UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-24778
NATIONAL HEALTH & SAFETY CORPORATION
(Exact name of small business issuer as specified in its charter)
Utah 87-0505222
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
730 Louis Drive, Warminster, Pennsylvania 18974
(Address of principal executive offices)
Registrant's telephone no., including area code: (215) 442-0926
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Class Outstanding as of September 30, 1999
Common Stock, $.001 par value 58,803,716
TABLE OF CONTENTS
Heading Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . 3
Balance Sheets -- September 30, 1999 and
December 31, 1998. . . . . . . . . . . . . . . . . . . 4
Statements of Operations -- three and nine
months ended September 30, 1999. . . . . . . . . . . . 6
Statements of Stockholders' Deficiencies . . . . . . . . 7
Statements of Cash Flows -- three and nine
months ended September 30, 1999. . . . . . . . . . . . 8
Notes to Financial Statements . . . . . . . . . . . . . 9
Item 2. Management's Discussion and Analysis and
Results of Operations. . . . . . . . . . . . . . . . . . 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 14
Item 2. Changes In Securities and Use of Proceeds. . . . . . . . 14
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of
Securities Holders . . . . . . . . . . . . . . . . . . . 14
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . 16
PART I
Item 1. Financial Statements
The following unaudited Financial Statements for the period
ended September 30, 1999, have been prepared by the Company.
NATIONAL HEALTH & SAFETY CORPORATION
FINANCIAL STATEMENTS
September 30, 1999 and 1998
(Unaudited)
December 31, 1998
NATIONAL HEALTH & SAFETY CORPORATION
Balance Sheets
ASSETS
September 30, December 31,
1999 1998
(Unaudited)
CURRENT ASSETS
Cash $ 23,634 $ 3,336
Accounts receivable, net of allowance for doubtful
accounts of $8,200 28,995 30,857
Royalty receivable - 41,000
Total Current Assets 52,629 75,193
PROPERTY AND EQUIPMENT
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 158,496 156,418
Net Property and Equipment 7,303 9,381
OTHER ASSETS
Deposits 9,298 9,298
Total Other Assets 9,298 9,298
TOTAL ASSETS $ 69,230 $ 93,872
NATIONAL HEALTH & SAFETY CORPORATION
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
September 30, December 31,
1999 1998
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ - $ 302,522
Loan payable, stockholder - 646,025
Loans payable, individuals - 689,375
Accrued expenses - 1,476,567
Convertible debentures - 125,000
Post petition accounts payable 12,134 -
Post petition accrued expenses 11,551 -
Post petition other liabilities 165,000 -
Prepetition secured claims 1,513,941 -
Prepetition unsecured claims 2,106,843 -
Total Current Liabilities 3,809,469 3,239,489
LONG-TERM DEBT
Legal settlement - 265,000
Total Liabilities 3,809,469 3,504,489
STOCKHOLDERS' DEFICIENCY
Preferred stock: $0.001 par value; 5,000,000 shares
authorized; 14,363 shares issued and outstanding 14 14
Common stock: $0.001 par value, 100,000,000 shares
authorized; 58,803,716 and 52,454,994 shares
issued and outstanding, respectively 58,804 52,455
Additional paid-in capital 9,037,792 8,512,687
Accumulated deficit (12,836,849) (11,975,773)
Total Stockholders' Deficiency (3,740,239) (3,410,617)
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ 69,230 $ 93,872
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Operations
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
SALES $ 27,882 $ 30,626 $ 76,844 $ 102,040
OPERATING COSTS AND EXPENSES
Cost of sales 4,853 22,497 19,456 36,977
Operating expenses 202,526 501,971 887,630 1,533,743
Total Operating Cost
and Expenses 207,379 524,468 907,086 1,570,720
LOSS FROM OPERATION (179,497) (493,842) (830,242) (1,468,680)
OTHER EXPENSE
Interest expense 4,696 5,927 30,834 29,873
NET LOSS $ (184,193) $ (499,769) $ (861,076)$(1,498,553)
BASIC LOSS PER SHARE $ (0.00) $ (0.01) $ (0.02)$ (0.04)
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Stockholders' Deficiency
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 - 4,960 440,040 - -
Issuance of common stock for
services rendered - 1,195 202,305 - -
Issuance of common stock
for cash - 12,059 952,448 - -
Cancellation of stock subscription
receivable - - (474,500) 700,000 -
Net (loss) for the year
ended December 31, 1998 - - - - (2,568,334)
Balance, December 31, 1998 14 52,455 8,512,687 - (11,975,773)
Contribution of capital
(unaudited) - - 50,000 - -
Issuance of common stock for
cash (unaudited) - 3,240 268,990 - -
Issuance of common stock for
services (unaudited) - 1,447 82,777 - -
Issuance of common stock for
conversion of debentures
(unaudited) - 1,662 123,338 - -
Net loss for the nine months
ended September 30, 1999
(unaudited) - - - - (861,076)
Balance, September 30, 1999
(unaudited) $ 14 $58,804 $9,037,792 $ - $(12,836,849)
NATIONAL HEALTH & SAFETY CORPORATION
Statements of Cash Flows
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(184,193) $(499,769) $(861,076) $(1,498,553)
Adjustments to reconcile net loss to
net cash used by operating activities:
Common stock issued for services - 19,500 84,254 54,500
Depreciation and amortization 692 4,687 2,078 12,210
(Increase) decrease in:
Prepaid expenses - 1,000 - 279,985
Accounts receivable (4,057) (6,609) 2,225 (8,089)
Other receivables - 8,000 41,000 (25,515)
Increase (decrease) in:
Accounts payable (346,747) 20,994 (290,388) (50,374)
Accrued expenses 536,909 232,052 708,911 366,964
Net Cash Used by Operating
Activities 2,604 (220,145) (312,996) (868,872)
CASH FLOWS FROM INVESTING
ACTIVITIES - - - -
CASH FLOWS FROM FINANCING
ACTIVITIES
Payments on loans, individuals - (154,193) (106,705) (154,193)
Repayment of long-term debt (3,362) - (3,362) (10,000)
Proceeds from loans, individuals - 60,000 123,131 833,285
Proceeds from stockholders' loan - - 48,000 4,000
Issuance of common stock - 56,500 272,230 192,500
Net Cash Provided by Financing
Activities (3,362) (37,693) 333,294 865,592
INCREASE (DECREASE) IN CASH (758) (257,838) 20,298 (3,280)
CASH, BEGINNING OF PERIOD 24,392 262,074 3,336 7,516
CASH, END OF PERIOD $ 23,634 $ 4,236 $ 23,634 $ 4,236
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest
during the period $ 4,696 $ 5,927 $ 30,834 $ 29,873
<PAGE>
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
September 30, 1999 and 1998
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by
the Company without audit. In the opinion of management,
all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial
position, results of operations and cash flows at September
30, 1999 and for all periods presented have been made.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance
with general accepted accounting principles have been
condensed or omitted. It is suggested that these condensed
financial statements be read in conjunction with the
financial statements and notes thereto included in the
Company's December 31, 1998 audited financial statements.
The results of operations for the periods ended September
30 are not necessarily indicative of the operating results
for the full year.
NOTE 2 - GOING CONCERN
These statements are presented on the basis that the
Company is a going concern. Going concern contemplates the
realization of assets and the satisfaction of liabilities
in the normal course of business over a reasonable length
of time. The continuation of the Company as a going
concern is dependent upon the success of the future
operations and obtaining additional financing.
Management is presently pursuing plans to increase sales
volume, reduce administrative costs, and improve cash flows
as well as obtain additional financing. The ability of the
Company to achieve its operating goals and to obtain such
additional financing, however, is uncertain.
NOTE 3 - BANKRUPTCY
On July 1, 1999, National Health and Safety Corporation
voluntarily filed for Chapter 11 Bankruptcy in the Eastern
District of Pennsylvania United States Bankruptcy Court
Case #99-18339 DWS. A plan for reorganization was filed in
the latter part of August.
Item 2. Management's Discussion and Analysis or Plan of Operation
The following table sets forth the percentage relationship to
sales of principal items contained in the Company's Statements of
Operations for the three month and nine month periods ended
September 30, 1999 and 1998. It should be noted that percentages
discussed throughout this analysis are stated on an approximate
basis.
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
(Unaudited) (Unaudited)
Revenues . . . . . . . . . . . . . 100% 100% 100% 100%
Cost of sales. . . . . . . . . . 18 74 25 36
Operating expenses . . . . . . . . 726 1639 1155 1503
(Loss) from operations . . . . . . (644) (1613) (1080) (1439)
Other expenses - interest 17 19 40 29
Net (loss) . . . . . . . . . . . . (661) (1632) (1120) (1468)
Results of Operations for the Three and Nine Months Ended September
30, 1999 and 1998
On July 1, 1999, the Company voluntarily filed for
reorganization under Chapter 11 of the United States Bankruptcy
Code. See Part II Item 1 below. The Company has filed a Plan of
Reorganization for consideration by its creditors and shareholders,
which plan must first be approved by the Bankruptcy Court. Because
of the bankruptcy filing, the Company's marketing activities have
been significantly curtailed. The Company's operations for the
remainder of fiscal 1999 will depend on the outcome of the
bankruptcy filing and any proposed plan of reorganization, which
must be approved
Total revenue for the three months ended September 30, 1999
("third quarter of 1999") decreased 9% to $27,882 compared to the
three months ended September 30, 1998 ("third quarter of 1998").
This decrease is primarily attributed to the 84% decrease in other
sales due to completion of consulting contracts in 1998 and the 47
% decrease in medical equipment sales due to a reduced marketing
effort. Results were partially offset by the 31% increase in
POWERX Card sales due to increased broker activity. For the first
nine months of 1999, total revenues decreased 25% to $176,844 from
the comparable 1998 period primarily attributed to the 9% decrease
in POWERX sales, 35% decrease in medical equipment sales and the
82% decrease in other sales.
Cost of sales (as a percentage of total revenues) decreased to
29% for the third quarter of 1999 from 35% for the third quarter of
1998 period, and decreased to 25% for the first nine months of 1999
from 36% for the comparable 1998 period. The percentage decreases
for the third quarter and first nine months of 1999 are primarily
the result of a different sales mix and reduced marketing activity
during the 1999 period. Actual cost of sales decreased 78% for the
third quarter of 1999 and 47% for the first nine months of 1999
from the comparable 1998 periods.
Operating expenses for the third quarter and first nine months
of 1999 decreased (60%) and (45%) respectively, when compared to
the corresponding 1998 results. The decrease for the third quarter
of 1999 was primarily attributed to the 92 % decrease in consulting
expenses due to reduced legal and accounting fees, the almost 100%
decrease in marketing expenses reflecting the Company's reduced
marketing activities, and 10% in payroll expenses due to personnel
reductions and replacement of one person at a lower rate. The
decreases was partially offset by the 37% increase in rent expenses
in the third quarter of 1999 due to the timing of billings for rent
as a result of the Company's bankruptcy filing. The decrease in
operating expenses for the first nine months of 1999 is primarily
attributed to the 48% decrease in marketing expenses, 60% decrease
in travel and entertainment and 77% decrease in telephone expenses,
and the nearly 100% decrease in advertising expenses, all due to
the decrease in marketing activities. The decrease in advertising
is also attributed to a one time prepaid expense for radio
advertising of $279,985 during the first quarter of 1998.
As a percentage of total revenues, operating expenses
decreased from 1639% for the third quarter of 1998 to 726% for the
third quarter of 1999, and from 1503% for the first nine months of
1998 to 1155% for the first nine months of 1999.
The net loss for the third quarter and first nine months of
1999 decreased to $184,193 (63%) for the third quarter, and to
$861,076 (43%) for the first nine months, as compared with the
corresponding 1998 periods. These results are attributed to the
filing of bankruptcy by the Company leading to significant
decreases in advertising and marketing expenses for the 1999
periods.
Liquidity and Capital Resources
Historically, the Company's working capital needs have been
satisfied primarily through its financing activities including
private loans and raising capital through the sale of securities.
Working capital at September 30, 1999 was a negative $3,756,840
compared to a negative $3,164,296 at December 31, 1998. During the
first nine months of 1999, cash increased to $23,634 from $3,336 at
December 31, 1998. All of the Company's current liabilities
totaling $3,809,469 are carried as petition and post petition
payables in connection with the Company's bankruptcy proceeding.
For the third quarter of 1999 the Company realized $2,604 in
cash from its operating activities, compared to $220,145 cash used
for the comparable 1998 period. This result was due primarily to
the decrease in net loss, the $536,909 increase in accrued
expenses. Net cash used by operating activities for the first nine
months of 1999 was $312,996 compared to $868,872 for the comparable
1998 period. This decrease in net cash used is attributed to the
decrease in net loss and the 708,911 increase in accrued expenses
Net cash provided by financing activities during the third quarter
and first nine months of 1999 was $3,362 and $333,294 respectively,
compared to $37,693 and $865,592 for the corresponding 1998
periods. These results are primarily due to the 85% decrease in
loans from individuals during the 1999 period, partially offset by
the 41% increase in the issuance of common stock by the Company.
As of September 30, 1999, the Company had total assets of
$69,230 and total stockholders' deficiency of $3,740,239. In
comparison, as of December 31, 1998, the Company had total assets
of $93,872 and total stockholders' deficiency of $3,410,617.
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
Year 2000
Year 2000 issues may arise if computer programs have been
written using two digits (rather than four) to define the
applicable year. In such case, programs that have time-sensitive
logic may recognize a date using "00" as the year 1900 rather than
the year 2000, which could result in miscalculations or system
failures.
The Company has completed its assessment of the Year 2000
issue and believes that any costs of addressing the issue will not
have a material adverse impact on the Company's financial position.
The Company believes that its existing accounting computer systems
and software will not need to be upgraded to mitigate the Year 2000
issues. The Company has not incurred any material costs associated
with its assessment of the Year 2000 problem. In the event that
Year 2000 issues impact the Company's accounting operations and
other operations aided by its computer system, the Company
believes, as part of a contingency plan, that it has adequate
personnel to perform those functions manually until such time that
any Year 2000 issues are resolved.
The Company believes that third parties with whom it has
material relationships will not materially be affected by the Year
2000 issues as those third parties are relatively small entities
which do not rely heavily on information technology ("IT") systems
and non-IT systems for their operations. However, if the Company
and third parties upon which it relies are unable to address any
Year 2000 issues in a timely manner, it could result in a material
financial risk to the Company, including loss of revenue and
substantial unanticipated costs. Accordingly, the Company plans to
devote all resources required to resolve any significant Year 2000
issues in a timely manner.
Should the Company identify any problem with respect to its
year 2000 readiness, it will seek to develop a remedy, test the
proposed remedy and prepare a contingency plan, if necessary. The
Company does not have any material contracts with external
contractors to assist it in its year 2000 compliance effort. In
addition, no employees have been hired or reassigned to complete
the Company's year 2000 compliance.
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.
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.
On July 1, 1999, the Company voluntarily filed for
reorganization under Chapter 11 of the United States Bankruptcy
Code in the Untied States Bankruptcy Court of the Eastern District
of Pennsylvania (file no. 99-18339). The Company has filed a Plan
of Reorganization for consideration by its creditors and
shareholders and for ultimate approval by the Bankruptcy Court. In
addition, on October 1, a motion was approved by the court to sell
all of the assets relating to the POWERX card. See Item 5 below.
In January 1999, a writ of execution for money judgment in the
amount of $361,034 was entered against the Company in Bucks County,
Pennsylvania. This judgment was initiated by the Supreme Court of
the State of New York, County of Nassau, in the case titled
Schwartz, Berger and Berger vs. National Health and Safety
Corporation (# 99000212). The action is related to certain
transactions between the Company and Barrett Day Securities which
took place starting in 1993. The Company includes the debt as a
liability in its financial statements.
Item 2. Changes In Securities and Use of Proceeds
This Item is not applicable to the Company.
Item 3. Defaults Upon Senior Securities
This Item is not applicable to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
This Item is not applicable to the Company.
Item 5. Other Information
On October 1, 1999, the bankruptcy court approved an Asset
Purchase Agreement between the Company and MedSmart Healthcare
Network, Inc. ("MedSmart"). Pursuant to this agreement, the
Company transferred to MedSmart all of its fixed assets, all POWERX
related contracts with both provider networks and broker networks,
all POWERX related expenses and all of the Company's personnel,
with the exception of its Chief Financial Officer, Roger H. Folts.
Under the agreement, MedSmart will pay a royalty to the
Company for each POWERX related card sold or renewed. For the
first twelve month period, a fee minimum of $150,000 will be paid
to the Company. The first payment of $30,000 was paid to the
Company on October 1, 1999 and MedSmart will make successive
payments of $30,000 quarterly. From October 1, 2000, all fees to
the Company from MedSmart will be determined as a royalty to the
Company on all POWERX card sales and other POWERX related revenues.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedules
(b) Reports on Form 8-K
On July 16, 1999, the Company filed a report on Form 8-K
reporting under Item 3 that the Company had voluntarily filed
for reorganization under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court of the
Eastern District of Pennsylvania.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange
Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NATIONAL HEALTH & SAFETY CORPORATION
Date: November 15, 1999 By /S/ H. Dennis Bowers
H. Dennis Bowers, President
Date: November 15, 1999 By /S/ Roger H.Folts
ROGER H. FOLTS,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE NATIONAL HEALTH & SAFETY
CORPORATION FINANCIAL STATEMENTS FOR THE PERIOD
ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> SEP-30-1999
<CASH> 23,634
<SECURITIES> 0
<RECEIVABLES> 37,195
<ALLOWANCES> 8,200
<INVENTORY> 0
<CURRENT-ASSETS> 52,629
<PP&E> 165,799
<DEPRECIATION> 158,496
<TOTAL-ASSETS> 69,230
<CURRENT-LIABILITIES> 3,809,469
<BONDS> 0
0
14
<COMMON> 58,804
<OTHER-SE> 9,037,792
<TOTAL-LIABILITY-AND-EQUITY> 69,230
<SALES> 76,844
<TOTAL-REVENUES> 76,844
<CGS> 19,456
<TOTAL-COSTS> 907,086
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,834
<INCOME-PRETAX> (861,076)
<INCOME-TAX> 0
<INCOME-CONTINUING> (861,076)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (861,076)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
