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 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 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 September 30, 1996
Common Stock, $.001 par value 17,080,267
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TABLE OF CONTENTS
Heading Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . 1
Balance Sheets -- September 30, 1996 and
December 31, 1995. . . . . . . . . . . . . . . 2
Statements of Operations -- three months and
nine months ended September 30, 1996 and 1995. 4
Statements of Stockholders' Equity (Deficit) . 5
Statements of Cash Flows -- three months and
nine months ended September 30, 1996 and 1995. 7
Notes to Financial Statements . . . . . . . . 9
Item 2. Management's Discussion and Analysis and
Results of Operations. . . . . . . . . . . . . 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . 20
Item 2. Changes In Securities. . . . . . . . . . . . . 20
Item 3. Defaults Upon Senior Securities. . . . . . . . 21
Item 4. Submission of Matters to a Vote of
Securities Holders . . . . . . . . . . . . . . 21
Item 5. Other Information. . . . . . . . . . . . . . . 21
Item 6. Exhibits and Reports on Form 8-K . . . . . . . 21
SIGNATURES . . . . . . . . . . . . . . . . . . 22
-i-
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PART I
Item 1. Financial Statements
The following unaudited Financial Statements for the period
ended September 30, 1996, have been prepared by the Company.
NATIONAL HEALTH & SAFETY CORPORATION
FINANCIAL STATEMENTS
September 30, 1996 and December 31, 1995
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NATIONAL HEALTH & SAFETY CORPORATION
Balance Sheets
ASSETS
September 30, December 31,
1996 1995
(Unaudited)
CURRENT ASSETS
Cash $ 14,904 $ 55,276
Accounts receivable, net of allowance
for doubtful accounts of $3,000 46,897 37,170
Inventory 5,215 5,215
Total Current Assets 67,016 97,661
PROPERTY AND EQUIPMENT
Furniture and fixtures 5,392 5,392
Computer equipment 129,649 121,285
Office equipment 29,075 28,487
164,116 155,164
Less accumulated depreciation 133,838 112,015
Net Property and Equipment 30,278 43,149
OTHER ASSETS
Prepaid expenses (Note 1) 779,500 500,000
Deferred loan costs 120,845 67,083
Notes receivable 40,512 20,000
Deposits 9,298 10,137
Total Other Assets 950,155 597,220
TOTAL ASSETS $1,047,449 $ 738,030
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30, December 31,
1996 1995
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 470,887 $ 1,048,111
Loans payable, stockholder (Note 3) 704,781 636,725
Loans payable, individuals (Note 2) 550,219 470,322
Accrued expenses (Note 5, 8) 943,877 874,987
Total Current Liabilities 2,669,764 3,030,145
LONG-TERM DEBT
Convertible debentures (Note 6) 304,343 214,570
COMMITMENT AND CONTINGENCIES (Note 5) - -
STOCKHOLDERS' EQUITY (DEFICIT)
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; 17,080,267 shares issued and
12,910,267 shares outstanding 17,081 22,526
Additional paid-in capital 13,748,876 83,823,970
Stock subscriptions receivable (8,500,000) (80,500,000)
Accumulated deficit (7,192,629) (5,853,195)
Total Stockholders' Equity (Deficit) (1,926,658) (2,506,685)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $1,047,449 $738,030
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Operations
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
SALES $ 57,137 $ 56,013 $ 172,231 $ 183,100
OPERATING COSTS AND EXPENSES
Cost of sales 12,023 13,795 46,310 49,225
Operating expenses 422,459 375,203 1,432,739 773,833
434,482 388,998 1,479,049 823,058
LOSS FROM OPERATIONS (377,345) (332,985) (1,306,818) (639,958)
OTHER EXPENSE
Interest 7,691 8,439 32,616 19,351
NET LOSS $(385,036) $(341,424) $(1,339,434) $(659,309)
LOSS PER SHARE $ (0.03) $ (0.04) $ (0.11) $ (0.08)
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Stockholders' Equity (Deficit)
Additional Stock
Preferred Common Paid-in Subscriptions 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 Subscriptions 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 - -
Issuance of common stock
for services (Unaudited) - 14 5,986 - -
Issuance of common stock
for debt (Unaudited) - 1,788 248,212 - -
Common stock cancelled
(Unaudited) - (2) (4,998) - -
Net income (loss) for the
nine months ended
September 30, 1996
(Unaudited) - - - - (1,339,434)
Balance, September 30, 1996
(Unaudited) $ 14 $17,081 $13,748,876 $(8,500,000) $(7,192,629)
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Cash Flows
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (Loss) $(385,036) $(341,424) $(1,339,434) $(659,309)
Adjustments to reconcile net
income to net cash provided
(used) by operating activities:
Common stock issued for
services 6,000 - 1,295,929 56,275
Depreciation and amortization 24,777 5,337 48,076 16,011
(Increase) decrease in:
Prepaid expenses 13,500 - (279,500) -
Accounts receivable 7,265 10,960 (9,727) (5,337)
Notes receivable 18,750 - (20,512) -
Deposits 9,999 - 839 -
Increase (decrease) in:
Accounts payable 95,533 (51,370) (577,224) (62,349)
Accrued expenses 24,432 54,267 68,890 165,321
Net Cash Used by Operating
Activities (184,780) (322,230) (812,663) (489,388)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (2,876) (6,794) (8,952) (6,794)
Net Cash Used by Investing
Activities (2,876) (6,794) (8,952) (6,794)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from convertible
debentures - - 700,000 -
Payment of deferred loan costs 10,334 - (66,930) -
Repayment of loans, individuals - - (102) (100,000)
Proceeds from loans, individuals 59,999 11,169 79,999 19,894
Proceeds from stockholders' loan 65,056 55,500 100,056 227,150
Repayment of loans, stockholders' - - (32,000) -
Issuance of common stock - 246,889 220 346,889
Net Cash Provided by
Financing Activities 135,389 313,558 781,243 493,933
INCREASE (DECREASE) IN CASH (52,267) (15,466) (40,372) (2,249)
CASH, BEGINNING OF PERIOD 67,171 18,381 55,276 5,164
NET CASH, END OF PERIOD $ 14,904 $ 2,915 $ 14,904 $ 2,915
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Cash Flows (Continued)
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
SUPPLEMENTAL DISCLOSURE
Cash paid for interest
during the period $ 7,691 $ 8,439 $ 32,616 $ 19,351
NON-CASH FINANCING ACTIVITIES
Issuance of common stock
for services rendered and
prepaid expenses $ 6,000 $ - $1,295,929 $ 56,275
Issuance of common stock
for debt $ 250,000 $ - $ 568,085 $ -
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
September 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.
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
September 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 September 30, 1996, the Company had net operating loss
carryforwards of approximately $7,200,000 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
As of December 31, 1995, the Company has purchased $500,000 in
radio airtime to be used over the next two years to promote its
products. During 1996, the Company has also prepaid $279,500
towards future services.
j. Management's Representation
In the opinion of Management, the accompanying unaudited
financial statements include all of the adjustments considered
necessary for a fair presentation and all such adjustments are
of a normal recurring nature.
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
September 30, 1996 and 1995
NOTE 2 - LOANS PAYABLE, INDIVIDUALS
Private Placement Advances 1996 1995
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. 396,541 316,644
$ 550,219 $ 470,322
NOTE 3 - LOANS 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 these loans 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.
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
September 30, 1996 and 1995
NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)
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. On March
29, 1996, the Court entered a judgement against the Company
solely in the amount of $132,000.
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.
The Company has entered into 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 whereby 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
$30,000 were made. The balance owed is $335,000 at September 30,
1996.
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.
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
September 30, 1996 and 1995
NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)
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, 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.
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
4,000,000 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 or 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.
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 debentures 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.
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
September 30, 1996 and 1995
NOTE 7 - PREFERRED STOCK
In 1992, the Company entered into a stock exchange agreement with
certain stockholders 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 nine month periods ended
September 30, 1996 and 1995. It should be noted that percentages
discussed throughout this analysis are stated on an approximate
basis.
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
(Unaudited) (Unaudited)
Sales. . . . . . . . . . 100 % 100 % 100 % 100 %
Cost of sales. . . . . 21 25 27 27
Operating expenses . . . 739 670 832 423
(Loss) from operations . (660) (595) (759) (350)
Other expenses - interest 14 15 19 10
Net (loss) . . . . . . . (674) (610) (778) (360)
Results of Operations
Total sales for the third quarter of 1996 increased 2% from
the third quarter of 1995 attributed to the 882% increase medical
equipment sales and offset by the 8% decrease in POWERX Card sales.
However, for the first nine months of 1996, total sales decreased
6% from the comparable 1995 period primarily attributed to the 6%
decrease in POWERX sales due to lower first and third quarter
sales, and the 8% 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) decreased to 21% for the
third quarter of 1996, from 25% for the third quarter of 1995
period, and remained constant at 27% for the first nine months of
1996 when compared to the 1995 period. These fluctuations are the
result of the product mix for both POWERX and medical equipment.
Actual cost of sales decreased 13% for the third quarter of 1996
compared to the third quarter of 1995 due to a 1995 cost of goods
adjustment increasing medical equipment costs, and decreased 6% for
the first nine months of 1996 from the comparable 1995 period due
to total lower sales volume.
Operating expenses for the third quarter and first nine months
of 1996 increased 13% and 85% respectively when compared to the
corresponding 1995 periods, primarily attributed to increases in
the following items; salaries paid (74% and 48% increases for the
third quarter and first nine months of 1996, respectively) due to
the addition of a Vice President of sales and annual salary
increases; rental and lease expense (158% and 74% increases for
the third quarter and first nine months of 1996, respectively) due
to a new lease starting in June 1996 for additional rental space;
promotional expense (77% and 78% increases for the third quarter
and first nine months of 1996, respectively) due to increased
marketing activities to promote POWERX; consulting expenses (115%
for the first nine months of 1996) due to existing and new
financial consulting contracts, although consulting expenses
decreased 40% for the third quarter of 1996 due to two large
consulting contracts accounted for in the third quarter of 1995;
and organizational expenses increases 1037% for the first nine
months of 1996 due to a one time due diligence expense for a
potential acquisition during the second quarter of 1996. The
increase in operating expenses was partially offset by decreases in
commissions paid (56% and 20% increases for the third quarter and
first nine months of 1996, respectively) due to increased direct
sales activity resulting in no associated commissions. As a
percentage of total revenues, operating expenses increased from
670% for the third quarter of 1995 to 739% for the third quarter of
1996, and from 423% for the first nine months of 1995 to 832% for
the first nine months of 1996.
The net loss for the third quarter and first nine months of
1996 increased 13% to $385,036 and 103% to $1,339,434,
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
2% increase in sales for the third quarter of 1996 and the 6%
decrease in sales for the first nine 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 September 30, 1996 was a negative $2,602,748
compared to a negative $2,932,484 at December 31, 1995. This
improvement in working capital for the first nine months of 1996 is
primarily attributed to the $577,224 (55%) decrease in accounts
payable due to the issuance of common stock for services.
Net cash used by operating activities for the third quarter of
1996 and the first nine months of 1996 was $184,780 and $812,663,
respectively, compared to net cash used of $812,663 and $489,388
for the comparable 1995 periods, primarily attributed to the
reduction of accounts payable during the 1996 periods, and the
recognition of prepaid expenses of $279,500 during the first nine
months of 1996. Also, net cash provided by financing activities
during the third quarter of 1996 decreased to $135,389 compared to
net cash provided of $313,558 for the comparable 1995 period,
primarily attributed to the issuance of common stock during the
1995 period. Net cash provided by financing activities for the
first nine months of 1996 increased to $781,243 compared to
$493,933 for the 1995 period, primarily due to the sale of
convertible debentures during 1995.
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 September 30, 1996, the Company had total assets of
$1,047,449 and total stockholders' deficiency of $1,926,658. In
comparison, at December 31, 1995, the Company had total assets of
$738.030 and total stockholders' deficiency of $2,506,685. The 42%
increase in total assets for the nine month period ended September
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
first quarter of 1997. 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, the Company has realized a total of $180,055
form loans and proceeds of $700,000 from convertible debentures
during the first nine months of 1996. Although management believes
that sales of the POWERX Card will improve appreciably during the
next several quarters, 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 first quarter of 1997. 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.
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
(a) Exhibit 27 - Financial Data Schedules
(b) Reports on Form 8-K
No report on Form 8-K was filed by the Company during the
three month period ended September 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: November 19, 1996 By /S/ R. Dennis Bowers
(Signature)
R. DENNIS BOWERS, President
Date: November 19, 1996 By /S/ Roger H. Folts
(Signature)
ROGER H. FOLTS, Vice
President, Treasurer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE NATIONAL HEALTH & SAFETY
CORPORATION FINANCIAL STATEMENTS FOR THE PERIOD
ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1996
<PERIOD-END> SEP-30-1996
<CASH> 14,904
<SECURITIES> 0
<RECEIVABLES> 49,897
<ALLOWANCES> 3,000
<INVENTORY> 5,215
<CURRENT-ASSETS> 67,016
<PP&E> 164,116
<DEPRECIATION> 133,838
<TOTAL-ASSETS> 1,047,449
<CURRENT-LIABILITIES> 2,669,764
<BONDS> 304,343<F1>
14
0
<COMMON> 17,081
<OTHER-SE> 13,748,876
<TOTAL-LIABILITY-AND-EQUITY> 1,047,449
<SALES> 172,231
<TOTAL-REVENUES> 172,231
<CGS> 46,310
<TOTAL-COSTS> 1,479,049
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,616
<INCOME-PRETAX> (1,339,434)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,339,434)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,339,434)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
<FN>
<F1> 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. 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.
</TABLE>
