UNITED STATES
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 Quarter Ended June 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 0-24778
NATIONAL HEALTH & SAFETY CORPORATION
(Exact name of small business issuer as specified in its charter)
Utah 87-0505222
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
730 Louis Drive, Warminster, Pennsylvania 18974
(Address of principal executive offices)
Registrant's telephone no., including area code: (215) 442-0926
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding as of June 30, 1996
Common Stock, $.001 par value 11,110,498
<PAGE>
TABLE OF CONTENTS
Heading Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . 1
Balance Sheets -- June 30, 1996 and December 31, 1995 . . 2
Statements of Operations -- six months ended June 30, 1996
and 1995 . . . 4
Statements of Stockholders' Equity (Deficit). . . 5
Statements of Cash Flows -- six months ended June 30, 1996
and 1995 . . . 7
Notes to Financial Statements . . . . . . . . . . 9
Item 2. Management's Discussion and Analysis and Results of Operations 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . 16
Item 2. Changes In Securities. . . . . . . . . . . . . 18
Item 3. Defaults Upon Senior Securities. . . . . . . . 18
Item 4. Submission of Matters to a Vote of Securities Holders. 18
Item 5. Other Information. . . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K . . . . . . . 18
SIGNATURES. . . . . . . . . . . . . . . . . . . . 19
-i-
<PAGE>
PART I
Item 1. Financial Statements
The following unaudited Financial Statements for the period ended
June 30, 1996, have been prepared by the Company.
NATIONAL HEALTH & SAFETY CORPORATION
FINANCIAL STATEMENTS
June 30, 1996 and December 31, 1995
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Balance Sheets
ASSETS
June 30, December 31,
1996 1995
(Unaudited)
CURRENT ASSETS
Cash $ 67,171 $ 55,276
Accounts receivable, net of allowance
for doubtful accounts of $3,000 54,162 37,170
Inventory 5,215 5,215
Total Current Assets 126,548 97,661
PROPERTY AND EQUIPMENT
Furniture and fixtures 5,392 5,392
Computer equipment 126,773 121,285
Office equipment 29,075 28,487
161,240 155,164
Less accumulated depreciation 126,563 112,015
Net Property and Equipment 34,677 43,149
OTHER ASSETS
Prepaid expenses (Note 1) 793,000 500,000
Deferred loan costs 129,596 67,083
Notes receivable 59,262 20,000
Deposits 19,297 10,137
Total Other Assets 1,001,155 597,220
TOTAL ASSETS $1,162,380 $ 738,030
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, December 31,
1996 1995
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 369,354 $1,048,111
Loans payable, stockholder (Note 3) 639,725 636,725
Loans payable, individuals (Note 2) 490,220 470,322
Accrued expenses (Note 5, 8) 901,360 874,987
Total Current Liabilities 2,400,659 3,030,145
LONG-TERM DEBT
Convertible debentures (Note 6) 554,343 214,570
COMMITMENT AND CONTINGENCIES (Note 5) - -
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.001 par value; 14,363 shares
authorized; 14,363 shares issued and outstanding 14 14
Common stock; $.001 par value, 50,000,000 shares
authorized; 15,280,498 shares issued and
11,110,498 shares outstanding 15,281 22,526
Additional paid-in capital 13,499,676 83,823,970
Stock subscriptions receivable (8,500,000)(80,500,000)
Accumulated deficit (6,807,593) (5,853,195)
Total Stockholders' Deficiency (1,792,622) (2,506,685)
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ 1,162,380 $738,030
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Operations
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
1996 1995 1996 1995
SALES $ 64,312 $ 57,241 $ 115,094 $127,087
OPERATING COSTS AND EXPENSES
Cost of sales 24,422 8,909 34,287 35,430
Operating expenses 676,337 202,721 1,010,280 398,630
700,759 211,630 1,044,567 434,060
LOSS FROM OPERATIONS (636,447) (154,389) (929,473) (306,973)
OTHER EXPENSE
Interest 13,736 3,538 24,925 10,912
NET LOSS $(650,183) $(157,927) $(954,398) $(317,885)
LOSS PER SHARE $ (0.06) $ (0.02) $ (0.08) $ (0.04)
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Stockholders' Equity (Deficit)
Additional Stock
Preferred Common Paid-in Subscription Accumulated
Stock Stock Capital Receivable Deficit
Balance, December 31,
1994 $ 14 $ 24,090 $137,165,056 $(135,000,000)(3,619,581)
Cancellation of stock
subscriptions - (16,200)(134,983,800) 135,000,000 -
Contribution of capital by
investor - - 37,642 - -
Issuance of common stock
for cash - 266 83,602 - -
Issuance of common stock
in payment of debt - 20 100,000 - -
Issuance of common stock
for services rendered - 880 934,940 - -
Stock subscriptions
receivable - 13,470 80,486,530 (80,500,000) -
Net income (loss) for the
year ended December
31, 1995 - - - - (2,233,614)
Balance, December 31,
1995 $ 14 $ 22,526 $83,823,970 $(80,500,000) $5,853,195)
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Stockholders' Equity (Deficit) (Continued)
Additional Stock
Preferred Common Paid-in Subscription Accumulated
Stock Stock Capital Receivable Deficit
Balance, December 31,
1995 $ 14 $ 22,526 $83,823,970 $(80,500,000) $5,853,195)
Cancellation of stock
subscriptions (Unaudited) - (13,300) (79,986,700) 80,000,000 -
Issuance of common stock
for cash (Unaudited) - 1 219 - -
Issuance of common stock
for services (Unaudited) - 1,254 1,288,675 - -
Issuance of common stock
for debt (Unaudited) - 800 317,285 - -
Common stock subscriptions
(Unaudited) - 4,000 7,996,000 (8,000,000) -
Contribution of capital by
investor (Unaudited) - - 60,227 - -
Net income (loss) for the
six months ended
June 30, 1996 (Unaudited) - - - - (954,398)
Balance, June 30, 1996
(Unaudited) $ 14 $15,281 $13,499,676 $(8,500,000) $(6,807,593)
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Cash Flows
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
1996 1995 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $(650,183) $(157,927) $ (954,398) $ (317,885)
Adjustments to reconcile net
income to net cash provided
(used) by operating activities:
Common stock issued
for services 524,929 6,525 1,289,929 56,275
Depreciation and
amortization 16,024 5,337 23,299 10,674
(Increase) decrease in:
Prepaid expenses (293,000) - (293,000) -
Accounts receivable (18,985) (12,033) (16,992) (16,297)
Notes receivable (21,262) - (39,262) -
Deposits (9,160) - (9,160) -
Increase (decrease) in:
Accounts payable (3,522) 21,069 (672,757) (10,979)
Accrued expenses 53,821 61,998 44,458 111,054
Net Cash Used by
Operating Activities (401,338) (75,031) (627,883) (167,158)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (6,076) - (6,076) -
Net Cash Used by Investing
Activities (6,076) - (6,076) -
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from convertible
debentures 350,000 - 700,000 -
Payment of deferred
loan costs (58,000) - (77,264) -
Repayment of loans,
individuals - - (102) (100,000)
Proceeds from loans,
individuals - 8,725 20,000 8,725
Proceeds from stockholders'
loan - 70,650 35,000 171,650
Repayment of loans,
stockholders' (32,000) - (32,000) -
Issuance of common stock - - 220 100,000
Net Cash Provided by
Financing Activities 260,000 79,375 645,854 180,375
INCREASE (DECREASE) IN CASH (147,414) 4,344 11,895 13,217
CASH, BEGINNING OF PERIOD 214,585 14,037 55,276 5,164
NET CASH, END OF PERIOD $ 67,171 $ 18,381 $ 67,171 $ 18,381
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Cash Flows (Continued)
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
1996 1995 1996 1995
SUPPLEMENTAL DISCLOSURE
Cash paid for interest
during the period $ 13,736 $ 3,538 $ 24,925 $ 10,912
NON-CASH FINANCING ACTIVITIES
Issuance of common stock
for services rendered and
prepaid expenses $ 524,929 $ 6,525 $1,289,929 $ 56,275
Issuance of common stock
for debt $ 318,085 $ - $ 318,085 $ -
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
June 30, 1996 and 1995
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
a. Nature of Organization
The Company was incorporated on March 23, 1989. The Company's principal
business activities consist of providing medical cost containment
services to both institutional and consumer markets. The Company
performs on-going credit evaluations of its customers' financial
condition and generally requires no collateral.
On March 22, 1993 the Company entered into a merger with State Policeman
Annual Magazine, Inc. (State), whereby each share of the Company's common
and preferred stock was exchanged for one share of State's common and
preferred stock. State is a Company which was organized under the laws
of the State of Utah on May 14, 1983. Pursuant to the merger agreement,
State amended its Articles of Incorporation to change its name to
National Health & Safety Corporation.
b. Accounts Receivable
Accounts receivable are shown net of an allowance for doubtful accounts
of $3,000. Bad debts are written off in the period in which they are
deemed uncollectible. Any bad debts subsequently recovered are recorded
as income in the financial statements in the period during which they
are recovered.
c. Inventory
Inventory is stated at the lower of cost or market. Cost is
determined on a first-in, first-out basis.
d. Property and Equipment
Property and equipment are stated at cost. Depreciation is provided
using accelerated and straight-line methods, over the estimated useful
life of each class of asset as follows:
Furniture and fixtures 7 years
Office equipment 7 years
Computers 5 years
Expenditures for repairs, maintenance and minor renewals are charged
against income as incurred and expenditures for major renewals and
betterment are capitalized. The cost and accumulated depreciation of
assets sold or retired are removed from the respective accounts with
any gain or loss on disposal reflected in income.
e. Loss per Share
The Company has computed the loss per share based upon the weighted
average number of shares outstanding during the period.
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
June 30, 1996 and 1995
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents.
g. Deferred Loan Costs
During 1995, the Company issued convertible debentures with a face value
of $250,000. The Company incurred issuance costs of $70,000 relating to
the debentures. The costs have been capitalized and will be amortized
over the life of the debentures which mature on November 30, 1997.
During 1996 the Company issued an additional $350,000 in convertible
debentures with a discount of $52,699 recorded as additional paid-in
capital.
h. Provision for Taxes
At June 30, 1996, the Company had net operating loss carryforwards of
approximately $6,800,000 that may be offset against future taxable
income through 2010. No tax benefit has been reported in the
financial statements, because the Company believes the carryforwards
may expire unused. Accordingly, the potential tax benefits of the loss
carryforwards are offset by a valuation allowance of the same amount.
i. Prepaid Expenses
The Company has purchased $500,000 in radio airtime to be used over the
next two years to promote its products. The Company has also prepaid
$293,000 towards future services in 1996.
NOTE 2 - LOANS PAYABLE, INDIVIDUALS
Private Placement Advances 1995 1996
The Company received advances from certain
individuals under various private placements. The
Company has agreed to issue common stock to
these individuals upon securing additional financing.
Some of the individuals who had advanced funds
were partially repaid. $ 153,678 $ 153,678
Loans, Individuals
During the last four years, the Company was
advanced money from various individuals for
working capital purposes which bear interest
at 8% to 10%. If the Company is successful in
obtaining additional capital, it intends to exchange
a majority of these loans for common stock and the
remainder of the loans will be repaid. 316,644 336,542
$470,322 $490,220
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
June 30, 1996 and 1995
NOTE 3 - LOAN PAYABLE, STOCKHOLDER
Prior to the Company's incorporation, one of the stockholders incurred
certain costs and expenses related to the start- up of the Company.
These costs have been capitalized and will be amortized over a
five-year period. Over the years the stockholder advanced to the
Company additional funds.The Company expects to repay this loan in
full when financing occurs.
NOTE 4 - GOING CONCERN
These statements are presented on the basis that the Company is a going
concern. Going concern contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a
reasonable length of time. The continuation of the Company as a going
concern is dependent upon the success of the future operations and
obtaining additional financing.
Management is presently pursuing plans to increase sales volume, reduce
administrative costs, and improve cash flows as well as obtain additional
financing. The ability of the Company to achieve its operating goals and
to obtain such additional financing, however, is uncertain.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company is in various stages of negotiations with several securities
and financial service companies in order for the Company to obtain
additional capital. The Company has promised to repay certain debts,
guarantee fees and loan incentives with common stock, subsequent to
the Company securing additional capital.
In 1991, the Company entered into an agreement to sell all of its stock
to another Company, P.R. Stocks, Inc. (PRS), if PRS successfully raised
$375,000 in a private placement of the common stock of PRS. PRS was able
to raise approximately $163,000, and advanced approximately $132,000 net
of expenses to the Company in 1992. However, PRS has been unable to
raise a minimum of $375,000 in order for the two companies to merge.
In November 1992, PRS merged with MedGain International, Inc. (MedGain).
MedGain has demanded repayment of the proceeds from the private
placement advanced to the Company. In January 1994, MedGain brought
suit against the Company and its president seeking repayment of the
advances plus punitive damages. It is probable that MedGain will
obtain a judgement against the Company for at least the advances paid to
date. The Company leases its office facility and certain automotive
and office equipment under noncancelable operating leases. Future
minimum annual rental commitments for 1996 are approximately $60,858.
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
June 30, 1996 and 1995
NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)
The Company has entered into a five year employment agreements with
its president and chief executive officer, with its vice-president and
chief financial officer and with its vice-president of marketing.
Under the terms of the agreements, the Company will pay minimum annual
compensation of $330,000 and $363,000 for the years ended December 31,
1996 and 1997, respectively.
The Company has settled certain litigation involving alleged improper use
of a medical card benefit program. Under terms of the proposed
settlement, both parties agree to dismiss the claims against each
other, and agree to enter into a commission agreement hereby the
Company pays a commission of 3.5% of sales, such commission to aggregate
$400,000 over the life of the agreement; the Company will pay at a
minimum, an annual commission of $30,000. $365,000 is accrued at
December 31, 1995 after a down payment of $15,000 and subsequent
payments of $20,000 were made. The balance owed is $345,000 at
June 30, 1996.
The Company was named in a formal order of investigation captioned
"In the Matter of Trading in the Securities of National Health & Safety
Corp." (NY-6155) issued by the Securities and Exchange Commission and
related to the trading of the Company's securities in the public
market. The NASD has also made inquires regarding trading in the
shares of the Company's securities. As of the date hereof, no
determination has been made as to the extent of the investigation or
to the possible material effect that it may have on the Company.
The Company issued shares to certain individuals in connection with a
private placement. The Company has agreed to not dilute these
shareholders below 5.3% of the outstanding shares of the Company
by allowing them to purchase the shares for the par value amount,
until the Company raises $2,000,000 through a public offering of its
common stock.
The Company has agreed to repurchase stock issued to an individual in
a private placement. The individual purchased 5,000 shares of the
Company's common stock for $25,000. The Company has committed to
repurchasing the stock for the same amount, contingent upon the
success of future stock placements.
During 1995, several stock subscription agreements were cancelled.
Of the shares cancelled, certificates representing 6,700,000 shares have
not been returned to the Company.
NOTE 6 - CONVERTIBLE DEBENTURES
During 1995, the Company issued convertible debentures with a face value
of $250,000. The debentures may be converted into the Company's common
stock at the option of the holder at a conversion price equal to the
lesser of $1.00 per share of 50% of the closing bid price on the day
the holder executes the notice of conversion. The debentures mature
on November 30, 1997 at which date the face value is due and payable.
Because the debentures are non-interest bearing, they have been
discounted to reflect an imputed interest rate of 8%. The amount
discounted has been added to additional paid-in capital.
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
June 30, 1996 and 1995
NOTE 6 - CONVERTIBLE DEBENTURES (Continued)
During 1996, the Company issued an additional $700,000 in convertible
debentures. $500,000 of the new debentures bear interest at 9% per annum.
$200,000 of the new debenture are non-interest bearing and have been
discounted as described above. All of the new debentures are
convertible at the lesser of $0.50 per share or 80% of the closing bid
price on the day the holder executes the notice of conversion. If not
converted the new debentures mature in 1998.
NOTE 7 - PREFERRED STOCK
In 1992, the Company entered into a stock exchange agreement with certain
shareholders, whereby such stockholders agreed to exchange certain of
their shares of the pre-split common stock of the Company and certain
other rights for 14,363 authorized shares of a new class of redeemable
preferred stock. The stock is redeemable at $41.78 per share
(aggregate - $600,086), payable as follows:
$ 50,011 Upon closing of a private placement issue
50,011 Upon closing of a secondary public offering
150,074 One year after closing of a secondary public
offering
174,975 Two years after closing of a secondary
public offering
175,015 Three years after closing of a secondary
public offering
$ 600,086
NOTE 8 - RELATED PARTY TRANSACTIONS
Included in accounts payable at December 31, 1995 is an amount due to a
corporation affiliated with the Company through common management and
stock ownership, representing fees for administrative services rendered
to the Company in 1991 and prior years. The amount was $38,477 at
December 31, 1995.
Included in accrued expenses are $502,917 in back salaries for the
Company's officers and directors as of December 31, 1995.
NOTE 9 - ECONOMIC DEPENDENCE
The Company has one customer which accounted for 40% of the Company's
total sales in 1995.
NOTE 10 - COMMON STOCK SUBSCRIPTIONS
In February 1996, stock subscriptions in the amount of $80,000,000 for
13,300,000 shares of common stock of the Company were cancelled.
On January 17, 1996, 4,000,000 shares of the Company's common stock
were issued for a subscription receivable in the amount of $8,000,000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following table sets forth the percentage relationship
to sales of principal items contained in the Company's Statements
of Operations for the three month and six month periods ended
June 30, 1996 and 1995. It should be noted that percentages
discussed throughout this analysis are stated on an approximate
basis.
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
(Unaudited) (Unaudited)
Sales. . . . . . . . . . 100 % 100 % 100 % 100 %
Cost of sales. . . . . 38 16 30 28
Operating expenses . . . 1052 354 878 314
(Loss) from operations . (990) (270) (808) (242)
Other expenses - interest 21 6 21 8
Net (loss) . . . . . . . (1011) (276) (829) (250)
Results of Operations
Total sales for the second quarter of 1996 increased 12%
from the second quarter of 1995 primarily attributed to the 10%
increase in POWERX Card sales due to increased marketing, and the
29% increase in medical equipment sales due to test marketing of
promotional items. However, for the first six months of 1996,
total sales decreased 9% from the comparable 1995 period
primarily attributed to the 5% decrease in POWERX sales due to
lower first quarter sales, and the 35% decrease in medical
equipment sales attributed to minimal promotional efforts in the
first quarter of 1996. Cost of sales (as a percentage of total
revenues) increased to 38% for the second quarter of 1996, from
16% for the second quarter of 1995 period, and increased to 30%
for the first six months of 1996 from 28% for the comparable 1995
period. These percentage increases for the 1996 periods are the
result of the product mix for both POWERX and medical equipment.
Actual cost of sales increased 174% for the second quarter of
1996 compared to the second quarter of 1995 due to slightly
higher sales and the above mentioned product mix, and decreased
3% for the first six months of 1996 from the comparable 1995
period due to total lower sales volume.
Operating expenses for second quarter and first six months
of 1996 increased 234% and 153% respectively when compared to the
corresponding 1995 periods, primarily attributed to increases in
the following items; salaries paid (58% and 36% increases for
the second quarter and first six months of 1996, respectively)
due to the addition of a Vice President of sales and annual
salary increases; commissions paid (12% and 11% increases for
the second quarter and first six months of 1996, respectively)
due to increased sales activity in the second quarter,
miscellaneous employee benefits due to increased salaries;
rental and lease expense (105% and 25% increases for the second
quarter and first six months of 1996, respectively) due to a new
lease starting in June 1996 for additional rental space;
promotional expense (115% and 80% increases for the second
quarter and first six months of 1996, respectively) due to
increased marketing activities to promote POWERX; consulting
expenses (1936% and 420% increases for the second quarter and
first six months of 1996, respectively) due to existing and new
financial consulting contracts; and organizational expenses
(1822% and 1249% increases for the second quarter and first six
months of 1996, respectively) due to a one time due diligence
expense for a potential acquisition. As a percentage of total
revenues, operating expenses increased from 354% for the second
quarter of 1995 to 1052% for the second quarter of 1996, and from
314% for the first six months of 1995 to 878% for the first six
months of 1996.
The net loss for the second quarter and first six months of
1996 increased 312% to $650,183 and 200% to $954,398,
respectively, as compared with the corresponding 1995 periods.
These results are primarily attributed to the significant
increases in operating expenses for the 1996 periods compared
with the modest 12% increase in sales for the second quarter of
1996 and the 9% decrease in sales for the first six months of
1996.
Liquidity and Capital Resources
Historically, the Company's working capital needs have been
satisfied primarily through its financing activities including
private loans and raising capital through the sale of securities.
Working capital at June 30, 1996 was a negative $2,274,111
compared to a negative $2,932,484 at December 31, 1995. This
improvement in working capital for the first six months of 1996
is primarily attributed to the Company's increase in cash of
$11,895 (22%) due to the sale of convertible debentures, and the
$678,757 (65%) decrease in accounts payable due to the issuance
of common stock for services.
Net cash used by operating activities for the first quarter
of 1996 and the first six months of 1996 was $401,338 and
$627,883, respectively, compared to net cash used of $75,031 and
$167,158 for the comparable 1995 periods, primarily attributed to
the increase in the net loss form operations and the reduction of
accounts payable during the 1996 periods, and the recognition of
prepaid expenses of $293,000 during the second quarter of 1996.
Also, net cash provided by financing activities during the second
quarter of 1996 was $260,000 compared to net cash provided of
$79,375 for the comparable 1995 period, primarily attributed to
the sale of convertible debentures. Net cash provided by
financing activities for the first six months of 1996 was
$645.854 compared to $180,375 for the 1995 period, also due to
the sale of convertible debentures.
The Company anticipates meeting its working capital needs
during the current fiscal year partially with revenues from
operations, but due to past losses the Company is actively
pursuing interim financing to provide working capital and to
increase marketing activities related to the Company's products.
Although management has not made any arrangements or definitive
agreements, the Company is contemplating both the additional
private placement of securities and/or a public offering,
although there can be no assurance that the Company could
successfully complete any such offerings.
The Company has negotiated a series of contingent private
sales of its Common Stock, although no sales have been made and
no principal funds have been realized. Efforts to complete
expansion financing contracts formerly signed with Avonwood
Capital, Credit Bancorp, EuroAmeric Transaction Corporation, and
Southwest Financial Group, some of which date back to 1994, have
been discontinued. Discussions continue with part of an
international group of investors to close a financing agreement
previously announced to provide additional equity financing.
Because of the nature of the arrangements, the Company is unable
to predict with any certainty whether the transactions will be
finalized or whether any funds will ultimately be realized. If
the Company's operations are not adequate to fund its operations
and it is unable to secure financing from the sale of its
securities or from private lenders, the Company could experience
additional losses which could curtail the Company's operations
and services which could result in the loss of current customers.
The continuation of the Company as a going concern is directly
dependent upon the success of its future operations and ability
to obtain additional financing.
As of June 30, 1996, the Company had total assets of
$1,162,380 and total stockholders' deficiency of $1,792,622. In
comparison, as of December 31, 1995, the Company had total assets
of $738.030 and total stockholders' deficiency of $2,506,685.
The 57% increase in total assets for the six month period ended
June 30, 1996 is primarily due to cash realized from the
Company's financing activities and from the increase in prepaid
expenses.
In the opinion of management, inflation has not had a
material effect on the operations of the Company.
During the next 12 months, the Company will stress the
marketing of its POWERX contracts and increasing the number of
POWERX members nationwide. The Company will also concentrate on
the development of the corporate infrastructure necessary to
service POWERX members, including the expansion of a customer
service staff. Among the priorities of the Company will be the
completion of an electronic data processing center to provide for
the processing of POWERX orders.
Management believes that the Company has sufficient capital
resources to fund its anticipated operations until some time in
the fourth quarter of 1996. Management estimates that its
current level of operations requires approximately $70,000 per
month in cash based upon average monthly cash flows in 1995. To
supplement its current cash position, loans aggregating $20,000
were received from private sources during the first quarter of
1996. In addition, the Company's President, Dr. R. Dennis
Bowers, loaned the Company $35,000 during the first quarter of
1996. Also during the first six months of 1996, the Company
realized proceeds of $700,000 from convertible debentures.
Although management believes that sales of the POWERX Card will
improve appreciably during the next several quarter, unless the
Company is able to raise additional revenue from operating
activities or from additional sales of corporate debt or equity
securities, the Company may encounter a cash flow shortage in the
fourth quarter of 1996. To overcome this potential cash flow
shortage, management intends to seek additional equity or debt
capital through private sources, although there can be no
assurance such fund will be available. As of the date hereof,
the Company has not entered into any firm agreements or
understanding for the raising of capital from private sources.
PART II
Item 1. Legal Proceedings
Except as set forth below, there are presently no other
material pending legal proceedings to which the Company or any of
its subsidiaries is a party or to which any of its property is
subject and, to the best of its knowledge, no such actions
against the Company are contemplated or threatened.
(a) In January 1994, a suit was filed by MedGain
International, Inc., a Nevada Corporation ("Medgain"), in the
United States District Court for the District of Nevada titled
MedGain International, Inc. vs. National Health & Safety Corporation and R.
Dennis Bowers (Case No. CV-S-94-00038-DWH). In 1991, NHSC-
Pennsylvania and its shareholders entered into an agreement (the
"Stock Purchase Agreement") with P.R. Stocks, Inc., a Nevada
corporation ("PRS"), whereby the shareholders agreed to sell all
of their NHSC-Pennsylvania stock to PRS if, among other
conditions, PRS was successful in raising a minimum of $375,000
through the private placement of PRS common stock. Pursuant to a
confidential private placement memorandum dated July 15, 1991,
PRS raised $163,599, of which approximately $132,000 was
distributed to NHSC-Pennsylvania in January, 1992. However,
because PRS did not raise the minimum of $375,000, the PRS
acquisition of NHSC-Pennsylvania common stock pursuant to the
Stock Purchase Agreement was not consummated.
In November, 1992, PRS effected a merger with MedGain. At
various times subsequent to that date, MedGain demanded that the
Company repay the proceeds from the initial closing of the PRS
private placement that had been distributed to the Company and
threatened to bring a lawsuit against the Company to recover such
proceeds unless they were repaid. All attempts by the Company to
settle the dispute were unsuccessful and in January 1994, MedGain
filed suit against both the Company and its President alleging,
among other claims, breach of contract, unjust enrichment,
fraudulent misrepresentation and bad faith. MedGain sought
return of the entire $163,599 plus punitive damages, attorneys'
fees and costs. On March 29, 1996, the Court entered a judgment
against the Company solely, in the amount of $132,000.
(b) In 1993, the National Association of Securities
Dealers, Inc. ("NASD") and the Securities and Exchange Commission
("SEC") made preliminary inquiries regarding trading in the
shares of the Company's securities. A formal order of
investigation was issued by the SEC on October 19, 1994 ("In the
Matter of Trading in the Securities of National Health & Safety
Corp. / NY-6155). The Company has delivered to the SEC certain
requested documents pursuant to a subpoena duces tecum.
The Company has been advised by the NASD that its inquiries
should not be construed as indicating that any violation of NASD
rules had occurred, or as a reflection on the merits of the
Company's securities or on any person who effected a transaction
in such securities. The Company was similarly advised by the SEC
that the existence of the SEC's inquiry was not to be construed
as an indication by the SEC that any violation of law had
occurred, nor was it to be considered an adverse reflection on
any person, entity or security. The Company is unaware of the
circumstances concerning the investigation by the NASD and SEC
and is not able to speculate as to the outcome or possible effect
of the investigation on the Company. The Company does not
believe that it, or its officers, directors, finders or agents
violated any securities laws, rules or regulation in offering,
selling or trading in the securities of the Company. To date, to
the best knowledge of the Company, no action has been taken by or
on behalf of either the NASD or the SEC against the Company or
its officers, directors, brokers, finders or agents.
Item 2. Changes In Securities
This Item is not applicable to the Company.
Item 3. Defaults Upon Senior Securities
This Item is not applicable to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
This Item is not applicable to the Company.
Item 5. Other Information
This Item is not applicable to the Company.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
No report on Form 8-K was filed by the Company during
the three month period ended June 30, 1996.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities
Exchange Act of 1934, the Registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
NATIONAL HEALTH & SAFETY CORPORATION
Date: August 14, 1996 By /S/ R. Dennis Bowers
(Signature)
R. DENNIS BOWERS, President
Date: August 14, 1996 By /S/ Roger H. Folts
(Signature)
ROGER H. FOLTS, Vice President, Treasurer
and Chief Financial Officer
<PAGE>
