-NY
PHASE-OUT OF AMERICA, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 11-2873662
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
Incorporation or organization)
6900 Jericho Turnpike, Suite 300W, Syosset, NY 11791
(Address of principal executive offices)
Issuer's telephone number, including area code: (516) 599-1900
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 [ ]
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 Sept. 30, 1996
Common stock, par value
$.00003 per share 106,544,979
<PAGE>
PART 1 FINANCIAL INFORMATION
Item 1, financial statements
PHASE-OUT OF AMERICA, INC.
FINANCIAL STATEMENTS (Unaudited)
September 30, 1996
Financial Statements
Accountant's Disclaimer of Opinion F2
Balance Sheets F3 to F4
Statements of Operations F5 to F6
Statements of Cash Flows F7 to F8
Schedules of General and Administrative Expenses F9 to F10
Notes to Financial Statements F11 to F13
Management's Discussion and Analysis F14 to F15
-F1-
<PAGE>
Stewart W. Robinson
Certified Public Accountant
450 Seventh Avenue, 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 September 30,
1996 and the related statements of operations, and cash flows, and schedule of
general and administrative expenses for the 9 months ended September 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
October 28, 1996
-F2-
<PAGE>
PHASE-OUT OF AMERICA, INC.
BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---- ----
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $340,618 $176,818
Restricted cash balances and escrow funds (A) 344,697
Accounts receivable-net of allowance for doubt-
ful accounts of $ 0 (1996) and $ 0 (1995) 26,137 71,967
Inventory -- stated at the lower of cost
or market - first-in first-out 59,913 99,300
Prepaid expenses 11,753 9,852
Other current assets -- 18,592
-------- --------
TOTAL CURRENT ASSETS 783,118 376,529
FIXED ASSETS, at cost, net of accumulated
depreciation of $6,375 (1996), $3,975 (1995) 5,150 7,550
SECURITY DEPOSITS 3,710 3,542
PATENTS - at cost, net of accumulated
amortization of $6,000 (1996) and $3,795 (1995) 41,000 43,205
OTHER ASSETS 108
-------- --------
$833,086 $430,826
======== ========
</TABLE>
(A) Restricted cash balances and escrow funds consists of $55,000 held by a
lawyer related to "temporary media funding"; $121,697 held by a lawyer as escrow
related to the arbitration against the former television marketing firm (see
Note 6) and, $168,000 held against a letter of credit.
(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>
September 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 $1,250 (1996) and $24,958 (1995) 51,250 459,958
1992 convertible debentures - including accrued
interest of $4,900 (1996) and $8,265 (1995) 14,900 29,765
Accounts payable and accrued expenses 838,970 582,159
Taxes payable 8,756 8,077
Accrued officer compensation -- 144,160
Loans from Officer/Shareholder 22,650 31,650
Other current liabilities -- 26,176
---------- ----------
TOTAL CURRENT LIABILITIES 1,161,526 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 --
106,544,979 at September 30, 1996
74,859,319 at December 31, 1995 3,197 2,246
Capital in excess of par 3,017,355 1,937,688
Accumulated deficit (3,348,992) (2,791,053)
----------- -----------
(328,440) (851,119)
----------- -----------
Related party transactions -- Note 4
Commitments and other comments -- Note 6
$ 833,086 $ 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)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1996 1995
---- ----
<S> <C> <C>
REVENUES:
Sales -- net $ 1,308,520 $ 1,007,312
Cost of sales 252,247 166,667
------------ ------------
Gross Profit 1,056,273 840,645
Selling expenses 988,706 1,000,116
General and administrative 558,448 504,978
------------ ------------
1,547,154 1,505,094
------------ ------------
(490,881) (664,449)
OTHER INCOME AND EXPENSES:
Interest expense (69,525) (35,122)
Other income -- 22,518
Interest income 2,467 66
------------ ------------
(67,058) (12,538)
------------ ------------
Net loss (557,939) $ (676,987)
============
Deficit at beginning of year (2,791,053)
------------
Deficit at end of quarter $ (3,348,992)
============
Loss per share $ (0.01) $ (0.01)
============ ============
Weighted average number
of shares outstanding 89,000,000 54,000,000
============ ============
</TABLE>
See accountant's disclaimer and notes to financial statements
-F5-
<PAGE>
PHASE-OUT OF AMERICA, INC.
STATEMENTS OF OPERATIONS AND DEFICIT (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended September 30,
1996 1995
---- ----
<S> <C> <C>
REVENUES:
Sales -- net $ 226,473 $ 550,332
Cost of sales 64,611 87,902
---------- ----------
Gross Profit 161,862 462,430
Selling expenses 85,344 487,628
General and administrative 151,772 172,526
---------- ----------
237,116 660,154
---------- ----------
(75,254) (197,724)
OTHER INCOME AND EXPENSES:
Interest expense (13,265) (7,382)
Other income --
Interest income 2,342 8
---------- ----------
(10,923) (7,374)
---------- ----------
Net loss $ (86,177) $ (205,098)
========== ==========
Loss per share $ NIL $ NIL
========== ==========
Weighted average number
of shares outstanding 96,000,000 55,000,000
========== ==========
</TABLE>
See accountant's disclaimer and notes to financial statements
-F6-
<PAGE>
PHASE-OUT
OF AMERICA, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(557,939) $(676,987)
Adjustments to reconcile net income to cash
used for operating activities:
Depreciation and amortization 4,605 4,303
(Increase) decrease in accounts receivable 45,830 (64,622)
(Increase) decrease in inventories 39,387 (8,610)
Decrease (increase) in prepaid and other current 16,583 (4,806)
Increase (decrease) in accounts payable
accrued expenses and other current liabilities 230,635 496,030
(Decrease) increase in taxes payable 679 5,327
Increase in accrued officer compensation 106,083
Bond discount amortization 300
(Decrease) increase in amounts due affiliate (319,197)
Accrued interest on debentures and bonds --
Funds placed in escrow (121,697)
Expenses paid through the issuance of restricted common stock 43,700 220,570
--------- ---------
CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES (298,217) (241,609)
INVESTING ACTIVITIES
Acquisition of fixed and other assets (168) (800)
--------- ---------
CASH (USED FOR)INVESTING ACTIVITIES (168) (800)
--------- ---------
FINANCING ACTIVITIES
Payments on capital leases (7,097)
Proceeds of sales of Common Stock 484,050 115,000
Conversions/proceeds on senior subordinated debentures (14,865) 281,228
Repayment of advances from officer/stockholder (9,000) (20,000)
Letter of credit collateral (168,000)
Temporary media funds received, net of repayments
and client fund account balances 170,000
--------- ---------
CASH PROVIDED (USED FOR) BY FINANCING ACTIVITIES 462,185 369,131
--------- ---------
(DECREASE) INCREASE IN CASH 163,800 126,722
Cash at beginning of year 176,818 24,541
--------- ---------
Cash at end of period $ 340,618 $ 151,263
========= =========
SUPPLEMENTAL INFORMATION
Interest paid during the year $ 35,560 $ 11,808
========= =========
Temporary media funds received $ 265,000 $ --
========= =========
Debt conversions to common stock $ 408,708 $ --
========= =========
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
September 30,
1996 1995
----- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (86,177) $(205,098)
Adjustments to reconcile net income to cash
used for operating activities:
Depreciation and amortization 1,535 1,433
(Increase) decrease in accounts receivable 21,935 (14,253)
(Increase) decrease in inventories 64,611 (96,279)
Decrease (increase) in prepaid and other current (6,896) (5,687)
Increase (decrease) in accounts payable
accrued expenses and other current liabilities (73,924) 446,799
(Decrease) increase in taxes payable 82 317
Increase in accrued officer compensation 39,000
Bond discount amortization 100
(Decrease) increase in amounts due affiliate (257,009)
Accrued interest on debentures and bonds 4,339
Funds placed in escrow (10,338)
Expenses paid through the issuance of restricted common stock 420
--------- ---------
CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES (84,833) (90,257)
INVESTING ACTIVITIES
Acquisition of fixed and other assets -- (800)
--------- ---------
INVESTING ACTIVITIES -- (800)
--------- ---------
FINANCING ACTIVITIES
Debt and lease payments (5,546)
Proceeds of sales of Common Stock 484,050 65,000
Conversions/proceeds on senior subordinated debentures (14,865) 95,000
Advances from officer/stockholder (20,000)
Letter of credit collateral (168,000)
Temporary media funds received, net of repayments
and client fund account balances
--------- ---------
CASH PROVIDED (USED FOR) BY FINANCING ACTIVITIES 301,185 134,454
--------- ---------
(DECREASE) INCREASE IN CASH 216,352 43,397
Cash at beginning of quarter 124,266 107,866
--------- ---------
Cash at end of quarter $ 340,618 $ 151,263
========= =========
SUPPLEMENTAL INFORMATION
Interest paid during the quarter $ 11,875 $ 11,358
========= =========
Temporary media funds received $ -- $ --
========= =========
Debt conversions to common stock $ 10,516 $ --
========= =========
Conversion of accrued officer salary to common stock $ -- $ --
========= =========
</TABLE>
See notes to financial statements
-F8-
<PAGE>
PHASE-OUT OF AMERICA, INC.
SCHEDULE OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
---- ----
<S> <C> <C>
SELLING EXPENSES:
Television marketing expense $ 221,250 $ 481,515
Advertising and promotion 69,454 218,644
Fulfillment and credit card 139,899 163,747
Commissions and royalties 320,766 65,554
Travel and entertainment 57,718 36,964
Auto lease 18,897 14,873
Auto expense 11,153 18,373
Postage and shipping - net 46,653 446
Radio marketing expense 58,364 --
Royalty expense 44,552 --
---------- ----------
$ 988,706 $1,000,116
========== ==========
GENERAL AND ADMINISTRATIVE EXPENSES:
Officers' compensation $ 139,500 $ 230,845
Salaries 71,962 59,049
Consulting fees 13,875 65,241
Insurance expense 26,591 29,790
Professional fees 159,230 20,304
Telephone 26,395 18,594
Payroll taxes and employee benefits 35,801 16,532
Financing costs -- 15,549
Office and printing 41,622 13,145
Rent 13,350 12,750
Miscellaneous 13,647 8,624
Depreciation and amortization 4,605 4,303
Utilities 3,022 3,704
Equipment rental 1,124 2,989
Repairs and maintenance 4,139 1,601
Stock transfer fees 3,103 1,515
State Franchise Taxes 482 443
---------- ----------
$ 558,448 $ 504,978
========== ==========
</TABLE>
See notes to financial statements
-F9-
<PAGE>
PHASE-OUT OF AMERICA, INC.
SCHEDULE OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Unaudited)
Quarter Ended
September 30,
1996 1995
--------- ---------
SELLING EXPENSES:
Television marketing expense $ -- $ 283,669
Advertising and promotion 14,886 62,097
Fulfillment and credit card 12,407 103,418
Commissions and royalties 26,019 15,476
Travel and entertainment 12,541 15,729
Auto lease 770 3,889
Auto expense 4,989 11,327
Postage and shipping - net 7,450 (7,977)
Radio marketing expense 5,800 --
Royalty expense 482 --
--------- ---------
$ 85,344 $ 487,628
========= =========
GENERAL AND ADMINISTRATIVE EXPENSES:
Officers' compensation $ 39,800 $ 95,800
Salaries 22,150 23,487
Consulting fees 10,475 (630)
Insurance expense (1,703) 10,850
Professional fees 35,804 7,498
Telephone 8,064 7,199
Payroll taxes and employee benefits 10,847 9,176
Financing costs -- 1,562
Office and printing 15,457 2,747
Rent 4,350 6,000
Miscellaneous 1,589 5,790
Depreciation and amortization 1,535 1,434
Utilities 847 1,083
Equipment rental 118 --
Repairs and maintenance 1,099 410
Stock transfer fees 1,215 120
State Franchise Taxes 125 --
--------- ---------
$ 151,772 $ 172,526
========= =========
See notes to financial statements
-F10-
<PAGE>
PHASE-OUT OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS(Unaudited) -- see accountant's disclaimer
September 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 ($557,939 in 1996 and $676,987 in 1995), and has had limited
liquidity. The Company is actively marketing the product to help improve
revenues and has completed a 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.
NOTE 3 -- STOCKHOLDERS' EQUITY
Stock Issued to Officers, Consultants and Employees:
Through September 30, 1996, the Company issued 3,750,000 shares to officers and
467,143 shares to consultants.
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 at $.05 per share plus 3,850,000 warrants (one
warrant for each 2 shares issued).
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 organizers of this group where elected
to the Board of Directors. Additionally, one of the two leaders of the
investment group was appointed Secretary/Treasurer.
-F11-
<PAGE>
PHASE-OUT OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) -- see accountant's disclaimer
September 30, 1996
NOTE 4 -- RELATED PARTY TRANSACTIONS
Officers' Compensation:
Compensation and expense reimbursements and allowances for the Chairman,
President and Vice President were as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30, Quarter Ended September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash compensation $139,500(a) $215,095 $ 39,800(a) $ 63,045
Bonuses paid by issuance
of restricted common stock -- 15,750 --
-------- -------- -------- --------
$139,500 $230,845 $ 39,800 $ 63,045
Automobile lease 17,797 14,873 770 3,889
Automobile expenses 11,153 18,373 4,989 11,327
Entertainment expenses 57,718 36,964 12,541 15,729
Telephone expenses 6,159 2,250 1,672 750
</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 of an officer. The Company incurred
approximately $60,000 of legal fees with his firm in 1996.
NOTE 5 -- LONG TERM DEBT
For the nine months ended September 30, 1996, $408,708 of debenture debt and
accrued interest were converted into common stock.
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 50% of of total sales. A small portion of these sales
were made through a marketing firm whose relationship has terminated and the
that Company was in arbitration with. Export sales represent approximately 37%
of sales with only one export customer representing more than 10% of total
sales.
The Company is currently dependent on two suppliers for their inventory. As of
September 30, 1996, one of the two suppliers was owed $398,579.
-F12-
<PAGE>
PHASE-OUT OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) -- see accountant's disclaimer
September 30, 1996
Regulatory matters:
There have been no material changes in the status of matters pending before the
Food and Drug Administration (FDA).
As to the matter pending before the Federal Trade Commission (FTC), the Company,
in August 1996, entered into a Consent Decree which, among other orders,
requires the Company to communicate with resellers and distributors, as well as
purchasers of the Phase-Out device via letter and postcard. In connection
therewith, the Company's consent did not include any admission of the FTC's
allegations.
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. The
remaining balance owed to these lenders is $170,000.
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 was in arbitration with a former Television Marketing firm, On-Air
Infonetworks, Inc. The Company has placed funds in escrow to fund the settlement
of this matter. On October 28, 1996, the arbitrator awarded On-Air the balance
in the escrow account plus future receipts of related "hold backs" as, if and
when received.
On-Air is presently attempting to get the arbitrators award reversed. The
ultimate outcome of On-Airs continued action cannot be determined at this time.
-F13-
<PAGE>
Phase-Out of America, Inc.
Management's Discussion and Analysis
Results of Operations
Six Months Ended September 30, 1996 Compared
to Six Months Ended September 30, 1995
The Company incurred a net loss of $557,939 for the 9 months ended September 30,
1996 as compared to the loss of $676,987 for the 9 months ended September 30,
1995. 9 month revenues increased 1.30 times compared to the same period last
year (approximately 46,000 units for a total of $1,308,520 in 1996 compared to
approximately 17,000 units for a total of $1,007,312 in 1995). The improvement
in revenues resulted from retail sales of the product through television direct
response methods, as well as export sales. Direct response sales represent
substantially higher unit selling prices as well as increases in unit volume.
Although increased revenues are reflected in gross profit, there were
substantial additional costs associated with distribution through this channel,
substantially reducing the net benefit of the sales increase to the Company.
Selling expenses decreased to $988,706 from $1,000,116 (a decrease of (1.14)%).
General and administrative expenses increased to $558,448 from $504,978 (10.59%
increase). Of the total selling general & administrative expenses, $43,700 and
$220,570 was paid in the form of restricted common stock (a non-cash item),
respectively for 1996 and 1995. Total officer salaries declined to $139,500 in
1996 compared to $230,845 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 1 times to $784,831 in 1996 form $710,816 due primarily
to the arrangement with On-Air.
The gross profit margin decreased to 81% from 83%.
The Company maintains a $500,000 liability insurance policy.
Liquidity and Capital Resources
Cash of $298,217 was used for operations for the 9 months ended September 30,
1996 as compared to $241,609 used in the same period of last year. Cash
increased during the 9 months ended September 30, 1996 by $(163,800).
Short term liquidity is being affected by the need for cash to maintain a steady
flow of inventory now that sales have increased. 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 increases in accounts payable. Working capital and current
ratios were:
-F14-
<PAGE>
Phase-Out of America, Inc.
Management's Discussion and Analysis
September 30, December 31 September 30,
1996 1995 1995
------------- ----------- -------------
Working capital
(deficiency) $(378,408) $(905,416) $(514,823)
Current ratios 0.67:1 0.29:1 0.45:1
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 a 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).
As to the matter pending before the Federal Trade Commission (FTC), the Company,
in August 1996, entered into a Consent Decree which, among other orders,
requires the Company to communicate with resellers and distributors, as well as
purchasers of the Phase-Out device via letter and postcard. In connection
therewith, the Company's consent did not include any admission of the FTC's
allegations.
-F15-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
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 and 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: November 25, 1996
----------------------------
Irwin Pearl, President & CEO
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 340,618
<SECURITIES> 0
<RECEIVABLES> 26,137
<ALLOWANCES> 0
<INVENTORY> 59,913
<CURRENT-ASSETS> 783,118
<PP&E> 21,525
<DEPRECIATION> 16,375
<TOTAL-ASSETS> 833,086
<CURRENT-LIABILITIES> 1,161,526
<BONDS> 66,150
0
0
<COMMON> 3,197
<OTHER-SE> (331,637)
<TOTAL-LIABILITY-AND-EQUITY> 833,086
<SALES> 1,308,520
<TOTAL-REVENUES> 1,308,520
<CGS> 252,247
<TOTAL-COSTS> 252,247
<OTHER-EXPENSES> 1,547,154
<LOSS-PROVISION> 0
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