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 March 31, 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 87-05050222
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 March 31, 1996
Common Stock, $.001 par value 13,721,748
<PAGE>
TABLE OF CONTENTS
Heading Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . 1
Balance Sheets -- March 31, 1996 and December 31, 1995. . 2
Statements of Operations -- three months ended
March 31, 1996 and 1995 . . . . . . . . . . . . 4
Statements of Stockholders' Equity (Deficit). . . 5
Statements of Cash Flows -- three months ended
March 31, 1996 and 1995. . . . . . . . . . . . . 6
Notes to Financial Statements . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis and Results
of Operations . 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . 15
Item 2. Changes In Securities. . . . . . . . . . . . . 16
Item 3. Defaults Upon Senior Securities. . . . . . . . 16
Item 4. Submission of Matters to a Vote of Securities Holders. 16
Item 5. Other Information. . . . . . . . . . . . . . . 16
Item 6. Exhibits and Reports on Form 8-K . . . . . . . 16
SIGNATURES. . . . . . . . . . . . . . . . . . . . 17
-i-
<PAGE>
PART I
Item 1. Financial Statements
The following unaudited Financial Statements for the period ended
March 31, 1996, have been prepared by the Company.
NATIONAL HEALTH & SAFETY CORPORATION
FINANCIAL STATEMENTS
March 31, 1996 and December 31, 1995
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Balance Sheets
ASSETS
March 31, December 31,
1996 1995
(Unaudited)
CURRENT ASSETS
Cash $ 214,585 $ 55,276
Accounts receivable, net of allowance
for doubtful accounts of $3,000 35,177 37,170
Inventory 5,215 5,215
Total Current Assets 254,977 97,661
PROPERTY AND EQUIPMENT
Furniture and fixtures 5,392 5,392
Computer equipment 121,285 121,285
Office equipment 28,487 28,487
155,164 155,164
Less accumulated depreciation 119,290 112,015
Net Property and Equipment 35,874 43,149
OTHER ASSETS
Prepaid expenses (Note 1) 500,000 500,000
Deferred loan costs 86,347 67,083
Notes receivable 38,000 20,000
Deposits 10,137 10,137
Total Other Assets 634,484 597,220
TOTAL ASSETS $ 925,335 $ 738,030
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
March 31, December 31,
1996 1995
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 378,876 $1,048,111
Loans payable, stockholder (Note 3) 671,725 636,725
Loans payable, individuals (Note 2) 490,220 470,322
Accrued expenses (Note 5, 8) 865,624 874,987
Total Current Liabilities 2,406,445 3,030,145
LONG-TERM DEBT
Convertible debentures (Note 6) 511,871 214,570
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; 13,721,748 shares
issued and 9,551,848 shares outstanding 13,722 22,526
Additional paid-in capital 12,650,693 83,823,970
Stock subscriptions receivable (8,500,000) (80,500,000)
Accumulated deficit (6,157,410) (5,853,195)
Total Stockholders' Deficiency (1,992,981) (2,506,685)
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ 925,335 $738,030
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Operations
(Unaudited)
For the Three Months Ended
March 31,
1996 1995
SALES $ 50,782 $ 69,846
OPERATING COSTS AND EXPENSES
Cost of sales 9,865 26,521
Operating expenses 333,943 195,909
343,808 222,430
LOSS FROM OPERATIONS (293,026) (152,584)
OTHER EXPENSE
Interest 11,189 7,374
NET LOSS $ (304,215) $ (159,958)
LOSS PER SHARE $ (0.03) $ (0.02)
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Stockholders' Equity (Deficit)
Additional Stock
Preferred Common Paid-in Subscription Accumulated
Stock Stock Capital Receivable Deficit
<TABLE>
<S> <C> <C> <C> <C> <C>
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)
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) - 495 764,505 - -
Common stock subscriptions
(Unaudited) - 4,000 7,996,000 (8,000,000) -
Contribution of
capital by investor
(Unaudited) - - 52,699 - -
Net income (loss) for the
three months ended
March 31, 1996
(Unaudited) - - - - (304,215)
Balance, March 31,
1996 (Unaudited) $ 14 $13,722 $12,650,693 $(8,500,000) $(6,157,410)
</TABLE>
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Cash Flows
(Unaudited)
For the Three Months Ended
March 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (304,215) $ (159,958)
Adjustments to reconcile net
income to net cash provided
(used) by operating activities:
Common stock issued for services 765,000 49,750
Depreciation and amortization 7,275 5,337
(Increase) decrease in:
Accounts receivable 1,993 (4,264)
Inventory - -
Notes receivable (18,000) -
Increase in
Accounts payable (669,235) (32,048)
Accrued expenses (9,363) 49,056
Net Cash Used by
Operating Activities (226,545) (92,127)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment - -
Net Cash Used by
Investing Activities - -
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issued for cash 220 -
Proceeds from convertible debentures 350,000 -
Repayment of loans, individuals (102) (100,000)
Proceeds from loans, individuals 20,000 -
Payment of deferred loan costs (19,264) -
Proceeds from stockholders' loan 35,000 101,000
Issuance of common stock - 100,000
Net Cash Provided by
Financing Activities 385,854 101,000
INCREASE (DECREASE) IN CASH 159,309 8,873
Cash, beginning of period 55,276 5,164
Net Cash, End of Period $ 214,585 $ 14,037
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Cash Flows (Continued)
(Unaudited)
For the Three Months Ended
March 31,
1996 1995
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest
during the period 11,189 $ 7,374
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
March 31, 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
March 31, 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 March 31, 1996, the Company had net operating loss
carryforwards of approximately $6,200,000 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
The Company has purchased $500,000 in radio airtime to be used
over the next two years to promote its products.
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
March 31, 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 $4,346.
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
March 31, 1996 and 1995
NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)
The Company has entered into a five year employment agreement
with its president and chief executive officer, and three year
employment agreements with its vice-president and chief financial
officer and its vice-president of marketing. Under the terms of
the agreements, the Company will pay minimum annual compensation
of $314,500 and $295,738 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 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. During 1996, the
Company issued an additional $350,000 in convertible debentures.
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
March 31, 1996 and 1995
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 period ended March 31, 1996 and 1995.
It should be noted that percentages discussed throughout this
analysis are stated on an approximate basis.
Nine Months Ended
March 31,
1996 1995
(Unaudited)
Sales . . . . . . . . . . . . . . . . . 100% 100%
Cost of sales . . . . . . . . . . . . . 19 38
Operating expenses. . . . . . . . . . . 658 280
(Loss) from operations. . . . . . . . . 577 (218)
Other expenses - interest . . . . . . . 22 11
Net (loss). . . . . . . . . . . . . . .(599) (229)
Results of Operations for the Three Months Ended March 31, 1995 and 1994
Total sales of $50,782 for the three months ended March 31,
1996 ("first quarter of 1996") represent a decrease of approximately
27% from total revenue of $69,846 for the three months ended March
31, 1995 ("first quarter of 1995"). This decrease is primarily
attributed to the decline in POWERX sales of 19% as a result of
concentrating on potentially larger accounts with longer sales
cycles and less emphasis on small account activity. Revenues from
the sale of medical equipment decreased $7,913, or 68% for the first
quarter of 1996 from the comparable 1995 period, due to a concerted
movement away from lower profit activity. Cost of sales (as a
percentage of total revenues) decreased to 19% for the first quarter
of 1996, from 38% for the comparable 1995 period due to improved
gross margin sales of POWERX cards.
Operating expenses for the first quarter of 1996 increased 70%
when compared to the same period for 1995, primarily due to the
$127,576 (185%) increase in consulting fees attributed to increased
professional fees paid including payments made in shares of the
Company's common stock to financial consultants, and the $16,533
(15%) increase in salaries and wages. As a percentage of total
revenues, operating expenses increased from 280% for the first
quarter of 1995 to 658% for the first quarter of 1996 reflecting
decreased sales and the increase in related operating expenses.
Also, commissions paid increased $1,277 (9%) reflecting increased
broker sales, depreciation and amortization increased $10,688 (200%)
due to amortization of expenses associated with fund raising
activities, office supplies increased $3,624 (286%) due to increased
marketing, and telephone expenses increased $1,461 (27%) attributed
to outgoing telemarketing. Partially offsetting the increases in
operating expenses were the decrease in health insurance and other
benefits to employees of $3,708 (45%) due to the officers receiving
monthly paychecks and contributing to their health insurance, the
decrease in rent of $3,901 (29%) due to the delay of one months
rent, and the decrease in mail and postage expenses of $4,279 (54%)
due to one less direct mail program. The net loss for the first
quarter of 1996 increased to $304,215 from $159,958 for the
comparable 1995 period, primarily due to the decreased sales of the
Company's products together with the significant increases in
operating expenses.
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 March 31, 1996 was a negative $2,151,468 compared
to a negative $2,932,484 at December 31, 1995. This improvement in
working capital for the first quarter of 1996 is attributed to the
Company's increase in cash of $159,309 (288%) due to the sale of
convertible debentures, and the $669,235 (64%) 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 was $226,545 compared to net cash used of $92,127 for the
comparable 1995 period, attributed to the increase in the net loss
form operations and the reduction of accounts payable during the
1996 period. Also, net cash provided by financing activities during
the first quarter of 1996 was $385,854 compared to net cash provided
of $101,000 for the comparable 1995 period. These results reflect
$350,220 realized by the Company from the sale of its securities and
$20,000 from loans from individuals during the first quarter of
1996. Proceeds form stockholders loans decreased from $101,000 for
the first quarter of 1995 to $35,000 for the comparable 1996 period.
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. 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 March 31, 1996, the Company had total assets of $925,335
and total stockholders' deficiency of $1,992,981. In comparison, as
of December 31, 1995, the Company had total assets of $738.030 and
total stockholders' deficiency of $2,506,685. The 25% increase in
total assets for the three month period ended March 31, 1996 is
primarily due to increases in cash from the Company's financing
activities.
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
third 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
quarter of 1996, the Company realized proceeds of $350,000 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 third 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 since that date, MedGain has 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
have been 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 seeks return of the entire
$163,599 plus punitive damages, attorneys' fees and costs. Several
hearings have been held in the matter and the court is presently
considering including the MedGain shareholders as parties to the
action and certain other counterclaims and defenses. Although the
Company believes it has a valid defense to the action, there is no
indication as to the likely outcome.
(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). In April
1995, the Company 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 11 - Computation of per share earnings
(b) Reports on Form 8-K
No report on Form 8-K was filed by the Company during the
three month period ended March 31, 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: June 4, 1996 By /S/ R. Dennis Bowers
(Signature)
R. DENNIS BOWERS, President
Date: June 4, 1996 By /S/ Roger H. Folts
(Signature)
ROGER H. FOLTS, Vice President, Treasurer
and Chief Financial Officer<PAGE>
