<PAGE> 1
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
---------------- -----------------
EUROMED, INC.
(Exact name of registrant as specified in its charter)
COMMISSION FILE NUMBER 0-27720
NEVADA 88-0317700
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
WILHELMINAKANAAL NOORD 6
NL 4092 VR OOSTERHOUT, THE NETHERLANDS
(Address of principal executive offices) (Zip Code)
011-31-16-242-4424
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- --------
As of May 9, 1996, there were 3,150,000 shares outstanding of the registrant's
common stock, $0.01 par value.
- -------------------------------------------------------------------------------
<PAGE> 2
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED):
Condensed Consolidated Balance Sheets -
December 31, 1995 and March 31, 1996................. 3
Condensed Consolidated Statements of Income -
Three months ended March 31, 1996 and 1995........... 5
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1996 and 1995........... 6
Notes to Condensed Consolidated Financial Statements....... 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................ 9
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 13
</TABLE>
<PAGE> 3
EUROMED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of US dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
December 31 March 31
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents 64 6,452
Trade accounts receivable 2,101 1,206
Loan receivable 304 276
Due from affiliated companies and
other related parties 703 327
Inventory 4,719 6,089
Other receivables and prepaid expenses 122 763
------------ ------------
8,013 15,113
Vehicles, furniture and equipment
Cars 98 114
Furniture and equipment 493 501
------------ ------------
591 615
Less: Accumulated depreciation and
amortization -266 -288
------------ ------------
325 327
Intangible assets less accumulated
amortization 507 476
------------ ------------
8,845 15,916
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
EUROMED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of US dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
December 31 March 31
1995 1996
------------ ------------
<S> <C> <C>
LIABILITIES
Current liabilities
Loan payable 311 302
Bank overdraft 2,645 3,440
Trade accounts payable 3,002 3,210
Taxes payable 421 463
Due to affiliated companies, controlling
interests and other related parties 10 10
Other payables and accrued expenses 264 252
------------ ------------
6,653 7,677
Long-term debts
Unsecured loan from B.V. Wisteria 423 405
Unsecured loan from Hybrida B.V 496 481
Unsecured loan from Pantapharma B.V 125 121
Other long-term debt 31 29
------------ ------------
1,075 1,036
SHAREHOLDERS EQUITY
Preferred Stock, par value $.01 per share;
5,000,000 shares authorized; no shares
issued and outstanding;
Common Stock, par value $.01 per share;
20,000,000 shares authorized; 3,150,000
issued and outstanding; 20 32
Additional paid-in capital 48 5,980
Retained earnings 1,047 1,223
Cumulative currency translation adjustment 2 -32
------------ ------------
1,117 7,203
Commitments and contingencies
------------ ------------
8,845 15,916
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
EUROMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousand of US dollars, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
three months ended
---------------------------
March 31 March 31
1995 1996
------------ ------------
<S> <C> <C>
Sales 6,611 9,368
Cost of goods sold 5,941 8,549
------------ ------------
Gross profit 670 819
Selling, general and administrative
expenses 363 491
------------ ------------
307 328
Interest income 10 25
Interest expense 46 71
------------ ------------
Income before income taxes 271 282
Income taxes 76 106
------------ ------------
Net income 195 176
============ ============
Earnings per share 0.10 0.08
- ------------------ ---- ----
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
EUROMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of US dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
three months ended
---------------------------
March 31 March 31
1995 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 195 176
Adjustments to reconcile to
cash flows from operations:
Amortization of intangible assets 24 21
Depreciation expense 13 30
Changes in operating assets and liabilities:
Trade accounts receivable -229 835
Due from affiliated companies and other
related parties -212 356
Inventory -1,281 -1,519
Other receivables and prepaid expenses 4 -648
Trade accounts payable 205 299
Taxes payable -38 55
Due to affiliated companies, controlling
interests and other related parties -449 0
Other payables and accrued expenses 397 -4
============ ============
Net cash provided by (used in) operating activities -1,371 -399
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
EUROMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of US dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
three months ended
---------------------------
March 31 March 31
1995 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of intangible assets -30 -6
Borrowings by and repayments
from a customer 0 19
Purchase of vehicles, furniture
and equipment, at cost -72 -42
------------ ------------
Net cash used in investing activities -102 -29
CASH FLOW FROM FINANCING ACTIVITIES:
Common stock issued 0 12
Borrowing under bank overdraft facility 1,345 879
Add paid in capital 0 5,932
Long-term debt borrowings 193 -4
------------ ------------
Net cash provided by financing activities 1,538 6,819
Effect of currency translation adjustment on cash 42 -3
------------ ------------
Net increase in cash and cash equivalents 107 6,388
Cash and cash equivalents
at the beginning of the quarter 313 64
------------ ------------
Cash and cash equivalents
============ ============
at the end of the quarter 420 6,452
============ ============
Cash paid during the quarter:
Interest 13 30
Income taxes -- --
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
a. Interim Financial Statements
The consolidated financial information for the interim periods presented herein
has not been audited by independent accountants, but in the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the condensed consolidated balance sheets
and the condensed consolidated statements of earnings and cash flows at the
dates and for the periods indicated have been made. Results of operations for
interim periods are not necessarily indicative of results of operations for the
respective full years.
b. Description of business
EuroMed's operating companies, Galenica and Confedera (the "Companies"), both
based in Oosterhout, The Netherlands, have a primary business of the wholesale
distribution of medicines. The companies' customers are primarily located in
the Netherlands. The companies' products are readily available and the
companies are not dependent on a single supplier or a few suppliers.
c. Earnings Per Share
Earnings per share are computed on the weighted average number of shares and
dilutive equivalent shares of common stock outstanding during the three-month
period ended March 31, 1996, using the treasury stock method. Earnings per
share for the three-month period ended March 31, 1995 is based upon 2,000,000
shares outstanding.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
EuroMed, Inc. ("EuroMed" or the "Company") is an American pharmaceutical
company involved in the import and wholesale distribution of branded and generic
medicines within The Netherlands, and in the export of generic medicines
throughout the world. EuroMed's business is influenced in general by various
economic, market and political trends in The Netherlands and Europe.
EuroMed operates through its wholly-owned Netherlands subsidiaries,
Galenica and Confedera, in: (i) the parallel import of EuroSpecialties, which
are prescription ("ethical") branded pharmaceuticals registered and marketed
throughout Europe under international patent and a European brand; (ii) the
wholesale distribution of EuroSpecialties and generic pharmaceuticals to
pharmacies and other wholesalers in The Netherlands; (iii) the wholesale
distribution of DutchSpecialties, which are ethical branded pharmaceuticals
under international patent, registered and marketed as a brand specifically
within The Netherlands; (iv) the wholesale distribution of over-the-counter
("non-ethical") pharmaceuticals to pharmacies and other wholesalers in The
Netherlands; and (v) the export of generic pharmaceuticals to developing
nations of the world.
Generics are therapeutically equivalent ethical pharmaceuticals
manufactured after the expiration of any patents, and marketed as more
competitively priced substitutes for branded ethical pharmaceuticals. Parallel
imports are EuroSpecialties purchased within Europe's supranational free market,
the fifteen member European Union ("EU"), imported into The Netherlands, often
repackaged in the Dutch language, and resold wholesale to pharmacies and other
wholesalers at an arbitrage profit. Arbitrage is primarily the result of pricing
practices of multinational pharmaceutical companies, differing national health
and social policies among EU member states, and currency fluctuations within the
EU. The price differences for identical EuroSpecialties in different EU member
states make parallel trade, or the trade of registered pharmaceuticals from a
low-price market into a high-price market, particularly attractive.
The retail price of pharmaceuticals reflects not only direct production
and local distribution costs but also the cost of research and development.
These costs vary enormously from one country to another. Fluctuations in
exchange rates, differential pricing by multinational pharmaceutical companies,
and varying levels of pressure exerted by the system and social security
services in different EU member states, explain the difference in prices within
Europe, especially for relatively old pharmaceuticals.
In the first quarter of 1996, The Netherlands Senate approved legislation
proposed by The Netherlands Ministry of Health, Welfare and Sports for a
decrease in pharmaceutical prices, which, if implemented, would reduce
pharmaceutical prices significantly to the average prices for pharmaceuticals
in Belgium, France, Germany, and Great Britain. This may have a unfavorable
material impact on net sales and income in the future.
On a strategic level, the initial public offering of 1,000,000 shares of
EuroMed common stock on the Nasdaq National Market on March 19, 1996, and the
exercise of the 150,000 share option by the underwriters, provided management
with significant capital resources in the first quarter of 1996.
9
<PAGE> 10
RESULTS OF OPERATIONS
First Quarter ended March 31, 1996 Compared to First Quarter ended March 31,
1995
Sales. Sales of pharmaceuticals increased 41.7% to $9,368,000 in the first
quarter of 1996 compared with $6,611,000 in the first quarter of 1995. The
increase in sales of pharmaceuticals was primarily a result of an increase in
pharmacy clients and the expanded use of registrations for the import of less
expensive branded prescription medicines, or EuroSpecialties.
Cost of Goods Sold. Cost of pharmaceuticals sold increased 43.9% to
$8,549,000 (91.3% of sales) in the first quarter of 1996 compared with
$5,941,000 (89.9% of sales) in the first quarter of 1995. The increase in the
cost of pharmaceuticals sold was primarily a result of an increase in sales,
while the increase as a percent of sales was primarily a result of a more
diversified product inventory.
Gross Profit. Gross profit increased 22.2% to $819,000 (8.7% of sales) in
the first quarter of 1996 compared with $670,000 (10% of sales) in the first
quarter of 1995. The increase in gross profit was primarily a result of an
increase in sales, while the decrease in gross profit as a percent of sales was
primarily a result of client pharmacy demand for lower pharmaceutical prices.
Selling General and Administrative Expenses. Selling, general and
administrative expenses increased 35.3% to $491,000 (5.24% of sales) in the
first quarter of 1996 compared with $363,000 (5.49% of sales) in the first
quarter of 1995. The increase in selling, general and administrative expenses
was primarily a result of an increase in sales and an increase in the number of
employees from 16 to 22, while the decrease as a percent of sales was primarily
a result of increased operating efficiencies.
Interest Expense. Interest expense increased 54.3% to $71,000 in the first
quarter of 1996 compared with $46,000 in the first quarter of 1995. The
increase in interest expense was a result of an increase in the bank overdraft
facility.
Net Income. Net income decreased 9.7% to $176,000 (1.9% of sales) in the
first quarter of 1996 compared with $195,000 (2.95% of sales) in the first
quarter of 1995. The decrease in net income was primarily the result of an
increase in taxes.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by (used in) operations was ($399,000) in the first quarter
of 1996 compared with ($1,371,000) in the first quarter of 1995.
Net cash provided by financing activities was $6,819,000 in the first
quarter of 1996 compared with $1,538,000 in the first quarter of 1995. The
initial public offering of shares on March 19, 1996 through the Nasdaq National
Market was the significant source of cash for the first quarter of 1996.
Cash and cash equivalents at the end of the first quarter 1996 was
$6,452,000 compared with $420,000 at the end of the first quarter of 1995.
10
<PAGE> 11
Management is of the opinion that these resources, together with existing
borrowing capacity, should be sufficient to finance and sustain operations at
the present rate of growth for at least the next 18 to 24 months.
11
<PAGE> 12
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Number and Description of Exhibit
<TABLE>
<CAPTION>
Number Exhibit Description
- ------ -------------------
<S> <C>
2.1 Stock Exchange Agreement, dated as of November 17, 1995, by and between Registrant and B.V.
Wisteria.(1)
2.2 Ratification Agreement.(1)
3.1 Restated Articles of Incorporation of the Registrant.(1)
3.2 Bylaws of the Registrant.(1)
4.1 Specimen Common Stock Certificate.(1)
10.1 Form of Indemnity Agreement between the Registrant and each of its directors.(1)
10.2 Form of the Registrant's 1995 Stock Compensation Plan.(1)
10.3 Summary of Management contract, dated as of January 1, 1995, by and between Confedera and Pantapharma
B.V., and translated summary.(1)
10.4 Summary of Management Contract, dated as of January 1, 1995, by and between Galenica and Pantapharma
B.V., and translated summary.(1)
10.5 Summary of Management Contract, dated as of January 1, 1995, by and between Galenica and Confedera and
Jan Bouwman and translated summary.(1)
10.6 Summary of Management Contract, dated as of January 1, 1995, by and between Galenica and Galenica and
Jan Bouwman, and translated summary.(1)
10.7 Summary of Management Contract, dated as of January 1, 1995, by and between Galenica and Confedera and
Johan Bernard Krommendam, and translated summary.(1)
10.8 Summary of Agreement, dated March 17, 1995, by and between Confedera and Topaas B.V., and translated
summary.(1)
10.9 Summary of Lease Agreement between Galenica and NIVIE Holding B.V., as amended, and translated
summary.(1)
10.10 Summary of Loan Agreement between Galenica and Ariano Voorthuizen Beheer B.V., and translated
summary.(1)
10.11 Summary of Loan Agreement among Confedera, Galenica and MeesPierson N.V., as amended, and translated
summary.(1)
10.12 Summary of Loan Agreement, dated February 1, 1995, between Confedera and Hybrida B.V., and translated
summary.(1)
10.13 Summary of Loan Agreement between Galenica and B.V. Wisteria, as amended, and translated summary.(1)
10.14 Summary of loan arrangement between Galenica and Kisters-Ascherman, and translated summary.(1)
10.15 Summary of Cooperation Agreement, dated July 10, 1995, between Confedera and International
Procedurement Agency B.V., and translated summary.(1)
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C>
10.16 Summary of Purchase Agreement, dated December 31, 1993, by and among Galenica, A. Santosa-Njotosusetyo
and Dr. D.H. ter Hofstede, and translated summary.(1)
10.17 Form of Settlement Agreement, dated February 16, 1996, between Pragmacare B.V., and individual
pharmacist and translated summary.(1)
10.18 Form of Agreement, dated November 15, 1995, between Galenica B.V., and individual pharmacists and
translated summary.(1)
10.19 Loan Agreement between Galenica B.V. and MeesPierson N.V., and translated summary.(1)
11.1 Statement regarding computation of per share earnings.(*)
27.1 Financial Data Schedule.(*)
</TABLE>
- --------------
* Filed herewith
(1) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (No. 33-80805) and incorporated herein
by reference.
(b) Reports of Form 8-K
None
Note: Items 1 through 5 are omitted because they are not applicable.
13
<PAGE> 14
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 thereunto duly authorized.
EuroMed, Inc.
DATE: May 14, 1996
Signature Title
--------- -----
/s/ Dr. A. Francois Hinnen Chairman, President and
- ------------------------------ Chief Executive Officer
Dr. A. Francois Hinnen
/s/ Jan Bouwman Chief Financial Officer,
- ------------------------------ Treasurer and Secretary
Jan Bouwman
<PAGE> 15
Exhibit Index
Exhibit No. Description
- ----------- -----------
11.1 Statement regarding computation of per share earnings.(*)
27.1 Financial Data Schedule.(*)
(*) Filed herewith
<PAGE> 1
EXHIBIT 11.1
EUROMED, INC.
COMPUTATION OF EARNINGS AND SHARES USED IN ARRIVING AT PRIMARY AND
FULLY-DILUTED EARNINGS PER SHARE FOR THE QUARTER ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Quarter Ended
March 31, 1996
--------------
<S> <C>
Net Earnings (in thousands) $ 176
----------
Computation of weighted average
number of shares outstanding
Issued: 3,150,000
Weighted average common shares 2,151,649
----------
Primary and fully diluted earnings
per common share $ .08
----------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 6,452
<SECURITIES> 0
<RECEIVABLES> 1,206
<ALLOWANCES> 0
<INVENTORY> 6,089
<CURRENT-ASSETS> 15,113
<PP&E> 615
<DEPRECIATION> 288
<TOTAL-ASSETS> 15,916
<CURRENT-LIABILITIES> 7,677
<BONDS> 0
<COMMON> 32
0
0
<OTHER-SE> 7,171
<TOTAL-LIABILITY-AND-EQUITY> 15,916
<SALES> 9,368
<TOTAL-REVENUES> 0
<CGS> 8,549
<TOTAL-COSTS> 491
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71
<INCOME-PRETAX> 282
<INCOME-TAX> 106
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 176
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
