SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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Amendment No. 1
to
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) November 28, 2000
NATIONAL HEALTH & SAFETY CORPORATION
(Exact Name of Registrant as Specified in Charter)
UTAH 0-24778 87-0505222
(State or Other Jurisdiction (Commission (IRS Employer
Of Incorporation) File Number) Identification No.)
120 GIBRALTAR ROAD, SUITE 107, HORSHAM, PENNSYLVANIA 19044
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (215) 682-7114
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FORM 8-K
Item 3. Bankruptcy or Receivership.
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). The Company filed a Disclosure Statement and a
Joint Plan of Reorganization (the "Plan") and, 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. At a hearing
held November 6, 2000, the Court preliminarily approved the Plan.
On November 27, 2000, the Bankruptcy Court confirmed the Company's Plan
authorizing the Company to proceed with the implementation of the Plan and an
appropriate Order was entered on November 28, 2000. Under the Plan, MedSmart
Healthcare Network, Inc. (including POWERx) will become a wholly owned
subsidiary of the Company. MedSmart has developed POWERx into a turnkey Internet
eCommerce business to business (B2B) and business to consumer (B2C) service
provider. In addition, KJE I, Ltd. (co-proponent of the Plan) will contribute
approximately $600,000 to cover reorganization expenses and provide working
capital to the reorganized Company.
During the past year, MedSmart has focused on developing significant
marketing programs with a host of major industry and Internet based companies.
With confirmation and implementation of the Plan, the Company will be able to
finalize agreements with these companies and accelerate POWERx sales. The
initial intent was that the Board of Directors would be comprised of James R.
Kennard, Eugene Rothchild and Jimmy E. Nix. However, Mr. Nix died unexpectedly
on December 4, 2000 and no replacement has been named as of this date. The
number of directors will be increased to either five or seven directors at the
Company's next shareholders' meeting. The officers of the reorganized Company
will initially be James R. Kennard as President and CEO, and Roger Folts as
Secretary and CFO.
Plan of Reorganization
The Company was originally incorporated in the late 1980s, however, since
1993 the Company has been primarily in the business of developing and marketing
the POWERx Network, a system which provides medical patients access to medical
services at a discount basis and also provides a method for connecting medical
providers willing to provide medical services on a discount basis with such
patients.
As of the Chapter 11 Petition Date, the Company had successfully developed
an extensive network of over 500,000 medical providers consisting of physicians,
hospitals, nursing homes, dentists, clinics and other medical providers
necessary to deliver the POWERx product to consumers. Unfortunately, the Company
was not successful in marketing the POWERx product to consumers because, among
other reasons, the Company never found an adequate source of financing. In
addition, the Company lacked the technology and management depth needed. The
Company's continuing support of the POWERx Network resulted in an average cash
drain to the Company of approximately $100,000 per month during the months
preceding the Petition Date. As of the Petition Date, the Company was without
further sources of cash to support the POWERx product and had few options
available to it. But for the filing of the Chapter 11 case, the Company would
have been liquidated piecemeal by the actions of collecting creditors.
Immediately prior to the commencement of the Chapter 11 Case, the Company
entered into negotiations with Mr. Nix, the president and 70% owner of MedSmart,
a Nevada corporation based in Texas, regarding an arrangement for MedSmart to
finance or purchase the POWERx Network. The Company recognized that MedSmart had
the sources of capital and technology and management depth and expertise
necessary to develop and market the POWERx products. The Company also needed the
transaction to eliminate the cash flow drain to the Company caused by the
continued support of the POWERx Network. In August, 1999, shortly after the
commencement of the Chapter 11 Case, the Company requested and received Court
approval to sell the POWERx Network to MedSmart under an arrangement whereby the
Company is entitled to receive from MedSmart certain guaranteed minimum payments
totaling $150,000 plus contingent payments that are dependent upon MedSmart's
success in the further development and marketing of the POWERx products.
MedSmart projected that, over time, the contingent payments could eventually
exceed $750,000 per year. MedSmart also provided a debtor-in-possession loan,
currently totaling approximately $240,000, (the "DIP Facility") to the Company
during the course of the Chapter 11 case to fund the Company's operations during
the pendency of the reorganization.
Concurrently with the negotiations with Mr. Nix regarding the MedSmart
purchase of POWERx, the Company and Mr. Nix discussed formulating a plan of
reorganization that contemplated asset and cash contributions to the Company by
other entities owned or controlled by Mr. Nix, that is KJE 1, Ltd. ("KJE") and
United Realty Group ("URG"), in exchange for common stock of the reorganized
Company. The purpose of these negotiations was to recapitalize the Company and
to develop new business lines for the Company. As a result, the First and Second
Amended proposed Plans of Reorganizations submitted by the Company involved
arrangements whereby KJE and URG would contribute approximately $2.7 million in
tangible assets to the Company in exchange for common stock in the Company, with
the conversion of the Company's debts to a series of convertible preferred
stock. Due to the unanticipated passage of time since proposal of the initial
joint plan and a change in business circumstances, URG decided to withdraw as a
co-proponent and funder of the Plan. In URG's place, MedSmart agreed to join as
a substitute plan co-proponent to achieve the reorganization described herein
and in the Plan.
Under the current Plan, the Company has focused on reacquiring POWERx
because MedSmart has completed the technological development of the sales
systems for POWERx. Under the current Plan, MedSmart (and POWERx) would become a
wholly owned subsidiary of the Reorganized Company. The existing owners of
MedSmart will receive stock in the Reorganized Company in exchange for
contributing MedSmart to the Company. In addition, KJE will contribute
approximately $600,000 in working capital to the Company in exchange for stock
in the Reorganized Company.
The Company is greatly interested in reacquiring MedSmart and POWERx
because MedSmart has improved, streamlined and further developed POWERx. In
short, MedSmart has, at a cost of approximately $1.4 million, turned POWERx into
a turnkey Internet eCommerce business to business and business to consumer
service provider. MedSmart has implemented the first phase of its business plan.
Over the months since MedSmart's purchase of POWERX, MedSmart has developed a
comprehensive Internet and relational database technology system for use in
marketing and management of the POWERx Network and has created and fully
integrated the Internet website (www.powerx.net) as a key component to
utilization of such technology. POWERx had no Internet presence prior its
purchase by MedSmart. MedSmart has also established a new state-of- the-art
customer service and fulfillment facility in Dallas, Texas equipped and
furnished for 16 customer service representatives.
The primary result of the Plan is the reacquisition of the POWERx business
line. The "royalty" stream resulting from the sale of POWERx to MedSmart is
expected to ultimately exceed $750,000 per year; however, the "royalty" interest
retained by the Company from the sale of POWERx constitutes only a small
fraction of the total profitability of the POWERx product. The net revenue
received by MedSmart is generally 12.5 times the royalty paid to the Company.
For example, if the Company received an annual royalty of $750,000, MedSmart
would have had net revenues of approximately $9.375 million. The contribution of
MedSmart/POWERx as a wholly owned subsidiary of the Reorganized Company allows
the Reorganized Company to receive the benefit of all of this net revenue.
As of September 30, 2000, the Company had an authorized capitalization of
5,000,000 shares of Preferred Stock, of which 14,363 shares were issued and
outstanding, and 100,000,000 shares of Common Stock, of which 58,803,716 shares
were issued and outstanding. Implementation of the Plan will require an
amendment to the Company's Articles of Incorporation to increase the authorized
Common Stock.
The Fourth Amended Plan accomplishes the acquisition of MedSmart and the
financial restructure of the Company. More specifically, under the current
(Fourth Amended) Plan, the shareholders of MedSmart will exchange all their
shares in MedSmart for 130,000,000 Common Shares of the Reorganized Company
(approximately 51%), making MedSmart a wholly owned subsidiary of the
Reorganized Company. The Plan also provides that KJE will contribute $600,000 in
cash in exchange for 45,000,000 shares of the New Common Stock of the
Reorganized Company (approximately 18%). Unsecured creditors will receive Series
A Equity Units in exchange for their claims. Unsecured Creditors with allowed
claims will receive one (1) Series A Equity Unit for each $1.00 allowed claim.
Each Equity Unit consists of one (1) share of Series A Preferred Stock and one
(1) Class A Warrant. It is important for creditors to know that the Preferred
Stock is convertible into five (5) shares of Common Stock of the Reorganized
Company commencing 60 days after the Effective Date of the Plan at a rate of
20,000 preferred shares per month. As of July 10, 2000, such stock was trading
at $0.14 per share. The Common Stock of the Company would need to trade for a
price of $0.20 per share for the unsecured creditors to receive payment in full
of their claims upon conversion.
After the reorganization, the Reorganized Company will have a restructured
balance sheet taking it from its current stockholder's deficiency of
approximately $4.5 million to a post-reorganization positive net book value of
approximately $2.4 million, while carrying essentially no debt. This represents
a net positive change of approximately $6.9 million. MedSmart, as a wholly owned
subsidiary of the Reorganized Company, would have cash equal to the DIP Facility
($240,000) available for working capital.
In the alternative, if the Plan had not been confirmed, the sole asset
available to creditors would have consisted only of the POWERx revenue stream
acquired in the POWERx sale. The Company would not be entitled to the total
revenue generated by POWERx which MedSmart would retain. Although, as previously
stated, the revenue stream to the Company may exceed $75,000 per year, the
POWERx revenues do not yet have a proven track record. MedSmart's current
projections of royalty revenues based upon actual results since the sale show
revenues to the Company of approximately $473,000 per annum in 2001 and
approximately $538,000 for the first seven months of 2002. Any immediate sale of
the revenue rights by a liquidating trustee would, in the Company's opinion,
yield insufficient proceeds to result in a distribution to unsecured creditors,
let alone to preferred or common shareholders. Alternatively, if the revenue
rights were held by the liquidating trustee over an extended period of time in
anticipation of the results of MedSmart's marketing efforts, the Company
believes that it would be several years before any substantial distribution
could be made to unsecured creditors, even assuming MedSmart's marketing efforts
were successful. Item 7. Financial Statements and Exhibits.
(c) Exhibits
Exhibit No. Description Page
No. 2 Fourth Amended Joint Plan of Reorganization* Filed Herewith
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* The purpose of this amendment is to add an electronic copy of the Exhibit
previously filed in paper pursuant to Section 201 of Regulation S-T.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: December 19, 2000 NATIONAL HEALTH & SAFETY CORPORATION
By: /S/ James R. Kennard
James R. Kennard, Chief Executive Officer
and Director
