SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
June 20, 1997
-----------------------------
Date of Report
(Date of Earliest Event
Reported)
PHARMASYSTEMS HOLDINGS CORP.
---------------------------------------------
(Exact Name of Registrant as Specified in
Charter)
Colorado 0-21851 84-1189040
- ------------------------- ------------------------ ----------------------
(State or other (Commission File No.) (IRS Employer
Jurisdiction of Identification No.)
Incorporation)
7350 N.W. 7th Street, Suite 104
Miami, Florida 33126
------------------------------------
(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>
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 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 Agreement and the
transactions contemplated therein and does not purport to be a complete
statement of the terms, conditions and provisions thereof.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 20, 1997, Euro-Tel acquired all of the assets used to operate
PharmaSystems' Business (the "Assets") 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 (the "Business"). The amount of consideration given for the
Assets is set forth in Item 1 hereof.
<PAGE>
ITEM 5. OTHER EVENTS.
In June 1997, prior to the Merger, PharmaSystems entered into a stock
purchase transaction with the shareholders of Advanced Respiratory Care, Inc., a
Florida corporation ("Advanced") which was owned by the registrant's current
president and certain other shareholders of the registrant. The Stock Purchase
Agreement provided for, among other things, the purchase of 100% of the issued
and outstanding shares of Advanced by PharmaSystems in exchange for a maximum
aggregate payment of 936,330 shares of Pharmasystems common stock to the
Advanced shareholders. The PharmaSystems shares are currently in escrow pending
Advanced's satisfaction of certain performance criteria to be determined by the
registrant's board of directors.
The registrant's accountants are currently reviewing the books and records
of Advanced to determine the materiality of the transaction and whether further
disclosure is required hereunder. In the event that the registrant determines
that the Advanced transaction is material the financial statements of Advanced
shall be included in the proforma information which will be filed by the
registrant in a subsequent amendment hereto in accordance with the requirements
of Item 7(b) of Form 8-K.
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."
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
(i) Audited Financial Statements of PharmaSystems for the years
ended December 31, 1996 and 1995.
(ii) Unaudited three month financial statements of PharmaSystems as
of March 31, 1997 (balance sheet) and for the three months
ended March 31, 1997 and 1996 (statements of operations and
statements of cash flow).
<PAGE>
PHARMASYSTEMS COST
CONTAINMENT CORP.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<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.
/s/ BDO Seidman, LLP
--------------------
Miami, Florida BDO Seidman, LLP
April 29, 1997
<PAGE>
PharmaSystems Cost Containment Corp.
Consolidated Balance Sheets
================================================================================
March 31, 1997 December 31, December 31,
(unaudited) 1996 1995
- --------------------------------------------------------------------------------
Assets
Current
Cash $244,912 $295,910 $246,085
Accounts receivable, less allowance
for doubtful accounts of $8,000, 224,203 197,172 351,482
$8,000 and $11,000 (Notes 4 and 10)
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 $21,196, $17,664
and $3,532 accumulated amortization
(Note 2) 190,777 194,309 208,441
Non-compete agreements, less $75,000
$62,500 and $12,500 accumulated
amortization (Note 2) 75,000 87,500 137,500
Other assets 10,902 10,499 5,499
- --------------------------------------------------------------------------------
$1,564,003 $1,691,987 $1,923,347
================================================================================
See accompanying notes to consolidated financial statements.
2
<PAGE>
PharmaSystems Cost Containment Corp.
Consolidated Balance Sheets
March 31,1997 December 31, December 31,
(unaudited) 1996 1995
- --------------------------------------------------------------------------------
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 260,261 178,399 288,804
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
- --------------------------------------------------------------------------------
Total current liabilities 2,605,052 2,465,135 2,067,366
Notes payable, less current
maturities (Note 5) -- -- 220,000
- --------------------------------------------------------------------------------
Total liabilities 2,605,052 2,465,135 2,287,366
- --------------------------------------------------------------------------------
Commitments and contingencies
(Notes 7 and 10)
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 2,569,180 2,133,886 404,873
Deficit (3,612,395) (2,908,994) (770,419)
- --------------------------------------------------------------------------------
Total capital deficit (1,041,049) (773,148) (364,019)
- --------------------------------------------------------------------------------
$ 1,564,003 $ 1,691,987 $ 1,923,347
================================================================================
See accompanying notes to consolidated financial statements.
3
<PAGE>
PharmaSystems Cost Containment Corp.
Consolidated Statements of Operations
================================================================================
Three Three
months months
ended ended Nine months
March 31, March 31, Year ended ended
1997 1996 December 31, December 31,
(Unaudited) (Unaudited) 1996 1995
- --------------------------------------------------------------------------------
Revenues $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 109,234 205,198 280,528 61,982
Depreciation 30,233 21,420 118,354 27,100
- --------------------------------------------------------------------------------
Total operating expenses 1,024,147 1,196,577 4,528,680 1,166,314
- --------------------------------------------------------------------------------
Other income - - 15,336 769
- --------------------------------------------------------------------------------
Net loss $(703,401) $(734,130) $(2,138,575) $(770,419)
================================================================================
See accompanying notes to consolidated financial statements.
4
<PAGE>
PharmaSystems Cost Containment Corp.
Consolidated Statements of Capital Deficit
(Note 6)
================================================================================
Additional
Common Stock Paid-in
Shares Amount Capital Deficit Total
- --------------------------------------------------------------------------------
Balance, April 21, 1995 - $ - $ - $ - $ -
Shares issued to
founding shareholders 1,314,135 1,314 (1,314) - -
Sale of common stock in
connection with an
initial private
placement, net of
offering costs of
$19,313 171,667 171 289,041 - 289,212
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 - - - (770,419) (770,419)
- --------------------------------------------------------------------------------
Balance,
December 31, 1995 1,527,469 1,527 404,873 (770,419) (364,019)
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 - - - (2,138,575)(2,138,575)
Dividends - - (19,210) - (19,210)
- --------------------------------------------------------------------------------
Balance,
December 31, 1996 1,960,202 $ 1,960 $2,133,886 $(2,908,994) $(773,148)
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
5
<PAGE>
PharmaSystems Cost Containment Corp.
Consolidated Statements of Capital Deficit
(Note 6)
================================================================================
Additional
Common Stock Paid-in
Shares Amount Capital Deficit Total
- --------------------------------------------------------------------------------
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) - - - (703,401) (703,401)
- --------------------------------------------------------------------------------
Balance,
March 31, 1997
(unaudited) $2,166,416 $ 2,166 $2,569,180 $(3,612,395)$(1,041,049)
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
6
<PAGE>
PharmaSystems Cost Containment Corp.
Consolidated Statements of Cash Flows
(Note 10)
================================================================================
Three Three
months months
ended ended Nine months
March 31, March 31, Year ended ended
1997 1996 December 31, December 31,
(Unaudited) (Unaudited) 1996 1995
- --------------------------------------------------------------------------------
Operating activities:
Net loss $ (734,401) $ (734,130)$ (2,138,575) $ (770,419)
Adjustments to reconcile
net loss to net cash (used
in) provided by operating
activities:
Depreciation and 30,233 21,420 118,354 27,100
amortization
Provision for doubtful - - (3,012) 11,000
accounts
Amortization of original 38,567 38,567 169,692 38,567
issue 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 assets 21,812 125,520 95,446 (79,941)
Increase (decrease):
Accounts payable (142,252) (270,627) 669,538 654,178
Accrued expenses and 81,862 (236,224) (110,405) 288,804
other
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 (2,403) - (159,539) (78,241)
equipment
Payment for purchase of
Lee's Prescription Shop, - - - (235,402)
Inc., net of cash acquired
- --------------------------------------------------------------------------------
Net cash used in investing (2,403) - (159,539) (313,643)
activities
- --------------------------------------------------------------------------------
Financing Activities:
Net borrowings under bank 200,000 100,000 100,000 -
note payable
Proceeds from issuance of 10,067 - 20,000 206,475
notes payable
Repayments of notes payable - (409,032) (717,145) (119,219)
Payment of loan costs - - - (12,875)
Proceeds from subordinated
shareholder loan - - 111,569 40,000
Repayments of subordinated
shareholder loan (10,000) - (93,928) -
See accompanying notes to consolidated financial statements.
7
<PAGE>
PharmaSystems Cost Containment Corp.
Consolidated Statements of Cash Flows
(Note 10)
================================================================================
Three Three
months months
ended ended Nine months
March 31, March 31, Year ended ended
1997 1996 December 31, December 31,
(Unaudited) (Unaudited) 1996 1995
- --------------------------------------------------------------------------------
Net proceeds from issuance
of common stock 435,500 1,283,196 1,748,656 406,400
Dividends paid - - (19,210) -
- --------------------------------------------------------------------------------
Net cash provided by 635,567 974,164 1,149,942 520,781
financing 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 - - - 195,999
payable to vendor
================================================================================
See accompanying notes to consolidated financial statements.
8
<PAGE>
PharmaSystems Cost Containment Corp.
Notes to Consolidated Financial Statements
Unaudited with respect to the three months ended March 31, 1997 and 1996
================================================================================
1. SUMMARY OF PharmaSystems Cost Containment Corp., (the "Company") was
ACCOUNTING incorporated on April 21, 1995 in the state of Florida. The
POLICIES 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
10
<PAGE>
1996 are not necessarily indicative of the results for the
entire year.
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) (795,770)
--------------------------------------------------------------
11
<PAGE>
3. PROPERTY Property and equipment, at cost, consists of the following:
AND
EQUIPMENT
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 57,244 9,458
amortization
--------------------------------------------------------------
$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 Unsecured notes payable consists of the following:
PAYABLE
1996 1995
--------------------------------------------------------------
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, matured October 3,
1996 - 451,600
Unsecured notes payable to former
owners of Lee's, interest at 7%,
principal and interest due
July 31, 1997 220,000 220,000
Note payable to a vendor,
interest at 9.75%, principal
and interest payable monthly,
matured May, 1996 - 163,990
--------------------------------------------------------------
553,179 1,080,632
12
<PAGE>
Less current portion 553,179 860,632
--------------------------------------------------------------
$ - $ 220,000
--------------------------------------------------------------
6. CAPITAL a) During 1995, the Company issued 1,314,135 shares of
DEFICIT 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.
13
<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 to a
TRANSACTIONS 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
$2,600,000 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.
Realization of any portion of the approximate $970,000
deferred tax asset at December 31, 1996, resulting mainly from
the available net operating loss carryforward, is not
14
<PAGE>
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 $1,282,000. 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 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.
12. SUBSEQUENT During the first quarter of 1997, the Company issued 136,500
EVENT 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
15
<PAGE>
Company issued an additional 152,705 shares of common stock to
individual investors for cash of $320,000. During the period
April 30, 1997 through June 20, 1997, the Company issued
117,133 shares of Common Stock to private investors for cash
of approximately $319,500.
In June 1997, 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 were 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 20, 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 Holdings Corp."
16
<PAGE>
(b) Pro Forma Financial Information.
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:
Capital deficit
Preferred stock, $.01 par value,
25,000,000 shares authorized,
no shares outstanding $ -
Common stock, no par value,
100,000,000 shares authorized,
20,000,000 shares issued and
outstanding 2,571,846
Deficit (3,612,895)
------------
Total capital deficit $(1,041,049)
============
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 and Schedules
thereto with the exception of Euro-Tel
Schedule 2.4 (financial statements)
which is available upon request Previously filed
2.2 Plan of Merger dated June 20, 1997 Previously filed
2.3 Articles of Merger dated June 20, 1997 Previously filed
27.1 Financial Data Schedules Filed herewith
ITEM 8. The registrant will change its fiscal year from September 30 in each
year to December 31, to coincide with the year end of PharmaSystems.
3
<PAGE>
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: July 14, 1997 PHARMASYSTEMS HOLDINGS CORP.
-----------------------------------------
(Registrant)
/s/ Aurelio Alonso
-----------------------------------------
(Signature)
Its: Executive Vice President and
Chief Financial Officer
-------------------------------------
<PAGE>
Exhibit Index
Exhibit No. Title
- ----------- -----
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<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> 268,580 268,680
<DEPRECIATION> 67,433 57,244
<TOTAL-ASSETS> 1,564,003 1,691,987
<CURRENT-LIABILITIES> 2,605,052 2,465,135
<BONDS> 0 0
0 0
0 0
<COMMON> 2,166 1,860
<OTHER-SE> (1,038,883) (775,108)
<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 3,012
<INTEREST-EXPENSE> 109,234 280,528
<INCOME-PRETAX> (703,401) (2,138,575)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (703,401) (2,138,575)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (703,401) (2,138,575)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
