UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1996
Transition Report Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
Commission File Number 0-24778
NATIONAL HEALTH & SAFETY CORPORATION
(Name of small business issuer 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) (Zip Code)
Issuer's telephone no.: (215) 442-0926
Securities registered pursuant to Section 12(b) of the Exchange
Act: None
Securities registered pursuant to Section 12(g) of the Exchange
Act: Common
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this form, and
no disclosure will be contained, to the best of the Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. X
State the issuer's revenues for its most recent fiscal year.
$ 207,921
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the
stock was sold, or the average bid and ask prices of such stock as
of a specified date within 60 days. $4,531,175 (Based on price
of $.21 as of April 1, 1997)
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, 1997
Common Stock, $.001 Par Value 24,279,438
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Transitional Small Business Disclosure Format. Yes No X
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NATIONAL HEALTH & SAFETY CORPORATION
TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business . . . . . . . . . . 1
Item 2. Description of Property. . . . . . . . . . . 9
Item 3. Legal Proceedings. . . . . . . . . . . . . . 9
Item 4. Submission of Matter to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . 10
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . 10
Item 6. Management's Discussion and Analysis or
Plan of Operation. . . . . . . . . . . . . . 12
Item 7. Financial Statements . . . . . . . . . . . . 15
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . 29
PART III
Item 9. Directors, Executive Officers, Promoters and
Control persons; Compliance with
Section 16(a) of the Exchange Act. . . . . . 29
Item 10. Executive Compensation . . . . . . . . . . . 30
Item 11. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . 33
Item 12. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . 34
Item 13. Exhibits and Reports on Form 8-K . . . . . . 34
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . 35
-i-
<PAGE>
PART I
Item 1. Description of Business
Business Development
National Health & Safety Corporation (the "Company") is
primarily engaged in the business of providing health care products
and services to the general public on a discount basis.
The Company was originally organized on May 23, 1983 under the
laws of the State of Utah as State Policeman Annual Magazine with
the intent to acquire, merge with and/or participate in an
operating business or business opportunity. Prior to 1992, the
Company had no operating history and was involved only in minimal
business activities.
In January, 1993, the Company entered into a Merger Agreement
whereby the Company merged with National Health & Safety
Corporation, a Pennsylvania corporation ("NHSC-Pennsylvania"), with
the Company being the surviving entity (the "Merger"). Pursuant
to the terms of the Merger which was consummated on March 22, 1994,
each share of NHSC-Pennsylvania common stock outstanding at the
effective date of the Merger was automatically without action on
the part of the holder thereof, converted into one share of the
Company's Common Stock, and each share of NHSC-Pennsylvania
preferred stock outstanding on the effective date of the Merger was
also automatically converted into one share of the Company's
Preferred Stock. The terms of the newly issued Preferred Stock
were identical to the terms of the NHSC-Pennsylvania preferred
stock to be exchanged. The Company also changed its corporate name
to National Health & Safety Corporation. In connection with the
Merger, the Company issued 1,300,000 shares of Common Stock to
eight individuals designated by Peachtree Investments, Inc.
("Peachtree"), as consideration for services rendered in
facilitating the transaction. See Item 12, "Certain Relationships
and Related Transactions".
The Company's principal executive offices are located at 730
Louis Drive, Warminster, Pennsylvania 18974, and its telephone
number is (215) 442-0926.
Business of Issuer
Prior to the Merger, the Company had no operating history and
NHSC-Pennsylvania had been engaged in developing a national
healthcare marketing organization and had only a limited operating
history. NHSC-Pennsylvania was incorporated in 1989, however, it
had operated since 1985 as the healthcare services division of
Horizon Development Group, Inc. in southeastern, Pennsylvania
("Horizon"). NHSC-Pennsylvania was created to develop a healthcare
marketing organization concentrating on the sale of healthcare
equipment, supplies and other medical products and services.
In February 1993, prior to its Merger with the Company, NHSC-
Pennsylvania acquired Mid-Atlantic Health Information Corporation,
a Pennsylvania corporation ("Mid-Atlantic") involved in healthcare
database research. The acquisition was facilitated by a merger
with NHSC-Pennsylvania being the surviving corporation. Mid-
Atlantic owned the rights to certain national database software
designed to provide a comprehensive centralized health database in
the United States for medical and epidemiological research data.
Management believed that the acquisition of Mid-Atlantic would
enable the Company to develop, when adequate financing was
available, a health database of research information which could be
ultimately marketed to the Company's customers. Prior to the
acquisition by NHSC-Pennsylvania, Mid-Atlantic had no products and
did not engage in any business activity. The Company does not
expect to commence operating its information services division for
at least two years or until the POWERX Medical Benefits Network
program ("POWERX") is well established.
Currently, the Company has one operating division, the POWERX
Medical Benefits Network, which offers discounts on a wide range of
medical and supplemental benefits for the consumer. The Company is
not and does not intend to become an insurance company. Rather, it
offers medical products and services, specializing in providing
reduced fee access to healthcare and ancillary providers throughout
the United States through POWERX. The Company believes that
through POWERX it can reduce the cost of medical care to consumers
and to corporations, unions, associations, insurers and other
organizations while promoting quality of care. It is the explicit
purpose of the Company to offer professional healthcare products
and services at significant savings without sacrificing quality.
POWERX Medical Benefits Network
Through POWERX, the Company makes available directly to the
consumer more than 200,000 different medical products and supplies
at discounts up to 50% below retail. The POWERX Medical Benefits
Network is fully operational and all of its products and services
described herein are currently available, the majority of the
Company's revenues are generated from annual sales of POWERX
memberships and not through the use of the card. Revenues from the
products and services are minimal at this time and are expected to
increase as the number of POWERX memberships increase. Until such
time as the Company has experienced significant sales revenue from
the purchase of products and services by POWERX cardholders, the
Company cannot accurately predict the future quantity of
anticipated sales and usage of its products and services.
The Company offers most of its products through a product
listing and an "800" telephone service that is made available to
participants. Some of the products offered through POWERX are as
follows: contact lenses and eyeglasses; hearing aids and
accessories; pharmaceutical drugs (prescription drugs); home
medical equipment; home medical supplies; and miscellaneous medical
products, equipment and supplies. For many of the products, POWERX
members desiring to place an order need only to call a toll free
number and specify the product or supply they wish to purchase.
Orders may be charged to a major credit card or prepaid by check or
money order and are shipped directly to the member. POWERX also
offers a unique opportunity for its members to access up to a
$5,000 line of credit for medical expenses only. This line of
credit can be used to charge out-of-pocket expenses including
insurance deductibles and co-payments. Virtually everyone is
accepted.
Also, participants in POWERX have available to them at discount
prices the services of more than 400,000 professional providers of
medical services including hospitals, inpatient facilities, clinics
and laboratories, physicians, pharmacies, dentists, chiropractors
and home nursing care. The Company contracts directly with
national preferred provider organization ("PPO") networks to
provide medical services at discounts ranging from approximately
10% to 50%. PPOs are organizations that offer medical services and
products to a specific group usually at a discount rate and will
have an established network of professional providers. The Company
will contract with individual PPOs rather than directly with the
particular healthcare providers. The services of the professional
providers are included in the list of services available to POWERX
members at a discount under a specific plan. The individual
members select the particular provider they wish to use. The
Company is not involved in the contact between the professional
providers and the POWERX members except to provide the name of the
providers in the list of member benefits.
The Company, through participating PPOs, has been able to
procure the various services of the professional providers at
discounted rates primarily based on anticipated volume increases
which the individual provider could expect due to use by POWERX
members. Typically, the professional provider will agree to
provide services and related functions to members for specific
identified discounts in reliance upon anticipated increased
business from POWERX members.
Current POWERX professional services available include, but are
not limited to, audiology, chiropractic, dental, home nursing,
orthodontic, ophthalmology and optometry. In addition to the
various products and services available to POWERX members, the
network also offers discounts on prescription drugs, either from
local pharmacies or by mail order. In order to provide discount
prescription drugs to POWERX members, the Company has entered into
an agreement with a national network of retail pharmacies to
provide low-cost and fast access to pharmaceutical medications.
POWERX uses the PAID Prescription Network which represents national
pharmacy chains as well as independent pharmacies. POWERX members
requiring immediate prescriptions or other health products will be
able to purchase needed medications in their local participating
pharmacies at discount prices, and will also be able to order
equipment and supplies easily from the Company.
POWERX members can also obtain discounts on their mail order
pharmaceutical purchases from participating suppliers. The Company
has entered into an agreement with Immediate Pharmaceutical Service
("IPS"), a provider of mail order prescriptions, whereby IPS will
provide mail order prescription drugs to POWERX members at discount
rates.
The Company also makes available to its POWERX members certain
non medical products and services at discount prices including
electronic products, appliances, travel, hotels and motels, legal,
auto care, grocery coupon, golf, large print books and long
distance telephone service. These Consumer Product options are
available in conjunction with any of the POWERX card programs for
an additional annual cost.
POWERX is marketed primarily to corporations, unions,
associations, chambers of commerce, insurance companies and other
organizations and the memberships are typically paid for by the
individual members, employees and/or policyholders. The POWERX
Network is the result of the Company entering into contracts with
individual PPOs which then offer the programs to its members. See
Item 1, "Marketing". Each separate sponsoring organization will
select the POWERX package that will best meet the needs of its
membership or employee base and the price of the package is
determined by the components of the package. Some programs are
funded by the organization directly so that every eligible
individual in the organization is signed up, and some organizations
offer the POWERX cards to their member and/or employees as an
option where the individual is given the choice of whether or not
to purchase the Card and pay the membership fee if they accept the
offer. In all cases, individual family groups are signed up for
the services identified in the specific package selected by their
sponsoring organization. The Company's revenue for each program is
based on a per member charge. Each individual membership covers
everyone living in a household and is based on an annual fee.
POWERX is designed to be a complementary benefit to most
standard health insurance policies and corporate benefits packages.
A person can either purchase POWERX as a stand-alone benefit, a low
cost alternative to health insurance, or POWERX can be used to
enhance the benefits of an existing health insurance policy by
reducing a member's out-of-pocket medical expenses.
Currently, the Company has approximately 150 contracts with
various organizations to provide access to POWERX benefits during
1996. Approximately 10,000 POWERX cards are presently in use.
Among the benefits of POWERX is that it offers its participants the
convenience of shopping in the privacy of their homes. Members
have access to products and services available through POWERX.
Customers wishing to order may call a toll free number and either
charge their purchase to a major credit card or pay by check or
money order. The Company has negotiated with its suppliers whereby
the suppliers will drop-ship approximately 95% of the merchandise
ordered by the Company's customers. Thus, the Company is required
to warehouse only approximately 5% of its products thereby reducing
the costs of inventory, warehousing, shipping, personnel and
overhead. Most products are drop-shipped by United Parcel Service
generally within 72 hours of receiving the order.
POWERX is uniquely designed to enable each participating
organization to make its own selection from among the various
benefit programs offered by the Company, including both medical and
supplemental (non-medical) benefits. This mechanism allows each
organization to develop a customized benefits package that will
best fit the needs of its members or employees. However, the
Company works closely with each organization in designing their
packages to streamline the benefits offered and organize those
benefits in an "easy to understand" manner.
The Company generally recommends that an organization select
a basic package of benefits and also offer several independent
upgrades to that package. An example of a common package would be
a combination of the following benefits: Retail Pharmacy, Mail
Order Pharmacy, Medical Supplies and Equipment, Vision Care and
Hearing Care. This package would have a suggested retail price of
$49.00 annually. In addition, a participating organization might
also offer the Dental Care program and the Hotel/Motel program,
each available individually for an additional $19.00 to $29.00
(suggested retail price) annually per program.
As part of the POWERX portfolio of services, the Company
currently is able to offer the following medical benefits: Retail
Pharmacy, Mail Order Pharmacy, Medical Supplies and Equipment,
Vision Care, Hearing Care, Dental Care, Home Nursing Care and
Chiropractic Care. Additionally, the Company currently offers two
programs that are only available to POWERX members whose accounts
are either self-insured or covered by some type of health insurance
("funded"). These two programs are the Physician/Hospital PPO
Network and the funded prescription program. The Company is also
currently capable of offering the following supplemental (non-
medical) programs to its members: Travel Reservations,
Hotel/Motel, Golfers' Passport, Grocery Coupon, Large Print Book,
Auto Care, Consumer Buying Network with Extended Warranty, Legal
Services and Long Distance Telephone programs. Although the
Company is constantly seeking to expand the number and variety of
programs and providers that are part of the POWERX Network, there
can be no assurance that the Company will retain any particular
program or provider for any particular period of time. In the
future, the Company may add or remove the programs that are
available through the POWERX Network and also increase or decrease
the number of providers that participate in the POWERX Network.
Management believes that these possible changes are part of the
normal evolution of the developing overall program.
In addition to the above marketed programs, the Company is
adding a discounted nursing home network as well as an individual
physician / hospital PPO program (unfunded). Both of these
programs should be operational during the second quarter of 1997.
Through a network of more than 500 suppliers of various
products, the Company makes available approximately 200,000 medical
supplies and other products to institutional users such as
hospitals, nursing homes, doctors, dentists, clinics, insurance
companies and health maintenance organizations ("HMOs"). Marketing
of these services is directed at the small-volume buyers and
markets and uses mail order catalogs and special promotional
mailings.
The Company has designed, prepared and distributed two
catalogs to advertise its offered products and supplies. The
Company distributes its general 65 page catalog including the most
commonly used products and supplies mainly to private physicians
and nursing homes. A more detailed 800 page catalog covering more
than 100,000 of the Company's offered products and services is used
primarily by the Company's sales representatives. Presently, the
Company has a customer base of about 1,500 institutional and
professional buyers that receive the Company's catalog. In the
past, the medical supply and equipment program has provided most of
the Company's revenue. However, with the implementation of the
POWERX program, this division is expected to account for a much
smaller percentage of the Company's revenue.
In addition to the services and products described above, the
Company also makes available the following supplemental (non-
medical) programs to POWERX members for an additional fee:
(a) Travel Reservation Program. This program offers
guaranteed lowest airfare, hotel/motel reservations, cruises
and tours, condominium vacation packages, and car rentals. In
addition, a 5% rebate is earned for air travel, leisure
packages or cruises.
(b) Hotel/Motel Program. This program offers discounts of
50% off regular room rack rates at more than 3,000 hotels,
motels and resorts, both domestically and internationally.
(c) Hale Irwin's Golfers' Passport Program. This program
entitles the member to receive two free rounds of golf or a
discount at each of the 1,572 golf courses and 454 golf
resorts throughout the United States and abroad.
(d) Grocery Coupon Program. This program entitles members to
receive $200 in grocery coupons that offer savings on a
variety of grocery items. Members select the coupons they
desire.
(e) Large Print Book Program. Members are enrolled in the
Large Print Book Club Readers Guild entitling them to receive
best-selling novels and books in large (nearly double-sized),
easy to read print at a discount of 25%.
(f) Auto Care Program. Under the Auto Care Program, members
receive discounts of 10% and more on a variety of auto care
services including Aamco, Jiffy Lube, Maaco, Meineke, Ryder
Truck, Precision Tune and others.
(g) Consumer Buying Network with Extended Warranty
Registration Program. Members enrolled in this home-shopping
program are entitled to purchase up to 275,000 brand name
items and to receive up to an additional twelve months of
warranty coverage for the items purchased through the program.
(h) Legal Services Network. This program entitles members to
receive three free consultations plus discounted fees for a
variety of legal services offered by more than 3,500
participating attorneys nationally.
(i) Long Distance Advantage Program. This program offers
members savings up to 25% off their long distance bills for
calls made during certain evening hours starting at 5:00 p.m.
Product and Development
The Company has previously conducted an extensive test
marketing campaign in various cities using actual POWERX cards and
participating pharmacies, dentists, and other medical services
providers. Data collected from these tests have been used to
design and customize the POWERX program currently being marketed by
the Company. The Company expended $98,427 in 1994, $0 in 1995 and
1996 on development of its products. The Company believes that the
POWERX product has been sufficiently developed and test marketed
and therefore future development expenses will be curtailed.
Management anticipates expending approximately $75,000 to $150,000
per year for at least the next two fiscal years for further
development of POWERX, primarily for updating the product. Because
the Company believes that the POWERX product is adequately
developed for full scale marketing, this decrease in future
development is not expected to have a material effect on future
operations of the Company.
Marketing
The Company's basic marketing plan is to market the POWERX Card
on a national basis to corporations, unions, trade groups,
insurance companies, universities, hospitals and large membership
organizations through mass media and direct marketing campaigns.
The Company entered into contracts with approximately 150
organizations to market the POWERX program to their members
representing more than one million potential customers. The
Company has designed its marketing campaign to these groups and
together with the participating organizations, will solicit the
individual members as additional financing is obtained to absorb
the anticipated substantial marketing expenses. Direct marketing
to consumers is achieved through the use of direct mail,
telemarketing, television, radio and print advertising.
The Company has entered into an agreement with Acordia, Inc.,
the holding company and marketing arm for Blue Cross, which markets
the Blue Cross products in 37 states. It is the intention of
Acordia to market the POWERX product as a wrap-around to many of
their insured products. Training must be completed for the Acordia
broker network and this cannot be accomplished until sufficient
financing is secured by the Company.
The Company has also entered into a joint venture arrangement
with Ronald B. King, C.L.U., whereby the Company created a wholly
owned subsidiary, National Health and Safety Corporation of
Indiana, to make POWERX benefits packages available in connection
with or as a wrap around to an insurance program. This entity
allows the Company to process insured products through POWERX.
The Company has also entered into several agreements with
national Preferred Provider Organizations("PPOs"). Pursuant to
these arrangements, POWERX members will have low cost access to the
network of approximately 100,000 physicians, hospitals, clinics,
radiology centers, laboratories and other medical services that are
included in the national networks.
To market and service the POWERX program, the Company has
marketing agreements with approximately 300 primary brokers plus a
large sub-broker network. The Company has organized its broker
network by geographical regions throughout the country to sell and
service the POWERX program and to assist participating
organizations in selling and servicing the program to their
respective members. Many of the brokers have insurance backgrounds
and are experienced with managing accounts for insurance carriers.
The Company continues to provide in-field training to new brokers
under contract and continues to solicit additional brokers.
Competition
In marketing the POWERX Medical Benefits Network, the Company
will be in competition with other PPOs, insurance companies, and
national discount marketing organizations. Most of these
competitors will be larger and will have available to them greater
financial and personnel resources.
Single service mail order pharmacy and/or vision care programs
are actively marketed throughout the United States in direct
competition with the Company's POWERX card program. Retail
pharmacies routinely compete against each other by using "loss
leaders" and special senior citizen programs to attract customers.
By advertising a few selected drugs at promotional prices, it is
possible for a retail pharmacy to advertise a price lower than the
POWERX discounted rate. However, the Company's retail pharmacy
program requires that POWERX members receive the lower of the POWERX
discounted price or the retailer's loss leader price. Overall,
consumers will experience a savings through the POWERX retail
pharmacy program.
Management believes that the key competitive advantage of
POWERX is in its simplicity of use and in the many healthcare
products and services it is capable of providing directly to its
individual members in one low-cost package. Currently,
approximately 51,000 retail pharmacies are included in the POWERX
Network and have agreed to provide preferential pricing to POWERX
members, giving substantially higher discounts on prescription
drugs than to walk-in customers. This represents approximately 90%
of all pharmacies in the United States, both chains and independent
stores, and more than 93% of all stores which are computerized.
Those pharmacies included in the POWERX Network account for
approximately 95% of all prescription drugs dispensed to consumers
in the United States. The average POWERX discount to consumers is
Average Wholesale Price (AWP) less 12% for both brand name and
generic drugs, which represents a national average of a 25%
discount compared to the price consumers would pay if they did not
have a POWERX membership.
To date, there are a number of firms offering a portion of the
programs available through POWERX. However, POWERX offers greater
flexibility and a wider range of services at competitive prices.
The Company closely monitors its competition and intends to add
several new programs in 1997.
Government Regulation
As part of its POWERX Network, the Company is anticipating
offering certain insurance products including, but not limited to,
life insurance, health insurance, accident insurance, disability
insurance and other special types of insurance. Although the
Company does not intend or anticipate becoming an insurance
company, by offering these various insurance products, the
Company's salespersons will be required to obtain the necessary
state and/or federal licensing and training and will be governed by
the various state and federal laws concerning sales of insurance
products. POWERX members will have the opportunity to purchase
discounted life, health, disability and other types of specialty
insurance programs. Members do not purchase the insurance through
POWERX or the Company, but rather directly from the insurance
companies at a discount. Although management believes that
offering discounts to its members for insurance purchases generally
does not require additional licensing, it is possible that some
state regulators may require the POWERX discounts to be marketed
similar to other insurance products. This would require the
Company to obtain additional financing in order to retain the
required qualified personnel to operate and market the business.
Employees
As of the date hereof the Company employs eight people
full-time and one part-time, consisting of three executives, five
marketing persons and one executive assistant (clerical).
Management presently anticipates hiring additional employees as the
business warrants and as funds become available. The Company has
entered into agreements with approximately 300 non-salaried brokers
to assist participating organizations in selling and servicing the
POWERX program to their respective members. The Company intends to
continue adding brokers as its POWERX program expands.
Industry Segments
No information is presented as to industry segments. The
Company is presently engaged in a single line of business, the
offering of a reduced fee network for medical products and related
services. Reference is made to the statements of income contained
in the financial statements included herein for a statement of the
Company's revenues and operating profit (loss) for the past two
fiscal years.
Item 2. Description of Property
The Company's operations currently occupy approximately 10,000
square feet in Warminster, Pennsylvania, located just north of
Philadelphia. The facility is subject to a lease for a term to
expire on May 31, 1999 at the monthly rental rate of $1,055. In
addition to accommodating the principal business offices of the
Company, the facility also provides warehouse space and houses the
Company's telecommunication system that services customer calls.
Item 3. Legal Proceedings
Except as otherwise set forth below, the Company is not a
party to any material pending legal proceedings and no such action
by, or to the best of its knowledge, against the Company has been
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). 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 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's
Securities Holders during the fourth quarter of the Company's
fiscal year ending December 31, 1996 The Company last held a
Special Meeting of Shareholders on January 29, 1993.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's Common Stock is traded in the over-the-counter
market and quotations are published on the OTC Bulletin Board under
the symbol "NHLT", and in the National Quotation Bureau, Inc. "pink
sheets" under National Health & Safety Corporation. Quotations on
the Company's Common Stock set forth below do not constitute a
reliable indication of the price that a holder of the Common Stock
could expect to receive upon a sale of any particular quantity
thereof.
Currently, there is no trading market for the Company's issued
and outstanding Preferred Shares.
The following table sets forth the range of high and low bid
prices of the Common Stock for each calendar quarterly period since
the first quarter of 1994 as reported by the National Quotation
Bureau, Inc. ("NQB"). Prices reported represent prices between
dealers, do not include retail markups, markdowns or commissions
and do not necessarily represent actual transactions.
<PAGE>
High Low
1995
First Quarter . . . . . $ 13.00 $ .25
Second Quarter. . . . . 2.25 .25
Third Quarter . . . . . 4.50 .44
Fourth Quarter. . . . . 3.25 1.25
1996
First Quarter . . . . . $ 2.06 $ .69
Second Quarter. . . . . 1.34 .27
Third Quarter . . . . . .44 .11
Fourth Quarter. . . . . .25 .05
1997
First Quarter (1) . . . $ .45 $ .19
(1) Through April 15, 1997.
As of March 31, 1997 the Company had issued and outstanding
24,279,438 shares of Common Stock and there were approximately 341
shareholders of record, which figure does not take into account
those shareholders whose certificates are held in the name of
broker-dealers.
On April 15, 1997, the closing high bid and asked prices of
the Common Stock were $.23 and $.25, respectively.
Holders of the Company's 14,363 shares of Preferred Stock have
limited conversion rights whereby if the Company fails to redeem
any shares of Preferred Stock pursuant to the agreed upon
redemption schedule, then the Preferred Shareholders have a limited
right to convert their Preferred Stock into shares of Common Stock
at the rate of 140 shares of Common Stock for each share of
Preferred Stock. As of the date hereof, none of the shares have
been converted.
In connection with a loan transaction in 1992 whereby the
NHSC-Pennsylvania borrowed $25,000 from an individual, the Company
issued to the lender 24,999 shares of Common Stock and granted a
five year warrant to purchase 24,999 shares of Common Stock at one-
half the current market price at the time the warrant is exercised.
The warrant has been exercised.
Dividend Policy
The Company has not declared or paid cash dividends or made
distributions in the past, and the Company does not anticipate that
it will pay cash dividends or make distributions in the foreseeable
future. The Company currently intends to retain and reinvest future
earnings to finance its operations. Also, holders of the Preferred
Shares are entitled to receive their redemption payments prior to
the Company paying any dividends on its other capital stock.
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation
The following information should be read in conjunction with
the consolidated financial statements and notes thereto appearing
elsewhere in this Form 10-KSB.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets," and SFAS No. 123, "Accounting
for Stock Based Compensation." SFAS No. 121 requires that long-
lived assets and certain identifiable intangibles be reported at
the lower of the carrying amount or their estimated recoverable
amount and the adoption of this statement by the Company is not
expected to have an impact on the Company's financial statements.
SFAS No. 123 encourages the accounting for stock-based employee
compensation programs to be reported within the financial
statements on a fair value based method. If the fair value based
method is not adopted, then the statement requires pro-forma
disclosure of net income and earnings per share as if the fair
value based method had been adopted. The Company has not yet
determined how SFAS No. 123 will be adopted nor its impact on the
Company's financial statements. Both statements are effective for
years beginning after December 15, 1995.
Results of Operations
The following table sets forth, for the two most recent fiscal
years ended December 31, 1996 and 1995, the percentage relationship
to total revenues of principal items in the Company's Statement of
Operations. It should be noted that percentages discussed
throughout this analysis are stated on an approximate basis.
Years Ended December 31,
1996 1995
Total sales. . . . . . . . . . . . . . . 100% 100%
Costs of sales . . . . . . . . . . . . . 27 24
Operating expenses . . . . . . . . . . . 758 921
(Loss) from operations . . . . . . . . . (785) (845)
Other income (expense) . . . . . . . . . (165) 9
Net (loss) . . . . . . . . . . . . . . . (950) (836)
For the Year Ended December 31, 1996 Compared to the Year Ended
December 31, 1995
Total revenues of $207,921 for the year ended December 31,
1996 ("1996) represent a decrease of approximately 22% from total
revenue of $267,126 for year ended December 31, 1995 ("1995"),
primarily attributed to the 25% decrease in POWERX sales. Revenues
from the sale of medical supplies and equipment decreased $776 or
approximately 4% for 1996 from the comparable 1995 period. Sales
of the POWERX Card decreased $59,859, or 25% for 1996 from the
comparable 1995 period due to a reduction in the number of people
covered by a major client which resulted in a $20,584 reduction in
sales, and a $26,300 reduction due to the financial difficulties of
one of the Company's major brokers. The remainder of the decrease
in sales was due to a less favorable product mix. Cost of sales
(as a percentage of total revenue) of 27% for 1996, increased from
24% for 1995 due to a combination of product mix and sales made
through a monthly payroll deduction where the participants did not
remain employed for the full year, but the cost of sales were
realized in full during the first month.
Operating expenses for 1996 decreased approximately 28% when
compared with the same period for 1995, primarily attributed to the
$1,034,165, or 62% decrease in consultant expenses in 1996.
Operating expenses other than consulting services increased
$355,595, or 44% in 1996 due to the 25% increases in salaries and
wages attributed to the addition of four sales and marketing
employees and a 4% average salary increase for existing employees,
and associated 66% increase in employee benefits and payroll taxes;
the 78% increase in rent expense due to a new lease for existing
space plus an additional 4,500 square feet; the 57% increase in
promotion expense due to increased printing volume; and the 280%
increase in general and administrative expenses due to a legal
settlement amounting to $33,862, increased financial and
organizational expense of $89,086, and increased travel expense of
$28,152. Depreciation and amortization also increased in 1996 by
$27,843, or 114%, related to the amortization of debenture costs.
Also, interest expense increased from $29,792 in 1995 to $298,478
in 1996 reflecting convertible debenture interest of $164,365 and
accrued interest for loans of $87,956.
Net Operating Losses
The Company has accumulated approximately $7,800,000 of net
operating loss carryforwards as of December 31, 1996, which may be
offset against taxable income and income taxes in future years.
The use of these losses to reduce future income taxes will depend
on the generation of sufficient taxable income prior to the
expiration of the net operating loss carryforwards. The
carry-forwards expire in the year 2011. In the event of certain
changes in control of the Company, there will be an annual
limitation on the amount of net operating loss carryforwards which
can be used. No tax benefit has been reported in the financial
statements for the year ended December 31, 1996 because the Company
believes there is a 50% or greater chance the carryforward will
expire unused. Accordingly, the potential tax benefits of the loss
carryforward is offset by a valuation allowance of the same amount.
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 December 31, 1996 was a negative $2,810,415
compared to a negative $2,932,484 at December 31, 1995. Working
capital at December 31, 1996 was impacted by the reduction in the
net loss for 1996. Net cash used in operating activities increased
from $482,073 in 1995 to $1,273,722 in 1996, primarily due to a
$5,212 increase in allowance for bad debts, the amortization of
prepaid advertising of $54,000, the 15% increase in expenses paid
with common stock, and a decrease in accounts payable in 1996 of
$631,402 compared to an increase in accounts payable in 1995 of
$620,777. Financing activities provided a net $1,370,584 to the
Company in 1996, a 142% increase from 1995 due to $389,243 in
proceeds from loans payable, proceeds of $706,148 from the issuance
of convertible debentures, and $365,376 from the issuance of common
stock.
The Company anticipates meeting its working capital needs
during the 1997 fiscal year partially with revenues from
operations, and by investigating the possibility of interim
financing to provide working capital and to increase marketing
activities related to the Company's products. Management has not
entered into any new arrangements or definitive agreements for
additional private placement of securities and/or a public
offering. 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 December 31, 1996, the Company had total assets of
$781,543 and total stockholders' deficiency of $2,345,759, compared
to December 31, 1995 at which time the Company had total assets of
$738,030 and total stockholders' deficiency of $2,506,685.
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
second 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 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 second 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.
Risk Factors and Cautionary Statements
Forward-looking statements in this report are made pursuant to
the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. The Company wishes to advise readers that
actual results may differ substantially from such forward-looking
statements. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially
from those expressed in or implied by the statements, including,
but not limited to, the following: the ability of the Company to
secure additional financing, acceptance of the Company's products
and services in the marketplace, competitive factors, and other
risks detailed in the Company's periodic report filings with the
Securities and Exchange Commission.
Item 7. Financial Statements
The Company's financial statements as of and for the fiscal
years ended December 31, 1996 and 1995 have all been examined to
the extent indicated in their report by Jones, Jensen and Company,
independent certified accountants, and have been prepared in
accordance with generally accepted accounted principles and
pursuant to Regulation S-B as promulgated by the Securities and
Exchange Commission. The aforementioned financial statements are
included herein in response to Item 7 of this Form 10-KSB.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
National Health & Safety Corporation
Warminster, Pennsylvania
We have audited the accompanying balance sheet of National Health
& Safety Corporation as of December 31, 1996 and the related
statements of operations, stockholders' deficiency and cash flows
for the years ended December 31, 1996 and 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
National Health & Safety Corporation as of December 31, 1996 and
the results of its operations and its cash flows for the years
ended December 31, 1996 and 1995, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in
Note 4, the Company's capital deficiency and significant operating
losses raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans with regard to
these matters are also discussed in Note 4. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
Jones, Jensen & Company
March 25, 1997
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Balance Sheet
ASSETS
December 31,
1996
CURRENT ASSETS
Cash $ 161,503
Accounts receivable, net of allowance for doubtful
accounts of $48,212 (Note 1) 39,908
Total Current Assets 201,411
PROPERTY AND EQUIPMENT (Note 1)
Furniture and fixtures 7,088
Computer equipment 129,649
Office equipment 29,062
Total Property and Equipment 165,799
Less accumulated depreciation 129,343
Net Property and Equipment 36,456
OTHER ASSETS
Prepaid expenses (Note 1) 500,000
Deferred loan costs (Note 1) 34,378
Deposits 9,298
Total Other Assets 543,676
TOTAL ASSETS $ 781,543
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
December 31,
1996
CURRENT LIABILITIES
Accounts payable $ 416,710
Loans payable, stockholder (Note 3) 672,025
Loans payable, individuals (Note 2) 602,082
Accrued expenses (Note 5 and 8) 1,119,598
Total Current Liabilities 2,810,415
LONG-TERM DEBT
Convertible debentures (Note 6) 316,887
COMMITMENTS AND CONTINGENCIES (Note 5) -
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.001 par value; 25,000,000 shares
authorized; 14,363 shares issued and outstanding 14
Common stock; $.001 par value, 50,000,000 shares
authorized; 21,146,105 shares issued
and outstanding 21,146
Additional paid-in capital 6,227,239
Stock subscriptions receivable (766,000)
Accumulated deficit (7,828,158)
Total Stockholders' Deficiency (2,345,759)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 781,543
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Operations
For the Years Ended
December 31,
1996 1995
SALES $ 207,921 $ 267,126
COST OF SALES 56,452 62,760
Gross Profit 151,469 204,366
EXPENSES
Salaries and wages 667,349 534,363
Employee benefits 43,619 28,269
Payroll taxes 39,496 21,728
Rent 85,492 48,134
Consulting services 624,092 1,658,258
Telephone 30,245 36,913
Postage and shipping 20,955 27,294
Promotion 64,497 41,164
Depreciation and amortization 52,332 24,489
General and administrative 154,665 40,701
Total Expenses 1,782,742 2,461,313
LOSS FROM OPERATIONS (1,631,273) (2,256,947)
OTHER INCOME (EXPENSE)
Interest income - 50,000
Other income - 7,500
Bad debt expense (45,212) (4,375)
Interest expense (298,478) (29,792)
Total Other Income (Expense) (343,690) 23,333
NET LOSS $(1,974,963) $(2,233,614)
LOSS PER SHARE $ (0.09) $ (0.10)
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Stockholders' Deficiency
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)
Cancellation of stock
subscriptions - (13,300) (79,986,700) 80,000,000 -
Contribution of capital by
investor - - 114,439 - -
Issuance of common stock
in payment of debt - 3,105 521,894 - -
Issuance of common stock
for prepaid advertising - 378 329,030 (266,000) -
Issuance of common stock
for services rendered - 619 1,067,048 - -
Issuance of common stock
for cash - 7,818 357,558 - -
Net income (loss) for the year
ended December 31, 1996 - - - - (1,974,963)
Balance, December 31,
1996 $ 14 $ 21,146 $ 6,227,239 $(766,000) $(7,828,158)
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Cash Flows
For the Years Ended
December 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $(1,974,963) $(2,233,614)
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Amortization 35,004 2,917
Depreciation 17,328 21,572
Increase in allowance for bad debts 45,212 -
Amortization of prepaid advertising 54,000 -
Interest expense contributed as capital 35,608 -
Expenses paid with common stock 1,075,075 935,820
Changes in Operating Assets and Liabilities:
(Increase) decrease in inventory 5,215 581
(Increase) decrease in accounts receivable (47,950) (25,197)
(Increase) decrease in deposits 839 -
Increase (decrease) in accounts payable (631,402) 620,777
Increase (decrease) in accrued expenses 112,312 195,071
Net Cash Provided (Used) by Operating
Activities (1,273,722) (482,073)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from notes receivable 20,000 -
Issuance of notes receivable - (20,000)
Purchase of fixed assets (10,635) (13,497)
Net Cash Provided (Used) by Investing Activities 9,365 (33,497)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans payable, individuals 389,243 23,000
Repayment of loans payable, individuals - (6,356)
Proceeds from loans payable, stockholders' - 285,150
Repayment of loans payable stockholder (90,183) -
Proceeds from issuance of convertible debentures 706,148 180,000
Proceeds from issuance of common stock 365,376 83,888
Net Cash Provided (Used) by Financing
Activities $ 1,370,584 $ 565,682
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Cash Flows (Continued)
For the Years Ended
December 31,
1996 1995
INCREASE (DECREASE) IN CASH $ 106,227 $ 50,112
NET CASH, BEGINNING OF YEAR 55,276 5,164
NET CASH, END OF YEAR $ 161,503 $ 55,276
CASH PAID DURING THE YEAR FOR
Interest $ 27,335 26,445
Income taxes $ - $ -
NON CASH FINANCING ACTIVITIES
Loan costs capitalized from issuance of
convertible debentures $ - $ 70,000
Issuance of common stock in payment
of debt $ 524,999 $ 100,000
Discount on convertible debentures added
to additional paid-in capital $ 114,439 $ 37,642
Issuance of common stock for prepaid
advertising $ 329,408 $ -
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
December 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 $48,212. 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. 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. Depreciation expense was
$17,328 and $21,572 for the years ended December 31, 1996 and
1995, respectively.
d. 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
December 31, 1996 and 1995
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
e. Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less to be cash equivalents.
f. 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.
g. Provision for Taxes
At December 31, 1996, the Company had net operating loss
carryforwards of approximately $7,800,000 that may be offset
against future taxable income through 2011. 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.
h. Prepaid Expenses
The Company has purchased $500,000 in radio airtime, to be
used over the next year to promote its products.
i. Reclassification
Certain December 31, 1995 balances have been reclassified to
conform with the December 31, 1996 financial statement
presentation.
j. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
k. Uninsured Corporate Cash Balances
The Company maintains its corporate cash balances at various
banks and financial institutions. Corporate cash accounts at
banks are insured by the FDIC for up to $100,000. Amounts in
excess of insured limits were approximately $126,672 at
December 31, 1996.
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
December 31, 1996 and 1995
NOTE 2 - LOANS PAYABLE, INDIVIDUALS
Private Placement Advances 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. $ 55,540
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. 546,542
$ 602,082
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. The amount due the stockholder was $672,025 at
December 31, 1996.
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.
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
December 31, 1996 and 1995
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. In March 1996, MedGain
obtained a judgement for $132,000.
The Company leases its office facility and certain automotive
and office equipment under noncancelable operating leases.
Future minimum annual rental commitments are as follows:
1997 $ 112,536
1998 117,746
1999 50,146
Total $ 280,428
Rent expense amounted to $72,972 and $48,134 for the years
ended December 31, 1996 and 1995, respectively.
The Company has entered into a five year employment agreement
with its president and chief executive officer, and five 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 $352,000 for the year
ended December 31, 1997. At December 31, 1996, total
deferred income for these three individuals was $578,770.
This amount is included in accrued expenses.
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. The Company is current with
the terms of the settlement agreement. $335,000 is accrued
at December 31, 1996 which covers the total remaining
obligation.
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
December 31, 1996 and 1995
NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)
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 4,000,000 shares have not been returned to the
Company, however, these certificates are legended so that
they cannot be traded.
NOTE 6 - CONVERTIBLE DEBENTURES
During 1996, the Company issued convertible debentures with
a face value of $650,000. $400,000 of these debentures were
converted during 1996, and the remaining $250,000 have a
maturity date of May 20, 1998 and bear interest at 9%. The
debentures may be converted into the Company's common stock
at the option of the holder at a conversion price equal to
50% of the lowest closing bid price on any day after December
19, 1996 until the date of conversion.
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:
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
December 31, 1996 and 1995
NOTE 7 - PREFERRED STOCK (Continued)
Upon closing of a private placement issue $ 50,011
Upon closing of secondary public offering 50,011
One year after closing of a secondary public offering 150,074
Two years after closing of a secondary public offering 174,975
Three years after closing of a secondary public offering 175,015
$ 600,086
NOTE 8 - RELATED PARTY TRANSACTIONS
Included in accounts payable at December 31, 1996 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 $26,279 at December 31,
1996.
NOTE 9 - ECONOMIC DEPENDENCE
The Company has one customer which accounted for 47% of the
Company's total sales.
NOTE 10 - OPTIONS AND WARRANTS
The Company has the following outstanding warrants:
Number Expiration
Issued Purchase Price Date
487,500 Lessor of $1.50 or 75% of current price 12/31/00
131,665 Lessor of $2.13 or 75% of current price 12/31/00
250,000 $0.25 per share 04/01/01
200,000 $0.25 per share 04/01/01
30,202 $1.00 per share 06/25/98
The Company has issued 6,000,000 options to officers of the
Company at an exercise price of $0.17 per share. 3,000,000
options expire on June 6, 2010, and 3,000,000 expire on April
30, 2011.
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not applicable.
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The directors and executive officers of the Company and their
ages are as follows:
Name Age Position
R. Dennis Bowers, Ph.D. 55 President, Chief Executive
Officer and Director
Patricia S. Bathurst 42 Vice President of Sales and
Marketing, Secretary
and Director
Roger H. Folts . . . 58 Vice President, Chief Financial
Officer, Treasurer and Director
All directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and
qualified. There are no agreements with respect to the election of
directors. The Company has not compensated its directors for service
on the Board of Directors or any committee thereof, but directors are
reimbursed for expenses incurred for attendance at meetings of the
Board of Directors and any committee of the Board of Directors.
Officers are appointed annually by the Board of Directors and each
executive officer serves at the discretion of the Board of Directors.
The Company does not have any standing committees.
None of the officers and/or directors of the Company are officers
or directors of any other publicly traded corporation, nor have any
of the directors and/or officers, nor have any of the affiliates or
promoters of the Company filed any bankruptcy petition, been convicted
in or been the subject of any pending criminal proceedings, or the
subject or any order, judgment, or decree involving the violation of
any state or federal securities laws within the past five years.
The business experience of each of the persons listed above
during the past five years is as follows:
R. Dennis Bowers, Ph.D., has been President, Chief Executive
Officer and a Director of the Company since March 22, 1993. Dr.
Bowers was the founder of NHSC-Pennsylvania in 1989 and since that
date has been involved in developing the business of NHSC-Pennsylvania
and now the Company. Also, from 1985 to the present, Dr. Bowers has
been the President and majority stockholder of Horizon Development
Group, Inc., a marketing company located in southeastern Pennsylvania
and which has entered into certain marketing contracts with the
Company. See Item 12, "Certain Relationships and Related
Transactions". From 1983 to 1984, Dr. Bowers was President and C.E.O
of The Phoenix Companies, Inc., a Pennsylvania corporation that
developed certain software and information systems for Mid-Atlantic
Health Information Corporation. From 1976 to 1983, Dr. Bowers was the
group director of the health care services division of IMS America,
Ltd., a market research and health care research firm located in
Ambler, Pennsylvania. From 1973 to 1976, Dr. Bowers was President of
Adapt, Inc., a medical and mental health service provider located in
Des Moines, Iowa. Dr. Bowers earned a B.S. Degree in journalism from
the University of Kansas in 1964, a Masters Degree in Divinity from
Drew University in 1967, and a Ph.D in Organizational Development from
Boston University in 1977.
Patricia S. Bathurst has been Vice President of Sales and
Marketing, Secretary and a Director of the Company since March 22,
1993, and was an officer of NHSC-Pennsylvania since 1989. From 1985
to 1992, Ms. Bathurst was the director of marketing for Horizon
Development Group, Inc., a marketing company located in southeastern,
Pennsylvania. Ms. Bathurst earned a B.S. Degree in marketing from
Temple University in 1985.
Roger H. Folts has been Vice President, Chief Financial Officer,
Treasurer and a Director of the Company since March 22, 1993. Mr.
Folts first joined NHSC-Pennsylvania at its inception in 1989 and has
served as Vice President and Chief Financial Officer since November,
1991. Also from 1989 to the present, Mr. Folts has been an adjunct
professor at the Philadelphia College of Textiles and Science teaching
business policy and marketing courses. From 1990 to 1992, Mr. Folts
was the owner and operator of Delval Recharge, Inc., located in
Southhampton, Pennsylvania, a company involved in servicing laser
printers and copiers, and from 1987 to 1990, Mr. Folts operated Roger
H. Folts & Associates, which presented management seminars and which
was located in Southhampton, Pennsylvania. Mr. Folts earned a B.A.
Degree in mathematics from Harvard University in 1960, and a M.B.A.
from the University of Chicago in 1966.
No officer or director of the Company is an officer or director
of any other publicly traded corporation, nor has any officer or
director filed any bankruptcy petition or been convicted in or named
subject to any pending criminal proceeding, nor is he the subject of
any order, judgment, or decree involving a violation of any state or
federal securities law.
Item 10. Executive Compensation
The Company has not had a bonus, profit sharing, or deferred
compensation plan for the benefit of its employees, officers or
directors.
The following table sets forth a summary of all cash and non-cash
compensation actually paid (and not deferred) by the Company (and by
NHSC-Pennsylvania prior to March 22, 1993) for services rendered to
the Company for the years ended December 31, 1994, 1995 and 1996 with
respect to the Company's Chief Executive Officer. No executive
officer of the Company has earned a salary greater than $100,000
annually for any of the periods depicted.
<PAGE>
Summary Compensation Table
Other All
Annual Other
Name and Compen- Compen-
Principal Position Year Salary Bonus sation sation
R. Dennis Bowers, 1994 $ 8,333 $ -0- $ -0- $ -0-
President, C.E.O. 1995 18,333 -0- -0- -0-
1996 49,750 -0- 1,779 -0-
Employment Agreements
On February 15, 1996, the Company entered into an Employment
Agreement with Dr. R. Dennis Bowers. Under the terms of the
Employment Agreement, Dr. Bowers is employed as President and Chief
Executive Officer of the Company for a term of five years,
automatically renewing thereafter for additional annual terms. Dr.
Bowers is to be compensated at the annual salary of $130,000 for the
first year, with a mandatory minimum increase thereafter of ten
percent per year. Dr. Bowers is also entitled to receive an annual
bonus equal to at least five percent (5%) of the Company's annual pre-
tax profits, if any, or such amount as the Board of Directors may
determine. Such bonus shall be payable no later than May 1 of the
year following the year upon which such bonus is based. In addition,
Dr. Bowers is entitled to certain other benefits including four weeks
paid vacation per year, an automobile, life, disability and health
insurance, and reimbursement of business related expenses.
Additionally, the Employment Agreement contains a restrictive
covenant whereby, for a period of one year following the last day of
his employment with the Company, Dr. Bowers may not own, operate,
manage or control or otherwise become associated with any entity in
competition with the Company. Further, during the term of the
Employment Agreement, Dr. Bowers has agreed not to communicate,
divulge or use for his personal benefit any confidential or
proprietary information of the Company. In the event the Company
terminates Dr. Bowers for a reason other that for cause or because of
his death or disability during the first five years of the Employment
Agreement, (a) the aforementioned non-competition clause shall
terminate; (b) the Company shall be required to pay Dr. Bowers a sum
equal to five times the compensation (from all sources) received by
Dr. Bowers from the Company during the twelve full calendar months
immediately preceding the date upon which notice of termination is
received; and (c) Dr. Bowers shall have the option to sell to the
Company some or all of his shares of the Company's Common Stock then
owned by him and fully vested, and the Company will be obligated to
purchase all the shares so offered at a price per share equal to not
less than seventy-five percent (75%) of the then current "fair market
value" of his shares. The Company's obligation to purchase Dr.
Bowers' shares shall be subject to all statutory limitations regarding
the acquisition by a corporation of its own shares. Should Dr. Bowers
voluntarily terminate the Employment Agreement upon giving six months
prior written notice, the Company, may, but shall not be required to
purchase from Dr. Bowers, all, but not less than all, of his shares
of the Company's Common Stock at a price equal to not less than
seventy-five percent (75%) of the then current "fair market value" of
those shares.
On February 15, 1996, the Company entered into five year
employment agreements with Roger H. Folts as Vice President and Chief
Financial Officer, and with Patricia Bathurst as Vice President of
Marketing. Each agreement automatically renews after five years for
additional annual terms and both Mr. Folts and Ms. Bathurst are to be
compensated at the annual rate of $90,750 per year through December
31, 1996, and thereafter the base salary will be increased by the
greater of ten percent (10%) of the prior year's base salary rate or
such grater amount as the Board of Directors may determine. Both Mr.
Folts and Ms. Bathurst are entitled to an annual bonus equal to the
grater of two percent of the Company's annual pre-tax profits, if any,
or such amount as the Board of Directors may determine. Such bonus
shall be payable no later than May 1 of the year following the year
upon which such bonus is based. In addition, Mr. Folts and Ms.
Bathurst are entitled to certain other benefits including four weeks
paid vacation per year, an automobile, life, disability and health
insurance, and reimbursement of business related expenses.
Each of the agreements for Mr. Folts and Ms. Bathurst contains
a restrictive covenant whereby, for a period of one year following the
last day of their employment with the Company, they may not own,
operate, manage or control or otherwise become associated with any
entity in competition with the Company. Further, during the term of
their employment, Mr. Folts and Ms. Bathurst agree not to communicate,
divulge or use for his personal benefit any confidential or
proprietary information of the Company. In the event the Company
terminates either Mr. Folts' or Ms. Bathurst's employment for a reason
other that for cause or because of their death or disability during
the first five years of their employment, (a) the aforementioned non-
competition clause shall terminate; (b) the Company shall be required
to pay the terminated employee a sum equal to three times the
compensation (from all sources) received from the Company during the
twelve full calendar months immediately preceding the date upon which
notice of termination is received; and (c) the employee shall have the
option to sell to the Company some or all of his shares of the
Company's Common Stock then owned by them and fully vested, and the
Company will be obligated to purchase all the shares so offered at a
price per share equal to not less than seventy-five percent (75%) of
the then current "fair market value" of their shares. The Company's
obligation to purchase these shares shall be subject to all statutory
limitations regarding the acquisition by a corporation of its own
shares. Should either Mr. Folts or Ms. Bathurst voluntarily terminate
their employment upon giving six months prior written notice, the
Company, may, but shall not be required to purchase from them, all,
but not less than all, of their terminated employee's shares of the
Company's Common Stock at a price equal to not less than seventy-five
percent (75%) of the then current "fair market value" of those shares.
The Company has not entered into any other employment contracts
with its officers, directors or employees other than those set forth
above.<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth information, to the best knowledge
of the Company as of March 31, 1997, with respect to each person known
by the Company to own beneficially more than 5% of the Company's
outstanding Common Stock, each director of the Company and all
directors and officers of the Company as a group.
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership(1) of Class(2)
R. Dennis Bowers, Ph.D. * 6,157,600(3) 21.8%
P.O. Box 94
Lahaska, PA 18966
Roger H. Folts * 1,343,500(4) 5.3%
19 Foxcroft Drive
Doylestown, PA 18901
Patricia Bathurst * 1,201,314(5) 4.8%
313 Fortuna Drive
Hatfield, Pa 19440
All directors and executive 8,702,414(6) 28.7%
officers as a group
(3 persons in group)
* Director and/or executive officer
Note: Unless otherwise indicated in the footnotes below, the Company
has been advised that each person above has sole voting power
over the shares indicated above.
(1) Share amounts include, where indicated, Common Stock issuable
upon the exercise of certain stock options held by the Company's
directors and executive officers at the exercise price of $.17
per share which are exercisable within sixty days.
(2) Based upon 24,279,438 shares of Common Stock outstanding on
March 31, 1997, but does not include shares of Common Stock
issuable upon conversion of Preferred Stock. Percentage
ownership is calculated separately for each person on the basis
of the actual number of outstanding shares as of March 31, 1997
and assumes the exercise of certain stock options held by such
person (but not by anyone else) exercisable within sixty days.
(3) Includes 45,000 shares in each of the following names; Nelda S.
Bowers, wife of Dr. Bowers, and their children, C. Devon Bowers,
Sarah G. Bowers and K. Shanon Bowers. Also includes 4,000,000
shares which may be acquired by Mr. Bowers pursuant to the
exercise of certain stock options within sixty days.
(4) Includes 3,000 shares owned by Barbara Folts, wife of Roger
Folts, but does not include 10,000 shares owned by Mr. Folts'
two adult children and their spouses as to which Mr. Folts
disclaims any beneficial ownership. Also includes 1,000,000
shares which may be acquired by Mr. Folts pursuant to the
exercise of certain stock options within sixty days.
<PAGE>
(5) Includes 1,000,000 shares which may be acquired by Ms. Bathurst
pursuant to the exercise of certain stock options within
sixty days.
(6) Includes 6,000,000 shares which may be acquired by the directors
and executive officers pursuant to exercise of certain stock
options within sixty days.
Item 12. Certain Relationships and Related Transactions
During the Company's last two fiscal years, there have been no
transactions between the Company and any officer, director, nominee
for election as director, or any shareholder owning greater than five
percent (5%) of the Company's outstanding shares, nor any member of
the above referenced individuals' immediate family, except as set
forth below.
During 1995 and 1996, the Company's President, Dr. R. Dennis
Bowers has made private loans to the Company in the aggregate amounts
of $273,150 and 35,300 respectively. The Company has agreed to pay
an annual interest rate of 8% although no date has been established
for repayment and the loans have not been reduced to a promissory note
as of date hereof.
In June 1995, the Company issued to its three directors stock
options entitling each person to purchase the following amounts of the
Company's Common Stock: R. Dennis Bowers, 2,000,000 shares; Roger H.
Folts, 500,000 shares; and Patricia Bathurst, 500,000 shares. The
options are immediately exercisable commencing June 6, 1995 until June
6, 2010, at the exercise price of $.17 per share. In April 1996, the
Company issued additional options to Dr. Bowers (2,000,000 shares),
Mr. Folts (500,000 shares) and Ms. Bathurst (500,000 shares), which
were immediately exercisable commencing April 30, 1996 until April 30,
2011, at the exercise price of $.17 per share. As of the date hereof,
none of the stock options have been exercised.
PART V
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
* Articles of Incorporation filed as Exhibit to
Form 10-SB.
* By-Laws filed as Exhibit to Form 10-SB.
- - - - -
* Exhibits so marked have heretofore been filed with the
Securities and Exchange Commission as part of the filing
indicated and are incorporated herein by reference.
(b) On December 6, 1996, the Company filed a Current Report on Form
8-K reporting under Item 5 certain perceived irregularities in
the public trading market of the Company common stock. No
financial statements were included in the report.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NATIONAL HEALTH &
SAFETY CORPORATION
BY: /S/ R. Dennis Bowers
(Signature)
R. Dennis Bowers,
President and C.E.O.
Dated: April 29, 1997
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Title Date
President, C.E.O. April 29, 1997
/S/ R. Dennis Bowers and Director
(Signature)
R. Dennis Bowers
Vice President, April 29, 1997
/S/ Patricia S. Bathurst Secretary and
(Signature) Director
Patricia S. Bathurst
Vice Presidents, April 29, 1997
/S/ Roger H. Folts Treasurer and
(Signature) Director
Roger H. Folts (Chief Financial Officer)
(Principal Accounting 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 DECEMBER 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 161,503
<SECURITIES> 0
<RECEIVABLES> 88,120
<ALLOWANCES> 48,212
<INVENTORY> 0
<CURRENT-ASSETS> 201,411
<PP&E> 165,799
<DEPRECIATION> 129,343
<TOTAL-ASSETS> 781,543
<CURRENT-LIABILITIES> 2,810,415
<BONDS> 316,887
14
0
<COMMON> 21,146
<OTHER-SE> 6,227,239
<TOTAL-LIABILITY-AND-EQUITY> 781,543
<SALES> 207,921
<TOTAL-REVENUES> 207,921
<CGS> 56,452
<TOTAL-COSTS> 1,782,742
<OTHER-EXPENSES> 45,212
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 298,478
<INCOME-PRETAX> (1,974,963)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,974,963)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,974,963)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
