SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A2
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
October 10, 1997
----------------------------------
Date of Report
(Date of Earliest Event Reported)
PharmaSystems Holdings Corp.
-----------------------------------------------------
(Exact Name of Registrant as Specified in its
Charter)
Colorado 0-21851 84-1189040
- ---------------------- -------------------- -----------------------
(State or other (Commission File No.) (IRS Employer I.D. No.)
Jurisdiction of
Incorporation)
7350 N.W. 7th Street, Suite 104
Miami, Florida 33126
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(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (305) 267-9500
Euro-Tel, Inc.
2851 South Parker Road, Suite 720
Aurora, Colorado 80014
--------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
PharmaSystems Holdings Corp. (the "Registrant") files this amendment to
its Form 8-K/A (which was previously filed with the Securities and Exchange
Commission (the "Commission") on July 14, 1997) to reflect the revision of
certain audited and unaudited financial statements of PharmaSystems Cost
Containment Corp. ("PCCC"), a predecessor of the Registrant, as well as certain
pro forma financial information. Included in this amendment are PCCC's revised
financial statements as of December 31, 1996 and 1995, for the year ended
December 31, 1996 and for the nine months ended December 31, 1995, as well as
unaudited financial statements as of and for the three months ended March 31,
1997 and revised pro forma financial information. Readers of this amendment
should also refer to the Registrant's Current Report on Form 8-K which was filed
with the Commission on September 12, 1997 (the "September 12th 8-K").
Item 1. Changes in Control of Registrant.
A change in control of the registrant occurred on June 20, 1997 pursuant to
the terms and conditions of that certain Agreement and Plan of Reorganization
(the "Merger Agreement") dated June 20, 1997 by and among Euro-Tel, Inc., a
Colorado corporation ("Euro-Tel"), PharmaSystems Cost Containment Corp., a
Florida corporation ("PharmaSystems"), Andrew I. Telsey and Darlene D. Kell
which provided for the merger (the "Merger") of PharmaSystems with and into
Euro-Tel, as the surviving entity, pursuant to a tax-free reorganization in
accordance with Sections 354 and 368 of the Internal Revenue Code of 1986, as
amended. Pursuant to the Merger Agreement, Euro-Tel acquired one hundred percent
(100%) of the issued and outstanding common stock of PharmaSystems in
consideration for the issuance of 18,000,000 newly issued shares of Euro-Tel
common stock which were issued to the PharmaSystems shareholders on a pro rata
basis in accordance with their respective ownership interests in PharmaSystems.
As a result of the Merger, the PharmaSystems' shareholders, who own ninety (90%)
of the issued and outstanding common stock of Euro-Tel, assumed control of the
registrant from Andrew I. Telsey, with Jose L. Rodriguez, M.D. controlling,
either directly or indirectly, approximately forty-six percent (46%) of the
issued and outstanding common stock of the registrant. Upon completion of the
Merger, Euro-Tel assumed the Business (as defined herein) of PharmaSystems.
The foregoing is merely a summary of the Merger Agreement and the
transactions contemplated therein and does not purport to be a complete
statement of the terms, conditions and provisions thereof.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits.
As described in the Registrant's September 12th 8-K, certain information
came to the Registrant's attention which indicated that revisions to previously
filed financial statements of the Registrant and a predecessor entity, PCCC,
would be required. The Registrant diligently investigated this situation and is
taking all possible steps to ensure that all necessary revisions to any
financial statements and any corresponding amendments to public securities
filings are made as soon as possible. In connection with this situation the
Registrant's outside auditors withdrew their audit report which had been issued
in connection with PCCC's financial statements as of December 31, 1996 and 1995,
for the year ended December 31, 1996 and for the nine months ended December 31,
1995, pending resolution of these issues.
The Registrant's outside auditors have completed a review of this
situation and have reissued their audit report for PCCC's financial statements
as of December 31, 1996 and 1995, for the year ended December 31, 1996 and for
the nine months ended December 31, 1995. Revised financial statements are
presented in Section 7(a), and revised pro forma financial information is
presented in Section 7(b).
(a) Financial Statements.
<PAGE>
PharmaSystems Cost
Containment Corp.
Financial Statements
Years ended December 31, 1996 and 1995
See accompanying notes to consolidated financial statements.
<PAGE>
Independent Auditors' Report
PharmaSystems Cost Containment Corp.
Miami, Florida
We have audited the accompanying consolidated balance sheets of PharmaSystems
Cost Containment Corp., as of December 31, 1996 and 1995 and the related
consolidated statements of operations, capital deficit and cash flows for the
year ended December 31, 1996 and for the nine months ended 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PharmaSystems Cost
Containment Corp., at December 31, 1996 and 1995 and the results of its
operations and its cash flows for the year ended December 31, 1996 and for the
nine months ended December 31, 1995 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 10 to
the financial statements, the Company has a net capital deficiency and has
incurred losses from operations that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 10. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As discussed in Note 13 to the consolidated financial statements, the 1996 and
1995 financial statements have been revised to properly reflect an obligation to
a stockholder, which had been previously unrecorded.
Miami, Florida BDO Seidman, LLP
April 29, 1997, except for Note 13, /s/ BDO Seidman, LLP
which is as of September 30, 1997
<PAGE>
<TABLE>
<CAPTION>
PharmaSystems Cost Containment Corp.
Consolidated Balance Sheets
===============================================================================================
March 31, 1997 December 31, December 31,
(unaudited) 1996 1995
<S> <C> <C> <C>
Assets (Note 13 (b))
Current
Cash $244,912 $295,910 $246,085
Accounts receivable, less allowance for
doubtful accounts of $8,000, $8,000
and $11,000 (Notes 4 and 10) 224,203 197,172 351,482
Due from affiliates (Note 8) - 39,328 104,392
Inventory (Notes 4, 5 and 10) 584,821 599,868 607,417
Prepaid expenses and other current assets 29,021 51,236 151,682
- -----------------------------------------------------------------------------------------------
Total current assets 1,082,957 1,183,514 1,461,058
Property and equipment,
net (Notes 3, 4 and 10) 201,147 211,336 99,583
Loan fees, less $9,655, $8,046 and $1,609
accumulated amortization 3,220 4,829 11,266
Intangible assets, less $17,664 and $3,532
accumulated amortization (Note 2) 190,777 194,309 208,441
Non-compete agreements, less $62,500 and
$12,500 accumulated amortization (Note 2) 75,000 87,500 137,500
Other assets 10,902 10,499 5,499
- -----------------------------------------------------------------------------------------------
Total Assets $1,564,003 $1,691,987 $1,923,347
===============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PharmaSystems Cost Containment Corp.
Consolidated Balance Sheets
===============================================================================================
March 31,1997 December 31, December 31,
(unaudited) 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Liabilities and Stockholders' Equity
Current
Bank note payable (Note 4) $ 300,000 $ 100,000 $ -
Accounts payable 1,235,465 1,377,717 708,179
Accrued expenses and other 340,959 245,844 302,499
Due to affiliate (Note 8) 159,872 198,199 169,751
Current maturities of notes payable
(Note 5) 601,813 553,179 860,632
Subordinated stockholder loan
(non-interest bearing) 47,641 57,641 40,000
Due to stockholder (Note 13) 491,748 433,859 216,193
- -----------------------------------------------------------------------------------------------
Total current liabilities 3,177,498 2,966,439 2,297,254
Notes payable, less current maturities
(Note 5) - - 220,000
Due to Stockholder (Note 13) 45,752 103,641 321,307
- -----------------------------------------------------------------------------------------------
Total liabilities 3,223,250 3,070,080 2,838,561
- -----------------------------------------------------------------------------------------------
Commitments and contingencies
(Notes 7, 10 and 13)
Capital deficit (Note 6)
Common Stock, $.001 par value -
5,000,000 shares authorized,
2,166,416, 1,960,202 and 1,527,469
issued and outstanding 2,166 1,960 1,527
Additional paid-in capital 2,031,680 1,596,386 (132,627)
Deficit (3,693,093) (2,976,439) (784,114)
- -----------------------------------------------------------------------------------------------
Total capital deficit (1,659,247) (1,378,093) (915,214)
- -----------------------------------------------------------------------------------------------
Total Liabilities and Capital Deficit $1,564,003 $1,691,987 $1,923,347
===============================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PharmaSystems Holdings Corp.
Consolidated Statements of Operations
(Unaudited)
===============================================================================================
Three Three months
months ended
ended March March 31, Nine months
31, 1997 1996 Year ended ended
(Unaudited) (Unaudited) December 31, December 31,
1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues (Note 11) $1,179,487 $1,547,451 $6,441,489 $1,482,301
- -----------------------------------------------------------------------------------------------
Cost of sales (Note 11) 858,741 1,085,004 4,066,720 1,087,175
- -----------------------------------------------------------------------------------------------
Gross profit 320,746 462,447 2,374,769 395,126
- -----------------------------------------------------------------------------------------------
Operating expenses
Selling, general and
administrative 884,680 969,959 4,129,798 1,077,232
Interest 122,487 218,451 334,278 75,677
Depreciation 30,233 21,420 118,354 27,100
- -----------------------------------------------------------------------------------------------
Total operating expenses 1,037,400 1,209,830 4,582,430 1,180,009
- -----------------------------------------------------------------------------------------------
Other income - - 15,336 769
- -----------------------------------------------------------------------------------------------
Net loss $(716,654) $(747,383) $(2,192,325) $(784,114)
===============================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PharmaSystems Cost Containment Corp.
Consolidated Statements of Capital Deficit
(Note 6)
===============================================================================================
- -----------------------------------------------------------------------------------------------
Additional
Common Stock Paid-in
Shares Amount Capital Deficit Total
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, April 21, 1995 - $ - $ - $ - $ -
Shares issued to founding 1,229,197 1,229 (1,229) - -
shareholders
Acquisition of rights & technology
(Note 13) 84,938 85 (537,585) - (537,500)
Sale of common stock in connection
with an initial private
placement, net of offering 171,667 171 289,041 - 289,212
costs of $19,313
Sale of common stock in connection
with a private placement, net
of offering costs of $7,812 41,667 42 117,146 - 117,188
Net loss - - - (784,114) (784,114)
- -----------------------------------------------------------------------------------------------
Balance, December 31, 1995 1,527,469 1,527 (132,627) (784,114) (915,214)
Sale of common stock in connection
with a private placement 16,667 17 29,983 - 30,000
Sale of common stock in connection
with a private placement 33,333 33 99,967 - 100,000
Sale of common stock in connection
with private placements, net
of offering costs of $200,244 382,733 383 1,618,273 - 1,618,656
Net loss - - - (2,192,325) (2,192,325)
Dividends - - (19,210) - (19,210)
- -----------------------------------------------------------------------------------------------
Balance, December 31, 1996 1,960,202 $ 1,960 $1,596,386 $(2,976,439) $(1,378,093)
Sale of common stock in connection
with a private placement, net
of offering costs of $72,500
(unaudited) 136,500 137 252,363 - 252,500
Private sale of common stock
(unaudited) 69,714 69 182,931 - 183,000
Net loss (unaudited) - - - (716,654) (716,654)
- -----------------------------------------------------------------------------------------------
Balance, March 31, 1997 (unaudited) $2,166,416 $ 2,166 $2,031,680 $(3,693,093) $(1,659,247)
===============================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PharmaSystems Cost Containment Corp.
Condensed Consolidated Statements of Cash Flows
(Note 10)
==============================================================================================
Three months Three months
ended ended Nine months
March 31, March 31, Year ended ended
1997 1996 December 31 December
(Unaudited) (Unaudited) 1996 31,
1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating activities:
Net loss $(716,654) $(747,383) $(2,192,325) $(784,114)
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Depreciation and amortization 30,233 21,420 118,354 27,100
Provision for doubtful accounts - - (3,012) 11,000
Amortization of original issue 38,567 38,567 169,692 38,567
discount
Changes in operating assets and
liabilities net of effects from
purchase of Lee's Prescription
Shop, Inc.:
Decrease (increase) in:
Accounts receivable (27,031) (155,797) 157,323 (210,052)
Due from affiliates 39,328 104,397 65,064 (104,392)
Inventories 15,047 30,413 7,549 14,351
Prepaid expenses and other 21,812 125,520 95,446 (79,941)
assets
Increase (decrease):
Accounts payable (142,252) (270,627) 669,538 654,178
Accrued expenses and other 95,115 (222,971) (56,655) 302,499
Due to affiliates (38,327) (169,751) 28,448 169,751
- -----------------------------------------------------------------------------------------------
Net cash (used in) provided by
operating activities (684,162) (1,246,212) (940,578) 38,947
- -----------------------------------------------------------------------------------------------
Investing activities:
Purchases of property and equipment (2,403) (159,539) (78,241)
net of cash acquired - (235,402)
- -----------------------------------------------------------------------------------------------
Net cash (used in) investing activities (2,403) (159,539) (313,643)
- -----------------------------------------------------------------------------------------------
Financing Activities:
Net borrowings under bank note 200,000 100,000 100,000 -
payable
Proceeds from issuance of notes 10,067 - 20,000 206,475
payable
Repayments of notes payable (409,032) (717,145) (119,219)
Payment of loan costs - - (12,875)
Proceeds from subordinated - 111,569 40,000
shareholder loan
Repayments of subordinated (10,000) - (93,928) -
shareholder loan
Net proceeds from issuance of common 435,500 1,283,196 1,748,656 406,400
stock
Dividends paid - (19,210) -
- -----------------------------------------------------------------------------------------------
Net cash provided by financing 635,567 974,164 1,149,942 520,781
activities
- -----------------------------------------------------------------------------------------------
Net (decrease) increase in cash (50,998) (272,048) 49,825 246,085
Cash at beginning of year 295,910 246,085 246,085 -
- -----------------------------------------------------------------------------------------------
Cash at end of year $244,912 $(25,963) $295,910 $246,085
===============================================================================================
Supplemental Disclosures:
Cash paid for interest $70,667 $25,090 $100,316 $14,641
Shares issued to founding - - - 1,314
shareholders
Conversion of trade payables to a
note payable to vendor - - - 195,999
Issuance of note payable (Note 13) - - - 537,500
===============================================================================================
</TABLE>
See accompanying notes tso consolidated financial statements.
<PAGE>
1. Summary of PharmaSystems Cost Containment Corp. (the "Company" or
Accounting "PCCC") was incorporated on April 21, 1995 in the state
Policies of Florida. The Company derives its revenue from the sale
of pharmaceutical products to both retail customers and
members of health plans with which the Company has
contracted and, through December 1996, from the sale of
pharmaceuticals by its mail order business. The Company's
subsidiary, Lee's Prescription Shop, Inc. ("Lee's"), owns
and operates three licensed community pharmacies. Most of
the Company's business activities are conducted with
customers located in the state of Florida.
The consolidated financial statements include the
accounts of the Company and all of its wholly-owned
subsidiaries. All intercompany transactions and accounts
have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments with
an original maturity of three months or less to be cash
equivalents.
Property and Equipment
Property and equipment is carried at cost and is
depreciated using the straight-line method over the
estimated useful lives of the various assets, ranging
from five to seven years. Leasehold improvements are
amortized on the straight-line basis over the shorter of
the useful life of the asset or the term of the lease for
financial statement purposes.
Offering Costs
Costs incurred in connection with the Company's efforts
to obtain additional financing through a private
placement of equity securities are deferred and offset
against the proceeds in capital deficit or charged to
operations if the placement is unsuccessful.
Fair Value of Financial Instruments
The Company's financial instruments consist principally
of cash, accounts receivable, accounts payable, accrued
expenses and notes payable except for notes payable to
stockholders for which fair value is not readily
determinable. The carrying amounts of such financial
instruments as reflected in the consolidated balance
sheets approximate their estimated fair value as of
December 31, 1996 and 1995, respectively. The estimated
fair value is not necessarily indicative of the amounts
the Company could realize in a current market exchange or
of future earnings or cash flows.
<PAGE>
Inventory
Inventory consists principally of retail pharmaceutical
and related products. Inventory is valued at the lower of
first-in first-out cost or market.
Loan Fees
Loan fees are amortized over the term of the notes
payable to stockholders, two years.
Intangible Assets
Intangible assets represent the excess of the cost of a
purchased business over the fair value of the net assets
acquired. Amortization is computed using the
straight-line basis over a 15 year period. The Company
reviews the carrying values of its identifiable
intangible assets for possible impairment whenever events
or charges in circumstances indicate that the carrying
amounts of the assets may not be recoverable. Subsequent
to December 31, 1996, the Company implemented certain
cost reduction measures, and as a result the expected
future undiscounted cash flows are anticipated to exceed
the carrying value of the assets and therefore no
adjustment has been made to the carrying amounts.
Non-Compete Agreements
The non-compete agreement is amortized on a straight-line
basis over a period of three years.
Use of Estimates
The preparation of the financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Taxes on Income
Income taxes are accounted for using the liability
approach under the provisions of Financial Accounting
Standards No. 109.
Unaudited Financial Statements
The interim financial statements as of March 31, 1997 and
for the three months ended March 31, 1997 and 1996 are
unaudited. In the opinion of management, such statements
reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation
of the financial position, results of operations and
changes in cash flows. The results of operations for the
three months ended March 31, 1997 and 1996 are not
necessarily indicative of the results for the entire
year. (See Note 13).
<PAGE>
2. Acquisition On October 2, 1995, the Company acquired, in a purchase
transaction, all of the outstanding shares of common
stock of Lee's for $1,008,810. The purchase price
comprised cash of $250,000, secured notes payable
aggregating $538,810, and unsecured notes payable
aggregating $220,000. In connection with the acquisition,
the Company obtained covenants not to compete from the
former owners of Lee's for a period of three years.
The accompanying balance sheet reflects an allocation of
approximately $362,000 over the carrying amount of net
assets acquired, based on management's estimates of their
fair values at the date of acquisition. The $362,000 was
allocated $150,000 to the agreements not to compete and
$212,000 to goodwill, which are being amortized over 3
and 15 years, respectively. The accompanying statements
of operations and deficit include the results of Lee's
from its date of acquisition.
The following unaudited pro forma summary presents the
consolidated results of operations as if the acquisition
had occurred at the beginning of the period presented and
does not purport to be indicative of what would have
occurred had the acquisition been made as of that date or
of results that may occur in the future. The pro forma
amounts give effect to appropriate adjustments for the
fair value of the net assets acquired, amortization of
the excess of the cost over the net assets acquired and
interest expense.
1995
---------------------------------------------------------
Net sales $3,733,256
Net (loss) (810,000)
---------------------------------------------------------
<PAGE>
3. Property and Property and equipment, at cost, consists of the
Equipment following:
1996 1995
---------------------------------------------------------
Furniture and fixtures $ 98,144 $ 3,494
Computer equipment 63,841 12,363
Office equipment 47,502 47,503
Automobiles 30,673 30,673
Leasehold improvements 28,420 15,008
---------------------------------------------------
268,580 109,041
Less accumulated
depreciation and amortization 57,244 9,458
---------------------------------------------------------
$ 211,336 $ 99,583
---------------------------------------------------------
4. Bank Note At December 31, 1996, the Company had a $100,000 line of
Payable credit with a bank. On March 25, 1997, the Company
increased its line of credit to $300,000 under the same
terms and conditions. Borrowings under the line bear
interest at the bank's prime interest plus 2% (10% at
December 31, 1996) and are secured by accounts
receivable, inventory and property and equipment. The
line of credit is guaranteed by the Company's president.
5. Notes Payable Notes payable (see note 13) consists of the following:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Unsecured notes payable to
stockholders interest at 9.75% net of
original issue discount of $130,206
and $269,958, respectively (Note 6) $ 333,179 $ 245,042
Notes payable to former
owners of Lee's, interest at 7%,
principal and interest payable
monthly, collateralized by inventory, - 451,600
matured October 3, 1996
Unsecured notes payable to
former owners of Lee's, interest at
7%, principal and interest due July 220,000 220,000
31, 1997
Note payable to a vendor,
interest at 9.75%, principal and
interest payable monthly, matured - 163,990
May, 1996
- ----------------------------------------------------------------------------------------------
553,179 1,080,632
Less current portion 553,179 860,632
- ----------------------------------------------------------------------------------------------
$ - 220,000
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
6. Capital a) During 1995, the Company issued 1,229,197 shares
Deficit of common stock to its founding shareholders at
no cost.
b) During 1995, in connection with an initial
private placement, the Company received proceeds
of $515,000 in exchange for $515,000 notes
payable bearing interest at 9.75% per annum, with
a $308,525 original issue discount, and 171,667
shares of common stock valued (based on the then
fair market value) at $308,525. Costs associated
with the offering were $19,313. Interest on the
notes is payable monthly and the unpaid principal
is due upon the successful completion of an
initial public offering.
c) During December 1995, in connection with a
secondary private placement, the Company issued
41,667 shares of common stock for cash of
$117,188 net of offering costs of $7,812. The
terms of the private placement required the
Company to pay 9.75% per annum on the outstanding
investment balances. Accordingly, these payments
were accounted for as a dividend paid on the
common stock during 1996 (Note 6(g)). No
dividends were paid nor accrued in 1995. The
dividend payments also terminate upon the Company
successfully, completing an initial public
offering.
d) During 1996, under the same terms as those of the
initial private placement discussed in Note 6(b),
the Company received cash of $50,000 in exchange
for a $50,000 note payable, with a $30,000
original issue discount, and 16,667 shares of
common stock valued at $30,000.
e) During 1996, the Company issued 33,333 shares of
common stock under the same terms as those of the
private placement discussed in Note 6(c) for cash
of $100,000.
f) During 1996, in connection with two private
placements, the Company issued 382,733 shares of
common stock for cash of $1,618,656 net of
offering costs $200,244.
g) During 1996, the Company paid dividends on the
common stock as described in Notes 6(c) and 6(e)
of $19,210, which represents 9.75% of the
investment.
<PAGE>
h) On December 26, 1996, the Company executed a one
for two reverse stock split. The components of
capital deficit in the accompanying financial
statements and notes have been adjusted
retroactively to reflect the stock split.
7. Commitments The Company leases office and retail sales locations
under various operating leases expiring at various dates
through 2000. Approximate minimum annual rental
commitments under non-cancelable leases for succeeding
fiscal years are as follows:
December 31,
----------------------------------------------------
1997 $ 148,000
1998 120,000
1999 68,000
2000 34,000
----------------------------------------------------
Total minimum lease payments $ 370,000
----------------------------------------------------
Rental expense for 1996 and 1995 aggregated $188,606 and
$49,202, respectively.
8. Related Party Due from affiliates in 1996 represents amounts advanced
Transactions to a company owned by the President of the Company. In
1995 the amounts due from affiliates consist of two
advances, one of which is to another company owned by the
President of the Company and the second advance is to a
company that was owned by the founding shareholders; this
advance was collected in 1996.
Due to affiliate consists of amounts advanced from
another company owned by the President of the Company. In
addition, the subordinated stockholder loan is payable to
the Company's president, is non-interest bearing and due
upon demand.
During 1996, remuneration relating to the Company's
private placements of equity and debt securities since
inception aggregating $100,000 was paid to the Company's
President.
9. Income Taxes At December 31, 1996 the Company has approximately
$2,700,000 of net operating loss carryforwards expiring
through 2011, for income tax purposes. Changes in
ownership of greater than 50% which may occur as a result
of the Company's private placements may result in a
substantial annual limitation being imposed upon the
future utilization of the net operating losses for tax
purposes. The amount of such limitation has not yet been
determined.
<PAGE>
Realization of any portion of the approximate $1,000,000
deferred tax asset at December 31, 1996, resulting mainly
from the available net operating loss carryforward, is
not considered more likely than not and accordingly, a
valuation allowance has been recorded for the full amount
of such asset.
10. Liquidity The Company has a net capital deficiency and has incurred
significant continuing operating losses in 1996 and 1995.
At December 31, 1996, current liabilities exceeded
current assets by approximately $1,783,000. The Company
attributes the majority of its operating losses to the
continued development of new markets and its mail order
business.
The Company's business plan provides for, among other
things, (i) seeking a revolving line of credit up to $4
million, with a blanket security interest on accounts
receivable, inventory and equipment, payable one year
from receipt with interest at 2% over the New York prime
lending rate, payable monthly, plus 4 million options
which will be granted to the lender, with an exercise
price of the current fair market value, (ii) generating
increases in revenues from its retail stores and from
other managed care providers, (iii) seeking alternative
sources of distribution of pharmaceutical products and
vitamins, (iv) reduction of certain expenses, (v)
entering into a transaction that will enable the Company
to go public and raise funds through public offerings and
(vi) seeking alternative sources of financing.
The Company believes that it will be successful in
closing the transactions described above and that the
operational plans referred to above should provide
sufficient cash flow to meet its obligations. However,
the Company's continued existence as a going concern is
dependent upon obtaining adequate levels of additional
financing and its ability to generate cash flow from
operations to meet its obligations.
There can be no assurances that the Company will achieve
a successful level of operations or that additional
financing will be obtained. Should the Company be unable
to obtain additional financing or be unable to achieve
sufficient operating cash flows, the Company may be
unable to continue all or a portion of its operations.
11. Major Vendor Substantially all of the Company's purchases of
and Customer inventories are from one vendor. It is management's
opinion that alternative sources of inventories are
available to the Company on similar terms as currently
obtained by the Company. In 1996 and 1995 sales pursuant
to a contract aggregated 20% and 13%, respectively, of
total sales.
<PAGE>
12. Subsequent During the first quarter of 1997, the Company issued
Events 136,500 shares of common stock in connection with a
private placement for cash of $252,500 net of offering
costs of $72,500, and 69,714 shares of common stock to
individual investors for cash of $183,000. Through April
29, 1997, the Company issued an additional 152,705 shares
of common stock to individual investors for cash of
$320,000.
Stock Redemption
Pursuant to a Stock Redemption Agreement dated June 7,
1997 (the "Stock Redemption Agreement"), the Company
agreed to purchase for $1,475,330 a portion of the
outstanding shares of its common stock held by PSI
Holdings, Inc. ("PSI") and Dr. Orlando Lopez-Fernandez
("Dr. Lopez-Fernandez"). Pursuant to the Stock Redemption
Agreement the Company is obligated to allocate and pay
21.5% of any capital contribution received by the Company
to PSI and 3.5% of any capital contribution received by
the Company to Dr. Lopez-Fernandez until the outstanding
obligations due to these shareholders are paid in full.
If the Company does not receive a capital contribution of
at least $3,000,000 within 180 days of June 7, 1997, and
make the associated payments to these shareholders, the
Company will be in default under the terms of the Stock
Redemption Agreement. No assurance can be given that the
Company will be successful in obtaining a capital
contribution of at least $3,000,000 before this default
date or at all. Additionally, applicable state corporate
law may prevent the Company from making any payments to
these shareholders until certain financial criteria are
satisfied even if capital contributions are obtained.
There can be no assurance that such financial criteria
will be satisfied prior to the default date under the
Stock Redemption Agreement.
In this connection, the Company has signed two promissory
notes aggregating $1,450,330 which bear interest at 10% a
year and are due with accrued interest on June 8, 1998.
In addition, the Company is contemplating the purchase of
the remainder of its shares of common stock held by PSI
and Dr. Lopez-Fernandez during the fourth quarter of
1997.
Stock Purchase Agreement
On June 17, 1997, the Company entered into a stock
purchase agreement with shareholders of Advanced
Respiratory Care, Inc. ("Advanced") which is owned by the
President and certain shareholders. The agreement
provides for, among other things, the purchase of 100% of
<PAGE>
the issued and outstanding shares of Advanced in exchange
for 936,330 shares of the Company. The Company's shares
are to be placed in escrow and are to be released in
accordance with the terms of the stock purchase
agreement. The Company is required to release the lesser
of the 250,000 escrowed shares or any remaining escrowed
shares after the end of each three month period following
the closing date (June 1997) during which Advanced fully
satisfies the performance parameters as prescribed by the
Company's board of directors. These parameters have not
yet been defined by the board.
A change in control of the Company occurred on June 28,
1997, pursuant to the terms and conditions of an
Agreement and Plan of Reorganization (the "Merger
Agreement") between Euro-Tel, Inc. ("Euro-Tel") and the
Company which provided for the merger (the "Merger") of
the Company with and into Euro-Tel, as the surviving
entity. Pursuant to the Merger Agreement, Euro-Tel
acquired 100% of the Company's issued and outstanding
common stock in consideration for the issuance of
18,000,000 newly issued shares of Euro-Tel common stock
which were issued to the Company shareholders on a
pro-rata basis to their respective ownership interest in
the Company.
In connection with these transactions, Euro-Tel changed
its corporate name to "PharmaSystems Holding Corp."
13. Revised (a) The Company has revised its 1997, 1996 and 1995
Financial financial statements because in August 1997 it
Statements determined that it had failed to reflect an
obligation to a stockholder that existed since 1995.
As a result of an investigation, the Company
determined that in 1995, PCCC acquired from a company
owned by a stockholder, who is the brother-in-law of
the President of PCCC, certain rights and technology
(with zero basis) pertaining to the drug distribution
business by issuing a $3.5 million promissory note.
In July 1996, the note was voided, ab initio (as if
it never existed) and replaced with (i) a $537,500
obligation to this stockholder, bearing interest at
10% per annum (ii) the issuance of 84,938 shares of
PCCC stock (valued at par) to this stockholder and
(iii) a $1 million obligation bearing interest at 10%
per annum to this stockholder from an affiliate owned
by the president of PCCC.
Since the original 1995 transaction was voided in
1996, the Company has retroactively recorded the
$537,500 obligation to this stockholder by charging
additional paid-in capital in the 1995 financial
statements. The effect of the restatement on the
Consolidated Statements of Operations is as follows:
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
Interest Interest
Expense Net Loss Expense Net Loss
<S> <C> <C> <C> <C>
As previously reported $280,528 $2,138,575 $61,982 $770,419
As restated $334,278 $2,192,325 $75,677 $784,114
-------------- -------------- -------------- --------------
March 31, 1997 March 31, 1996
----------------- -----------------
Interest Interest
Expense Net Loss Expense Net Loss
As previously reported $109,234 $703,401 $205,199 $734,130
As restated $122,487 $716,654 $218,451 $747,383
-------------- -------------- -------------- --------------
</TABLE>
(b) The obligation to the stockholder is payable $10,000
monthly for interest and principal for the first
three months and $20,000 monthly for interest and
principal thereafter. The loan is collateralized by
the stock of Lee's Acquisition Corporation and by all
assets of Lee's Prescription Shops, Inc., both
subsidiaries of the Company. The Company has been
unable to make any payments under this note and
accordingly, is currently in default. In this
connection, the stockholder has granted a waiver
through October 1, 1998 and the Company has agreed
that upon funding to make current all payments that
are in arrears (Note 5).
(b) Pro Forma Financial Statements.
Euro-Tel does not have any assets, liabilities or operations.
Consequently, the results of a pro forma financial statement would be
the same as provided for in the PharmaSystems' financial statement,
except as follows:
Had the transaction occurred on January 1, 1996, earnings per share for
the three months ended March 31, 1997, and the year ended December 31,
1996, would have been $(0.06) and $(0.22), respectively. In addition,
the capital deficit at March 31, 1997, would have been as follows:
<PAGE>
Capital deficit
Preferred stock, $.01 par value,
25,000,000 shares authorized, no
shares outstanding 0
Common stock, no par value,
100,000,000 shares authorized,
20,000,625 shares issued and
outstanding 2,034,346
Deficit (3,693,593)
-----------
Total capital deficit (1,659,247)
===========
The proforma information of Advanced as required by Item 7(b) of Form
8-K is not being filed herewith since the financial information is not
currently available. The registrant will file such proforma information
pursuant to a subsequent amendment hereto in accordance with Item 7 of
Form 8-K.
(c) Exhibits.
Exhibit Number Title Method of Filing
2.1 Merger Agreement dated June 20,
1997 together with all Exhibits Previous filed
and Schedules thereto with
the exception of Euro-Tel Schedule
2.4 Financial Statements) which
is available upon request
2.2
Plan of Merger dated June 20, 1997 Previously filed
2.3
Articles of Merger dated June 20, Previously filed
1997
27.1
Financial Data Schedules Filed herewith
<PAGE>
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: October 10, 1997 PHARMASYSTEMS HOLDINGS CORP.
-----------------------------
(Registrant)
/s/ Aurelio E. Alonso
------------------------------
(Signature)
Name: Aurelio E. Alonso
Its: Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-1-1997 JAN-1-1996
<PERIOD-END> MAR-31-1997 DEC-31-1996
<CASH> 244,912 295,910
<SECURITIES> 0 0
<RECEIVABLES> 232,203 205,172
<ALLOWANCES> 8,000 8,000
<INVENTORY> 584,821 599,868
<CURRENT-ASSETS> 1,082,957 1,183,514
<PP&E> 268,580 268,580
<DEPRECIATION> 67,433 57,244
<TOTAL-ASSETS> 1,564,003 1,691,987
<CURRENT-LIABILITIES> 3,177,498 2,966,439
<BONDS> 0 0
0 0
0 0
<COMMON> 2,166 1,960
<OTHER-SE> (1,661,413) (1,380,053)
<TOTAL-LIABILITY-AND-EQUITY> 1,564,003 1,691,987
<SALES> 1,179,487 6,441,489
<TOTAL-REVENUES> 1,179,487 6,441,489
<CGS> 858,741 4,066,720
<TOTAL-COSTS> 858,741 4,066,720
<OTHER-EXPENSES> 884,680 4,129,798
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 122,987 334,278
<INCOME-PRETAX> (716,654) (2,192,325)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (716,654) (2,192,325)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (716,654) (2,192,325)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
