U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
(MARK ONE)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of Securities
Exchange Act of 1934 (Fee Required)
For the quarterly period ended June 30, 1997
|_| 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. 0-21851
PHARMASYSTEMS HOLDINGS CORP.
(Exact Name of Small Business Issuer in Its Charter)
Colorado 84-1189040
- -------- ----------
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) No.)
7350 NW 7th Street, Suite 104, Miami, Florida 33126
-----
(Address of Principal Executive Offices) (Zip Code)
(305) 267-9500
(Issuer's Telephone Number, Including Area Code)
EURO-TEL, INC., 2851 South Parker Road, Suite 7520,
Aurora, Colorado 80014; September 30th
---------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
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, and (2) has
been subject to such filing requirements for the past 90 days. Yes |X| No |_|
There were 20,000,625 shares of Common Stock outstanding as of August
15, 1997.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
<PAGE>
PHARMASYSTEMS HOLDINGS CORP.
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PART I - FINANCIAL INFORMATION Page
- ------------------------------ ----
Item 1. Consolidated Financial Statements. 3
-----------------------------------------
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Statements of Operations 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis. 10
---------------------------------------------
PART II - OTHER INFORMATION
- ---------------------------
Item 2(c). Changes in Securities 15
---------------------------------
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to Vote of Security Holders 16
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Item 6. Exhibits and Reports on Form 8-K 19
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Signatures 22
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2
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PHARMASYSTEMS HOLDINGS CORP.
Part I - Financial Information
Item 1. Consolidated Financial Statements
================================================================================
Condensed Consolidated Balance Sheets (Unaudited)
JUNE 30,
1997
- --------------------------------------------------------------------
ASSETS
CURRENT
Cash $ 39,671
Accounts receivable, less allowance for doubtful
accounts of $8,000 272,273
Due from affiliates
Inventory 558,245
Prepaid expenses and other current assets 65,039
- --------------------------------------------------------------------
TOTAL CURRENT ASSETS 935,228
Property and equipment, net 200,418
Loan fees, less $11,264
accumulated amortization 1,611
Intangible assets, less $24,728
accumulated amortization 187,245
Non-compete agreements, less $87,500
accumulated amortization 62,500
Other assets 5,500
- --------------------------------------------------------------------
TOTAL ASSETS $1,392,502
- --------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Bank note payable $ 300,000
Accounts payable 1,347,421
Accrued expenses and other 62,888
Due to affiliate 164,153
Current maturities of notes payable 490,379
Subordinated stockholder loan (non-interest
bearing) 37,641
Due to Stockholder 537,500
Redemption Notes Payable 1,450,330
- --------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 4,390,312
- --------------------------------------------------------------------
Due to stockholder 0
- --------------------------------------------------------------------
TOTAL LIABILITIES 4,390,312
- --------------------------------------------------------------------
3
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PHARMASYSTEMS HOLDINGS CORP.
Part I - Financial Information
Item 1. Consolidated Financial Statements
================================================================================
CAPITAL DEFICIT
Common Stock, no par value - 100,000,000 shares
authorized, 20,000,625
issued and outstanding 2,629,057
Shares to be redeemed (1,450,330)
Additional paid-in capital 0
Deficit (4,176,537)
- --------------------------------------------------------------------
TOTAL CAPITAL DEFICIT (2,997,810)
- --------------------------------------------------------------------
TOTAL LIABILITIES AND CAPITAL DEFICIT $1,392,502
====================================================================
4
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PHARMASYSTEMS HOLDINGS CORP.
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CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
------------------------- ---------------------------
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES $2,340,428 $2,616,426 $1,160,941 $1,068,975
- -----------------------------------------------------------------------------------------------------------------
COST OF SALES 1,728,427 2,005,146 869,686 920,142
- -----------------------------------------------------------------------------------------------------------------
GROSS PROFIT 612,001 611,280 291,255 148,833
- -----------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Selling, general
and administrative 1,531,569 1,312,513 646,889 342,554
Compensatory element of
common stock issuance
for services rendered 24,711 24,711
Interest 195,353 248,804 72,866 30,353
Depreciation and
amortization 60,466 50,557 30,233 29,137
- ------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,812,099 1,611,874 774,699 402,044
- ------------------------------------------------------------------------------------------------------------------
NET LOSS $(1,200,098) $(1,000,594) $(483,444) $(253,211)
- ------------------------------------------------------------------------------------------------------------------
Net Loss Per Share $(0.09) $(0.11) $(0.03) $(0.03)
- ------------------------------------------------------------------------------------------------------------------
Weighted Average Number of 13,919,019 9,132,846 14,427,180 9,784,288
Common Shares
- ------------------------------------------------------------------------------------------------------------------
5
</TABLE>
<PAGE>
PHARMASYSTEMS HOLDINGS CORP.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
------------------------- ---------------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(1,200,098) $(1,000,594) $(483,444) $(253,211)
Adjustments to reconcile net loss to net
cash used in operating activities:
Original issue discount (38,567) (38,567)
Depreciation and amortization 60,466 50,557 30,233 29,137
Changes in operating assets
and liabilities
Decrease (increase) in:
Accounts receivable (75,101) (24,114) (48,070) 131,683
Due from affiliates 39,328 (90,420) (194,817)
Inventories 41,623 (28,477) 26,576 (58,890)
Prepaid expenses
and other assets (13,803) 135,816 (35,615) 10,296
Increase (decrease):
Accounts payable (30,296) 14,414 111,956 285,041
Accrued expenses and other (182,956) (73,431) (315,138) 149,540
Due to affiliates (34,046) (169,751) 4,281
- --------------------------------------------- ------------------ ---------------- ------------------ ----------------
Net cash (used in) provided by
operating activities (1,394,883) (1,186,000) (747,788) 60,212
- --------------------------------------------- ------------------ ---------------- ------------------ ----------------
INVESTING ACTIVITIES:
Purchases of property and equipment (6,228) (81,885) (3,825) (81,885)
Increase in other assets (4,999) (14,132) (4,999) (14,132)
- --------------------------------------------- ------------------ ---------------- ------------------ ----------------
Net cash used in investing activities (11,227) (96,017) (8,824) (96,017)
- --------------------------------------------- ------------------ ---------------- ------------------ ----------------
FINANCING ACTIVITIES:
Net borrowings under bank note payable 200,000 100,000
Repayments of notes payable (62,800) (776,834) (35,800) (367,802)
Proceeds from subordinated
shareholder loan 17,641 17,641
Repayments of subordinated
shareholder loan (20,000) (10,000)
Net proceeds from issuance of
common stock 1,032,671 1,695,125 597,171 411,929
- --------------------------------------------- ------------------ ---------------- ------------------ ----------------
Net cash provided by financing activities 1,149,871 1,035,932 551,371 61,768
- --------------------------------------------- ------------------ ---------------- ------------------ ----------------
Net (decrease) increase in cash (256,239) (246,085) (205,241) 25,963
Cash at beginning of period 295,910 246,085 244,912 (25,963)
- --------------------------------------------- ------------------ ---------------- ------------------ ----------------
Cash at end of period $39,671 $-0- $39,671 $-0-
- --------------------------------------------- ------------------ ---------------- ------------------ ----------------
</TABLE>
6
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PHARMASYSTEMS HOLDINGS CORP.
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Notes to Consolidated Financial Statements
- ------------------------------------------
The unaudited financial statements presented in this Quarterly Report
contain the financial information and results of operation of PharmaSystems Cost
Containment Corp., a privately held company which was merged into the Registrant
on June 20, 1997. Prior to this merger transaction, the Company (then named
"Euro-Tel, Inc.") had no material assets and had conducted no operations. For a
detailed description of these relationships and transactions, a reader should
refer to the Company's Form 8-K filed on July 8, 1997 and Form 8-K/A filed on
July 14, 1997, as well as the descriptions contained elsewhere in this Quarterly
Report.
The accompanying condensed consolidated financial statements should be read
in conjunction with the Company's consolidated financial statements and notes
thereto included in the Company's Form 8-K/A2 filed on October 10, 1997.
The condensed consolidated financial statements were prepared from the
books and records of the Company without audit or verification. In the opinion
of management all adjustments which are of a normal recurring nature and
necessary to present fairly the financial position, results of operations and
cash flows for all the periods presented have been made. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted.
The results of operations for the six month period ended June 30, 1997 are
not necessarily indicative of the operating results for the full fiscal year.
The accompanying financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Per Share Data
- --------------
Primary per share information is determined by using the weighted average
number of common and dilutive common equivalent shares outstanding.
Net loss per common share for each period was computed by retroactively
reflecting mergers, splits and issuances of common shares. 4,997,334 shares of
common stock issued to an affiliate on June 17, 1997, which are being held in
escrow, were not included in the calculation as the conditions for such common
share's release from escrow have not been met.
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, 1996, the Company entered into a stock purchase agreement with
the 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 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
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.
7
<PAGE>
PHARMASYSTEMS HOLDINGS CORP.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REVISED FINANCIAL STATEMENTS
The Company has revised its 1997, 1996 and 1995 financial statements
because in August 1997 it 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:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
INTEREST INTEREST
EXPENSE NET LOSS EXPENSE NET LOSS
<S> <C> <C> <C> <C>
As previously reported 168,699 1,173,444 222,150 973,940
As restated 195,353 1,200,098 248,804 1,000,594
- -------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
------------------
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
INTEREST INTEREST
EXPENSE NET LOSS EXPENSE NET LOSS
As previously reported 59,465 470,043 16,952 239,810
As restated 72,866 483,444 30,353 253,211
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
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
8
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PHARMASYSTEMS HOLDINGS CORP.
================================================================================
Company has agreed that upon any funding to make current all payments that are
in arrears.
Subsequent Event
- ----------------
On August 6, 1997, the Company renegotiated an extension of its $225,000
unsecured notes payable to the former owners of Lee's, which was due July 31,
1997. The extension agreement provides for monthly principal payments of
approximately $15,000 through October 1998. All other terms and conditions
remain the same.
9
<PAGE>
Item 2 - Management's Discussion and Analysis.
---------------------------------------------
FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS. This Quarterly Report
contains forward-looking statements, including statements regarding, among other
things, (a) the Company's growth strategies, (b) anticipated trends in the
Company's industry and (c) the Company's future financing plans. In addition,
when used in this Quarterly Report, the words "believes," "anticipates" and
similar words are intended to identify forward-looking statements. Such
statements are based largely on the Company's expectations and are subject to a
number of risks and uncertainties, many of which are beyond the Company's
control. Actual results could differ materially from these forward-looking
statements as a result of changes in trends in the economy and the Company's
industry, reductions in the availability of financing and other factors. In
light of these risks and uncertainties, there can be no assurance that the
forward-looking statements contained in this Quarterly Report will in fact
occur. The Company does not undertake any obligation to publicly release the
results of any revisions to these forward-looking statements that may be made to
reflect any future events or circumstances.
Merger.
------
On June 20, 1997, PharmaSystems Cost Containment Corp., a Florida
corporation ("PHARMASYSTEMS"), was merged (the "MERGER") into the Company. Prior
to the merger, the Company's name was Euro-Tel, Inc. ("EURO-TEL"). Euro-Tel had
no operations and had been formed for the sole purpose of merging with an
operating company such as PharmaSystems. Pursuant to that certain Agreement and
Plan of Reorganization dated June 20, 1997 (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 owned ninety percent (90%) of the issued and outstanding common
stock of Euro-Tel, assuming control 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 Euro-Tel
after the Merger. In addition and concurrently with the Merger, Euro-Tel (i)
acquired all of the assets of PharmaSystems by operation of law pursuant to the
Merger; (ii) changed its corporate name to "PharmaSystems Holdings Corp."; and
(iii) changed its fiscal year from September 30, to December 31. Each of these
matters was duly approved by unanimous written consent of the shareholders of
Euro-Tel.
Since Euro-Tel had conducted no operations, the information contained
herein is primarily that of PharmaSystems, even though PharmaSystems was not a
public reporting company for most of the period to which this Quarterly Report
relates.
General
-------
PharmaSystems Holdings Corp. (the "COMPANY") is engaged in the business of
selling pharmaceutical products by mail order and through retail outlets owned
and operated by Lee's Prescription Shops, Inc., a wholly owned subsidiary of
Lee's Acquisition Corporation, a wholly owned subsidiary of the Company. Lee's
Prescription Shops, Inc. owns and operates three licensed community pharmacies
in the greater Miami area. In addition, the Company is developing home care
10
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respiratory and intravenous infusion services through a subsidiary of its
affiliate, Advanced Respiratory Care, Inc.
The Company has identified and focused on three principal areas, including:
(i) the development of a retail pharmacy network through Lee's Prescription
Shops, Inc.; (ii) the development of a mail order distribution system for
pharmacy products; and (iii) the creation and marketing of a private label brand
of vitamins and supplements. In addition, the Company and its management has
devoted a substantial amount of time and energy obtaining additional capital
necessary to finance the Company's operations. With the exception of the retail
pharmacies owned and operated by Lee's Prescription Shops, Inc., the Company is
a "start-up" company which is dependent on external financing to sustain
operations. The Company anticipates raising up to $4,000,000 in additional
capital through the issuance of common stock in a private placement in the
fourth quarter of this year. The issuance of such common stock will dilute the
percentage ownership and voting rights of existing shareholders. No assurances
can be made that the Company will successfully complete the private offering.
The Company expects to incur substantial start-up costs which will be in
excess of the revenues generated by the Company. As a result, the Company
expects to incur substantial losses for the foreseeable future and will require
external financing to sustain future operations.
Results of Operations
---------------------
Six Months Ended June 30, 1997 and 1996
The Company's revenues decreased $276,000 or 10.6% in the six month period
ending June 30, 1997 from the comparable six month period in the prior year.
This decrease is attributable, in part, to the closing of two unprofitable
facilities, a mail order facility and Penalver Clinic, an on-site HMO pharmacy.
Both facilities had experienced losses without any foreseeable contributions to
gross profit, and the residual business is being serviced by the retail
pharmacies. In addition, the AlphaNet program, in which the Company had the
exclusive rights to distribute Prolastin, was terminated by the distributor for
lack of adequate financing and credit availability. The Company's costs of goods
sold decreased by a corresponding amount of approximately $277,000 or 13.8%. The
Company had a gross profit percentages of 26.2% and 23.4% for the six month
periods ending June 30, 1997 and June 30, 1996, respectively. The higher gross
profit percentage (a 12% increase) in 1997 is attributable to more retail sales
which tend to yield higher prices than mail order.
Selling, general and administrative expenses for the six month period
ending June 30, 1997 increased $219,000 (16.7%) to $1,532,000 from $1,313,000
over the comparable period in the prior year. Such costs represent 65.5% and
50.2% of gross revenues in 1997 and 1996, respectively and are attributable, in
large part, to professional fees and costs incurred by the Company in completing
the reverse merger on June 20, 1997.
Interest expense decreased $53,000 (21.3%) in the six month period ending
June 30, 1997 from the comparable period in the prior year due to, in part, the
satisfaction of $343,000 amount of unsecured notes payable and reduction in
credit card fees and other bank charges..
11
<PAGE>
Depreciation and amortization expense increased $10,000 (19.6%) in 1997
from the 1996 level. This increase is primarily due to the increased
amortization of loan fees, intangible assets and non-compete agreements.
Total operation expenses increased $200,000 (12.4%) in 1997 from the 1996
level. This increase is primarily due to expenses incurred in the Merger. Since
the gross profit between the periods remained almost unchanged, the
aforementioned accounts for the $199,000 (19.9%) increase in the net loss of
$1,200,000 during the six months ended June 30, 1997 from $1,001,000 for the six
months ended June 30, 1996.
Three Months Ended June 30, 1997 and 1996
The Company's revenues increased $92,000 (8.6%) in the current three month
period from the comparable period in 1996 due to retail prices charged to former
mail order customers, uniformity of pricing between pharmacies and renewed
adherance to collection of delivery service charge. Cost of sales decreased
$50,000 (5.4%) during the current period from the prior period resulting from
the savings gained by the change in the primary supplier and a minor shift in
the product mix to lower cost substitutes. The reduction in cost of sales as a
percentage of revenues is attributable to the product/customer mix. In the
current period all revenues were generated from the sale of pharmaceutical
products through the retail and mail order outlets and not from fees generated
from the AlphaNet program as in prior periods. The gross profit percentages were
25.1% and 13.9% for 1997 and 1996, respectively. The corresponding 11.2%
difference in gross profit representing an 80.6% increase between the comparable
three month periods is indicative of the higher profitability in the current
product/customer mix.
Selling, general and administrative expenses for the three months ended
June 30, 1997 increased $304,000 (88.8%) to $647,000 from $343,000 in 1996.
These amounts represented 55.7% and 32.1% of revenues in 1997 and 1996,
respectively. The principal reason for the increase in such expenses was due to
the professional fees incurred in the Merger.
Interest expense increased $42,000 (138.4%) in the three month period ended
June 30, 1997 resulting, in part, from additional financing.
The previously mentioned increase in selling, general and administrative
and interest expenses are the reasons the net loss increased by $230,000 (90.9%)
to $483,000 during the three months ended June 30, 1997 from $253,000 for the
three months ended June 30, 1996.
Liquidity and Capital Resources
-------------------------------
As of June 30, 1997, the Company had a working capital deficiency of
$3,455,000 compared to a deficiency of $1,782,000 on December 31, 1996. The
deficiency is due, in part, to the operating losses incurred by the Company
during the interim period ending June 30, 1997 and to the incurrence of the
stock redemption promissory notes payable.. Such losses are the result of
incurring expenses in the development of a retail pharmacy network, establishing
and growing a mail order operation and creating and marketing its private label
brand of vitamins and natural wellness products. Additionally, the Company has
12
<PAGE>
expended approximately $300,000 in connection with the Merger. The Company
believes that the Merger will assist the Company in raising additional capital
and in making future acquisitions, although no assurances can be given.
Since inception, to finance its operations, the Company has raised capital
in three separate private placements, with net proceeds of approximately
$3,200,000 of which approximately $1,000,000 was raised in 1997. In addition,
during 1997, the Company borrowed $200,000 from its bank to finance its
operations. Additional financing will be necessary for the Company to continue
operations and to achieve its growth plans. The Company anticipates raising
approximately $4,000,000 in additional capital during the fourth quarter of this
year through a private placement.
The Company's business plan provides for, among other things, (i) the
private placement discussed above; (ii) increases in revenues from its retail
stores and mail order service; (iii) alternative distribution channels for its
vitamins and wellness products; (iv) the reduction of certain expenses; and (v)
alternative sources of financing and capital.
The Company anticipates that some of the proceeds generated from the
proposed private placement will be used to develop the Company's home care
business products and services such as infusion, durable medical equipment and
respiratory services. The Company believes that the home care business is
currently one of the most profitable segments of healthcare industry.
In order to reduce expenses and thereby conserve financial resources for
carrying out the Company's business plan, the Company's President and Secretary
have voluntarily deferred for an indefinite period of time approximately sixty
13
<PAGE>
seven percent (67%) and one hundred percent (100%) of their base compensation,
respectively. Each of the President and Secretary have reserved the right to (i)
not defer any additional base compensation and (ii) demand payment of any
compensation already deferred at any time without advance notice to the Company
or its shareholders.
14
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PART II
-------
OTHER INFORMATION
Item 2. Changes in Securities.
---------------------
2(c) Sales of Unregistered Securities.
--------------------------------
During April, May and June, 1997, PharmaSystems sold the following shares
of its Common Stock in private placement transactions:
PURCHASER DATE AMOUNT NUMBER OF
--------- ---- ------ SHARES
($) ---------
Julian Herkowitz April, 1997 $50,000 76,246.53
Jose L. Rodriguez April, 1997 6,000 9,147.88
Wolverton Securities Ltd. April, 1997 50,000 76,246.52
Rosina Malta April, 1997 10,000 15,248.24
Intercare Health Management Inc.April, 1997 150,000 533,715.00
Jim Hayes April, 1997 25,000 38,124.00
Andreas Hanke April, 1997 35,000 53,371.50
Roberto & Gloria Carreras May, 1997 20,000 30,496.48
Mario & Alina Sabi May, 1997 10,000 15,258.24
Rolando Castro May, 1997 50,000 177,905.89
Marco Rodriguez May, 1997 25,000 38,117.93
Moises Simpser May, 1997 35,000 53,371.15
Francisco Maldonado June, 1997 10,000 15,248.24
Roberto Warman June, 1997 5,250 8,005.73
Alberto Miquel June, 1997 5,250 8,005.73
Jose Azaret June, 1997 10,000 15,258.24
David Brostowiski June, 1997 40,000 60,998.29
Miguel Martinez June, 1997 50,000 76,246.53
Francisco Gonzalez-Abreu June, 1997 10,000 15,248.24
Albert Nassar June, 1997 6,000 9,147.88
Jeff Farno June, 1997 5,000 7,626.79
Mario Copelenko June, 1997 5,000 7,626.79
Yolanda Mattos Barrero June, 1997 5,000 7,626.79
Jose Soto Avila June, 1997 5,000 7,626.79
Layda Mazzorana June, 1997 10,000 15,248.24
Isidro & Reyna Garcia June, 1997 5,000 7,626.79
Raul Cardenas June, 1997 8,000 12,200.72
TOTAL $645,500 1,390,991.15
======== ============
15
<PAGE>
All of these issuances of Common Stock were intended to be exempt from
registration as private placement transactions under the Securities Act of 1933,
as amended (the "SECURITIES ACT"), pursuant to Section 4(2) ("SECTION 4(2)")
promulgated thereunder.
On June 18, 1997, PharmaSystems issued 4,997,333.66 shares of its Common
Stock to the shareholders of Advanced Respiratory Care, Inc. ("Advanced"), in
exchange for all of the outstanding common stock of Advanced. These shares are
to beplaced into escrow and will be released if Advanced satisfies certain
performance criteria. This issuance of Common Stock was intended to be exempt
from registration as a private placement transaction under the Securities Act
pursuant to Section 4(2) promulgated thereunder.
During June, 1997, PharmaSystems issued 17,791.39 shares of Common Stock to
Julio Cesar Diaz as compensation for certain services rendered. This issuance of
Common Stock was intended to be exempt from registration as a private placement
transactions under the Securities Act pursuant to Section 4(2) promulgated
thereunder.
In connection with the Merger, Euro-Tel issued 18,000,000 shares of its
common stock to the shareholders of PharmaSystems in connection with the Merger.
This issuance of common stock was intended to be exempt from registration as a
private placement transaction under the Securities Act pursuant to Section 4(2)
promulgated thereunder.
Readers of this Quarterly Report must be aware that, for ease of
presentation and to facilitate reader understanding, all of the share amounts
contained in this section have been given in post-Merger form (i.e., giving
effect to the conversion of shares effected in the Merger).
Item 3. Defaults Upon Senior Securities.
- ----------------------------------------
3(a). The Company is currently in default on the payment of principal and
interest on a loan made by a shareholder to the Company in the original
principal amount of $537,500. The shareholder has deferred the principal and
interest payments on this obligation until the Company obtains sufficient
funding to begin repayment. None of the principal amount of this obligation has
been repaid, and the accrued interest as of the date of this Quarterly Report is
approximately $94,000.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------------------------------------------------------------
(a)(1) EURO-TEL. Each of the matters briefly described in subpart (c)(1)
hereof were approved by unanimous written consent of the shareholders of
Euro-Tel without a shareholder meeting pursuant to applicable Colorado law.
(2) PHARMASYSTEMS. The matters briefly described in subpart (c)(2) hereof
were approved by at the annual shareholder meeting of PharmaSystems on June 9,
1997.
(b)(1) EURO-TEL. Not applicable.
16
<PAGE>
(2) PHARMASYSTEMS. The following is the name of each director elected at
the PharmaSystems' annual meeting: (i) Jose L. Rodriguez, M.D.; (ii) Aurelio E.
Alonso, C.P.A.; and (iii) Antonio M. Rodriguez, M.D.
(c)(1) EURO-TEL. On June 20, 1997 and as more particularly described
elsewhere in this Quarterly Report, PharmaSystems has merged into the
predecessor of the Registrant, Euro-Tel. In connection therewith, Euro-Tel (i)
acquired all of the assets of PharmaSystems by operation of law pursuant to the
Merger; (ii) changed its corporate name to "PharmaSystems Holdings Corp."; and
(iii) changed its fiscal year from September 30, to December 31. Each of these
matters was duly approved by unanimous written consent of the shareholders of
Euro-Tel.
17
<PAGE>
(2) PHARMASYSTEMS. The shareholders of PharmaSystems duly approved the following
matters at the annual meeting by the corresponding vote:
Description of Matter
Submitted to Vote Votes For Votes Against Abstentions
- --------------------------------------------------------------------------------
Election of Directors name in
subpart (a) hereof 10,594,798 0 0
Merger of PharmaSystems with
Euro-Tel 10,594,798 0 0
Transaction with Advanced
Respiratory Care, Inc. 8,224,319 0 2,370,479
18
<PAGE>
Item 6. Exhibits and Reports on Form 10-QSB/A.
- ------------------------------------------------
(a) EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
-------
No. Description Location Page
--- ----------- -------- ----
<S> <C> <C>
2.1 Agreement and Plan of Reorganization dated Incorporated by reference to Exhibit No.
June 20, 1997 2.1 to Registrant's Form 8-K filed on
July 8, 1997
2.2 Plan of Merger dated June 20, 1997 Incorporated by reference to Exhibit No.
2.2 to Registrant's Form 8-K filed on
July 8, 1997
2.3 Articles of Merger dated June 20, 1997 Incorporated by reference to Exhibit No.
2.3 to Registrant's Form 8-K filed on
July 8, 1997
3.1 Amended and Restated Articles of Incorporated by reference Exhibit No.
Incorporation of the Company 2.1 to the Registrant's Form 10-SB/A1
filed with the SEC on February 5, 1997
3.2 By-laws of the Company Incorporated by reference Exhibit No.
2.2 to the Registrant's Form 10-SB/A1
filed with the SEC on February 5, 1997
10.1 Executive Employment Agreement dated June Incorporated by reference Exhibit No.
19, 1997 by and between the Company and 10.1 to the Registrant's Form 10-QSB
Antonio M. Rodriguez filed with the SEC on August 19, 1997
10.2 Executive Employment Agreement dated June Incorporated by reference Exhibit No.
19, 1997 by and between the Company and 10.2 to the Registrant's Form 10-QSB
Aurelio Alonso filed with the SEC on August 19, 1997
10.3 Executive Employment Agreement dated June Incorporated by reference Exhibit No.
19, 1997 by and between the Company and 10.3 to the Registrant's Form 10-QSB
Jose L. Rodriguez, M.D. filed with the SEC on August 19, 1997
10.4 Stock Redemption Agreement dated Incorporated by reference Exhibit No.
June 7, 1997 by and between the Company, 10.4 to the Registrant's Form 10-QSB
PSI Holdings, Inc., and Orlando Lopez- filed with the SEC on August 19, 1997
Fernandez, Jr., M.D.
10.5 Stock Pledge Agreement dated June 7, 1997 Incorporated by reference Exhibit No.
by and between the Company and PSI 10.5 to the Registrant's Form 10-QSB
Holdings, Inc. filed with the SEC on August 19, 1997
10.6 Stock Pledge Agreement dated June 7, 1997 Incorporated by reference Exhibit No.
by and between the Company and Orlando 10.6 to the Registrant's Form 10-QSB
Lopez-Fernandez, Jr., M.D. filed with the SEC on August 19, 1997
10.7 Intermark Trade Centre Lease Agreement Incorporated by reference Exhibit No.
dated August 1, 1995 by and between Shusho 10.7 to the Registrant's Form 10-QSB
Investment, Inc. and the Company filed with the SEC on August 19, 1997
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.8 Promissory Note dated March 25, 1997 given Incorporated by reference Exhibit No.
by Lee's Prescription Shops, Inc., a wholly 10.8 to the Registrant's Form 10-QSB
owned subsidiary of Lee's Acquisition filed with the SEC on August 19, 1997
Corporation which is a wholly owned
subsidiary of the Company, to United
National Bank in the original amount of
$300,000
10.9 Letter Agreement effective June 19, 1997 by Incorporated by reference Exhibit No.
and between Uni, Co. and the Company 10.9 to the Registrant's Form 10-QSB
filed with the SEC on August 19, 1997
10.10 Business Lease dated July 14, 1994 by and Incorporated by reference Exhibit No.
between Lee's Prescription Shops, Inc., a 10.10 to the Registrant's Form 10-QSB
wholly owned subsidiary of Lee's filed with the SEC on August 19, 1997
Acquisition Corporation, a wholly owned
subsidiary of the Company, and 2525 Coral
Way Bldg.
10.11 Business Property Lease dated October 2, Incorporated by reference Exhibit No.
1995 by and between LBJ Properties and 10.11 to the Registrant's Form 10-QSB
Lee's Acquisition Corporation, a wholly filed with the SEC on August 19, 1997
owned subsidiary of the Company
10.12 Lease Agreement dated October 1, 1995 by Incorporated by reference Exhibit No.
and between Sanford I. Rakofsky, M.D. and 10.12 to the Registrant's Form 10-QSB
Lee's Prescription Shop, Inc., a wholly filed with the SEC on August 19, 1997
owned subsidiary of Lee's Acquisition
Corporation, a wholly owned subsidiary of
the Company
10.13 Stock Purchase Agreement dated June 18, Incorporated by reference Exhibit No.
1997 by and among PharmaSystems Cost 10.13 to the Registrant's Form 10-QSB
Containment Corp., Jose L. Rodriguez, M.D. filed with the SEC on August 19, 1997
and Maria Rodriguez and Carlos M. Marin
10.14 Security Agreement dated July 23, 1996 by Incorporated by reference Exhibit No.
and between Lee's Acquisition Corporation, 10.14 to the Registrant's Form 10-QSB
a wholly owned subsidiary of the Company, filed with the SEC on August 19, 1997
and Lee's Prescription Shops, Inc., a
wholly owned subsidiary of Lee's
Acquisition Corporation, and Carlos M. Marin
10.15 Agreement dated July 23, 1996 by and Incorporated by reference Exhibit No.
between the Company, Lee's Acquisition 10.15 to the Registrant's Form 10-QSB
Corporation, a wholly owned subsidiary of filed with the SEC on August 19, 1997
the Company, Lee's Prescription Shops,
Inc., a wholly owned subsidiary of Lee's
Acquisition Corporation and Carlos M.
Marin, Jr.
10.16 Promissory Note and Security Agreement Incorporated by reference Exhibit No.
dated July 23, 1996 given by the Company to 10.16 to the Registrant's Form 10-QSB
Carlos M. Marin, Jr. filed with the SEC on August 19, 1997
27. Financial Data Schedule Provided herewith
</TABLE>
20
<PAGE>
(b) Reports on Form 8-K.
-------------------
On July 7, 1997, the Company filed Form 8-K (later amended by Form
8-K/A filed on July 14, 1997) reporting the following items:
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 Section 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 percent (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 twenty-eight percent (28%) 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 consummated on June 20,
1997 and does not purport to be a complete statement of the terms, conditions
and provisions thereof. For a more complete description of the merger, reference
should be made to the Agreement and Plan of Reorganization, Plan of Merger and
Articles of Merger which are attached to Form 8-K filed with the Securities and
Exchange Commission on July 8, 1997.
2. ACQUISITION OR DISPOSITION OF ASSETS. On June 20, 1997, Euro-Tel
acquired all of the assets used to operate the business of PharmaSystems by
operation of law pursuant to the Merger. PharmaSystems was primarily a holding
company for Lee's Prescription Shop, Inc., a Florida corporation and second-tier
subsidiary of PharmaSystems which owns and operates three licensed community
retail pharmacies in the greater Miami area.
3. CHANGE OF CORPORATE NAME. In accordance with the Articles of Merger
by and between Euro-Tel and PharmaSystems dated June 20, 1997, Euro-Tel's
Certificate of Incorporation was amended to reflect a change of its corporate
name to "PharmaSystems Holdings Corp."
4. CHANGE IN FISCAL YEAR. The Company has changed its fiscal year end
from September 30 in each year to December 31, to coincide with the year end of
PharmaSystems.
21
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: October 10, 1997 PHARMASYSTEMS HOLDINGS CORP.
By: /s/ Aurelio E. Alonso
-------------------------------------
Aurelio E. Alonso
Executive Vice President and Chief
Financial Officer (Principal Financial
Officer)
22
<PAGE>
EXHIBIT INDEX
-------------
Item 6. Exhibits and Reports on Form 10-QSB/A
- ------------------------------------------------
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
-------
No. Description Location Page
-- ----------- -------- ----
<S> <C> <C> <C>
2.1 Agreement and Plan of Reorganization dated Incorporated by reference to Exhibit No.
June 20, 1997 2.1 to Registrant's Form 8-K filed on
July 8, 1997
2.2 Plan of Merger dated June 20, 1997 Incorporated by reference to Exhibit No.
2.2 to Registrant's Form 8-K filed on
July 8, 1997
2.3 Articles of Merger dated June 20, 1997 Incorporated by reference to Exhibit No.
2.3 to Registrant's Form 8-K filed on
July 8, 1997
3.1 Amended and Restated Articles of Incorporated by reference Exhibit No.
Incorporation of the Company 2.1 to the Registrant's Form 10-SB/A1
filed with the SEC on February 5, 1997
3.2 By-laws of the Company Incorporated by reference Exhibit No.
2.2 to the Registrant's Form 10-SB/A1
filed with the SEC on February 5, 1997
10.1 Executive Employment Agreement dated June Incorporated by reference Exhibit No.
19, 1997 by and between the Company and 10.1 to the Registrant's Form 10-QSB
Antonio M. Rodriguez filed with the SEC on August 19, 1997
10.2 Executive Employment Agreement dated June Incorporated by reference Exhibit No.
19, 1997 by and between the Company and 10.2 to the Registrant's Form 10-QSB
Aurelio Alonso filed with the SEC on August 19, 1997
10.3 Executive Employment Agreement dated June Incorporated by reference Exhibit No.
19, 1997 by and between the Company and 10.3 to the Registrant's Form 10-QSB
Jose L. Rodriguez, M.D. filed with the SEC on August 19, 1997
10.4 Stock Redemption Agreement dated Incorporated by reference Exhibit No.
June 7, 1997 by and between the Company, 10.4 to the Registrant's Form 10-QSB
PSI Holdings, Inc., and Orlando Lopez- filed with the SEC on August 19, 1997
Fernandez, Jr., M.D.
10.5 Stock Pledge Agreement dated June 7, 1997 Incorporated by reference Exhibit No.
by and between the Company and PSI 10.5 to the Registrant's Form 10-QSB
Holdings, Inc. filed with the SEC on August 19, 1997
10.6 Stock Pledge Agreement dated June 7, 1997 Incorporated by reference Exhibit No.
by and between the Company and Orlando 10.6 to the Registrant's Form 10-QSB
Lopez-Fernandez, Jr., M.D. filed with the SEC on August 19, 1997
10.7 Intermark Trade Centre Lease Agreement Incorporated by reference Exhibit No.
dated August 1, 1995 by and between Shusho 10.7 to the Registrant's Form 10-QSB
Investment, Inc. and the Company filed with the SEC on August 19, 1997
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.8 Promissory Note dated March 25, 1997 given Incorporated by reference Exhibit No.
by Lee's Prescription Shops, Inc., a wholly 10.8 to the Registrant's Form 10-QSB
owned subsidiary of Lee's Acquisition filed with the SEC on August 19, 1997
Corporation which is a wholly owned
subsidiary of the Company, to United
National Bank in the original amount of
$300,000
10.9 Letter Agreement effective June 19, 1997 by Incorporated by reference Exhibit No.
and between Uni, Co. and the Company 10.9 to the Registrant's Form 10-QSB
filed with the SEC on August 19, 1997
10.10 Business Lease dated July 14, 1994 by and Incorporated by reference Exhibit No.
between Lee's Prescription Shops, Inc., a 10.10 to the Registrant's Form 10-QSB
wholly owned subsidiary of Lee's filed with the SEC on August 19, 1997
Acquisition Corporation, a wholly owned
subsidiary of the Company, and 2525 Coral
Way Bldg.
10.11 Business Property Lease dated October 2, Incorporated by reference Exhibit No.
1995 by and between LBJ Properties and 10.11 to the Registrant's Form 10-QSB
Lee's Acquisition Corporation, a wholly filed with the SEC on August 19, 1997
owned subsidiary of the Company
10.12 Lease Agreement dated October 1, 1995 by Incorporated by reference Exhibit No.
and between Sanford I. Rakofsky, M.D. and 10.12 to the Registrant's Form 10-QSB
Lee's Prescription Shop, Inc., a wholly filed with the SEC on August 19, 1997
owned subsidiary of Lee's Acquisition
Corporation, a wholly owned subsidiary of
the Company
10.13 Stock Purchase Agreement dated June 18, Incorporated by reference Exhibit No.
1997 by and among PharmaSystems Cost 10.13 to the Registrant's Form 10-QSB
Containment Corp., Jose L. Rodriguez, M.D. filed with the SEC on August 19, 1997
and Maria Rodriguez and Carlos M. Marin
10.14 Security Agreement dated July 23, 1996 by Incorporated by reference Exhibit No.
and between Lee's Acquisition Corporation, 10.14 to the Registrant's Form 10-QSB
a wholly owned subsidiary of the Company, filed with the SEC on August 19, 1997
and Lee's Prescription Shops, Inc., a
wholly owned subsidiary of Lee's
Acquisition Corporation, and Carlos M. Marin
10.15 Agreement dated July 23, 1996 by and Incorporated by reference Exhibit No.
between the Company, Lee's Acquisition 10.15 to the Registrant's Form 10-QSB
Corporation, a wholly owned subsidiary of filed with the SEC on August 19, 1997
the Company, Lee's Prescription Shops,
Inc., a wholly owned subsidiary of Lee's
Acquisition Corporation and Carlos M.
Marin, Jr.
10.16 Promissory Note and Security Agreement Incorporated by reference Exhibit No.
dated July 23, 1996 given by the Company to 10.16 to the Registrant's Form 10-QSB
Carlos M. Marin, Jr. filed with the SEC on August 19, 1997
27. Financial Data Schedule Provided herewith
</TABLE>
24
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-1-1997
<PERIOD-END> JUN-30-1997
<CASH> 39,671
<SECURITIES> 0
<RECEIVABLES> 280,273
<ALLOWANCES> 8,000
<INVENTORY> 558,245
<CURRENT-ASSETS> 935,228
<PP&E> 271,864
<DEPRECIATION> 71,446
<TOTAL-ASSETS> 1,392,502
<CURRENT-LIABILITIES> 4,390,312
<BONDS> 0
0
0
<COMMON> 2,629,057
<OTHER-SE> (2,997,810)
<TOTAL-LIABILITY-AND-EQUITY> 1,392,502
<SALES> 2,340,428
<TOTAL-REVENUES> 2,340,428
<CGS> 1,728,427
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,531,569
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 195,353
<INCOME-PRETAX> (1,200,098)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,200,098)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,200,098)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
