NATIONAL HEALTH & SAFETY CORP (NHLT)
Quarterly Report (SEC form 10QSB)
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 six month periods ended
June 30, 1999 and 1998. It should be noted that percentages discussed throughout this analysis are stated on an approximate basis.
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
(Unaudited) (Unaudited)
Revenues . . . . . . . . . . . . . 100% 100% 100% 100%
Cost of sales. . . . . . . . . . 29 35 30 20
Operating expenses . . . . . . . . 1352 1532 1399 1445
(Loss) from operations . . . . . . (1281) (1467) (1329) (1365)
Other expenses - interest. . . . . 26 41 53 34
Net (loss) . . . . . . . . . . . . (1307) (1508) (1382) (1399)
Results of Operations for the Three and Six Months Ended June 30, 1999 and 1998
Total revenue for the three months ended June 30, 1999 ("second quarter of 1999") decreased 21% to $24,686 compared to the three months ended June 30, 1998 ("second quarter of
1998"), primarily attributed to the 11% decrease in POWERX Card sales due primarily to a lower level of broker activity, and the 85% decrease in other sales due to completion of
consulting contracts in 1998. For the first six months of 1999, total revenues decreased 31% to $48,962 from the comparable 1998 period primarily attributed to the 27% decrease in
POWERX sales, 27% decrease in medical equipment sales due to a reduced marketing effort, and the 83% decrease in other sales.
Cost of sales (as a percentage of total revenues) decreased to 29% for the second quarter of 1999, from 35% for the second quarter of 1998 period, and increased to 30% for the first six
months of 1999 from 20% for the comparable 1998 period. The percentage changes for the second quarter and first six months of 1999 were primarily the result of a different sales mix.
Actual cost of sales decreased 34% for the second quarter of 1999 and only fractionally for the first six months of 1999 from the comparable 1998 periods.
Operating expenses for the second quarter and first six months of 1999 decreased by $155,610 (31%) and $385,637 (36%) respectively, when compared to the corresponding 1998
results. The decrease for the second quarter of 1999 was primarily attributed to the $129,571 decrease (102%) in marketing expenses reflecting the Company's reduced marketing
activities, and the $32,501 decrease (18%) in payroll expenses due to personnel reductions and replacement of one person at a lower rate. The decrease for the first half of 1999 was
primarily attributed to the $108,927 decrease (73%) in marketing expenses, and the $283,096 decrease (nearly 100%) in advertising expenses due to a one time prepaid expense for radio
advertising of $279,985 during the first quarter of 1998. Also, payroll expenses decreased $49,466 (15%) for the first six months of 1999.
As a percentage of total revenues, operating expenses decreased from 1532% for the second quarter of 1998 to 1352% for the second quarter of 1999, and from 1445% for the first six
months of 1998 to 1399% for the first six months of 1999.
The net loss for the second quarter and first six months of 1999 decreased to $322,956 (32%) for the second quarter, and to $676,883 (32%) for the first six months, as compared with
the corresponding 1998 periods. These results are primarily attributed to the 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 June 30, 1999 was a negative $3,308,399 compared to a negative $3,164,296 at December 31, 1998. During the second half of 1999, accounts payable increased 19%
due to the slow payment of bills due, loans payable to stockholders increased 7% due to additional funds loaned to the Company by its President, and accrued expenses increased 12%
due to additional accrued interest, additional deferred income and accrual of legal judgments. For this same period, cash increased from $3,336 to $24,392.
Net cash used by operating activities for the second quarter and first half of 1999 was $298,843 and $315,600, respectively, compared to net cash used of $502,826 and $648,727 for
the comparable 1998 periods. This decrease in net cash used is attributed to the decrease in net loss of $321,901, the increase in common stock issued for services of $49,254, and the
increase in accounts payable of $127,727. Net cash provided by financing activities during the second quarter and first half of 1999 was $272,611 and $336,656 respectively, compared
to $760,785 and $903,285 for the corresponding 1998 periods. These results are primarily due to the decrease in individuals purchasing stock from the Company.
As of June 30, 1999, the Company had total assets of $66,260 and total stockholders' deficiency of $3,556,046. 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.
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's operations for the
remainder of fiscal 1999 will depend on the outcome of the bankruptcy filing and any proposed plan of reorganization, which will be subject to approval by the Bankruptcy Court.
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 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.
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. |
