SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
__________________
FORM 8-K
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
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* (P) Filed Herewith
_____________
* Filed in paper form pursuant to Section 201 of Regulation S-T.
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 13, 2000 NATIONAL HEALTH & SAFETY CORPORATION
By: /S/ James R. Kennard
James R. Kennard, Chief Executive Officer
and Director
