MARKED TO SHOW CHANGES
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
Annual Report Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1997
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 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.
State the issuer's revenues for its most recent fiscal year.
$ 100,712
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. $3,170,266 (Based on price
of $.10 as of March 31, 1998)
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 December 31, 1997
Common Stock, $.001 Par Value 34,241,074
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Transitional Small Business Disclosure Format. Yes No
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business . . . . . . . . . . 1
Item 2. Description of Property. . . . . . . . . . . 10
Item 3. Legal Proceedings. . . . . . . . . . . . . . 10
Item 4. Submission of Matter to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . 11
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . 11
Item 6. Management's Discussion and Analysis or
Plan of Operation. . . . . . . . . . . . . . 12
Item 7. Financial Statements . . . . . . . . . . . . 17
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . 30
PART III
Item 9. Directors, Executive Officers, Promoters and
Control persons; Compliance with
Section 16(a) of the Exchange Act. . . . . . 30
Item 10. Executive Compensation . . . . . . . . . . . 32
Item 11. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . 34
Item 12. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . 35
Item 13. Exhibits and Reports on Form 8-K . . . . . . 36
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . 37
-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 incorporated in the State of Utah on May 23,
1983 and had only minimal activity until 1992. 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, 1993, 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, NHSC-Pennsylvania had been engaged in
developing a national healthcare marketing organization
concentrating on the sale of healthcare equipment, supplies and
other medical products and services. 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").
In February 1993, NHSC-Pennsylvania merged with Mid-Atlantic
Health Information Corporation, a Pennsylvania corporation
("Mid-Atlantic"), with NHSC-Pennsylvania being the surviving
corporation. Although Mid-Atlantic did not engage in any business
activity, it 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. The Company does
not expect to commence operating its information services division
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. Management believes that through
POWERX the Company can reduce the cost of medical care to consumers
and to corporations, unions, associations, insurers and other
organizations while promoting quality of care.
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.
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 its members the opportunity 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.
<PAGE>
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 40%. 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. 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, physicians, hospital, laboratory and radiology
services, nursing home/extended care facility, 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.
<PAGE>
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
1998. 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 and Vision 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. During 1997, the Company added two new
programs; physician, hospital, laboratory, radiology and other
ancillary care, and a long-term care nursing home 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.
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 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%.
<PAGE>
(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 a 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, but did not expend
any money in 1995, 1996 and 1997 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 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 400,000 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 may be required to obtain the necessary
state and/or federal licensing and training and may 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.
<PAGE>
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 current monthly rental rate of
$9,595. 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.
<PAGE>
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, 1997. 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 North American
Quotations, Inc. Prices reported represent prices between dealers,
do not include retail markups, markdowns or commissions and do not
necessarily represent actual transactions.
<PAGE>
High Low
1996
First Quarter . . . . . $2.06 $ .69
Second Quarter. . . . . 1.34 .27
Third Quarter . . . . . .44 .11
Fourth Quarter. . . . . .25 .05
1997
First Quarter . . . . . $ .45 $ .19
Second Quarter. . . . . .37 .13
Third Quarter . . . . . .29 .15
Fourth Quarter. . . . . .19 .10
As of December 31, 1997 the Company had issued and outstanding
34,241,074 shares of Common Stock and there were approximately 405
shareholders of record, which figure does not take into account
those shareholders whose certificates are held in the name of
broker-dealers.
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.
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.
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 Standard ("SFAS") No. 128, "Earnings Per
Share" and Statement of Financial Accounting Standards No. 129
"Disclosures of Information About an Entity's Capital Structure."
SFAS No. 128 provides a different method of calculating earnings
per share than is currently used in accordance with Accounting
Principles Board Opinion No. 15, "Earnings Per Share." SFAS No. 128
provides for the calculation of "Basic" and "Dilutive" earnings per
share. Basic earnings per share includes no dilution and is
computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution
of securities that could share in the earnings of an entity,
similar to fully diluted earnings per share. SFAS No. 129
establishes standards for disclosing information about an entity's
capital structure. SFAS No. 128 and SFAS No. 129 are effective for
financial statements issued for periods ending after December 15,
1997. Their implementation is not expected to have a material
effect on the financial statements.
The Financial Accounting Standards Board has also issued SFAS
No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes
in equity except those resulting from investments by owners and
distributors to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income
be reported in a financial statement that displays with the same
prominence as other financial statements. SFAS No. 131 supersedes
SFAS No. 14 "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes standards on the way that
public companies report financial information about operating
segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for
disclosure regarding products and services, geographic areas and
major customers. SFAS No. 131 defines operating segments as
components of a company about which separate financial information
is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in
assessing performance.
SFAS 130 and 131 are effective for financial statements for
periods beginning after December 15, 1997 and requires comparative
information for earlier years to be restated. Because of the
recent issuance of the standard, management has been unable to
fully evaluate the impact, if any the standard may have on future
financial statement disclosures. Results of operations and
financial position, however, will be unaffected by implementation
of the standard.
<PAGE>
Results of Operations
The following table sets forth, for the two most recent fiscal
years ended December 31, 1997 and 1996, 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,
1997 1996
Total sales. . . . . . . . . . . . . . . 100% 100%
Costs of sales . . . . . . . . . . . . . 27 27
Operating expenses . . . . . . . . . . . 1305 858
(Loss) from operations . . . . . . . . . 1232 (785)
Other income (expense) . . . . . . . . . (336) (165)
Net (loss) . . . . . . . . . . . . . . . (1568) (950)
For the Year Ended December 31, 1997 Compared to the Year Ended
December 31, 1996
Total revenues of $100,328 for the year ended December 31,
1997 ("1997) represent a decrease of approximately 52% from total
revenue of $207,921 for year ended December 31, 1996 ("1996"),
primarily attributed to the 52% decrease in POWERX sales and 46%
decrease in the sale of medical supplies and equipment. The
decrease in sales of the POWERX Card is attributed to a reduction
in the number of people covered by a major client which resulted in
an $82,381 reduction in sales, and the decrease in the sale of
medical supplies and equipment is attributed to a lower level of
marketing activity for the less profitable sales area. Cost of
sales (as a percentage of total revenue) remained constant at 27%
for 1997 and 1996. Total cost of sales decreased 52% from 1996 to
1997 which parallels the 52% decrease in total revenue for the same
period.
Operating expenses for 1997 decreased approximately 26% when
compared with the same period for 1996, primarily attributed to the
$292,025, or 47% decrease in consultant expenses in 1997, $113,237,
or 17% decrease in salaries and wages due to the elimination of the
Vice President of Sales and the reduction in hours of customer
service. General and administrative expenses decreased $59,716, or
39%, due mainly to a $34,077, or 88% decrease in organizational
expense and $28,862, or 85% decrease in legal settlement expenses
due to the higher initial scheduled payments required in 1996. The
major increases in expenses were $25,645, or 35% for the Company's
three year rental lease on its building, and interest expense that
increased $40,495, or 14% due to increased borrowing.
<PAGE>
Net Operating Losses
The Company has accumulated approximately $9,400,000 of net
operating loss carryforwards as of December 31, 1997, 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 2012. 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, 1997 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, 1997 was a negative $2,933,377
compared to a negative $2,609,004 at December 31, 1996. Working
capital at December 31, 1997 was impacted by the reduction in the
net loss for 1997, the increase in loans payable and the
reclassification of outstanding debentures from long term debt to
current liabilities. Net cash used in operating activities
decreased from $1,273,722 in 1996 to $1,063,337 in 1997, primarily
due to the decrease in net loss of $395,682, the $72,400 decrease
in accounts payable, and the increase of $255,439 in accrued
expenses. Financing activities provided a net $909,350 to the
Company in 1997, a 34% decrease from 1996 due to $167,500 from
loans payable, stockholder, and $741,850 from the issuance of
common stock.
The Company anticipates meeting its working capital needs
during the 1998 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, 1997, the Company had total assets of
$567,021 and total stockholders' deficiency of $2,680,790, compared
to December 31, 1996 at which time the Company had total assets of
$781,543 and total stockholders' deficiency of $2,345,759.
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 1998. Management estimates that its current
level of operations requires approximately $70,000 per month in
cash based upon average monthly cash flows in 1997. 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 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.
Item 7. Financial Statements
The Company's financial statements as of and for the fiscal
years ended December 31, 1997 and 1996 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
We have audited the accompanying balance sheet of National Health & Safety
Corporation as of December 31, 1997 and the related statements of operations,
stockholders' deficiency and cash flows for the years ended December 31, 1997
and 1996. 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, 1997 and the results of its operations and its
cash flows for the years ended December 31, 1997 and 1996, 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
Salt Lake City, Utah
January 23, 1998
The accompanying notes are an integral part of these financial statements
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Balance Sheet
ASSETS
December 31,
1997
CURRENT ASSETS
Cash $ 7,516
Accounts receivable, net of allowance for doubtful
accounts of $8,200 (Note 1) 31,918
Total Current Assets 39,434
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 147,510
Net Property and Equipment 18,289
OTHER ASSETS
Prepaid expenses (Note 1) 500,000
Deposits 9,298
Total Other Assets 509,298
TOTAL ASSETS $ 567,021
The accompanying notes are an integral part of these financial statements
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
December 31,
1997
CURRENT LIABILITIES
Accounts payable $ 344,280
Loans payable, stockholder (Note 3) 652,025
Loans payable, individuals (Note 2) 759,582
Accrued expenses (Note 5 and 8) 1,041,924
Convertible debentures (Note 6) 175,000
Total Current Liabilities 2,972,811
LONG-TERM DEBT
Legal settlement (Note 5) 275,000
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; 34,241,074 shares issued and outstanding 34,241
Additional paid-in capital 7,392,394
Stock subscriptions receivable (700,000)
Accumulated deficit (9,407,439)
Total Stockholders' Deficiency (2,680,790)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 567,021
The accompanying notes are an integral part of these financial statements
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Operations
For the Years Ended
December 31,
1997 1996
SALES $ 100,712 $ 207,921
COST OF SALES 27,205 56,452
Gross Profit 73,507 151,469
EXPENSES
Salaries and wages 554,112 667,349
Employee benefits 39,869 43,619
Payroll taxes 32,294 39,496
Rent 111,137 85,492
Consulting services 332,068 624,092
Telephone 23,375 30,245
Postage and shipping 20,751 20,955
Promotion 52,715 64,497
Depreciation and amortization 52,545 52,332
General and administrative 94,949 154,665
Total Expenses 1,313,815 1,782,742
LOSS FROM OPERATIONS (1,240,308) (1,631,273)
OTHER INCOME (EXPENSE)
Bad debt expense - (45,212)
Interest expense (338,973) (298,478)
Total Other Income (Expense) (338,973) (343,690)
NET LOSS $ (1,579,281) $ (1,974,963)
LOSS PER SHARE $ (0.05) $ (0.09)
The accompanying notes are an integral part of these financial statements
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)
The accompanying notes are an integral part of these financial statements
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Cash Flows
For the Years Ended
December 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $ (1,579,281) $ (1,974,963)
Adjustments to reconcile net (loss) to net cash
(used) by operating activities:
Depreciation and amortization 52,545 52,332
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 272,400 1,075,075
Changes in Operating Assets and Liabilities:
(Increase) decrease in inventory - 5,215
(Increase) decrease in accounts receivable 7,990 (47,950)
(Increase) decrease in deposits - 839
Increase (decrease) in accounts payable (72,430) 631,402)
Increase (decrease) in accrued expenses 255,439 112,312
Net Cash (Used) by Operating Activities (1,063,337) (1,273,722)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from notes receivable - 20,000
Purchase of fixed assets - (10,635)
Net Cash Provided by Investing Activities - 9,365
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans payable, individuals - 389,243
Proceeds from loans payable, stockholder 187,500 -
Repayment of loans payable, stockholder (20,000) (90,183)
Proceeds from issuance of convertible debentures - 706,148
Proceeds from issuance of common stock 741,850 365,376
Net Cash Provided by Financing Activities $ 909,350 $ 1,370,584
The accompanying notes are an integral part of these financial statements
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Cash Flows (Continued)
For the Years Ended
December 31,
1997 1996
INCREASE (DECREASE) IN CASH $ (153,987) $ 106,227
NET CASH, BEGINNING OF YEAR 161,503 55,276
NET CASH, END OF YEAR $ 7,516 $ 161,503
CASH PAID DURING THE YEAR FOR
Interest $ 25,321 $ 27,335
Income taxes $ - $ -
NON CASH FINANCING ACTIVITIES
Issuance of common stock in payment of debt $ 200,000 $ 524,999
Discount on convertible debentures added to
additional paid-in capital $ - $ 114,439
Issuance of common stock for prepaid advertising$ - $ 329,408
The accompanying notes are an integral part of these financial statements
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
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
$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 $18,167 and $17,328 for the
years ended December 31, 1997 and 1996, 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, 1997 and 1996
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 have been amortized over the
life of the debentures which matured on November 30, 1997 of which $175,000
are still outstanding as of the date of the audit report. At December 31,
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 December 31, 1997, the Company had net operating loss carryforwards of
approximately $9,400,000 that may be offset against future taxable income
through 2012. 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
In 1994, the Company purchased $500,000 in radio airtime by issuing 50,000
shares of common stock to be used over the next year to promote its products.
i. Reclassification
Certain December 31, 1996 balances have been reclassified to conform with the
December 31, 1997 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. Corporate cash balances occasionally exceed insured
limits.
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
NOTE 2 - LOANS PAYABLE, INDIVIDUALS
Private Placement Advances 1997
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
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. 711,542
$ 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 $652,025 at December 31, 1997. 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.
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
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 noncancelable operating lease.
Future minimum annual rental commitments are as follows:
1998 117,746
1999 50,146
Total $ 167,892
Rent expense amounted to $98,950 and $72,972 for the years ended December 31,
1997 and 1996, 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
December 31, 1997, total deferred income for these three individuals was
$736,072. 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. $305,000 is
accrued at December 31, 1997 of which 4275,000 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
December 31, 1997 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
December 31, 1997 and 1996
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 19, 1996
until the date of conversion. The balance due at December 31, 1997 was
$175,000. 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 December 31, 1997 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 December 31, 1997.
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
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. 56 President, Chief Executive
Officer and Director
Patricia S. Bathurst 43 Vice President of Sales and
Marketing, Secretary
and Director
Roger H. Folts . . . 59 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.
<PAGE>
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, 1995, 1996
and 1997 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.
Summary Compensation Table
Other All
Annual Other
Name and Compen- Compen-
Principal Position Year Salary Bonus sation sation
R. Dennis Bowers, 1995 18,333 -0- -0- -0-
President, C.E.O. 1996 99,750 -0- 1,779 -0-
1997 81,033 -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.
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 December 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. * 5,993,600(3) 15.7%
P.O. Box 94
Lahaska, PA 18966
Roger H. Folts * 1,343,500(4) 3.8%
19 Foxcroft Drive
Doylestown, PA 18901
Patricia Bathurst * 1,201,314(5) 3.4%
313 Fortuna Drive
Hatfield, Pa 19440
All directors and executive 8,538,414(6) 21.2%
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 34,241,074 shares of Common Stock outstanding on
December 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
December 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.
(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.
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.
27 Financial Data Schedule
- - - - -
* 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) No reports were filed on Form 8-K for the three month period
ended December 31, 1997.
<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 3, 1998
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 3, 1998
/S/ R. Dennis Bowers and Director
(Signature)
R. Dennis Bowers
Vice President, April 3, 1998
/S/ Patricia S. Bathurst Secretary and
(Signature) Director
Patricia S. Bathurst
Vice Presidents, April 3, 1998
/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,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,516
<SECURITIES> 0
<RECEIVABLES> 40,118
<ALLOWANCES> 8,200
<INVENTORY> 0
<CURRENT-ASSETS> 39,434
<PP&E> 165,799
<DEPRECIATION> 147,510
<TOTAL-ASSETS> 567,021
<CURRENT-LIABILITIES> 2,972,811
<BONDS> 275,000
0
14
<COMMON> 34,241
<OTHER-SE> 7,392,394
<TOTAL-LIABILITY-AND-EQUITY> 567,021
<SALES> 100,712
<TOTAL-REVENUES> 100,712
<CGS> 27,205
<TOTAL-COSTS> 1,313,815
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 338,973
<INCOME-PRETAX> (1,579,281)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,579,281)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,579,281)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
