UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-24778
NATIONAL HEALTH & SAFETY CORPORATION
(Exact name of small business issuer as specified in its charter)
Utah 87-0505222
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
730 Louis Drive, Warminster, Pennsylvania 18974
(Address of principal executive offices)
Registrant's telephone no., including area code: (215) 442-0926
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Class Outstanding as of June 30, 1998
Common Stock, $.001 par value 45,964,506
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TABLE OF CONTENTS
Heading Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . 1
Balance Sheets -- June 30, 1998 and December 31, 1997. . 2
Statements of Operations -- three and six months
ended June 30, 1998 and 1997 . . . . . . . . . . . . . 4
Statements of Stockholders' Deficiency . . . . . . . . . 5
Statements of Cash Flows -- three and six months
ended June 30, 1998 and 1997 . . . . . . . . . . . . . 7
Notes to Financial Statements . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis and
Results of Operations. . . . . . . . . . . . . . . . . 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 18
Item 2. Changes In Securities. . . . . . . . . . . . . . . . . . 19
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . 19
Item 4. Submission of Matters to a Vote of
Securities Holders . . . . . . . . . . . . . . . . . . 19
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . 20
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 20
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . 21
-i-
<PAGE>
PART I
Item 1. Financial Statements
The following unaudited Financial Statements for the period
ended June 30, 1998, have been prepared by the Company.
NATIONAL HEALTH & SAFETY CORPORATION
FINANCIAL STATEMENTS
June 30, 1998 and 1997
December 31, 1997
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Balance Sheets
ASSETS
June 30, December 31,
1998 1997
(Unaudited)
CURRENT ASSETS
Cash $ 262,074 $ 7,516
Accounts receivable, net of allowance for doubtful
accounts of $8,200 (Note 1) 33,398 31,918
Total Current Assets 295,472 39,434
PROPERTY AND EQUIPMENT (Note 1)
Furniture and fixtures 7,088 7,088
Computer equipment 129,649 129,649
Office equipment 29,062 29,062
Total Property and Equipment 165,799 165,799
Less accumulated depreciation 155,033 147,510
Net Property and Equipment 10,766 18,289
OTHER ASSETS
Other receivables 33,515 -
Prepaid expenses (Note 1) 221,015 500,000
Deposits 9,298 9,298
Total Other Assets 263,828 509,298
TOTAL ASSETS $ 570,066 $ 567,021
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
June 30, December 31,
1998 1997
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 272,912 $ 344,280
Loans payable, stockholder (Note 3) 656,025 652,025
Loans payable, individuals (Note 2) 1,532,867 759,582
Accrued expenses (Note 5 and 8) 1,176,835 1,041,924
Convertible debentures (Note 6) 125,000 175,000
Total Current Liabilities 3,763,639 2,972,811
LONG-TERM DEBT
Legal settlement (Note 5) 265,000 275,000
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.001 par value; 25,000,000 shares
authorized; 14,363 shares issued and outstanding 14 14
Common stock; $.001 par value, 50,000,000 shares
authorized; 45,964,506 and 34,241,074 shares
issued and outstanding, respectively 45,965 34,241
Additional paid-in capital 7,621,671 7,392,394
Stock subscription receivable (720,000) (700,000)
Accumulated deficit (10,406,223) (9,407,439)
Total Stockholders' Deficiency (3,458,573) (2,680,790)
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ 570,066 $ 567,021
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Operations
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
1998 1997 1998 1997
SALES $ 31,215 $ 23,616 $ 71,414 $ 49,936
OPERATING COSTS AND EXPENSES
Cost of sales 10,848 5,960 14,480 13,316
Operating expenses 478,412 267,791 1,031,772 526,596
Total Operating Costs
and Expenses 489,260 273,751 1,046,252 539,912
LOSS FROM OPERATIONS (458,045) (250,135) (974,838) (489,976)
OTHER EXPENSE
Interest 12,769 10,526 23,946 22,625
NET LOSS $ (470,814) $(260,661) $ (998,784) $ (512,601)
LOSS PER SHARE $ (0.06) $ (0.02) $ (0.08) $ (0.04)
<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, 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 for cash - 3,105 521,894 - -
Issuance of common stock
in payment of debt - 378 329,030 (266,000) -
Issuance of common
stock for services rendered - 619 1,067,048 - -
Stock subscriptions
receivable - 7,818 357,558 - -
Net (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)
Issuance of common stock
in payment of debt - 2,918 197,082 - -
Issuance of common stock
for services rendered - 1,204 205,196 - -
Issuance of common stock
for cash - 8,973 732,877 - -
Contribution of capital by
investor - - 30,000 - -
Receipt of stock subscription
receivable - - - 66,000 -
Net (loss) for the year
ended December 31, 1997 - - - - (1,579,281)
Balance, December 31, 1997 $14 $34,241 $7,392,394 $ (700,000) $(9,407,439)
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Stockholders' Deficiency (Continued)
Additional Stock
Preferred Common Paid-in Subscriptions Accumulated
Stock Stock Capital Receivable Deficit
Balance, December 31, 1997 $ 14 $ 34,241 $ 7,392,394 $(700,000) $(9,407,439)
Issuance of common stock in
payment of debt (unaudited) - 1,011 48,990 - -
Issuance of common stock for
services rendered (unaudited) - 8,320 26,680 - -
Issuance of common stock for
cash (unaudited) - 2,393 153,607 (20,000) -
Net (loss) for the six months
ended June 30, 1998 (unaudited) - - - - (998,784)
Balance, June 30, 1998
(unaudited) $ 14 $ 45,965 $ 7,621,671 $(720,000)$(10,406,223)
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Cash Flows
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
1998 1997 1998 1997
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss) $(470,814) $(260,661) $(998,784) $(512,601)
Adjustments to reconcile net (loss)
to net cash (used) by operating
activities:
Common stock issued for services 14,500 - 35,000 -
Depreciation and amortization 4,622 13,293 7,523 26,585
(Increase) decrease in:
Prepaid expenses - - 278,985 -
Accounts receivable 1,299 4,874 (1,480) 6,366
Other receivables (33,515) - (33,515) -
Increase (decrease) in:
Accounts payable (62,982) (60,375) (71,368) (71,954)
Accrued expenses 44,064 31,839 134,912 (54,460)
Net Cash Used by
Operating Activities (502,826) (271,030) (648,727) (606,064)
CASH FLOWS FROM INVESTING
ACTIVITIES: - - - -
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayment of long -term debt (10,000) - (10,000) -
Proceeds from loans, individuals 659,785 178,659 773,285 178,659
Proceeds from stockholders' loan - 10,000 4,000 10,000
Issuance of common stock 111,000 130,500 136,000 326,000
Net Cash Provided by
Financing Activities 760,785 319,159 903,285 514,659
INCREASE (DECREASE) IN CASH 257,959 48,129 254,558 (91,405)
CASH, BEGINNING OF PERIOD 4,115 21,969 7,516 161,503
NET CASH, END OF PERIOD $ 262,074 $ 70,098 $ 262,074 $ 70,098
SUPPLEMENTAL DISCLOSURE
Cash paid for interest
during the period $ 12,769 $ 10,526 $ 23,946 $ 22,625
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
June 30, 1998 and 1997
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 d 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 $8,200. 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 $7,523 and $9,083 for the six months ended June 30, 1998 and 1997,
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.
e. Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents.
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
June 30, 1998 and 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 have been amortized
over the life of the debentures which matured on November 30, 1997, the
amount of deferred loan costs is $0.00. In, 1997, the Company determined
that due to the low trading price of its stock, that the conversion of
the debentures would result in excessive dilution. Accordingly, it has
offered the holders of the debentures the full cash face value of the
debentures and a 10% cash bonus. The additional compensation has been
accrued as interest expense in the 1997 financial statements.
g. Provision for Taxes
At June 30, 1998, the Company had net operating loss carryforwards of
approximately $10,400,000 that may be offset against future taxable
income through 2013. No tax benefit has been reported in the financial
statements, because the Company believes the 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. $278,985 was expensed in the six
months ended June 30, 1998.
i. Unaudited Financial Statements
The accompanying unaudited financial statements include all of the
adjustments which in the opinion of management are necessary for a
fair presentation. Such adjustments are of a normal, recurring nature.
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 $162,000 at June 30, 1998.
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
June 30, 1998 and 1997
NOTE 2 - LOANS PAYABLE, INDIVIDUALS
June 30, December 31,
1998 1997
(Unaudited)
Private Placement Advances
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. These loans are unsecured
and due upon demand. $ 48,040 $ 48,040
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. These loans are unsecured and due
upon demand. 1,484,827 711,542
$ 1,532,867 $ 759,582
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.
Over the years the stockholder has advanced to the Company additional
funds. The Company expects to repay this loan in full when financing
occurs. The amount due the stockholder was $656,025 at June 30, 1998.
The loan is unsecured and accrues interest at 10% per annum.
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
June 30, 1998 and 1997
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.
The Company leases its office facility under a non-cancelable operating
lease. Future minimum annual rental commitments are as follows:
1998 117,746
1999 50,146
Total $ 167,892
Rent expense amounted to $68,034 and $71,884 for the six months ended
June 30, 1998 and 1997, 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 $352,000 for the year
ended December 31, 1998. At June 30, 1998, total deferred income for
these three individuals was $814,030. 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. $295,000 is accrued at June 30,
1998 of which $265,000 is long-term debt which covers the total
remaining obligation.
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. Additionally, the Company received
$25,000 from an individual. A judgment has been issued against the
Company to repay the $25,000. The balance due at June 30, 1998 was
$17,500.
During 1995, several stock subscription agreements were canceled. Of
the shares canceled, certificates representing 4,000,000 shares have not
been returned to the Company, however, these certificates are legended
so that they cannot be traded.
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
June 30, 1998 and 1997
NOTE 6 - CONVERTIBLE DEBENTURES
During 1995 and 1996, the Company issued convertible debentures with a
face value of $900,000. $400,000 of these debentures were converted
during 1996, and $320,000 were converted in 1997. 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 31, 1997 until the date of conversion. The
balance due at June 30, 1998 was $125,000. In 1997, the Company
determined that due to the low trading price of its stock, the
conversion of the debentures would result in excessive dilution.
Accordingly, it was offering the holders of the debentures the full
cash face value of the debentures and a 10% cash bonus. The additional
compensation has been accrued as interest expense in the 1997 financial
statements.
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:
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 June 30, 1998 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 $28,780 at
June 30, 1998.
NOTE 9 - 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
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
June 30, 1998 and 1997
NOTE 9 - OPTIONS AND WARRANTS (Continued)
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.
The Company has issued 6,000,000 options to officers of the Company
at an exercise price of $0.07 per share. These options expire in
February 2013.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following table sets forth the percentage relationship to
sales of principal items contained in the Company's Statements of
Operations for the three month and six month periods ended June 30,
1998 and 1997. It should be noted that percentages discussed
throughout this analysis are stated on an approximate basis.
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
(Unaudited) (Unaudited)
Sales. . . . . . . . . . . . . . . 100% 100% 100% 100%
Cost of sales. . . . . . . . . . 35 25 20 27
Operating expenses . . . . . . . . 1532 1134 1445 1055
(Loss) from operations . . . . . . (1467) (1059) (1365) (982)
Other expenses - interest . . . . 41 45 34 45
Net (loss) . . . . . . . . . . . . (1508) (1104) (1399) (1027)
Results of Operations for the Three and Six Months Ended June 30,
1998 and 1997
Total sales for the second quarter of 1998 increased 32% from
the second quarter of 1997 primarily attributed to the 24% increase
in POWERX Card sales due primarily to increased marketing, and the
932% increase in other sales due to short-term consulting
agreements. This increase was partially offset by a slight ($788)
decrease in medical equipment sales. For the first six months of
1998, total sales increased 43% from the comparable 1997 period
primarily attributed to the 32% increase in POWERX sales, and the
679% increase in other sales. The increase was partially offset by
the $1,023 decrease in medical equipment sales attributed to
continued reduced marketing efforts. Cost of sales (as a
percentage of total revenues) increased to 35% for the second
quarter of 1998, from 25% for the second quarter of 1997 period,
and decreased to 20% for the first six months of 1998 from 27% for
the comparable 1997 period. The percentage increase for the second
quarter was the result of a sales mix of higher monthly POWERX
pays versus annual pays, and the percentage decrease in the first
six months of 1998 was due to the increase in other sales with no
associated costs. Actual cost of sales increased 38% for the
second quarter of 1998 compared to the second quarter of 1997 due
to the increase in POWERX sales, and decreased 9% for the first six
months of 1998 from the comparable 1997 due to the change in sales
mix.
Operating expenses for second quarter and first six months of
1998 increased 79% and 96%, respectively, when compared to the
corresponding 1997 periods. Contributing primarily to the increase
during the second quarter of 1998 were the 26% increase in salaries
paid due to one additional employee, one promotion and general
salary increases, the 323% increase in commissions due to a new
marketing program, the 181 % increase in consulting fees due to
public relations and financial consultants, the 12% increase in
rents due to increase in rent and additional office equipment and
auto lease, and the 173% increase in mailing expenses and $127,562
increase in marketing to increase selling and advertising efforts.
The increase in operating expenses for the first six months of
1998 is attributed to the $283,064 increase in advertising expenses
and $148,016 increase marketing increases in marketing expenses
reflecting the Company's increased selling efforts.
As a percentage of total revenues, operating expenses
increased from 1134% for the second quarter of 1997 to 1532% for
the second quarter of 1998, and from 1055% for the first six months
of 1997 to 1145% for the first six months of 1998.
The net loss for the second quarter and first six months of
1998 increased 80% to $470,814 for the second quarter and 95% to
$998,784 for the first six months, as compared with the
corresponding 1997 periods. These results are primarily attributed
to the significant increases in operating expenses for the 1998
periods in comparison to smaller increases in revenue.
Liquidity and Capital Resources
Historically, the Company's working capital needs have been
satisfied primarily through financing activities including private
loans and raising capital through the sale of securities. Working
capital at June 30, 1997 was a negative $3,468,167 compared to a
negative $2,933,377 at December 31, 1997, an 18% increase primarily
attributed to an the 102% increase in loans payable.
Net cash used by operating activities for the second quarter
and first six months of 1998 was $502,826 and $648,727,
respectively, compared to net cash used of $271.030 and $606,064
for the comparable 1997 periods. These increases are primarily
attributed to the larger net loss form operations in the 1998
periods and partially offset by a decrease in prepaid expense and
an increase in accrued expenses during the first six months of
1998. Net cash provided by financing activities for the second
quarter and first six months of 1998 was $760,785 and $903,285,
respectively, compared to net $319,159 and $514,659 for the 1997
periods. These results are primarily due to proceeds received from
loans in 1998.
The Company anticipates meeting its near-term working capital
needs 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 June 30, 1998, the Company had total assets of $570,066
and total stockholders' deficiency of $3,458,573. In comparison,
as of December 31, 1997, the Company had total assets of $567,021
and total stockholders' deficiency of $2,680,790.
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
During the remainder of fiscal 1998, 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 1998. Management estimates that its current
level of operations requires approximately $80,000 per month in
cash based upon average monthly cash flows during the first six
months of 1998. 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 third quarter of 1998. 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.
<PAGE>
PART II
Item 1. Legal Proceedings
Except as set forth below, there are presently no other
material pending legal proceedings to which the Company or any of
its subsidiaries is a party or to which any of its property is
subject and, to the best of its knowledge, no such actions against
the Company are contemplated or threatened.
In 1993, the National Association of Securities Dealers, Inc.
("NASD") and the Securities and Exchange Commission ("SEC") made
preliminary inquiries regarding trading in the shares of the
Company's securities. A formal order of investigation was issued
by the SEC on October 19, 1994 ("In the Matter of Trading in the
Securities of National Health & Safety Corp. / NY-6155). The
Company has delivered to the SEC certain requested documents
pursuant to a subpoena duces tecum.
The Company has been advised by the NASD that its inquiries
should not be construed as indicating that any violation of NASD
rules had occurred, or as a reflection on the merits of the
Company's securities or on any person who effected a transaction in
such securities. The Company was similarly advised by the SEC that
the existence of the SEC's inquiry was not to be construed as an
indication by the SEC that any violation of law had occurred, nor
was it to be considered an adverse reflection on any person, entity
or security. The Company is unaware of the circumstances
concerning the investigation by the NASD and SEC and is not able to
speculate as to the outcome or possible effect of the investigation
on the Company. The Company does not believe that it, its officers
or directors 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 or directors.
On July 16, 1998, an action was filed in Superior Court of the
State of California, County of Los Angeles (BC194301), entitled
Premium Holdings, Inc. vs. National Health and Safety
Corporation, et al. The action concerns an alleged breach of
contract and seeks damages and a temporary restraining order to
prevent the Company from canceling certain shares of common stock
issued, or to be issued by the Company. The Company contends that
it acted properly and that the there is no valid and binding
agreement related to the transaction. The Company has canceled the
shares of common stock issued pursuant to the transaction. The
Company believes that it is without fault in the action and intends
to vigorously defend the suit. A hearing has been set for August
1998. It is too soon in the proceedings to assess any potential
liability from the suit.
Item 2. Changes In Securities
During the second quarter of 1998, the Company issued 454,545
shares of its authorized but previously unissued common to one
person upon the conversion of certain convertible debentures, and
an additional 8,000,000 shares to one person for services based on
a price of $,001 per share An additional 310,000 shares were sold
to two persons at the average price of $.10 per share and 75,000
shares were issued to one person in for services based on a price
of $.06 per share. Subsequently, the Company has canceled
8,000,000 of these shares.
The issuance of the shares for services and for cash were made
in private transactions with individual investors executing
subscription agreements, and was made in reliance on the exemption
from registration provided by Section 4(2) of the Securities Act of
1933, as amended (the "Act"). The aggregate proceeds from the cash
sale were $31,000 and were applied to the general operating and
administrative expenses of the Company. The issuance of shares
pursuant to the conversion of the debentures was made in reliance
on the exemption from registration provided by Section 3(a)(9) and
Regulation S of the Act. The Company also increased its authorized
capitalization to 100,000,000 shares of common stock and 25,000,000
shares of preferred stock, although the amendment to the Articles
of Incorporation relating to the change have not been filed.
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
During the second quarter of 1998, the Company authorized
certain actions by written consent of shareholders in lieu of a
meeting. The actions taken were as follows.
1. April 8, 1998, consent to proceed with a certain funding
arrangement with HealthMed, Inc. whereby the Company would issue
shares of its common stock for certain funding considerations.
(18,835,702 shares consented). This transaction is presently in
dispute. See Item 1 above.
2. April 15, 1998, authorization of the change in
capitalization to 100,000,000 shares of common stock and 5,000,000
shares of preferred stock. (18,835,702 shares consented). No
amendment to the Company's Articles of Incorporation has been filed
pursuant to this action
Item 5. Other Information
This Item is not applicable to the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedules
(b) Reports on Form 8-K
No report on Form 8-K was filed by the Company during the
three month period ended June 30, 1998. The Company did file
a report on Form 8-K on July 13, 1998 reporting under Item 5,
Other Events, information concerning the Company's dispute of
the claimed ownership of shares of common stock by certain
shareholders of the Company pursuant to a Stock Purchase
Agreement.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange
Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NATIONAL HEALTH & SAFETY CORPORATION
Date: August 14, 1998 By /S/ R. Dennis Bowers
R. DENNIS BOWERS, President
Date: August 14, 1998 By /S/ Roger H. Folts
ROGER H. FOLTS, Vice
President, Treasurer and
Chief Financial Officer
Date: August 14, 1998 By /S/ Joseph Hirschberg
JOSEPH HIRSCHBERG, Director
Date: August 14, 1998 By /S/ Barton Peck
BARTON PECK, Director
<PAGE>
<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 JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> JUN-30-1998
<CASH> 262,074
<SECURITIES> 0
<RECEIVABLES> 33,398
<ALLOWANCES> 8,200
<INVENTORY> 0
<CURRENT-ASSETS> 295,472
<PP&E> 165,799
<DEPRECIATION> 155,033
<TOTAL-ASSETS> 570,066
<CURRENT-LIABILITIES> 3,763,639
<BONDS> 265,000
14
0
<COMMON> 45,965
<OTHER-SE> 7,621,671
<TOTAL-LIABILITY-AND-EQUITY> 570,066
<SALES> 71,414
<TOTAL-REVENUES> 71,414
<CGS> 14,480
<TOTAL-COSTS> 1,031,772
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,946
<INCOME-PRETAX> (998,784)
<INCOME-TAX> 0
<INCOME-CONTINUING> (998,784)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (998,784)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
