UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2000
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.)
120 GIBRALTAR ROAD, SUITE 107, HORSHAM, PENNSYLVANIA 19044
(Address of principal executive offices)
Registrant's telephone no., including area code: (215) 682-7114
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Class Outstanding as of March 31, 2000
Common Stock, $.001 par value 58,803,716
TABLE OF CONTENTS
Heading Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . 3
Independent Accountant's review Report . . . . . . . . . 4
Balance Sheets -- March 31, 2000 and December 31, 1999. . 5
Statements of Operations -- three months ended
March 31, 2000 . . . . . . . . . . . . . . . . . . . . 6
Statements of Stockholders' Deficiencies . . . . . . . . 7
Statements of Cash Flows -- three months ended
March 31, 2000 . . . . . . . . . . . . . . . . . . . . 8
Notes to Financial Statements . . . . . . . . . . . . . 10
Item 2. Management's Discussion and Analysis and
Results of Operations. . . . . . . . . . . . . . . . . . 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 20
Item 2. Changes In Securities and Use of Proceeds. . . . . . . . 21
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . 21
Item 4. Submission of Matters to a Vote of Securities Holders . . 21
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . 21
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 22
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . 23
PART I
Item 1. Financial Statements
The following unaudited Financial Statements for the period
ended March 31, 2000, have been prepared by the Company.
NATIONAL HEALTH & SAFETY CORPORATION
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited) and December 31, 1999
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
National Health & Safety Corporation
Warminster, Pennsylvania
We have reviewed the accompanying balance sheet of National Health
& Safety Corporation as of March 31, 2000 and the related
statements of operations, stockholders' (deficiency) and cash flows
for the periods ended March 31, 2000 and 1999. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data, and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which
will be performed for the full year with the objective of
expressing an opinion regarding the financial statements taken as
a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the accompanying condensed
financial statements referred to above for them to be in conformity
with accounting principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards
generally accepted in the United States, the balance sheet of
National Health & Safety Corporation as of December 31, 1999, and
the related statements of operations, stockholders' equity, and
cash flows for the year then ended (not presented herein) and in
our report dated January 18, 2000, we expressed an unqualified
opinion on those consolidated financial statements.
HJ & Associates, LLC
Salt Lake City, Utah
May 9, 2000
NATIONAL HEALTH & SAFETY CORPORATION
(A Development Stage Company)
Balance Sheets
ASSETS
March 31, December 31,
2000 1999
CURRENT ASSETS
Cash $ 8,722 $ 3,145
Accounts receivable, net of allowance for doubtful
accounts of $8,200 (Note 1) 24,630 24,472
Note receivable - related party (Note 3) 90,000 120,000
Total Current Assets 123,352 147,617
OTHER ASSETS
Restricted cash (Note 2) 45,848 50,904
Total Other Assets 45,848 50,904
TOTAL ASSETS $ 169,200 $ 198,521
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses -
post petition $ 147,132 $ 141,918
Post petition notes payable - related
party (Note 4) 233,200 221,200
Prepetition accruals (Note 5) 4,385,751 4,385,751
Total Current Liabilities 4,766,083 4,748,869
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 59,634,062 shares issued
and outstanding, respectively 58,804 59,634
Additional paid-in capital 9,482,308 9,564,513
Accumulated deficit (11,975,773) (11,975,773)
Deficit accumulated during the development stage (2,162,236) (2,198,736)
Total Stockholders' Deficiency (4,596,883) (4,550,348)
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ 169,200 $ 198,521
NATIONAL HEALTH & SAFETY CORPORATION
(A Development Stage Company)
Statements of Operations
From the
Inception of the
Development
Stage on
January 1,
For the Three Months 1999 Through
March 31, March 31,
2000 1999 2000
REVENUE
Sales - operations $ 3,504 $ 24,275 $ 83,8447
Total Revenue 3,504 24,275 83,844
COST OF SALES 185 7,430 41,230
Gross Profit 3,319 16,845 42,614
EXPENSES
Rent - 35,930 99,424
Depreciation and amortization - 693 2,078
General and administrative 45,282 314,642 2,286,519
Total Expenses 45,282 351,265 2,388,021
LOSS FROM OPERATIONS (41,963) (334,420) (2,345,407)
OTHER INCOME (EXPENSE)
Gain on sale of assets - - 142,697
Cancellation of common stock 83,035 - 83,035
Bad debt expense - - (2,388)
Interest expense (4,572) (19,507) (40,173)
Total Other Income (Expense) 78,463 (19,507) 183,171
NET INCOME (LOSS) $ 36,500 $ (353,927) $(2,162,236)
BASIC INCOME (LOSS) PER SHARE $ 0.00 $ (0.01)
NATIONAL HEALTH & SAFETY CORPORATION
(A Development Stage Company)
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)
Issuance of common stock
in payment of debt - 3,095 211,905 - -
Issuance of common stock
for services rendered - 1,640 220,165 - -
Issuance of common stock
for cash - 2,444 199,756 - -
Options issued below market
price - - 420,000 - -
Net loss for the year ended
December 31, 1999 - - - - (2,198,736)
Balance, December 31, 1999 14 59,634 9,564,513 - (14,174,509)
Cancellation of common stock - (830) (82,205) - -
Net income for the three
months ended March 31,
2000 - - - - 36,500
Balances, March 31, 2000 14 $ 58,804 $9,482,308 $ - $(14,138,009)
NATIONAL HEALTH & SAFETY CORPORATION
(A Development Stage Company)
Statements of Cash Flows
From the
Inception of the
Development
Stage on
January 1,
For the Three Months Ended 1999 Through
March 31, March 31,
2000 1999 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 36,500 $(353,927) $(2,162,236)
Adjustments to reconcile net (loss) to net cash
(used) by operating activities:
Depreciation and amortization - 693 2,078
Expenses paid with common stock (83,035) 54,254 558,770
Gain on sale of assets - - (142,697)
Changes in operating assets and liabilities:
(Increase) decrease in restricted cash 5,056 - (45,848)
(Increase) decrease in accounts receivable (158) 4,720 6,227
(Increase) decrease in royalties receivable - 41,000 41,000
Decrease in deposits - - 9,298
Increase (decrease) in accounts payable 5,214 54,443 139,005
Increase (decrease) in accrued expenses - 182,060 865,476
Net Cash (Used) by Operating Activities (36,423) (16,757) (728,927)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 30,000 - 60,000
Net Cash Provided by Investing Activities 30,000 - 60,000
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans payable, stockholder - - 48,000
Proceeds from notes payable - related party 12,000 40,000 481,113
Repayment of loans payable - (106,705) (57,000)
Proceeds from issuance of common stock - 130,750 202,200
Net Cash Provided by Financing Activities 12,000 64,045 674,313
INCREASE (DECREASE) IN CASH 5,577 47,288 5,386
NET CASH, BEGINNING OF PERIOD 3,145 3,336 3,336
NET CASH, END OF PERIOD $ 8,722 $ 50,624 $ 8,722
NATIONAL HEALTH & SAFETY CORPORATION
(A Development Stage Company)
Statements of Cash Flows (Continued)
From the
Inception of the
Development
Stage on
January 1,
For the Three Months Ended 1999 Through
March 31, March 31,
2000 1999 2000
CASH PAID DURING THE YEAR FOR:
Interest $ 4,572 $ 4,374 $ 21,169
Income taxes $ - $ - $ -
NON-CASH FINANCING ACTIVITIES:
Issuance of common stock in payment of debt $ - $ - $ 215,000
Issuance of common stock for services $ - $ - $ 221,805
Options issued below market value $ - $ - $ 420,000
Cancellation of common stock $ (83,035) $ - $ (83,035)
NATIONAL HEALTH & SAFETY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
March 31, 2000 and 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS OPERATIONS
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. The Company entered the development
stage on January 1, 1999 per SFAS No. 7 because of the
bankruptcy proceedings and the sale of the Company's
assets.
On July 1, 1999, National Health and Safety Corporation
(the "Debtor") filed a petition for relief under Chapter 11
of the federal bankruptcy laws in the United states
bankruptcy Court for the Eastern District of Pennsylvania,
Case No.:99-18339. Under Chapter 11, certain claims against
the Debtor in existence prior to the filing of the
petitions for relief under the federal bankruptcy laws are
stayed while the Debtor continues business operations as
debtor-in-possession. These claims are reported in the
December 31, 1999 balance sheet as "prepetition accruals"
in the amount of $4,385,751. Claims secured against the
Debtor's assets ("secured claims") also are stayed,
although the holders of such claims have the right to move
the Court for relief from the stay. Secured claims amounted
to $1,513,941 at December 31, 1999.
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.
NATIONAL HEALTH & SAFETY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
March 31, 2000 and 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
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
$-0- and $693 for the 3 months ended March 31, 2000 and
1999, respectively. All of the property and equipment was
sold in July 1999 (Note 3).
d. Basic Income (Loss) per Share of Common Stock
For the Three Months Ended
March 31, 2000
Income (Loss) Shares Per Share
(Numerator) (Denominator) Amount
Net income (loss) $ 36,500 58,218,889 $ 0.00
For the Three Months Ended
March 31, 1999
Loss Shares Per Share
(Numerator) (Denominator) Amount
Net loss $ (353,927) 53,002,978 $ (0.01)
Basic loss per common share has been calculated based on
the weighted average number of shares of common stock
outstanding during the period.
e. Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less to be cash equivalents.
NATIONAL HEALTH & SAFETY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
March 31, 2000 and 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Provision for Taxes
At March 31, 2000, the Company had net operating loss
carryforwards of approximately $10,700,000 that may be
offset against future taxable income through 2019. 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.
g. Reclassification
Certain March 31, 1999 balances have been reclassified to
conform with the March 31, 2000 financial statement
presentation.
h. 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.
i. Revenue Recognition
The Company has not emerged from the reorganization and has
not yet established operations. A revenue recognition
policy will be established when planned principal
operations commence.
j. Bankruptcy Accounting
Since the Chapter 11 bankruptcy filing, the Company has
applied the provisions in Statement of Portion (SOP) 90-7
"Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code." SOP 90-7 does not change the
application of generally accepted accounting principles in
the preparation of financial statements. However, it does
require that the financial statements for periods including
and subsequent to filing the Chapter 11 petition
distinguish transactions and events that are directly
associated with the reorganization from the ongoing
operations of the business.
NOTE 2 - RESTRICTED CASH
Pursuant to the bankruptcy proceedings, the Company has
three cash accounts which have been attached by creditors
or allocated for certain debt payments totaling $45,848 at
March 31, 2000. This cash is being presented as restricted
cash because the Company does not have full access to these
three accounts.
NATIONAL HEALTH & SAFETY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
March 31, 2000 and 1999
NOTE 3 - NOTE RECEIVABLE - RELATED PARTY
In October 1999, the Company sold the assets of the Company
which related to the PowerX Medical Benefits Network for
$150,000. This sale resulted in a gain on the sale of
assets of $142,697. The Company has received $60,000
pursuant to the agreement. The amounts are non-interest
bearing and an interest rate has not been imputed because
of the short-term nature of the receivable.
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.
Pursuant to bankruptcy court approval, the Company's POWERx
line was sold to MedSmart on October 1, 1999. The costs of
the necessary overhead and costs of ongoing POWERx
operations have been assumed by MedSmart, including the
personnel costs necessary to continue POWERx operations.
Under the sale agreement to MedSmart, the Company received
$30,000 upon signing and has received another $30,000 for
the first quarter of four quarters beginning January 15,
2000 in certain minimum payments and, in addition, has
retained a right to certain revenues from the sale of
POWERx cards.
Upon the sale of each new POWERx card (a "New Card") first
sold by MedSmart, MedSmart shall pay to the Company 10% of
the net revenue earned. However, MedSmart shall have the
option to elect to pay a one-time fee of $2.50 with respect
to the sale of the New Card, and in such an event, no
further fees would be payable with respect to the New Card
until it becomes a Renewal Card as defined below.
Upon the sale of each renewal POWERx card (a "Renewal
Card"), MedSmart shall pay the Company 4% of the net
revenue earned. However, MedSmart shall have the option to
elect a one-time fee of $1.00 with respect to the sale of
the Renewal Card, and, in such an event, no further fees
would be payable with respect to the Renewal Card until it
is again renewed.
In the event MedSmart does not elect to pay the one-time
fee for New Cards or Renewal Cards which are outstanding at
the beginning of a Calender Quarter, MedSmart will be
obligated to pay the Company an amount equal to 10% and 4%,
respectively, of the net revenues earned with respect to
such card during the calendar quarter.
If MedSmart is successful in the development, marketing and
sale of POWERx cards and related products, the revenue
stream received by the Company could exceed $400,000 per
year. However, POWERx is still in development and there is
no guarantee that such eventuality will occur.
NATIONAL HEALTH & SAFETY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
March 31, 2000 and 1999
NOTE 4 - GOING CONCERN (Continued)
After confirmation of the plan and cash flow has
stabilized, the Company intends: (1) to return to the
business of selling new medical equipment and supplies,
both domestically and overseas, to private and governmental
buyers; (2) to develop and market new technologies,
including several promising new medical technologies with
substantial U.S. and worldwide markets; and (3) to develop
specialized health insurance products. Management expects
that it will require up to three years or more for these
new business activities to generate an operating profit.
The Company may elect to achieve some of these objectives
by merger or acquisition. The Company will consider
acquiring other companies, on a selective basis, if they
are profitable, have competent management in place, and
have significant potential for profitability.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Through its negotiations with co-Plan Proponents, the
Company has negotiated an arrangement whereby approximately
$2,800,000 in new tangible assets will be infused into the
Company that generate positive cash flows to fund new
investments by the reorganized Company. The tangible
assets consist of cash (approximately $1,705,000 after
estimated allowed deductions) and real estate (a Houston
office complex valued at $1,046,000). Because the co-
Proponents are not retaining a lien on the assets of the
Company, these assets would also be available to pay
unsecured creditors in the event of liquidation of the
Company. In exchange for such new capital infusion, the
co-Plan Proponents will receive newly issued stock
consisting approximately 73% of the outstanding equity
capital ownership of the reorganized Company. At the date
of this audit report, no agreement has been finalized.
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, 1999. At December 31, 1999, total
deferred income for these three individuals was $980,665.
This amount is included in prepetition liabilities. During
1999, the President and Chief Executive Officer and the
Vice President of Marketing left the Company in connection
with the sale of its PowerX line, and these agreements were
terminated.
The Company settled certain litigation involving alleged
improper use of a medical card benefit program. Under
terms of the settlement, both parties agreed to dismiss the
claims against each other, and agree to enter into a
commission agreement whereby 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. At December 31,
1999, the settlement owed was $285,000 and has been
classified as a prepetition liability.
NATIONAL HEALTH & SAFETY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
March 31, 2000 and 1999
NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)
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. This
judgment was satisfied in 1999.
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.
NOTE 6 - 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
NATIONAL HEALTH & SAFETY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
March 31, 2000 and 1999
NOTE 7 - 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
The Company has the following outstanding stock options:
Stock Options Issued:
Bowers Folts Bathcrest Total
6/6/95 @ $0.17 6/6/2010 2,000,000 500,000 500,000 3,000,000
4/30/96 @ $0.17 4/30/2011 2,000,000 500,000 500,000 3,000,000
2/20/98 @ $0.07 2/20/2013 2,800,000 1,000,000 1,000,000 4,800,000
10,800,000
NOTE 8 - REORGANIZATION ITEMS
Although the Chapter 11 bankruptcy filing raises
substantial doubt about the Company's ability to continue
as a going concern, the accompanying financial statements
have been prepared on a going concern basis. This basis
contemplates the continuity of operating realization of
assets, and discharge of liabilities in the ordinary course
of business. The statements also present the assets of the
Company at historical cost, and the current intention that
they will be realized as a going concern and in the normal
course of business. A plan of reorganization could
materially change the amounts currently disclosed in the
financial statements.
Item 2. Management's Discussion and Analysis or Plan of Operation
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
Disclosure Statement and a Joint Plan of Reorganization and, on May
5, 2000, filed an amendment to both. When the disclosure statement
and plan, as amended, are approved by the Court, they will be
submitted for vote to creditors, shareholders and interested
parties and must ultimately be approved by the Bankruptcy Court.
Results of Operations
The following table sets forth the percentage relationship to
sales of principal items contained in the Company's Statements of
Operations for the three month periods ended March 31, 2000 and
1999. It should be noted that percentages discussed throughout
this analysis are stated on an approximate basis.
Three Months Ended
March 31,
2000 1999
(Unaudited)
Sales . . . . . . . . . . . . . . . . . . . . . 100 % 100 %
Cost of sales . . . . . . . . . . . . . . . . . 5 31
Gross profit. . . . . . . . . . . . . . . . . . 95 69
Operating expenses. . . . . . . . . . . . . . . 1292 1447
(Loss) from operations. . . . . . . . . . . . . (1197) (1378)
Other income (expenses) . . . . . . . . . . . . 2239 (80)
Net income (loss) . . . . . . . . . . . . . . . 1042 (1458)
Results of Operations for the Three Months Ended March 31, 2000
and 1999
Total revenue for the three months ended March 31, 2000
("first quarter of 2000") decreased 86% to $3,504 compared to
$24,275 for the three months ended March 31, 1999 ("first quarter
of 1999"). This decrease is primarily attributed to the sale of
POWERX to MedSmart Healthcare Network, Inc. ("MedSmart"). The only
POWERX sales currently recorded by the Company are monthly receipts
for sales that were agreed to prior to October 1, 1999. All other
POWERX sales are reflected in MedSmart financial statements.
Accordingly, POWERX Card sales were $2,376 for the first quarter of
2000 compared to $20,128 for the corresponding 1999 period. The
Company had minimal medical equipment sales during the first
quarter of 2000. It is anticipated that the Company will realize
only nominal revenues until such time as its reorganization is
complete.
Cost of sales (as a percentage of total revenues) decreased to
5% for the first quarter of 2000 from 31% for the first quarter of
1999. Actual cost of sales decreased 98% to $185 for the first
quarter of 2000 compared to $7,430 for the 1999 period. The
decrease is the result of the reduced marketing activity during the
2000 period due to the Company's reorganization.
Operating expenses for the first quarter of 2000 decreased 87%
to $45,282 from $351,265 for the first quarter of 1999. The
decrease is primarily attributed to the nearly 100% decrease in
consulting expenses due to reduced legal and accounting fees and
the 100% decrease in marketing expenses reflecting the Company's
reorganization. For this same period, salaries decreased 44% and
benefits decreased nearly 100% due to personnel reductions.
Deferred wages decreased 100% because all but one of the Company's
employees are now employees of MedSmart.
Interest expense for the first quarter of 2000 decreased 77%
to $4,572 from $19,507 due to no new obligations or legal
involvements requiring additional interest payments or accruals.
The Company also recognized other income for the first quarter of
2000 of $83,035 from the cancellation of 83,085 shares of common
stock. This occurred because the Board had previously approved the
issuance of stock and later reversed that approval, resulting in an
adjustment for the first quarter of 2000.
The Company realized a net profit of $36,500 for the first
quarter of 2000 compared to a net loss of $19,507 for the first
quarter of 1999. The profit in the first quarter of 2000 is
attributed to the Company's bankruptcy filing which led to
significant decreases in operating expenses and the cancellation of
the 83,085 shares of common stock referred to above.
Liquidity and Capital Resources
Historically, the Company's working capital needs have been
satisfied primarily through its financing activities including
private loans and raising capital through the sale of securities.
Working capital at March 31, 2000 was a negative $4,642,731
compared to a negative $4,601,252 December 31, 1999. Net cash used
in operating activities was $36,423 in the first quarter of 2000
compared to $16,757 in the corresponding 1999 period. This
increase in net cash used was due primarily to the increase in
expenses paid with common stock, and partially offset by the net
income in 2000 compared to the 1999 net loss, and the elimination
of accrued expenses in 2000. The Company realized cash of $30,000
in the first quarter of 2000 from the sale of assets, and also
realized $12,000 from financing activities resulting from the
proceeds from notes payable from related parties. In the first
quarter of 1999, the Company realized net cash of $64,045 from
financing activities resulting from proceeds from loans payables
and the issuance of common stock. This was partially offset by the
$106,705 repayment of loans payable during the 1999 period.
The Company's ability to meet its working capital needs during
the remainder of fiscal 2000 will depend primarily on the
acceptance by the court of its reorganization plan. The
continuation of the Company as a going concern is directly
dependent upon acceptance of the plan and the ability to obtain
additional future financing. If MedSmart is successful in the
development, marketing and sale of POWERx cards and related
products, the Company would receive a royalty from POWERx sales.
At March 31, 2000, the Company had total assets of $169,200
and total stockholders deficiency of $4,596,883, compare to
December 31, 1999 at which time the Company had total assets of
$196,521 and total stockholders' deficiency of $4,550,348.
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
Year 2000
Year 2000 issues result from an industry-wide practice of
representing years with only two digits instead of four. Beginning
in the year 2000, date code fields need to accept four digit
entries to distinguish twenty-first century dates from twentieth
century dates (2000 or 1900). As a result, computer systems and/or
software used by many companies needed to be upgraded to comply
with such Year 2000 requirements. Through March 31, 2000, the
Company has not experienced any significant problems associated
with the Year 2000 issue. As of March 31, 2000, the Company has
not been made aware of, nor has it experienced, date related
problems with any third-party software. Although it appears that
the Year 2000 issue will not have a significant adverse effect on
us, the Company continues to monitor the Year 2000 compliance of
its internal systems. Undetected errors in its internal systems
that may be discovered in the future could have a material adverse
effect on its business, operating results or financial condition.
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
continue as a viable concern given its filing of bankruptcy in
1999, 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 otherwise set forth below, the Company is not a
party to any new material pending legal proceedings and no such
action by, or to the best of its knowledge, against the Company has
been 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
Disclosure Statement and a Joint Plan of Reorganization. On May 5,
2000, the Company filed an amendment to the plan for consideration
by its creditors and shareholders and for ultimate approval by the
Bankruptcy Court. In addition, on October 1, 1999 a motion was
approved by the court to sell all of the assets relating to the
POWERX card. Accordingly, all POWERX assets, support personnel and
associated expenses were assigned to MedSmart.
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
Sale of POWERX
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 POWERX related assets,
including the POWERX name, all POWERX related contracts with
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, payable in monthly installments of $30,000. The
first payment of $30,000 was paid to the Company on October 1,
1999, and subsequent payments of $30,000 each were made on
January 15 and April 15, 2000. In the event the royalty exceed the
minimum payment, the Company would receive the greater of the two.
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.
For each new POWERx card (a "New Card") first sold by
MedSmart, it will pay to the Company 10% of the net revenue earned.
MedSmart will have the option to elect to pay a one-time fee of
$2.50 with respect to the sale of the New Card, and in such an
event, no further fees would be payable with respect to the New
Card until it becomes a Renewal Card.
Upon the sale of each renewal POWERx card (a "Renewal Card"),
MedSmart will pay the Company 4% of the net revenue earned.
However, MedSmart will have the option to elect a one-time fee of
$1.00 with respect to the sale of the Renewal Card, and, in such an
event, no further fees would be payable with respect to the Renewal
Card until it is again renewed. If MedSmart elects not to pay the
one-time fee for New Cards or Renewal Cards which are outstanding
at the beginning of a calender quarter, MedSmart will be obligated
to pay the Company an amount equal to 10% and 4%, respectively, of
the net revenues earned with respect to such card during the
calendar quarter.
Upon making its bankruptcy filing and subsequent sale of the
POWERX business to MedSmart, the Company has become primarily a
holding company. All activities related to development of other
products and services have been reduced or eliminated. The Company
has a new management team and the possibility of new ownership, as
proposed in the Joint Plan of Reorganization. Upon Court approval
of the Joint Plan of Reorganization, for which there is no
certainty, the plan calls for an infusion of income producing real
estate and cash assets into the Company in exchange for Company
stock, together with royalty payments from MedSmart based upon
POWERX sales. At such time as the Company begins to realize a
stable level of cash flow, the Company will examine the development
of new business plans directed towards future growth and
development.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedules
(b) Reports on Form 8-K
None
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: May 15, 2000 By /S/ Eugene M. Rothchild
Eugene M. Rothchild,
President and Director
Date: May 15, 2000 By /S/ James R. Kennard
James R. Kennard, Chief
Executive Officer and
Director
Date: May 15, 2000 By /S/ Roger H.Folts
ROGER H. FOLTS,
Chief Financial Officer
Date: May 15, 2000 By /S/ R. Dennis Bowers
R. Dennis Bowers, Director
<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 MARCH 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-31-2000
<CASH> 8,722
<SECURITIES> 0
<RECEIVABLES> 32,830
<ALLOWANCES> 8,200
<INVENTORY> 0
<CURRENT-ASSETS> 123,352
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 169,200
<CURRENT-LIABILITIES> 4,766,083
<BONDS> 0
0
14
<COMMON> 58,804
<OTHER-SE> 9,482,308
<TOTAL-LIABILITY-AND-EQUITY> 169,200
<SALES> 3,504
<TOTAL-REVENUES> 3,504
<CGS> 185
<TOTAL-COSTS> 45,282
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,572
<INCOME-PRETAX> 36,500
<INCOME-TAX> 0
<INCOME-CONTINUING> 36,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,500
<EPS-BASIC> .00
<EPS-DILUTED> .00
</TABLE>
