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, 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 September 30, 2000
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, 2000 and
December 31, 1999. . . . . . . . . . . . . . . . . . . 4
Statements of Operations -- three months ended
September 30, 2000 and 1999. . . . . . . . . . . . . . 6
Statements of Stockholders' Deficiencies . . . . . . . . 7
Statements of Cash Flows -- three months ended
September 30, 2000 and 1999. . . . . . . . . . . . . . 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. . . . . . . . . . . . . . . . . . . . 19
Item 2. Changes In Securities and Use of Proceeds. . . . . . . . 20
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . 20
Item 4. Submission of Matters to a Vote of
Securities Holders . . . . . . . . . . . . . . . . . . . 20
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . 20
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 21
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . 22
PART I
Item 1. Financial Statements
The following unaudited Financial Statements for the period
ended September 30, 2000, have been prepared by the Company.
NATIONAL HEALTH & SAFETY CORPORATION
FINANCIAL STATEMENTS
September 30. 2000 (Unaudited) and December 31, 1999
NATIONAL HEALTH & SAFETY CORPORATION
(A Development Stage Company)
Balance Sheets
ASSETS
September 30 December 31,
2000 1999
(Unaudited)
CURRENT ASSETS
Cash $ 849 $ 3,145
Accounts receivable, net of allowance for doubtful
accounts of $8,200 (Note 1) 18,998 24,472
Note receivable - related party (Note 3) 30,000 120,000
Total Current Assets 49,847 147,617
OTHER ASSETS
Restricted cash 14,212 50,904
Total Other Assets 14,212 50,904
TOTAL ASSETS $ 64,059 $ 198,521
NATIONAL HEALTH & SAFETY CORPORATION
(A Development Stage Company)
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
September 30, December 31,
2000 1999
(Unaudited)
CURRENT LIABILITIES
Accounts payable and accrued expenses - post-petition $ 170,500 $ 141,918
Post-petition - notes payable, related party (Note 4) 246,300 221,200
Prepetition accruals (Note 5) 4,344,952 4,385,751
Total Current Liabilities 4,761,752 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 52,454,994 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 (2,263,046) (2,198,736)
Total Stockholders' Deficiency (4,697,693) (4,550,348)
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ 64,059 $ 198,521
NATIONAL HEALTH & SAFETY CORPORATION
(A Development Stage Company)
Statements of Operations
(Unaudited)
From the
Inception of the
Development
Stage on
For the For the January 1,
Three Months Ended Nine Months Ended 1999 Through
September 30, September 30, September 30,
2000 1999 2000 1999 2000
REVENUE
Sales - operations $ 900 $ 27,882 $ 4,404 $ 76,844 $ 84,744
Total Revenue 900 27,882 4,404 76,844 84,744
COST OF SALES - 4,853 185 19,456 41,230
GROSS PROFIT 900 23,029 4,219 57,388 43,514
EXPENSES
Rent - - - - 99,424
Depreciation and
amortization - - - - 2,078
General and administrative 42,384 202,526 137,696 887,630 2,378,933
Total Expenses 42,384 202,526 137,696 887,630 2,480,435
LOSS FROM OPERATION (41,484) (179,497) (133,477) (830,242) (2,436,921)
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 (4,689) (4,696) (13,868) (30,834) (49,469)
Total Other Income
(Expense) (4,689) (4,696) 69,167 (30,834) 173,875
NET LOSS $ (46,173) $(184,193) $ (64,310) $(861,076)$(2,263,046)
BASIC LOSS PER SHARE $ (0.00) $ (0.00) $ (0.00) $ (0.02)
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
(unaudited) - (830) (82,205) - -
Net loss for the nine months
ended September 30, 2000
(unaudited) - - - - (64,310)
Balance, September 30, 2000
(unaudited) $ 14 $ 58,804 $9,482,308 $ - $(14,238,819)
NATIONAL HEALTH & SAFETY CORPORATION
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
From the
Inception of the
Development
Stage on
For the For the January 1,
Three Months Ended Nine Months Ended 1999 Through
September 30, September 30, September 30,
2000 1999 2000 1999 2000
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(46,173) $(184,193) $ (64,310) $(861,076) $(2,263,046)
Adjustments to reconcile
net loss to net cash used
by operating activities:
Expenses paid with
common stock - 30,000 (83,035) 84,254 558,770
Depreciation and
amortization - 692 - 2,078 2,078
Gain on sale of assets - - - - (142,697)
(Increase) decrease in:
Restricted cash (1) - 36,692 - (14,212)
Accounts receivable (34) (4,057) 5,474 2,225 11,859
Royalty receivables - - - 41,000 41,000
Increase (decrease) in:
Deposits - - - - 9,298
Accounts payable (15,177) (346,747) 14,969 (290,388) 148,760
Accrued expenses 21,741 536,909 (27,186) 708,911 838,290
Net Cash Used by
Operating Activities (39,644) 2,604 (117,396) (312,996) (809,900)
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from sale of
assets 24,000 - 90,000 - 120,000
Net Cash Provided by
Investing Activities 24,000 - 90,000 - 120,000
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from loans payable,
stockholder - - - 48,000 48,000
Repayment of notes payable -
related party 13,100 - 25,100 123,131 494,213
Repayment of loan payable - (3,362) - (110,067) (57,000)
Issuance of common stock - - - 272,230 202,200
Net Cash Provided by
Financing Activities 13,100 (3,362) 25,100 333,294 687,413
INCREASE (DECREASE)
IN CASH (2,544) (758) (2,296) 20,298 (2,487)
CASH, BEGINNING OF PERIOD 3,393 24,392 3,145 3,336 3,336
CASH, END OF PERIOD $ 849 $ 23,634 $ 849 $ 23,634 $ 849
NATIONAL HEALTH & SAFETY CORPORATION
(A Development Stage Company)
Statements of Cash Flows (Continued)
(Unaudited)
From the
Inception of the
Development
Stage on
For the For the January 1,
Three Months Ended Nine Months Ended 1999 Through
September 30, September 30, September 30,
2000 1999 2000 1999 2000
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest
during the period $ 4,689 $ 4,696 $ 13,868 $ 30,834 $ 30,465
NATIONAL HEALTH & SAFETY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
September 30, 2000 and December 31, 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
a. Nature of Organization
The Company was incorporated on March 23, 1989. The
Company's principal business activities consisted of
providing medical cost containment services to both
institutional and consumer markets. The Company performed
on-going credit evaluations of its customers' financial
condition and generally required 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 at September 30, 2000 and
December 31, 1999. 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
$-0- and $-0- for the nine months ended September 30, 2000
and 1999, respectively.
NATIONAL HEALTH & SAFETY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
September 30, 2000 and December 31, 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
d. Basic Loss Per Share
The computation of basic loss per share of common stock is
based on the weighted average number of shares outstanding
during the period.
For the Three Months Ended
September 30, 2000
Loss Shares Per Share
(Numerator) (Denominator) Amount
$ (46,173) 58,803,716 $ (0.00)
For the Three Months Ended
September 30, 1999
Loss Shares Per Share
(Numerator) (Denominator) Amount
$ (184,193) 56,207,250 $ (0.01)
For the Nine Months Ended
September 30, 2000
Loss Shares Per Share
(Numerator) (Denominator) Amount
$ (64,310) 58,803,716 $ (0.00)
For the Nine Months Ended
September 30, 1999
Loss Shares Per Share
(Numerator) (Denominator) Amount
$ (861,076) 56,207,250 $ (0.02)
e. Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less to be cash equivalents.
f. Provision for Taxes
At September 30, 2000, the Company had net operating loss
carryforwards of approximately $10,770,000 that may be offset
against future taxable income through 2020. 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.
NATIONAL HEALTH & SAFETY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
September 30, 2000 and December 31, 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
(Continued)
g. Unaudited Financial Statements
The accompanying unaudited financial statements include all
of the adjustments which, in the opinion of management, are
necessary for a fair presentation. Such adjustments are of
a normal, recurring nature.
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. Reclassification
Certain September 30, 1999 balances have been reclassified
to conform with the September 30, 2000 financial statement
presentation.
j. 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.
k. 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 period 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 one
cash account which have been attached by creditors or
allocated for certain debt payments totaling $14,212 at
September 30, 2000. This cash is being presented as
restricted cash because the Company does not have full
access to this account.
NATIONAL HEALTH & SAFETY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
September 30, 2000 and December 31, 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 $120,000
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 $90,000
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
September 30, 2000 and December 31, 1999
NOTE 4 - GOING CONCERN (Continued)
On August 21, 2000, a fourth amended joint plan of
reorganization (the Plan) was submitted to the Court. A
hearing is scheduled for November 6, 2000. Under the Plan,
MedSmart will become a wholly-owned subsidiary of the
Company. Another entity, known as KJE, will contribute
$600,000 in cash to the Company to help pay for
administrative claims and provide working capital for the
reorganized Company's activities. In exchange, KJE and the
shareholders of MedSmart will receive newly issued common
stock of the reorganized Company and would collectively own
approximately 70% of the reorganized Company.
The shareholders of MedSmart will exchange their shares in
MedSmart for 130,000,000 shares of the reorganized Company
(approximately 52%) and MedSmart will become a wholly-owned
subsidiary of the reorganized Company. The obligations of
MedSmart under the Plan shall be contingent upon (i) the
shareholders of MedSmart holding, as of the effective date,
at least 51.5% of the common stock of the reorganized
Company issued or subject to issue pursuant to any
outstanding warrant or option to purchase new common stock
of the reorganized Company and (ii) MedSmart's approval, in
its sole discretion, of the stock exchange and related
document(s).
The Plan also provides that KJE will contribute, on the
effective date, cash in the amount of $600,000 in exchange
for 45,000,000 shares of the common stock of the
reorganized Company (approximately 18%). The obligations
of KJE under the Plan shall be contingent upon KJE holding,
as of the effective date, at lease 17.5% of the option to
purchase new common stock of the reorganized Company.
After such consolidation, on a fully diluted basis,
MedSmart will own approximately 52% of the reorganized
Company, KJE will own approximately 18%, and the existing
common shareholders will own approximately 25%. The
unsecured creditors will hold preferred shares convertible
into stock totaling approximately 5% of the common shares
and the existing preferred shareholders will receive
subordinate preferred shares convertible into common stock
representing approximately 1% of the reorganized Company.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
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
September 30, 2000 and December 31, 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
$ 600,086
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
NATIONAL HEALTH & SAFETY CORPORATION
Notes to Financial Statements
September 30, 2000 and December 31, 1999
NOTE 7 - OPTIONS AND WARRANTS (Continued)
The Company has the following outstanding stock options:
Stock Options Issued:
Bowers Folts Bathurst 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, National Health & Safety Corporation (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).
Subsequently, the Company filed a Disclosure Statement and a Joint
Plan of Reorganization and, on August 21, 2000, filed the fourth
amendment to the plan. The Court held a hearing on November 6,
2000 to consider the plan and the plan was preliminarily approved
by the court. When the disclosure statement and plan, as amended,
are approved in full by the Court, they will be submitted for
approval to the Company's creditors, shareholders and interested
parties and must ultimately be approved by the Bankruptcy Court.
Results of Operations
Results of Operations for the Three and Nine Months Ended
September 30, 2000 and 1999
Total revenues for the three and nine month periods ended
September 30, 2000 ("third quarter" and "first nine months" of
2000, respectively) were $900 and $4,404, respectively, compared to
$27,882 and $76,844 for the corresponding 1999 periods. The 2000
results reflect the reduced activity due to the Company's
bankruptcy filing and pending plan of reorganization. The sales
reported for the first nine months of 2000 primarily represent
monthly receipts of POWERX sales received during the first quarter
for those sales that were agreed to prior to October 1, 1999. The
Company has sold POWERX to MedSmart Healthcare Network, Inc.
("MedSmart") and POWERX sales are now reflected in MedSmart's
financial statements. The Company does not anticipate any material
revenues until such time as its reorganization is complete.
Cost of sales for the third quarter and first nine months of
2000 were $0 and $185, respectively, compared to $4,853 and $19,456
for the 1999 periods. The results reflect the reduced marketing
activity during the 2000 periods due to the Company's
reorganization.
Operating expenses for the third quarter of 2000 decreased 79%
to $42,384 from $202,526 for the third quarter of 1999. For the
first nine months of 2000, operating expenses decreased 84% to
$137,696 from $887,630 for the 1999 period. The decreases
represent the Company's curtailed operations and are primarily
attributed to the 100% decrease in consulting expenses in 2000 due
to reduced legal and accounting fees. Other decreases in expenses
include (i) the 100% decrease in marketing expenses for both the
third quarter and first nine months of 2000, reflecting the
Company's reorganization; and (ii) the 84% and 79% decreases in
salaries for third quarter and first nine months of 2000,
respectively, due to the personnel reductions.
The Company did recognize other income for the first nine
months 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 loss for the third quarter and
first nine months of 2000 of $46,173 and $64,310, respectively,
compared to a net loss of $184,193 and $861,076 for the comparable
1999 periods. The decrease in net loss for the 2000 periods is due
to the Company's ceasing operations and reduction of associated
expenses.
Liquidity and Capital Resources
The Company's working capital needs have historically been
satisfied primarily through its financing activities including
private loans and raising capital through the sale of securities.
Working capital at September 30, 2000 was a negative $4,771,905
compared to a negative $4,601,252 December 31, 1999. Net cash used
in operating activities for the third quarter and first nine months
of 2000 was $39,644 and $117,396, respectively, compared to $2,604
realized by operating activities in the third quarter of 1999 and
$312,996 used in the first nine months of 1999. This decrease in
net cash used was due primarily to reduced net loss. The Company
realized cash from the sale of assets of $24,000 and $90,000 for
the third quarter and first nine months of 2000, respectively.
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 the Company's 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 September 30, 2000, the Company had total assets of $64,059
and total stockholders deficiency of $4,697,693, compared to total
assets of $198,521 and total stockholders' deficiency of $4,550,348
at December 31, 1999.
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
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 August
21, 2000, the Company filed the fourth amendment to the plan for
consideration by its creditors and shareholders and for ultimate
approval by the Bankruptcy Court. The Court held a hearing on
November 6, 2000 to consider the plan and the plan was
preliminarily approved by the court.
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, and $6,000 was paid on June 20,
2000, which was a prepayment of a portion of the July obligation.
In the event the royalty exceeds 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 the infusion of $600,000 into the
Company and for MedSmart and its POWERX assets to become a wholly
owned subsidiary of the Company. See Note 4 to the financial
statements.
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: November 14, 2000 By /S/ James R. Kennard
James R. Kennard, Chief
Executive Officer and
Director
Date: November 14, 2000 By /S/ Roger H.Folts
ROGER H. FOLTS,
Chief Financial Officer
Principal Accounting Officer
