<PAGE> 1
FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ________ TO ________
Commission File No. 0-27836
EMBASSY ACQUISITION CORP.
-------------------------
(Name of Small Business Issuer in Its Charter)
Florida 65-0643773
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1428 Brickell Avenue Suite 105, Miami, Florida 33131
- ---------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(305) 374-6700
--------------
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.0001 per share.
-----------------------------------------
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 is not contained in this form, and no disclosure will be
contained, to the best of 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 issuer's revenues for its most recent fiscal year: $0.
<PAGE> 2
The aggregate market value of the voting stock held by non-affiliates of
the issuer based on the closing bid price of $6.75 of such common stock, as of
March 10, 1997, is $11,880,000 based upon $6.75 multiplied by 1,760,000 shares
of common stock outstanding as of March 10, 1997 held by non-affiliates.
As of March 10, 1997, the Company had a total of 2,540,000 shares (the
"Shares") of Common Stock, par value $.0001 per share (the "Common Stock"),
outstanding. Additionally, as of such date Underwriter Options to purchase
120,000 shares of Common Stock (the "Underwriter Options") remain outstanding
and unexercised. Each Underwriter Option entitles the holder thereof to purchase
one share of Common Stock at a purchase price of $7.80 per share commencing
April 2, 1996 and for a period of five years thereafter.
DOCUMENTS INCORPORATED BY REFERENCE
None.
(ii)
<PAGE> 3
EMBASSY ACQUISITION CORP.
FORM 10-KSB
FISCAL YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I
Item 1. Description of Business...................................................... 1
Item 2. Description of Property...................................................... 10
Item 3. Legal Proceedings............................................................ 10
Item 4. Submission of Matters to a Vote of Security Holders.......................... 10
PART II
Item 5. Market for Common Equity and Related Stockholder Matters..................... 10
Item 6. Management's Discussion and Analysis or Plan of Operation.................... 11
Item 7. Financial Statements......................................................... 13
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure................................................... 13
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.......................... 13
Item 10. Executive Compensation....................................................... 18
Item 11. Security Ownership of Certain Beneficial Owners and Management............... 19
Item 12. Certain Relationships and Related Transactions............................... 20
Item 13. Exhibits and Reports on Form 8-K............................................. 20
SIGNATURES ............................................................................. 21
FINANCIAL STATEMENTS.......................................................................F-1
</TABLE>
(iii)
<PAGE> 4
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Embassy Acquisition Corp. (the "Company") was formed in November 1995
to seek to effect a merger, exchange of capital stock, asset acquisition or
other similar business combination (a "Business Combination") with an acquired
business (an "Acquired Business"). In connection with its initial
capitalization, the Company issued 1,160,000 shares of its Common Stock to its
officers, directors, and other stockholders for an aggregate sum of $76,078. On
April 2, 1996, the Company's Registration Statement on Form SB-2 (the
"Registration Statement") was declared effective by the U.S. Securities and
Exchange Commission (the SEC"). Pursuant to the Registration Statement, the
Company, in its initial public offering of securities, offered and sold
1,380,000 shares of Common Stock, par value $.0001 per share, at a purchase
price of $6.00 per share (the "Offering") and received net proceeds of
approximately $7,052,263 after the payment of all expenses of the Offering (the
"Net Proceeds"). In addition, the Company issued Underwriter Options to purchase
120,000 shares of Common Stock. The Offering was a "blank check" offering. See
"Management's Discussion and Analysis or Plan of Operation."
The Company's objective is to seek to effect a Business Combination
with an Acquired Business, which the Company believes has growth potential. The
Company intends to utilize cash, equity, debt or a combination thereof in
effecting a Business Combination. While the Company may, under certain
circumstances, seek to effect Business Combinations with more than one Acquired
Business, it will not expend less than 80% of the Net Proceeds upon its first
Business Combination. Consequently, it is likely that the Company will have the
ability to effect only a single Business Combination. The Company may effect a
Business Combination with an Acquired Business which may be financially unstable
or in its early stage of development or growth. Although the Company has had
certain preliminary discussions with Acquired Business candidates regarding a
possible Business Combination, as of March 10, 1997 the Company has not entered
into any agreements, agreements in principle or understandings regarding a
Business Combination.
"BLANK CHECK" COMPANY
BACKGROUND. A Business Combination may involve the acquisition of, or
merger with, a company which does not need substantial additional capital but
which desires to establish a public offering itself, while avoiding what it may
deem to be adverse consequences of undertaking a public offering itself, such as
time delays, significant expense and loss of voting control.
UNSPECIFIED INDUSTRY AND ACQUIRED BUSINESS. To date, the Company has
not selected any particular industry or any Acquired Business in which to
concentrate its Business Combination efforts. However, in connection with
seeking stockholder approval of a Business Combination, the Company intends to
furnish its stockholders with proxy solicitation materials prepared in
1
<PAGE> 5
accordance with the Securities Exchange Act of 1934, which, among other matters,
will include a description of the operations of the Acquired Business candidate
and audited historical financial statements thereof. To the extent the Company
effects a Business Combination with a financially unstable company or an entity
in its early stage of development or growth (including entities without
established records of sales or earnings), the Company will become subject to
numerous risks inherent in the business and operations of financially unstable
and early stage or potential emerging growth companies. In addition, to the
extent that the Company effects a Business Combination with an entity in an
industry characterized by a high level of risk, the Company will become subject
to the currently unascertainable risks of that industry. An extremely high level
of risk frequently characterizes certain industries which experience rapid
growth. In addition, although management will endeavor to evaluate the risks
inherent in a particular industry or Acquired Business, there can be no
assurance that the Company will properly ascertain or assess all significant
risk factors.
PROBABLE LACK OF BUSINESS DIVERSIFICATION. While the Company may, under
certain circumstances, seek to effect Business Combinations with more than one
Acquired Business, it will not expend less than 80% from the Net Proceeds upon
its first Business Combination. Consequently, it is likely that the Company will
have the ability to effect only a single Business Combination. Accordingly, the
prospects for the Company's success will be entirely dependent upon the future
performance of a single business. Unlike certain entities which have the
resources to consummate several Business Combinations of entities operating in
multiple industries or multiple areas of a single industry, it is highly likely
that the Company will not have the resources to diversify its operations or
benefit from the possible spreading of risks or offsetting of losses. The
Company's probable lack of diversification may subject the Company to numerous
economic, competitive and regulatory developments, any or all of which may have
a substantial adverse impact upon the particular industry in which the Company
may operate subsequent to a Business Combination. In addition, by consummating a
Business Combination with only a single entity, the prospects for the Company's
success may become dependent upon the development or market acceptance of a
single or limited number of products, processes or services. Accordingly,
notwithstanding the possibility of capital investment in and management
assistance to the Acquired Business by the Company, there can be no assurance
that the Acquired Business will prove to be commercially viable. Prior to the
consummation of a Business Combination, the Company has no intention to purchase
or acquire a minority interest in any company.
OPPORTUNITY FOR STOCKHOLDER EVALUATION OR APPROVAL OF BUSINESS
COMBINATIONS. The stockholders will, in all likelihood, neither receive nor
otherwise have the opportunity to evaluate any financial or other information
which will be made available to the Company in connection with selecting a
potential Business Combination until after the Company has entered into an
agreement to effectuate a Business Combination. Such agreement to effectuate a
Business Combination, however, will be subject to stockholder approval. As a
result, stockholders will be almost entirely dependent on the judgment of
management in connection with the selection and ultimate consummation of a
Business Combination. In connection with seeking stockholder approval of a
Business Combination, the Company intends to furnish its stockholders with proxy
solicitation
2
<PAGE> 6
materials prepared in accordance with the Securities Exchange Act of 1934,
which, among other matters, will include a description of the operations of the
Acquired Business candidate and audited historical financial statements thereof.
Under the Florida Business Corporation Act, certain forms of Business
Combinations may be effected without stockholder approval. In addition, the form
of Business Combination may have an impact upon the availability of dissenters'
rights (i.e., the right to receive fair payment with respect to the Company's
Common Stock) to stockholders disapproving the proposed Business Combination.
The Company will afford to stockholders the right to approve any Business
Combination, irrespective of whether or not such approval would be required
under applicable Florida law. In the event, however, that 30% or more of the
Shares held by those persons holding shares sold in the Offering (the "Public
Stockholders") vote against approval on any Business Combination, the Company
will not consummate such Business Combination. All of the officers and directors
of the Company, who own in the aggregate approximately 30.7% of the Common Stock
outstanding as of the date hereof, have agreed to vote their respective shares
of Common Stock in accordance with the vote of the majority of the Shares held
by the Public Stockholders with respect to any Business Combination.
LIMITED ABILITY TO EVALUATE ACQUIRED BUSINESS' MANAGEMENT. While the
Company's ability to successfully effect a Business Combination will be
dependent upon certain key personnel, the future role of such personnel in the
Acquired Business cannot presently be stated with any certainty. While it is
possible that certain of the Company's key personnel will remain associated in
some capacities with the Company following a Business Combination, it is
unlikely that such key personnel will devote their full efforts to the affairs
of the Company subsequent thereto. Moreover, there can be no assurances that
such personnel will have any experience or knowledge relating to the operations
of the particular Acquired Business. Furthermore, although the Company intends
to closely scrutinize the management of a prospective Acquired Business in
connection with evaluating the desirability of effecting a Business Combination,
there can be no assurance that the Company's assessment of such management will
prove to be correct, especially in light of the inexperience of current key
personnel of the Company in evaluating businesses. Furthermore, there can be no
assurance that such future management will have the necessary skills,
qualifications or abilities to manage a public company intending to embark on a
program of business development. The Company may also seek to recruit additional
managers to supplement the incumbent management of the Acquired Business. There
can be no assurance that the Company will have the ability to recruit such
additional managers, or that such additional managers will have the requisite
skill, knowledge or experience necessary or desirable to enhance the incumbent
management.
SELECTION OF AN ACQUIRED BUSINESS AND STRUCTURING OF A BUSINESS
COMBINATION. Management anticipates that the selection of an Acquired Business
will be complex and risky because of competition for such business opportunities
among all segments of the financial community. The nature of the Company's
search for the acquisition of an Acquired Business requires maximum flexibility
inasmuch as the Company will be required to consider various
3
<PAGE> 7
factors and divergent circumstances which may preclude meaningful direct
comparison among the various business enterprises, products or services
investigated. The possible lack of diversification among the Company's
acquisitions may not permit the Company to offset potential losses from one
venture against profits from another. Management of the Company will have
virtually unrestricted flexibility in identifying and selecting a prospective
Acquired Business. In addition, in evaluating a prospective Acquired Business,
management will consider, among other factors, the following:
o costs associated with effecting the Business Combination;
o equity interest in and opportunity for control of the Acquired
Business;
o growth potential of the Acquired Business and the industry in
which it operates;
o experience and skill of management and availability of
additional personnel of the Acquired Business;
o capital requirements of the Acquired Business;
o competitive position of the Acquired Business;
o stage of development of the product, process or service of the
Acquired Business;
o degree of current or potential market acceptance of the
product, process or service of the Acquired Business;
o proprietary features and degree of intellectual property or
other protection of the product, process or service of the
Acquired Business; and
o regulatory environment of the industry in which the Acquired
Business operates.
The foregoing criteria are not intended to be exhaustive; any
evaluation relating to the merits of a particular Business Combination will be
based, to the extent relevant, on the above factors as well as other
considerations deemed relevant by management in connection with effecting a
Business Combination consistent with the Company's business objective. In
connection with its evaluation of a prospective Acquired Business, management
anticipates that it will conduct an extensive due diligence review which will
encompass, among other things, meetings with incumbent management and inspection
of facilities, as well as review of financial or other information which will be
made available to the Company.
The time and costs required to select and evaluate an Acquired Business
candidate (including conducting a due diligence review) and to structure and
consummate the Business Combination (including negotiating relevant agreements
and preparing requisite documents for
4
<PAGE> 8
filing pursuant to applicable securities laws and state corporation laws) cannot
presently be ascertained with any degree of certainty. The current executive
officers of the Company, devote approximately 20% of their respective time to
the affairs of the Company and, accordingly, consummation of a Business
Combination may require a greater period of time than if the Company's executive
officers devoted their full time to the Company's affairs. Any costs incurred in
connection with the identification and evaluation of a prospective Acquired
Business with which a Business Combination is not ultimately consummated will
result in a loss to the Company and reduce the amount of capital available to
otherwise complete a Business Combination.
The Company anticipates that it will make contact with business
prospects primarily through the efforts of its officers, who will meet
personally with existing management and key personnel, visit and inspect
material facilities, assets, products and services belonging to such prospects,
and undertake such further reasonable investigation as management deems
appropriate, to the extent of its limited financial resources. The Company
anticipates that certain Acquired Business candidates may be brought to its
attention from various unaffiliated sources, including securities
broker-dealers, investment bankers, venture capitalists, bankers, other members
of the financial community, and affiliated sources. Although the Company has had
certain preliminary discussions with Acquired Business candidates regarding a
possible Business Combination, as of March 10, 1997 the Company has not entered
into any agreements, agreements in principle or understandings regarding a
Business Combination. While the Company does not presently anticipate engaging
the services of professional firms that specialize in business acquisitions on
any formal basis, the Company may engage such firms in the future, in which
event the Company may pay a finder's fee or other compensation. In no event,
however, will the Company pay a finder's fee or commission to officers or
directors of the Company or any entity with which they are affiliated for such
service.
As part of the Company's investigation of prospective enterprises,
products and services, management intends to request that current owners of a
prospective Acquired Business provide, among other things, written materials
regarding the current owner's business, product or service, available market
studies, as well as the assumptions upon which they are made, appropriate title
documentation with respect to the assets, products and services of the potential
Acquired Business, detailed written descriptions of any transactions between the
potential Acquired Business and any of its affiliates, copies of pleadings and
material litigation, if any, copies of material contracts and any and all other
information deemed relevant. Additionally, the Company may verify such
information, if possible, by interviewing competitors, certified public
accountants and other persons in a position to have independent knowledge
regarding the product or service as well as the financial condition of the
potential Acquired Business.
As a general rule, Federal and state tax laws and regulations have a
significant impact upon the structuring of business combinations. The Company
will evaluate the possible tax consequences of any prospective Business
Combination and will endeavor to structure the Business Combination so as to
achieve the most favorable tax treatment to the Company, the Acquired Business
and their respective stockholders. There can be no assurance that the IRS or
appropriate
5
<PAGE> 9
state tax authorities will ultimately assent to the Company's tax treatment of a
particular consummated Business Combination. To the extent the IRS or state tax
authorities ultimately prevail in recharacterizing the tax treatment of a
Business Combination, there may be adverse tax consequences to the Company, the
Acquired Business and their respective stockholders. Tax considerations as well
as other relevant factors will be evaluated in determining the precise structure
of a particular Business Combination, which could be effected through various
forms of a merger, consolidation or stock or asset acquisition.
The Company may utilize cash, equity, debt or a combination of these as
consideration in effecting a Business Combination. Although the Company has no
commitments as of the date hereof to issue any additional shares of Common
Stock, the Company will, in all likelihood, issue a substantial number of
additional shares in connection with a Business Combination. To the extent that
such additional shares are issued, dilution to the interest of the Company's
stockholders will occur. Additionally, if a substantial number of shares of
Common Stock are issued in connection with a Business Combination, a change in
control of the Company may occur.
If securities of the Company are issued as part of an acquisition, it
cannot be predicted whether such securities will be issued in reliance upon
exemptions from registration under applicable federal or state securities laws
or will be registered for public distribution. When registration of securities
is required, substantial cost may be incurred and time delays encountered. In
addition, the issuance of additional securities and their potential sale in any
trading market which may develop in the Company's Common Stock, of which there
is no assurance, may depress the price of the Company's Common Stock in any
market which may develop in the Company's Common Stock. Additionally, such
issuance of additional securities of the Company would result in a decrease in
the percentage ownership of the Company of stockholders who purchased Common
Stock in the Company's Offering.
The Company's operations may be limited by the Investment Company Act
of 1940. Unless the Company registers with the Securities and Exchange
Commission as an investment company, it will not, among other things, be
permitted to own or propose to acquire investment securities having a value,
exclusive of government securities and cash items, exceeding 40% of the value of
the Company's total assets on an unconsolidated basis. It is not anticipated
that the Company will have a policy restricting the type of investments it may
make. While the Company will attempt to conduct its operations so as not to
require registration under the Investment Company Act of 1940, there can be no
assurances that the Company will not be deemed to be subject to the Investment
Company Act of 1940.
There are currently no limitations relating to the Company's ability to
borrow funds to increase the amount of capital available to the Company to
effect a Business Combination or otherwise finance the operations of the
Acquired Business. The amount and nature of any borrowings by the Company will
depend on numerous considerations, including the Company's capital requirements,
the Company's perceived ability to meet debt service on such borrowings and then
prevailing conditions in the financial markets, as well as general economic
conditions.
6
<PAGE> 10
There can be no assurance that debt financing, if required or otherwise sought,
would be available on terms deemed to be commercially acceptable and in the best
interests of the Company. The inability of the Company to borrow funds for an
additional infusion of capital into an Acquired Business may have material
adverse effects on the Company's financial condition and future prospects. To
the extent that debt financing ultimately proves to be available, any borrowings
may subject the Company to various risks traditionally associated with incurring
indebtedness, including the risks of interest rate fluctuations and
insufficiency of cash flow to pay principal and interest. Furthermore, an
Acquired Business may have already incurred debt financing and, therefore, all
the risks inherent thereto.
Because of the Company's small size, there may be business constraints
on its ability to raise additional capital when needed. Until such time as any
enterprise, product or service which the Company acquires generates revenues
sufficient to cover operating costs, it is conceivable that the Company could
find itself in a situation where it needs additional funds in order to continue
its operations. This need could arise at a time when the Company is unable to
borrow funds and/or when market acceptance for the sale of additional shares of
the Company's Common Stock does not exist.
POSSIBLE LIQUIDATION AFTER 24 MONTHS IF NO BUSINESS COMBINATION. In the
event that the Company does not effect a Business Combination within 24 months
from the date of the consummation of its initial public offering of securities
(April 9, 1996), the Company will submit for stockholder consideration a
proposal to liquidate the Company. If such a proposal is approved by a majority
of the shares held by the Public Stockholders, the Company will distribute to
all Public Stockholders, in proportion to their respective equity interest in
the Company, an aggregate sum equal to the Company's Liquidation Value
calculated as of the approval date of such proposal. In no event, however, will
the Company's Liquidation Value be less than the Escrow Fund, inclusive of any
net interest income thereon. All of the officers and directors of the Company,
who own in the aggregate approximately 30.7% of the Common Stock outstanding as
of March 10, 1997 have agreed to vote their respective shares of Common Stock in
accordance with the vote of the majority of the shares held by the Public
Stockholders with respect to any such liquidation proposal. In addition, all of
the officers and directors of the Company as well as all of the stockholders of
the Company prior to the Company's initial public offering of securities
(approximately 45.7% of the Common Stock outstanding), with respect to shares
owned as of the date thereof, have agreed to waive their respective rights to
participate in any such liquidation distribution. Notwithstanding the Company's
commitment to submit a liquidation proposal to its stockholders if it is unable
to effect a Business Combination within 24 months from April 9, 1996 if the
Company enters into a definitive agreement to effectuate a Business Combination
prior to the expiration of such 24 month period but cannot secure stockholder
approval thereof, either through its inability to attain a favorable vote from
the majority of the Shares held by the Public Stockholders or by virtue of the
fact that a negative vote with respect thereto is actually cast by at least 30%
of the Shares held by the Public Stockholders or is otherwise unable to close
such Business Combination within such 24-month
7
<PAGE> 11
period (the "Extension Criteria"), then in such event, the Company will seek to
effectuate the Business Combination or an alternative Business Combination no
later than 30 months from April 9, 1996. If it is unable to do so by the
expiration of such 30-month period, it will then submit a liquidation proposal
to the Company's stockholders.
PAYMENT OF SALARIES OR CONSULTING FEES
In connection with the consummation of a Business Combination, the
Company may become obligated to pay to certain persons consulting fees and/or
salaries. No officers, directors or current stockholders shall be paid any
consulting fees or salaries for services delivered by such persons in connection
with a Business Combination. The Company shall reimburse its officers and
directors for any accountable reasonable expenses incurred in connection with
activities on behalf of the Company. The Escrow Fund (as hereinafter defined)
(including any interest earned thereon) will not be used to reimburse the
Company's officers and directors for expenses incurred in connection with
activities on behalf of the Company. No funds (including any interest earned
thereon) will be disbursed from the Escrow Fund for reimbursement of expenses.
Other than the foregoing, there is no limit on the amount of such reimbursable
expenses and there will be no review of the reasonableness of such expenses by
anyone other than the Board of Directors, all of the members of which are
officers. Subsequent to the consummation of a Business Combination, to the
extent the current officers, directors and/or stockholders of the Company
provide services to the Company, such persons may receive from the Company
consulting fees and/or salaries. The Company has no present intention to pay to
anyone any consulting fees or salaries. The Company is not aware of any plans,
proposals, understandings or arrangements with respect to the sale of any shares
of Common Stock of the Company by any current shareholders. Further, there are
no plans, proposals, understandings or arrangements with respect to the transfer
by the Company to any of the current shareholders of any funds, securities or
other assets of the Company.
COMPETITION
The Company expects to encounter intense competition from other
entities having a business objective similar to that of the Company. Many of
these entities are well-established and have extensive experience in connection
with identifying and effecting business combinations directly or through
affiliates. Many of these competitors possess greater financial, technical,
personnel and other resources than the Company and there can be no assurance
that the Company will have the ability to compete successfully. Inasmuch as the
Company may not have the ability to compete effectively with its competitors in
selecting a prospective Acquired Business, the Company may be compelled to
evaluate certain less attractive prospects. There can be no assurance that such
prospects will permit the Company to meet its stated business objective.
8
<PAGE> 12
UNCERTAINTY OF COMPETITIVE ENVIRONMENT OF ACQUIRED BUSINESS
In the event that the Company succeeds in effecting a Business
Combination, the Company will, in all likelihood, become subject to intense
competition from competitors of the Acquired Business. In particular, certain
industries which experience rapid growth frequently attract an increasingly
larger number of competitors, including competitors with increasingly greater
financial, marketing, technical and other resources than the initial competitors
in the industry. The degree of competition characterizing the industry of any
prospective Acquired Business cannot presently be ascertained. There can be no
assurance that, subsequent to a Business Combination, the Company will have the
resources to compete effectively, especially to the extent that the Acquired
Business is in a high-growth industry.
REDEMPTION RIGHTS
At the time the Company seeks stockholder approval of any potential
Business Combination, the Company will offer (the "Redemption Offer") each of
the Public Stockholders the right, for a specified period of time of not less
than 20 days, to redeem all, but not a portion of, their shares of Common Stock,
at a per share price equal to the Company's liquidation value on the record date
for determination of stockholders entitled to vote upon the proposal to approve
such Business Combination (the "Record Date") divided by the number of Shares
held by all of the Public Stockholders. The Redemption Offer will be described
in the disclosure documentation relating to the proposed Business Combination,
which such disclosure documentation may require the Company to file a
registration statement with the Commission. The Company's liquidation value will
be equal to the Company's book value, as determined by the Company and audited
by the Company's independent public accountants (the "Company's Liquidation
Value") (which amount may be less than the initial public offering price per
Share in the Offering in view of the expenses of the Offering and the
anticipated expenses which will be incurred in seeking a Business Combination),
calculated as of the Record Date. In no event, however, will the Company's
Liquidation Value be less than the Escrow Fund (as hereinafter defined),
inclusive of any net interest income thereon. If the holders of less than 30% of
the Shares held by the Public Stockholders elect to have their Shares redeemed,
the Company may, but will not be required to, proceed with such Business
Combination. If the Company elects to so proceed, it will redeem Shares, based
upon the Company's Liquidation Value, from those Public Stockholders who
affirmatively requested such redemption and who voted against the Business
Combination. IF THE HOLDERS OF 30% OR MORE OF THE SHARES HELD BY PUBLIC
STOCKHOLDERS VOTE AGAINST APPROVAL OF ANY POTENTIAL BUSINESS COMBINATION, THE
COMPANY WILL NOT PROCEED WITH SUCH BUSINESS COMBINATION AND WILL NOT REDEEM SUCH
SHARES. Unless otherwise specified by such shareholder, a vote against the
proposed Business Combination will constitute a request by such shareholder for
redemption of his Shares. Until the Company consummates a Business Combination,
Public Stockholders, whether they voted against a prior potential Business
Combination or not, will have the opportunity to redeem their Shares at a per
share price equal to the Company's Liquidation Value divided by the number of
Shares held by all the Public Stockholders at the time the Company consummates a
Business Combination; provided, however, the determination as to
9
<PAGE> 13
whether the Company proceeds with a Business Combination ultimately rests with
the Company. If the Company determines not to pursue a Business Combination,
even if the holders of less than 30% of the Shares held by Public Stockholders
vote against approval of the potential Business Combination, no Shares will be
redeemed. If a shareholder votes against a potential Business Combination and
the Company determines not to pursue such Business Combination, such vote will
not constitute the exercise of the Redemption Offer so as to permit release of
the Escrow Fund. The Escrow Fund will be released to stockholders voting against
a Business Combination only in connection with the consummation of a Business
Combination. Unless otherwise specified by such shareholder, a vote against the
proposed Business Combination will constitute a request by such shareholder for
redemption of his Shares.
EMPLOYEES
As of the date hereof, the Company's employees consist of its executive
officers, each of whom devote approximately 20% of their working time to the
affairs of the Company.
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently maintains, at no cost to the Company, its
executive offices in approximately 500 square feet of office space located at
1428 Brickell Avenue, Suite 105, Miami, Florida 33131. This office space is
leased by the Company from Ivenco, Inc., a firm which Ernest Halpryn, the father
of Glenn L. Halpryn is an officer. The Company considers this space adequate for
its current operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently a party to any material litigation, nor,
to the knowledge of management, is any such litigation presently threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this Report, no
matters were submitted to a vote of security holders of the Company, through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The principal U.S. market in which the Company's Common Stock, $.0001
par value, is traded is the over-the-counter market under the symbol "MBCA." The
Common Stock commenced trading on April 9, 1996. The following table shows the
reported low bid and high
10
<PAGE> 14
bid quotations for the Common Stock for the interim periods indicated below. The
high and low bid prices for the periods indicated are interdealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions. These quotations have been obtained from the OTC
Bulletin Board (the "Bulletin Board").
<TABLE>
<CAPTION>
Low Bid High Bid
(Per Share) (Per Share)
----------- -----------
<S> <C> <C>
April 9, 1996 - June 30, 1996 $6.00 $6.25
July 1, 1996 - September 30, 1996 $6.00 $6.25
October 1, 1996 - December 31, 1996 $6.00 $6.25
January 1, 1997 - March 10, 1997 $6.00 $8.375
</TABLE>
The approximate number of holders of record of the Company's Common
Stock, as of March 10, 1997, amounts to 40, inclusive of those brokerage firms
and/or clearing houses holding the Company's shares of Common Stock for their
clientele (with each such brokerage house and/or clearing house being considered
as one holder).
The Company has not paid or declared any dividends upon its Common
Stock since its inception and, by reason of its present financial status and its
contemplated financial requirements, does not contemplate or anticipate paying
any dividends upon its Common Stock in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company was formed in November 1995 to seek to effect a Business
Combination with an Acquired Business. In connection with its initial
capitalization, the Company issued 1,160,000 shares of its Common Stock to its
officers, directors, and other stockholders for an aggregate sum of $76,078. On
April 2, 1996, the Company's Registration Statement was declared effective by
the Commission. Pursuant to the Registration Statement, the Company, in its
initial public offering of securities, offered and sold 1,380,000 shares of
Common Stock, par value $.0001 per share, at a purchase price of $6.00 per share
(the "Offering") and received net proceeds of approximately $7,052,263 after the
payment of all expenses of the Offering (the "Net Proceeds"). In addition, the
Company issued Underwriter Options to purchase 120,000 shares of Common Stock.
The Offering was a "blank check" offering.
LIQUIDITY AND CAPITAL RESOURCES/PLAN OF OPERATION.
As of December 31, 1995 and December 31, 1996, respectively, the
Company had cash of $76,078 and $763,965, respectively, and restricted cash and
cash equivalents of $6,566,206, at December 31, 1996.
11
<PAGE> 15
As of December 31, 1995 and December 31, 1996, the Company had total liabilities
of $28,144 and $79,963, respectively, common stock subject to redemption of $0
and $7,260,022, respectively, and total shareholders' equity of $76,078 and $0,
respectively. 90% of the Net Proceeds ($7,052,300) (the "Escrow Fund") were
delivered to Fiduciary Trust International of the South, as Escrow Agent, to be
held in escrow by such firm, until the earlier of (i) written notification by
the Company of its need for all or substantially all of the Escrow Fund for the
purpose of facilitating a Business Combination; or (ii) the exercise by certain
stockholders of the Redemption Offer. As of December 31, 1996, there was
$6,566,206 in the Escrow Fund. The Escrow Fund is currently invested in United
States government-backed short-term securities. The Company believes the
Operating Funds will be sufficient for its cash requirements for the next twelve
months.
The Company's objective is to seek to effect a Business Combination
with an Acquired Business, which the Company believes has growth potential. As
of March 10, 1997, the Company has not entered into a letter of intent to
consummate a Business Combination.
The expenses required to select and evaluate an Acquired Business
candidate (including conducting a due diligence review) and to structure and
consummate a Business Combination (including the negotiation of relevant
agreements and the preparation of requisite documents for filing pursuant to
applicable securities laws and state corporation laws) cannot be presently
ascertained with any degree of certainty. For the year ended December 31, 1996,
the Company incurred $44,058 of operating expenses, which primarily consisted of
professional expenses and generated $243,743 of interest income. The Company did
not incur any operating expenses or generate any interest income for the year
ended December 31, 1995.
The Company anticipates that it will make contact with business
prospects primarily through the efforts of its officers, who will meet
personally with existing management and key personnel, visit and inspect
material facilities, assets, products and services belonging to such prospects,
obtain independent analysis for verification of information provided and
undertake such further reasonable investigation as management deems appropriate,
to the extent of its limited financial resources. The Company anticipates that
certain Acquired Business candidates may be brought to its attention from
various unaffiliated sources, including securities broker-dealers, investment
bankers, venture capitalists, bankers, other members of the financial community,
and affiliated sources, including, possibly, the Company's executive officers,
directors and their affiliates, who may present solicited or unsolicited
proposals. While the Company does not presently anticipate engaging the services
of professional firms that specialize in business acquisitions on any formal
basis, the Company may engage such firms in the future, in which event the
Company may pay a finder's fee or other compensation. In no event, however, will
the Company pay a finder's fee or commission to officers or directors of the
Company or any entity with which they are affiliated for such service.
As part of the Company's investigation of prospective enterprises,
products and services, management intends to request that current owners of a
prospective Acquired Business provide, among other things, written materials
regarding the current owner's business, product or service,
12
<PAGE> 16
available market studies, as well as the assumptions upon which they are made,
appropriate title documentation with respect to the assets, products and
services of the potential Acquired Business, detailed written descriptions of
any transactions between the potential Acquired Business and any of its
affiliates, copies of pleadings and material litigation, if any, copies of
material contracts and any and all other information deemed relevant.
Additionally, the Company may verify such information, if possible, by
interviewing competitors, certified public accountants and other persons in a
position to have independent knowledge regarding the product or service as well
as the financial condition of the potential Acquired Business.
ITEM 7. FINANCIAL STATEMENTS
The financial statements included herein, commencing at page F-1, have
been prepared in accordance with the requirements of Regulation S-B and
supplementary financial information included herein, if any, has been prepared
in accordance with Item 310(a) of Regulation S-B.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There are not and have not been any disagreements between the Company
and its accountants on any matter of accounting principles, practices or
financial statement disclosure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
A. Identification of Directors and Executive Officers.
The current directors and executive officers of the Company
are as follows:
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
Glenn L. Halpryn 36 President, Director
Craig A. Brumfield 45 Vice President, Treasurer, Director
Ronald M. Stein 36 Vice President, Secretary, Director
Stephen J. Dresnick, M.D. 46 Director
Andrew Marshak 31 Director
</TABLE>
13
<PAGE> 17
GLENN L. HALPRYN has been the President and a member of the Board of
Directors of the Company since its inception. Since 1985 Mr. Halpryn has been
engaged in real estate investment and development activities, including the
management, finance and leasing of commercial real estate. Since April 1988, Mr.
Halpryn has been Vice Chairman of Central Bank, a Florida state-chartered bank.
Since June 1987, Mr. Halpryn has been the President of and beneficial holder of
stock of United Security Corporation, a broker-dealer registered with the NASD.
From June 1992 through May 1994, Mr. Halpryn served as the Vice President,
Secretary-Treasurer of Frost Hanna Halpryn Capital Group, Inc., a "blank check"
company whose business combination was effected in May 1994 with Sterling
Healthcare Group, Inc. (the FHH-Sterling Transaction"). From June 1995 through
October 1996, Mr. Halpryn served as a member of the Board of Directors of
Sterling Healthcare Group, Inc.
CRAIG A. BRUMFIELD has been the Vice President, Treasurer and a member
of the Board of Directors of the Company since its inception. Since April 1995,
Mr. Brumfield has been President and Chief Executive Officer of Pinecrest
Capital, Inc., a private investment firm that initiates structures and
negotiates acquisitions and provides advisory and consulting services to middle
market companies in diverse industries. From October 1984 through March 1995,
Mr. Brumfield was an executive officer of Trivest, Inc. ("Trivest"), a sponsor
of middle market corporate acquisitions. Mr. Brumfield has served as a member of
the Board of Directors of three public companies; Atlantis Plastics, Inc. (May
1991 through March 1995), Loewenstein Furniture Group, Inc. (December 1990
through December 1994) and WinsLoew Furniture, Inc. (December 1994 through March
1995). Prior to joining Trivest, Mr. Brumfield was a Senior Manager with KPMG
Peat Marwick.
RONALD M. STEIN has been the Vice President, Secretary and a member of
the Board of Directors of the Company since its inception. Since October 1992,
Mr. Stein has been a vice president and account executive with First Equity
Corporation of Florida, a broker-dealer registered with the NASD. From April
1988 through October 1992, Mr. Stein was an associate vice president and
accountant executive with Prudential Securities, a broker-dealer registered with
the NASD.
STEPHEN J. DRESNICK, M.D. has been a member of the Board of Directors
of the Company since its inception. Dr. Dresnick has served as President, Chief
Executive Officer and Chairman of the Board of Directors of Sterling Healthcare
Group, Inc. and its predecessor corporations since 1987. Dr. Dresnick currently
serves as the Vice Chairman of the Board of Directors of FPA Medical Management,
Inc., the parent corporation of Sterling Healthcare Group, Inc. Dr. Dresnick is
a Diplomate of the National Board of Medical Examiners and is certified by the
American Board of Emergency Medicine. Dr. Dresnick is licensed to practice
medicine in 12 states. Dr. Dresnick currently holds an appointment as Assistant
Professor at University if Miami, School of Nursing; is on the Dean's Advisory
Committee at University of Miami, School of Business; is an Advisory Board
Member at the Center for the Advancement of Service Management, University of
Florida, College of Business Administration; is a Clinical Associate Professor
for the Department of Surgery, University of Florida, School of Medicine; and is
a member of the Board of Trustees of Florida International University.
14
<PAGE> 18
ANDREW MARSHAK has been a member of the Board of Directors of the
Company since its inception. Since June 1994, Mr. Marshak has been a Vice
President of Indosuez Capital, the North American merchant banking arm of Banque
Indosuez, a Paris-based banking institution. From July 1992 through June 1994,
Mr. Marshak was an associate with Indosuez Capital. From July 1990 through June
1992, Mr. Marshak was a Financial Analyst with Donaldson, Lufkin and Jenrette,
an investment bank.
All directors hold office until the next annual meeting of shareholders
and the election and qualification of their successors. Directors receive no
compensation for serving on the Board of Directors other than reimbursement of
reasonable expenses incurred in attending meetings. Officers are appointed by
the Board of Directors and serve at the discretion of the Board. Messrs.
Halpryn, Stein and Brumfield, the current executive officers of the Company,
intend to devote approximately 20% of their time to the affairs of the Company.
KEY MAN INSURANCE
The Company has obtained a $1,000,000 "key man" policy insuring the
life of Mr. Halpryn. There can be no assurances that such "key man" insurance
will be maintained at reasonable rates, if at all. The loss, incapacity or
unavailability of Mr. Halpryn at the present time or in the foreseeable future,
before a qualified replacement was obtained, could have a material, adverse
effect on the Company's operations. See "Risk Factors" and "Certain
Transactions."
CONFLICTS OF INTEREST
None of the Company's key personnel are required to commit their full
time to the affairs of the Company and, accordingly, such personnel may have
conflicts of interest in allocating management time among various business
activities. Messrs. Halpryn, Brumfield, Stein, Marshak and Dr. Dresnick (the
"Principal Group Persons") intend to devote approximately 20% of their time to
the affairs of the Company. Certain of these key personnel may in the future
become affiliated with entities, including other "blank check" companies,
engaged in business activities similar to those intended to be conducted by the
Company.
In the course of their other business activities, including private
investment activities, the Principal Group Persons may become aware of
investment and business opportunities which may be appropriate for presentation
to the Company as well as the other entities with which they are affiliated.
Such persons may have conflicts of interest in determining to which entity a
particular business opportunity should be presented. In general, officers and
directors of corporations incorporated under the laws of the State of Florida
are required to present certain business opportunities to such corporations.
Accordingly, as a result of multiple business affiliations, the Principal Group
Persons may have similar legal obligations relating to presenting certain
business opportunities to multiple entities. In addition, conflicts of interest
may arise in connection with evaluations of a particular business opportunity by
the Board of Directors with respect to the foregoing criteria. There can be no
assurances that any of the foregoing conflicts will be resolved
15
<PAGE> 19
in favor of the Company. See "Proposed Business --'Blank Check' Offering --
Selection of an Acquired Business and Structuring of a Business Combination."
In order to minimize potential conflicts of interest which may arise
from multiple corporate affiliations, each of the Principal Group Persons have
agreed that in the event any of the Principal Group Persons believes that a
business combination opportunity would be appropriate to be considered by an
entity other than the Company with which the Principal Group Person is
affiliated (the "Other Entity") so long as this affiliation existed prior to
November 30, 1995, then the Company will be presented with the business
combination opportunity only after the Other Entity has determined not to pursue
the business combination opportunity.
To further minimize potential conflicts of interest, the Company shall
not consider Business Combinations with entities owned or controlled by
officers, directors, greater than 10% shareholders of the Company or any person
who directly or indirectly controls, is controlled by or is under common control
with the Company. The Company may consider Business Combinations with entities
owned or controlled by persons other than those persons described above. There
can be no assurances that any of the foregoing conflicts will be resolved in
favor of the Company.
Pursuant to an agreement among each of the Principal Group Persons and
the Company, such persons will not actively negotiate for or otherwise consent
to the disposition of any portion of their Common Stock as a condition to or in
connection with a Business Combination. Further, the Company shall not borrow
funds to be used directly or indirectly to (i) purchase any shares of the
Company's Common Stock owned by management of the Company; or (ii) make payments
to the Company's promoters, management or their affiliates or associates.
Management of the Company will not (i) actively negotiate for or otherwise
consent to the disposition of any portion of their Common Stock as a condition
to or in connection with a Business Combination; or (ii) cause the Company to
borrow funds to be used directly or indirectly to purchase any shares of the
Company's Common Stock owned by management.
In connection with a Business Combination, the Company shall not cause
any securities of the Company to be sold by any officers, directors, greater
than 10% shareholders or persons who may be deemed promoters of the Company
without affording all shareholders of the Company a similar opportunity.
There are currently no plans, proposals, understandings or arrangements
with respect to the sale of additional securities of the Company to any persons
during the period commencing with the closing of this offering and the
identification by the Company of a Business Combination candidate.
The Company shall not loan any of the Company's assets nor any interest
income derived therefrom to any of the Company's officers, directors, greater
than 10% shareholders or any person who directly or indirectly controls, is
controlled by or is under common control with the Company.
16
<PAGE> 20
EXPERIENCE OF MANAGEMENT
In connection with any future stockholder vote relating to either
approval of a Business Combination or the liquidation of the Company due to the
failure of the Company to effect a Business Combination within 24 or 30 months,
as the case may be, from the date of consummation of this offering, all of the
officers and directors of the Company, who own in the aggregate approximately
30.7% of the Common Stock outstanding as March 10, 1997, agreed to vote their
respective shares of Common Stock in accordance with the vote of the majority of
the other stockholders of the Company with respect thereto to such liquidation.
In addition, all of the present stockholders have, with respect to shares owned
as of the date hereof, agreed to waive their respective rights to participate in
any distribution relating to such a liquidation.
Messrs. Brumfield and Marshak, an executive officer/director and
director, respectively, of the Company have had certain experience relating to
acquisitions of businesses. Other than with respect to Mr. Halpryn's and Dr.
Dresnick's involvement with the FHH-Sterling Transaction, the Company's officers
have no prior experience relating to the identification, evaluation and
acquisition by a blank check company of an Acquired Business. It is anticipated
that the Principal Group Persons are the only persons whose activities will be
material to the operations of the Company pending the Company's identification
and/or consummation of a Business Combination. Further, only Mr. Halpryn has
ever been an officer, director or greater than 10% shareholder in any company
which engaged in a blind pool/blank check offering of its securities.
B. Significant Employees.
None.
C. Family Relationships.
None.
D. Business Experience.
None.
E. Compliance with Section 16(a).
To the Company's knowledge, for the fiscal year ended December
31, 1996, and for the period ended March 10, 1997, no person who was a director,
officer or beneficial owner of more than ten percent of the Company's
outstanding Common Stock or any other person subject to Section 16 of the
Securities Exchange Act of 1934 (the "Exchange Act") failed to file on a timely
basis, reports required by Section 16(a) of the Exchange Act.
17
<PAGE> 21
F. OTHER: INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.
There have been no events under any bankruptcy act, no
criminal proceedings and no judgments or injunctions material to the evaluation
of the ability and integrity of any executive officer during the past five
years.
ITEM 10. EXECUTIVE COMPENSATION
No executive officer has received any cash compensation from the
Company since inception for services rendered. The Company's officers receive no
compensation, including salaries, for serving as officers other than accountable
reimbursement for any reasonable business expenses incurred in connection with
activities on behalf of the Company. There are no agreements, agreements in
principle or understandings with regard to compensation to be paid by the
Company to any officer or director of the Company. The Escrow Fund (including
any interest earned thereon) shall not be used to reimburse the Company's
officers and directors for expenses incurred by such persons on behalf of the
Company. No funds (including any interest earned thereon) will be disbursed from
the Escrow Fund for reimbursement of expenses. Other than the foregoing, there
is no limit on the amount of such reimbursable expenses, and there will be no
review of the reasonableness of such expenses by anyone other than the Board of
Directors, three of five members of which are officers. None of the Company's
executive officers or directors or their respective affiliates will receive any
consulting or finder's fees in connection with a Business Combination. Further,
none of such persons will receive any other payments or assets, tangible or
intangible, unless received by all other stockholders on a proportionate basis.
See "Use of Proceeds" and "Certain Transactions."
18
<PAGE> 22
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of the date hereof and as
adjusted to reflect the sale of the Shares offered hereby, based on information
obtained from the persons named below, with respect to the beneficial ownership
of shares of Common Stock by (i) each person known by the Company to be the
owner of more than 5% of the outstanding shares of Common Stock; (ii) each
director; and (iii) all officers and directors as a group:
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address Beneficial Approximate Percentage
of Beneficial Owner Ownership(1) of Class(2)
- ------------------- ------------ ----------------------
<S> <C> <C>
Glenn L. Halpryn (3) 330,000 13.0%
1428 Brickell Avenue
Suite 105
Miami, FL 33131
Stephen J. Dresnick, M.D.(4) 160,000 6.3%
6855 Red Road
Suite 400
Coral Gables, FL 33134
Ronald M. Stein 170,000 6.7%
1428 Brickell Avenue
Suite 105
Miami, FL 33131
Andrew H. Marshak 60,000 2.4%
1428 Brickell Avenue
Suite 105
Miami, FL 33131
Craig A. Brumfield 60,000 2.4%
1428 Brickell Avenue
Suite 105
Miami, FL 33131
All Officers and Directors 780,000 30.7%
as a Group (5 persons)
</TABLE>
- ----------
19
<PAGE> 23
(1) Unless otherwise noted, all persons named in the table have sole voting
and investment power with respect to all shares of Common Stock
beneficially owned by them. No persons named in the table are acting as
nominees for any persons or are otherwise under the control of any
person or group of persons.
(2) Assumes no exercise of the Underwriter Options.
(3) Does not include shares of Common Stock owned by Ernest Halpryn, Glenn
L. Halpryn' s father, of which Glenn L. Halpryn disclaims beneficial
ownership.
(4) Represents 160,000 shares held by Kinserd Limited Partnership ("KLP").
Dr. Dresnick is the sole limited partner of KLP and the sole
shareholder, sole director and an officer of Kinserd, Inc., the general
partner of KLP.
Messrs. Halpryn, Stein and Brumfield may be deemed to be "promoters"
and "parents" of the Company, as such terms are defined under the federal
securities laws.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the fiscal year ended December 31, 1996, there were no material
transactions between the Company and any of its officers and/or Directors which
involved $60,000 or more.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
1. Financial Statements begin on page F-1.
2. Financial Statement Schedules are not required.
3. Exhibits:
None.
(b) Reports on Form 8-K.
1. None
[This Space Intentionally Left Blank]
20
<PAGE> 24
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EMBASSY ACQUISITION CORP.
Date: March 25, 1997 By: /s/ Glenn L. Halpryn
---------------------
Glenn L. Halpryn, President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant in the capacities and on
the dates indicated.
<TABLE>
<S> <C>
Date: March 25, 1997 By: /s/ Glenn L. Halpryn
---------------------
Glenn L. Halpry , President, Director
Date: March 25, 1997 By: /s/ Craig A. Brumfield
-----------------------
Craig A. Brumfield, Vice President,
Treasurer, Principal Financial Officer
and Director
Date: March 25, 1997 By: /s/ Ronald M. Stein.
---------------------
Ronald M. Stein, Vice President,
Secretary and Director
Date: March 25, 1997 By: /s/ Andrew H. Marshak
----------------------
Andrew H. Marshak, Director
Date: March 25, 1997 By: /s/ Stephen J. Dresnick, M.D.
------------------------------
Stephen J. Dresnick, M.D., Director
</TABLE>
21
<PAGE> 25
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants ............................................. F-2
Balance Sheets as of December 31, 1995 and 1996 ............................... F-3
Statement of Operations for the Year Ended December 31, 1996 and for the Period
from November 30, 1995 (date of inception) to December 31,
1996 ..................................................................... F-4
Statements of Changes in Stockholders' Equity for the Period from November 30,
1995 (date of inception) to December 31, 1995 and for the Year Ended
December 31, 1996 ........................................................ F-5
Statements of Cash Flows for the Period from November 30, 1995 (date of
inception) to December 31, 1995, for the Year Ended December 31, 1996 and
for the Period from November 30, 1995 (date of inception) to December
31,1996 .................................................................. F-6
Notes to Financial Statements ................................................. F-7
</TABLE>
F-1
<PAGE> 26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Embassy Acquisition Corp.
We have audited the accompanying balance sheets of Embassy Acquisition Corp. (a
Florida Corporation in the development stage) as of December 31, 1996 and 1995,
and the related statements of operations, changes in stockholders' equity and
cash flows for the year ended December 31, 1996 and the related statements of
changes in stockholders' equity and cash flows for the period from November 30,
1995 (date of inception) to December 31, 1995. 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 that 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 Embassy Acquisition Corp. as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the year ended December 31, 1996 and the period from November 30, 1995 (date
of inception) to December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
Miami, Florida
March 19, 1997
F-2
<PAGE> 27
EMBASSY ACQUISITION CORP.
(A Development Stage Corporation)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 763,965 $ 76,078
Restricted cash and cash equivalents 6,566,206 --
Accrued interest receivable 1,342 --
---------- --------
Total current assets 7,331,513 76,078
---------- --------
OTHER ASSETS:
Deferred registration costs -- 28,144
Deferred tax assets 8,472 --
---------- --------
Total other assets 8,472 28,144
---------- --------
Total assets $7,339,985 $104,222
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses $ 3,487 28,144
Income taxes payable 76,476 --
---------- --------
Total liabilities 79,963 28,144
---------- --------
COMMON STOCK SUBJECT TO REDEMPTION 7,260,022 --
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value, 100,000,000 shares
authorized, 2,540,000 and 1,160,000 issued and outstanding
at December 31, 1996 and December 31, 1995, respectively -- 116
Additional paid-in-capital -- 75,962
Retained earnings accumulated during the development stage -- --
---------- --------
Total stockholders' equity -- 76,078
---------- --------
Total liabilities and stockholders' equity $7,339,985 $104,222
========== ========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 28
EMBASSY ACQUISITION CORP.
(A Development Stage Corporation)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31, 1996
and for the Period from
November 30, 1995
(date of inception)
to December 31, 1996
-----------------------
<S> <C>
OPERATING REVENUES $ --
----------
OPERATING EXPENSES:
General and administrative 44,058
----------
Total operating expenses 44,058
----------
Loss from operations (44,058)
----------
Other income:
Interest income 243,743
----------
Other income 243,743
----------
Income before income tax provision 199,685
Income tax provision 68,004
----------
Net income $ 131,681
==========
Net income per share $ 0.06
==========
Weighted average common and common stock
equivalent shares outstanding 2,164,670
==========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 29
EMBASSY ACQUISITION CORP.
(A Development Stage Corporation)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period from November 30, 1995 (date of Inception) to December 31, 1995
and For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Common Stock Additional
------------------- Paid-in Retained
Shares Amount Capital Earnings Total
------ ------ ---------- --------- -----
<S> <C> <C> <C> <C> <C>
Issuance of stock to
original stockholders 1,160,000 $116 $75,962 $ -- $ 76,078
--------- ---- ---------- -------- ----------
BALANCE, December 31, 1995 1,160,000 116 75,962 -- 76,078
Issuance of stock to Public
Stockholders in connection
with initial public offering 1,380,000 -- -- -- --
Net income -- -- -- 131,681 131,681
Amounts accruing to the
benefit of Public Stockholders -- (116) (75,962) (131,681) (207,759)
--------- ---- ---------- -------- ----------
BALANCE, December 31, 1996 2,540,000 $-- $ -- $ -- $ --
========= ==== ========== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 30
EMBASSY ACQUISITION CORP.
(A Development Stage Corporation)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period From For the Period From
November 30, 1995 November 30, 1995
For the Year Ended (date of inception) to (date of inception) to
December 31, 1996 December 31, 1995 December 31, 1996
------------------ --------------------- ---------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 131,681 $ -- $ 131,681
----------- ------- -----------
Adjustment to reconcile net income to
net cash used in operating activities:
Deferred income taxes (8,472) -- (8,472)
Net interest on restricted cash and
cash equivalents (243,743) -- (243,743)
Changes in certain assets and liabilities:
Accrued expenses 3,487 -- 3,487
Income taxes payable 76,476 -- 76,476
----------- ------- -----------
Net cash used in operating activities (40,571) -- (40,571)
----------- ------- -----------
Cash flows from investing activities:
Increase in restricted cash
and cash equivalents (6,323,805) -- (6,323,805)
----------- ------- -----------
Net cash used in investing activities (6,323,805) -- (6,323,805)
----------- ------- -----------
Cash flows from financing activities:
Net proceeds from issue of common stock 7,052,263 76,078 7,128,341
----------- ------- -----------
Net cash provided by financing activities 7,052,263 76,078 7,128,341
----------- ------- -----------
Net increase in cash and cash equivalents 687,887 76,078 763,965
Cash and cash equivalents at beginning of period 76,078 -- --
----------- ------- -----------
Cash and cash equivalents at end of period $ 763,965 $76,078 $ 763,965
=========== ======= ===========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 31
EMBASSY ACQUISITION CORP.
(A Development Stage Corporation)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION:
Embassy Acquisition Corp. (the "Company") was incorporated in the State of
Florida on November 30, 1995 for the purpose of raising capital and to seek to
effect a merger, exchange of capital stock, asset acquisition or other similar
business combination (a "Business Combination") with an operating business,
which the Company believes has significant growth potential. The Company is
currently in the development stage. On April 2, 1996, the Company's Registration
Statement (the "Registration Statement") on Form SB-2 was declared effective by
the U.S. Securities and Exchange Commission. Pursuant to the Registration
Statement the Company, in its initial public offering of securities, offered and
sold 1,380,000 shares of its common stock, $.0001 par value, at a purchase price
of $6 per share (the "Offering"). Proceeds totaled $7,052,263, which was net of
$1,227,737 in underwriting and other expenses (the "Net Proceeds").
In connection with the Offering, the Company sold to the managing underwriter
(the "Underwriter") and its designees, for total consideration of $10, stock
purchase options ("the "Underwriter Options") to purchase up to 120,000 shares
of the Company's common stock at an exercise price of $7.80 per share. The
Underwriter Options will be exercisable for a period of five years from the
effective date of the Company's Registration Statement. The Company has also
agreed to certain registration rights with respect to the shares underlying the
Underwriter Options.
The Offering can be considered a "blind pool/blank check" offering which is
characterized by an absence of substantive disclosures related to the use of the
Net Proceeds of the Offering. Consequently, although substantially all of the
Net Proceeds of the Offering are intended to be utilized to effect a Business
Combination, the Net Proceeds are not being designated for a specific Business
Combination at this time.
In accordance with the Offering, 90% of the Net Proceeds therefrom were placed
in an interest bearing escrow account (the "Escrow Fund") subject to the earlier
of (i) written notification by the Company of its need for all or substantially
all of the Escrow Fund for the purpose of implementing a Business Combination,
(ii) the exercise by certain shareholders of the Redemption Offer, as
hereinafter defined, or (iii) the expiration of no more than 30 months from the
date of the Offering.
F-7
<PAGE> 32
EMBASSY ACQUISITION CORP.
(A Development Stage Corporation)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION (CONTINUED):
Amounts in the Escrow Fund, including interest earned thereon, are prohibited
from being used for any purpose other than a Business Combination. Such amounts
are included in restricted cash at December 31, 1996.
The Company, prior to the consummation of any Business Combination, will submit
such transaction to the Company's stockholders for their approval. In the event,
however, that the holders of 30% or more of the shares sold in the Offering
which are outstanding (the "Public Stockholders") vote against approval on any
Business Combination, the Company will not consummate such Business Combination.
All of the officers and directors of the Company, who own in aggregate 30.7% of
the common stock outstanding, have agreed to vote their respective shares of
common stock in accordance with the vote of the Public Stockholders with respect
to any such Business Combination.
At the time the Company seeks stockholder approval of any potential Business
Combination, the Company will offer (the "Redemption Offer") to each of the
Public Stockholders the right, for a specified period of time of not less than
20 days, to redeem all, but not a portion of, their shares of common stock at a
per share price equal to the Company's liquidation value on the record date for
determination of stockholders entitled to vote upon the proposal to approve such
Business Combination (the "Record Date") divided by the number of shares held by
all of the Public Stockholders. The Company's liquidation value will be equal to
the Company's book value, as determined by the Company (the "Company's
Liquidation Value"), calculated as of the Record Date. In no event, however,
will the Company's Liquidation Value be less than the Escrow Fund, inclusive of
any net income thereon. If holders of less than 30% of the shares held by the
Public Stockholders elect to have their shares redeemed, the Company may, but
will not be required to, proceed with such Business Combination. If the Company
elects to so proceed, it will redeem shares, based upon the Company's
Liquidation Value, from those Public Stockholders who affirmatively requested
such redemption and who voted against the Business Combination. If the holders
of 30% or more of the shares held by the Public Stockholders vote against
approval of any potential Business Combination, the Company will not proceed
with such Business Combination and will not redeem such shares. The Escrow Fund
will be released to stockholders voting against a Business Combination only if
such proposed Business Combination is consummated.
F-8
<PAGE> 33
EMBASSY ACQUISITION CORP.
(A Development Stage Corporation)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION (CONTINUED):
As a result of its limited resources, the Company will, in all likelihood, have
the ability to effect only a single Business Combination. Accordingly, the
prospects for the Company's success will be entirely dependent upon the future
performance of a single business.
The Company has not and will not receive any revenues, other than interest
income, until, at the earliest, the consummation of a Business Combination.
Although the Company believes that the Net Proceeds will be sufficient to effect
a Business Combination, the Company has not yet identified any prospective
business candidates. Accordingly, the Company cannot ascertain with any degree
of certainty the capital requirements for any particular transaction. In the
event that the Net Proceeds prove to be insufficient for purposes of effecting a
Businesses Combination, the Company will be required to seek additional
financing. In the event no Business Combination is identified, negotiations are
incomplete or no Business Combination has been consummated, and all of the Net
Proceeds other than the Escrow Fund have been expended, the Company currently
has no plans or arrangements with respect to the possible acquisition of
additional financing which may be required to continue the operations of the
Company.
Furthermore, there is no assurance that the Company will be able to successfully
effect a Business Combination. In the event that the Company does not effect a
Business Combination within 24 months (or in certain circumstances 30 months)
from the date of the consummation of the Offering, the Company will submit to
the stockholders a proposal to liquidate the Company. If the proposal is
approved by a majority of the Public Stockholders, the Company will distribute
to the Public Stockholders, in proportion to their respective equity interest in
the Company, an aggregate sum equal to the Company's Liquidation Value.
F-9
<PAGE> 34
EMBASSY ACQUISITION CORP.
(A Development Stage Corporation)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents - Cash and cash equivalents are defined as all highly
liquid financial instruments with maturities of 90 days or less at the date of
purchase. The Company maintains its cash and cash equivalents which consist
principally of demand deposits and repurchase agreements with one financial
institution.
Restricted Cash and Cash Equivalents - Ninety percent of the Net Proceeds were
placed in the Escrow Fund. As of December 31, 1996, there was $6,566,206 in the
Escrow Fund which was invested in United States government-backed short-term
securities with maturities of 90 days or less at the date of purchase.
Common Stock Subject to Redemption - In the event that the Company does not
successfully effect a Business Combination within 24 months (or in certain
circumstances 30 months) from the date of consummation of the Offering, the
Company will submit a proposal to liquidate the Company. If such proposal is
approved, the Company will distribute the Company's Liquidation Value to the
Public Stockholders. Since the Company may be required to refund all available
equity to the Public Stockholders, such amounts have been classified in the
accompanying balance sheet as common stock subject to redemption. Periodic
changes in the Liquidation Value are reflected as adjustments to stockholders'
equity.
Fair Value of Financial Instruments - The carrying amount of cash and cash
equivalents, restricted cash and cash equivalents and accrued expenses
approximate fair value due to the short maturities of these items.
Use of 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 income and expenses during the reporting
period. Actual results could differ from those estimates.
Net Income Per Share - Net income per share is calculated by dividing net income
by the weighted average number of common and common equivalent shares
outstanding during the period. Common stock subject to redemption is treated as
common shares for purposes of calculating net income per share. Common
equivalent shares consist of the Underwriter Options which are not considered
in the calculation of net income per share since the impact of such is
antidilutive.
Recent Accounting Pronouncements - In February 1997, Statement of Financial
F-10
<PAGE> 35
EMBASSY ACQUISITION CORP.
(A Development Stage Corporation)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" was issued. SFAS No.
128 establishes new standards for computing and presenting earnings per share
("EPS"). This statement replaces the presentation of primary EPS and will
require a dual presentation of basic and diluted EPS. SFAS No. 128 is effective
for financial statements issued for periods ended after December 15, 1997 and
requires restatement of all prior-period EPS data presented. The Company has not
yet determined the impact, if any, the adoption of SFAS No. 128 will have on the
Company's financial statements.
(3) COMMON STOCK:
The Company's Articles of Incorporation authorize the issuance of 100,000,000
shares of common stock. The Company's Board of Directors has the power to issue
any or all of the authorized but unissued common stock without stockholder
approval. The Company currently has no commitments to issue any shares of common
stock; however, the Company will, in all likelihood, issue a substantial number
of additional shares in connection with a Business Combination. To the extent
that additional shares of common stock are issued, dilution of the interests of
the Public Stockholders may occur.
(4) RELATED PARTIES:
None of the Net Proceeds have been nor will be used to pay any compensation to
the Company's officers or directors. In addition, no funds, including interest
earned thereon, have been nor will be disbursed from the Escrow Fund for the
reimbursement of expenses incurred on the Company's behalf by the Company's
officers and directors.
Currently, the officers and directors and the other non-public stockholders own
30.7% and 15.0%, respectively, of the issued and outstanding shares of the
Company's common stock.
F-11
<PAGE> 36
EMBASSY ACQUISITION CORP.
(A Development Stage Corporation)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(5) INCOME TAXES:
The Company is a C Corporation under the provisions of the Internal Revenue Code
and related state income tax statutes.
The components of the provision for income taxes for the year ended December 31,
1996 are as follows:
<TABLE>
<S> <C>
Current Provision:
Federal $64,507
State 11,969
-------
76,476
-------
Deferred Provision:
Federal (7,616)
State (856)
-------
(8,472)
-------
Total $68,004
=======
</TABLE>
The following reconciles at the federal statutory rate with the effective rate
for the year ended December 31, 1996:
<TABLE>
<S> <C>
Federal statutory rate 34.0%
State taxes, net of federal effect 3.7
Benefit of graduated tax rates (3.6)
----
Effective tax rate 34.1%
====
</TABLE>
At December 31, 1996, the Company had a deferred tax asset relating to
amortization of organizational and start-up costs.
F-12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 763,965
<SECURITIES> 6,566,206
<RECEIVABLES> 1,342
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,331,513
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,339,985
<CURRENT-LIABILITIES> 79,963
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,339,985
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 44,058
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 199,685
<INCOME-TAX> 68,004
<INCOME-CONTINUING> 131,681
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 131,681
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
