10-K/A 1 nhs10ka.txt ORIGINAL DOCUMENT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB/A AMENDMENT NO. 1 TO THE ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2000 Commission File No. 0-24778 NATIONAL HEALTH & SAFETY CORPORATION (Name of small business issuer in its charter) UTAH 87-0505222 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3811 BEE CAVE ROAD, SUITE 210, AUSTIN, TEXAS 78746 (Address of principal executive offices) Issuer's telephone no.: (512) 328-0433 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT: Common Stock, par value $0.001 per share (Title of Class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] State the issuer's revenues for its most recent fiscal year: $ 742 At March 30, 2001, there were 188,453,311 shares of registrant's Common Stock held by non-affiliates, with an aggregate market value of approximately $11,309,199, based on the closing price on the OTC Bulletin Board on that day. At March 30, 2001, a total of 236,850,021 shares of registrant's Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: None This amendment to the Company's Form 10-KSB contains one revision to its financial statements for the year ended December 31, 2000. The amount shown for "Increase (decrease) in accounts payable" has been increased from $172,358 to $192,358. The totals on the cash flow statement are correct and remain unchanged. See Statements of Cash Flow in the Financial Statements. 1 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NATIONAL HEALTH & SAFETY CORPORATION Date: April 30, 2001 /S/ GARY DAVIS Gary Davis, President and Chief Executive Officer Date: May 2, 2001 /S/ ROGER FOLTS Roger Folts, Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated. Date: April 30, 2001 /S/ GARY DAVIS Gary Davis, Director and Chairman of the Board of Directors Date: April 30, 2001 /S/ EUGENE M. ROTHCHILD Eugene M. Rothchild, Director Date: James R. Kennard, Director Date: April 30, 2001 /S/ JIMMY E. NIX II Jimmy E. Nix II, Director 2 NATIONAL HEALTH & SAFETY CORPORATION (A DEVELOPMENT STAGE COMPANY) FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT DECEMBER 31, 2000 TABLE OF CONTENTS PAGE INDEPENDENT AUDITORS' REPORTS F-1-2 FINANCIAL STATEMENTS Balance Sheet F-3 Statements of Operations F-4 Statements of Stockholders' Deficiency F-5 Statements of Cash Flows F-6 Notes to Financial Statements F-7-13 Board of Directors National Health & Safety Corporation (A Development Stage Company) INDEPENDENT AUDITORS' REPORT We have audited the accompanying balance sheet of National Health & Safety Corporation (a development stage company) as of December 31, 2000 and the related statements of operations, stockholders' deficiency and cash flows for the year ended December 31, 2000 and from the inception of the development stage on January 1, 1999 through December 31, 2000. The balance sheet, statements of operations, stockholders' deficiency and cash flows of National Health & Safety Corporation for the year ended December 31, 1999 were audited by other auditors whose report dated January 18, 2000, included an explanatory paragraph describing conditions that raised substantial doubt about the Company's ability to continue as a going concern. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of National Health & Safety Corporation (a development stage company) as of December 31, 2000 and the results of its operations and its cash flows for the year ended December 31, 2000 and from the inception of the development stage on January 1, 1999 through December 31, 2000, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Notes 1 and 3, on July 1, 1999, the Company filed a Voluntary Petition for Relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Pennsylvania. The filing was made necessary by a lack of sufficient liquidity. The Company, has experienced recurring net losses. Additionally, as of December 31, 2000, the Company had a stockholders' deficit of $4,902,676. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are partially described in Notes 1 and 3. The accompanying financial statements do not include any adjustment relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. SPROUSE & WINN, L.L.P. Austin, Texas April 6, 2001 F-1 INDEPENDENT AUDITORS' REPORT Board of Directors National Health & Safety Corporation (A Development Stage Company) Warminster, Pennsylvania We have audited the accompanying balance sheet of National Health & Safety Corporation (a development stage company) as of December 31, 1999 and the related statements of operations, stockholders' deficiency and cash flows for the years ended December 31, 1999 and 1998 and from the inception of the development stage on January 1, 1999 through December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of National Health & Safety Corporation (a development stage company) as of December 31, 1999, and the results of its operations and its cash flows for the years ended December 31, 1999 and 1998 and from the inception of the development stage on January 1, 1999 through December 31, 1999, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Notes 1 and 4, on July 1, 1999, the Company filed a Voluntary Petition for Relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Pennsylvania. The filing was made necessary by a lack of sufficient liquidity. The Company has experienced recurring net losses. Additionally, as of December 31, 1999, the Company had a stockholders' deficit of $4,550,348. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are partially described in Notes 1 and 4. The accompanying financial statements do not include any adjustment relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. Jones, Jensen & Company Salt Lake City, Utah January 18, 2000 F-2 NATIONAL HEALTH & SAFETY CORPORATION (A Development Stage Company) BALANCE SHEET DECEMBER 31, 2000 ASSETS CURRENT ASSETS Cash $ 1,475 Accounts receivable, net of allowance for doubtful accounts of $8,200 16,614 ------------- Total Current Assets 18,089 ------------- OTHER ASSETS Restricted cash 14,212 ------------- Total Other Assets 14,212 ------------- TOTAL ASSETS $ 32,301 ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses - post petition $ 334,276 Post petition notes payable - related party 255,750 Pre-petition accruals 4,344,951 ------------- Total Current Liabilities 4,914,977 ------------- STOCKHOLDERS' DEFICIENCY Preferred stock; $0.001 par value; 5,000,000 shares authorized; 14,363 shares issued and outstanding 14 Common Stock; $0.001 par value, 100,000,000 shares authorized; 58,803,716 shares issued and outstanding 58,804 Additional paid - in capital 9,482,308 Accumulated deficit (11,975,773) Deficit accumulated during the development stage (2,468,029) ------------- Total Stockholders' Deficiency (4,902,676) ------------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 32,301 ============= SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS F-3 NATIONAL HEALTH & SAFETY CORPORATION (A Development Stage Company) STATEMENTS OF OPERATIONS
From the Inception of the For the Years Ended Development Stage December 31, on January 1, 1999 Through 2000 1999 December 31, 1999 ---- ---- -------------------------- REVENUE Sales - operations $ 228 $ 80,340 $ 80,568 Royalty revenue 514 -0- 514 ----------- ----------- ----------- Total Revenue 742 80,340 81,082 =========== =========== =========== COST OF SALES 185 41,045 41,230 ----------- ----------- ----------- Gross Profit 557 39,295 39,852 ----------- ----------- ----------- EXPENSES Rent -0- 99,424 99,424 Depreciation and amortization -0- 2,078 2,078 General and administrative 279,439 2,241,237 2,520,676 ----------- ----------- ----------- Total Expenses 279,439 2,342,739 2,622,178 =========== =========== =========== LOSS FROM OPERATIONS (278,882) (2,303,444) (2,582,326) OTHER INCOME (EXPENSE) Gain on sale of assets -0- 142,697 142,697 Other 11,673 -0- 11,673 Bad debt expense (2,084) (2,388) (4,472) Interest expense -0- (35,601) (35,601) ----------- ----------- ----------- Total Other Income (Expense) 9,589 104,708 114,297 =========== =========== =========== NET LOSS $ (269,293) $(2,198,736) $(2,468,029) ============ =========== =========== BASIC LOSS PER SHARE $ (0.05) $ (0.04) ============ =========== Weighted Average Shares Outstanding 59,008,459 57,734,638 ============ ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS F-4 NATIONAL HEALTH & SAFETY CORPORATION (A Development Stage Company) STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Stock COMMON Additional Accumulated Preferred STOCK Paid-in Capital Deficit 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 loss for the year ended December 31, 2000 - - - (269,293) -------- ------- ------------ ------------ BALANCE, DECEMBER 31, 2000 $ 14 $58,804 $ 9,482,308 $(14,443,802) ======== ======= ============ ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS F-5 NATIONAL HEALTH & SAFETY CORPORATION (A Development Stage Company) STATEMENTS OF CASH FLOWS
For the Years Ended From Inception December 31, On January 1, 1999 Through 2000 1999 December 31, 2000 ---- ---- ------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) $ (269,293) $(2,198,736) $(2,468,029) Adjustments to reconcile net (loss) to net cash (used) by operating activities: Depreciation and amortization -0- 2,078 2,078 Expenses paid with common stock -0- 641,805 641,805 Cancellation of Stock (83,035) -0- (83,035) Gain on sale of assets -0- (142,697) (142,697) Changes in operating assets and liabilities: (Increase) in restricted cash 36,692 (50,904) (14,212) (Increase) decrease in accounts receivable 7,858 6,385 14,243 (Increase) decrease in royalties receivable -0- 41,000 41,000 Decrease in deposits -0- 9,298 9,298 Increase (decrease) in accounts payable 192,358 133,791 326,149 Increase (decrease) in accrued expenses (40,800) 865,476 824,676 ------------ ----------- ----------- Net Cash (Used) by Operating Activities (156,220) (692,504) (848,724) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of assets -0- 30,000 30,000 ------------ ----------- ----------- Net Cash Provided by Investing Activities -0- 30,000 30,000 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from note receivable 120,000 -0- 120,000 Proceeds from loans payable, stockholder -0- 48,000 48,000 Proceeds from notes payable - related party 34,550 469,113 503,663 Repayment of loans payable -0- (57,000) (57,000) Proceeds from issuance of common stock -0- 202,200 202,200 ------------ ----------- ----------- Net Cash Provided by Financing Activities 154,550 662,313 816,863 ------------ ----------- ----------- INCREASE (DECREASE) IN CASH (1,670) (191) (1,861) NET CASH, BEGINNING OF YEAR 3,145 3,336 3,336 ------------ ----------- ----------- NET CASH, END OF YEAR $ 1,475 $ 3,145 $ 1,475 ============ =========== =========== CASH PAID DURING THE YEAR FOR: Interest $ -0- $ 16,597 $ 16,597 Income taxes -0- -0- -0- NON-CASH FINANCING ACTIVITIES: Issuance of common stock in payment of debt -0- 215,000 215,000 Issuance of common stock for services -0- 221,805 221,805 Options issued below market value -0- 420,000 420,000 Cancellation of common stock 83,035 -0- 83,035
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS F-6 NATIONAL HEALTH & SAFETY CORPORATION (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 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 & 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, 2000 balance sheet as "pre-petition accruals" in the amount of $4,344,951. 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 $1,473,141 at December 31, 2000. On August 21, 2000, the Company filed the Fourth Amended Disclosure Statement with respect to the Fourth Amended Joint Plan of Reorganization (the "Plan") for its consideration by the Company's creditors and shareholders, and ultimate approval by the Bankruptcy Court. On November 27, 2000 the Bankruptcy Court confirmed the Plan, and the Plan was implemented effective January 22, 2001 (See Note 8). 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. F-7 NATIONAL HEALTH & SAFETY CORPORATION (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS OPERATIONS (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 $2,078 for the years ended December 31, 2000 and 1999, respectively. All of the property and equipment was sold in July 1999. d. Basic Loss per Share of Common Stock For the Year Ended December 31, 2000 ---------------------------------------------------------------- Loss Shares Per Share (Numerator) (Denominator) Amount Net loss $(269,293) 59,008,459 $(.005) For the Year Ended December 31, 2000 ---------------------------------------------------------------- Loss Shares Per Share (Numerator) (Denominator) Amount Net loss $(2,198,736) 57,734,638 $ (.04) 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. F-8 NATIONAL HEALTH & SAFETY CORPORATION (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS OPERATIONS (Continued) f. Provision for Taxes At December 31, 2000, the Company had net operating loss carryforwards of approximately $10,950,000 that may be offset against future taxable income through 2018. 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. 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. h. Revenue Recognition The Company has not yet established ongoing operations. A revenue recognition policy will be established when planned principal operations commence. i. Recent Accounting Pronouncements In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which requires companies to record derivatives as assets or liabilities, measured at fair market-value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Management believes the adoption of this statement will have no material impact on the Company's financial statements. F-9 NATIONAL HEALTH & SAFETY CORPORATION (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS OPERATIONS (CONTINUED) j. Bankruptcy Accounting Since the Chapter 11 bankruptcy filing, the Company has applied the provisions in Statement of Position (SOP) 90-7 " Financial Reporting by Entities in Reorganization Under the Bankruptcy Code." SOP 90-7 does not change the application of accepted accounting principles in the preparation of 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 one cash account which has been attached by creditors or allocated for certain debt payments totaling $14,212 at December 31, 2000. This cash is being presented as restricted cash because the Company does not have full access to this account. NOTE 3 GOING CONCERN The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has a working capital deficiency of $ 4,896,888, an accumulated deficit of $ 14,443,802 as of December 31, 2000, and a net loss for the year then ended of $269,293. Accordingly, its ability to continue as a going concern is dependent on obtaining capital and financing for its planned marketing and distribution of the POWERx memberships through the Company's benefits network. The Company plans to secure financing for its acquisition strategy through the sale of its equity or issuance of debt. However, there is no assurance that they will be successful in their efforts to raise capital or secure other financing. These factors among others may indicate that the Company will be unable to continue as a going concern for a reasonable period of time. F-10 NATIONAL HEALTH & SAFETY CORPORATION (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 NOTE 4 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 private placement issues $ 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 On November 27, 2000 the Plan was confirmed. On January 22, 2001 the Plan was implemented, and each share of preferred stock was exchanged in accordance with the Plan. Holders of the Company's 14,363 shares of Preferred Stock exchanged their shares for 600,000 shares of new Preferred Stock, Series B. NOTE 5 OPTIONS AND WARRANTS The Company has the following outstanding warrants:
NUMBER ISSUED PURCHASE PRICE EXPIRATION 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:
EXPIRATION STOCK OPTIONS ISSUED DATE BOWERS FOLTS BATHURST TOTAL -------------------- ---------- ------ ----- -------- ----- 06/06/95 @$0.17 06/06/2010 2,000,000 500,000 500,000 3,000,000 04/30/96 @$0.17 04/30/2011 2,000,000 500,000 500,000 3,000,000 02/20/98 @$0.07 02/20/2013 2,800,000 1,000,000 1,000,000 4,800,000 ---------- Total: 10,800,000 ==========
On November 27, 2000 the Plan was confirmed. On January 22, 2001, the Plan was implemented, and all outstanding options and warrants were cancelled. F-11 NATIONAL HEALTH & SAFETY CORPORATION (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 NOTE 6 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. NOTE 7 RELATED PARTY TRANSACTIONS Under the Plan, the Company was advanced $255,750 by Medsmart Healthcare Network, Inc., a related party. This amount is shown in the financial statements as post petition notes payable. No interest accrues on this note, and is to be repaid once the Plan is implemented. NOTE 8 SUBSEQUENT EVENTS The Plan was confirmed on November 27, 2000 and filed as an exhibit to the Company's Form 8-K, dated November 28, 2000, that reported the confirmation. On January 22, 2001 the Plan was implemented, whereby the former shareholders of MedSmart Healthcare Network, Inc. ("MedSmart") exchanged all of their MedSmart stock for a majority of the outstanding common stock of the Company. MedSmart became a wholly owned subsidiary of the Company. This exchange, together with the contribution of $600,000 by the Co-Proponent of the Plan and other investors implemented the Plan and resulted in a change of control of the Company. Holders of the Company's 14,363 shares of Preferred Stock exchanged their shares for 600,000 shares of new Preferred Stock, Series B. Pursuant to and effective upon implementation of the Plan, January 22, 2001, the Company authorized and issued certain new classes of securities as follows: The Company authorized the issuance of 500,000,000 common shares, par value $.001 and the issuance of 50,000,000 shares of preferred stock, which may consist of one or more series. Cumulative voting of any shares of stock, whether common or preferred, shall be prohibited. F-12 NATIONAL HEALTH & SAFETY CORPORATION (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 NOTE 8 SUBSEQUENT EVENTS (CONTINUED) Series A Preferred Stock, par value $.001 ("Series A"); 4,000,000 shares authorized; 1,595,264 shares issued; $1.00 liquidation preference and preference over Series B Preferred Stock, Common Stock and all other series of stock ranking junior to Series A. Each share of Series A is convertible, at the option of the holder, into 5 shares of Common Stock at such times and in such amounts as stated in the Certificate of Designation. The holders of Series A stock are entitled to vote together with the holders of Series B and Common Stock and are entitled to one vote for each share of Common Stock which would be held by them if all of their shares of Series A were converted into shares of Common Stock. Series B Preferred Stock, par value $.001 ("Series B"); 600,000 shares authorized and issued; $1.00 liquidation preference that is inferior to Series A but is preferred to Common Stock and all other series of stock ranking junior to Series B. Each share of Series B is convertible at the option of the holder into five shares of Common Stock at such times and in such amounts as stated in the Certificate of Designation. The holders of Series B stock are entitled to vote together with the holders of Series A and Common Stock and are entitled to one vote for each share of Common Stock which would be held by them if all of their shares of Series B were converted into shares of Common Stock. Warrants, Class A and Class B, issued to each holder of the Series A and Series B Preferred Stock. There are 4,000,000 Class A warrants authorized; 2,195,264 Class A warrants issued and outstanding that allow the holder to purchase, for the exercise price of $1.00, expiring two years from January 22, 2001, one share of Common Stock plus one Class B warrant. There are 4,000,000 Class B warrants authorized; entitling the holder to purchase, for an exercise price of $1.50, expiring three years from January 22, 2001, one share of Common Stock. All shares of stock, warrants and other Interests in the Company other than the common stock of the Company was cancelled as of January 22, 2001. F-13