EUROMED, INC.
8214 WESTCHESTER SUITE 500
DALLAS, TEXAS 75225
214-692-3544
214-987-2091
December 01, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: John L. Krug
Mail Stop 7-6
Re: EuroMed, Inc.
Dear Mr. Krug:
On behalf of EuroMed, Inc. (the "Company"), this letter responds to
your comment letter dated October 10, 1997. The responses set forth below are
numbered to correspond to the numbered comments in your letter.
General
1. Current Managment is not aware of any inquiry being made by the Division of
Enforcement.
Proxy Statement
The Preliminary Proxy Statement on Schedule 14A filed with the
Commission originally filed on July 1997, which is the subject of your August
20, 1997 and October 10, 1997 comment letters, has been abandoned by the
Company. At the time it was filed the Proxy Statement sought stockholder
approval for a transaction, not because stockholder approval was required under
Nevada law, but because the purchaser in the transaction required it in order to
release certain funds to the Company from escrow. The escrowed funds were
subject to reduction at certain periods if stockholder approval had not been
obtained. Management of the Company made the decision to abandon the
solicitation of proxies in light of the time and expense necessary to complete
the process.
This response letter, therefore, does not respond to the comments that
relate solely to the Proxy Statement.
<PAGE>
Amendment No. 4 to Form 10-K for the Year Ended
December 31, 1996
Management's Discussion and Analysis
Results of Operations
10. The changes have been made as requested.
11. The changes have been made as requested.
Liquidity
12. The changes have been made as requested.
Nasdaq Delisting
13. There is no way to know what effect the delisting had on the value or
marketability of the Company's stock. Prior to the delisting the price of the
Common Stock had been declining.
Change in Registrant's Certifying Accountant
14. On November 19, 1996, KPMG Accountants N.V. ("KPMG") resigned as the
Company's auditors. As a result of this resignation, Killman, Murrell & Company,
P.C. was asked to provide audit services for the Company in February 1997.
Michael Killman, managing shareholder, traveled to Amsterdam in mid-February
1997 to discuss the proposed audit with the Company's management and with KPMG.
KPMG was contacted by Mr. Killman and the resignation was discussed in detail.
The explanation as outlined by KPMG is as follows:
! KPMG had audited the combined company since 1993.
! KPMG has issued an audit proposal and engagement letter for
the 1996 year end.
! Deloitte & Touche ("Deloitte") were the auditors for
Mutarestes B.V. which was acquired by the
Company in July, 1996.
! Deloitte requested an opportunity to propose on the 1996
consolidated audit and Mr. Francois Hinnen (CEO of the Company) allowed
Deloitte to propose without telling KPMG.
! KPMG found out about the competing proposal. As a result, KPMG sent
written notice to the Company that their proposal had to be accepted by a
certain date.
! Mr. Hinnen did not respond to the notice given by KPMG on a timely basis
because he was waiting on a dollar estimate of fees by Deloitte. KPMG terminated
their proposal and resigned as the Company's auditors.
KPMG did not respond to the Company's request for information since Mr. Hinnen
was fully aware of the cause of their resignation.
Financial Statements
15. - 23. Comments 15 through 43 are being addressed in a separate letter
enclosed herewith by the Company's independent auditors, Killman, Murrell and
Company.
24. See the responses to the Comments above.
Part I
Tuesday
Item 1 Business
Wholesale Pharmaceutical Market and Competition in the European Union
25. In refrence to the Company's estimates of the European pharmaceutical market
data, please refer to the 424(b) filed on March 19, 1996.
Item 3. Legal Proceedings
26. Mr. Jansonius did not communicate his reasons for resigning his position as
a member of the Board of Directors of the Company to the current officers and
directors of the Company.
Part III
Item 10. Directors and Executive Officers of EuroMed, Inc.
27. Mr. Shelmire served as Director of Corporate Finance at LaJolla
Securities Corporation from January 1994 to March of 1995. Mr. Shuey
served as Director of Corporate Finance at LaJolla Securities
Corporation from March of 1995 to October of 1996. Prior to that Mr.
Shuey served as Director of Corporate Finance with Dillon-Gage
Securities Corporation from January 1994 to March of 1995.
Part IV
Signatures
The Form 10-K/A No. 4 has been signed by the Company's principal accounting
officer and principal financial
officer.
Forms 10-Q for the Periods Ended March 31, 1997 and June 30, 1997
29. The changes have been made as requested.
30. Comment 30 is being addressed in a separate letter enclosed herewith by the
Company's independent auditors, Killman, Murrell and Company.
Form 8-K/A Filed July 5, 1996
31. The changes have been made as requested.
32. Comment 30 is being addressed in a separate letter enclosed herewith by the
Company's independent auditors, Killman, Murrell and Company.
If I can be of assistance, please call me at 214.692.3544
Sincerely,
Elbert G. Tindell
Chairman of the Board
cc:RES~1.Robert A. Shuey, III
Jesse Shelmire, IV
Mike Killman
Richard F. Dahlson
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K/A
(Amendment No. 4)
(Mark One)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1996
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
---------------
Commission File No. 0-27720
---------------
EUROMED, INC.
(Exact name of registrant as specified in its charter)
Nevada 88-031770
(State or other (IRS Employer Identification
jurisdiction No.)
of incorporation or organization)
Wilhelminakanaal Noord 6, NL 4902VR
Oosterhout, The Netherlands
(Address of principal executive offices)
011-31-16-242-4424
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act
Title of each class Name of each exchange on which registered
None
None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $.01 per share (Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as computed by reference to the average of the closing bid and asked
prices of such stock, as reported by the Bulletin Board, on April 10, 1997
($1.3125) was $1,664,250. Shares of voting stock held by each officer and
director and by each person who owns 10% or more of the Company's outstanding
voting stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
The number shares outstanding of the registrant's common stock as of
December 01, 1998 was: 1,407,000 shares of common stock, par value $.01 per
share.
================================================================================
<PAGE>
EUROMED, INC.
For the Year Ended December 31, 1996
Table of Contents
<TABLE>
<CAPTION>
Page
Part I
<S> <C> <C>
Item Business
:1 3
Item 2: Properties 12
Item 3: Legal Proceedings 12
Item 4: Submission of Matters to a Vote of Security Holders 13
Part II
Item 5: Market for the Registrant's Common Equity and Related Stockholder 13
Matters
Item 6: Selected Financial Data 14
Item 7: Management's Discussion and Analysis of Financial Condition and
Results
of Operations 14
Item 8: Financial Statements and Supplementary Data 18
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 36
Part III
Item 10: Directors and Executive Officers of EuroMed, Inc 36
Item 11: Executive Compensation 38
Item 12: Security Ownership of Certain Beneficial Owners and Management 40
Item 13: Certain Relationships and Related Transactions 40
Part IV
Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K 42
</TABLE>
<PAGE>
PART I
This Report Form contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company's
management as well as assumptions made by and information currently available to
the Company's management. When used in this document, the words "anticipate,"
"believe," "estimate" and "expect" and similar expressions as they relate to the
Company or management of the Company are intended to identify forward-looking
statements. Such statements reflect the current views of the Company with
respect to future events and are subject to certain risks, uncertainties and
assumptions, including the risk factors described in this Report Form. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated or expected. The Company
does not intend to update these forward-looking statements.
Item 1. Business
Overview
EuroMed was incorporated as Swiss Nassau Corporation on May 17, 1994, under
the laws of the State of Nevada. The Company amended its name to EuroMed, Inc.
on October 20, 1995. The Company's principal offices are located at
Wilhelminakanaal Noord 6, NL 4902 VR Oosterhout, The Netherlands; and the
telephone number is 011-31-16-242-4424. The Company was formed as a holding
company for the purpose of acquiring companies operating in the health and
medical services industry. Effective November 17, 1995, the Company acquired all
of the issued and outstanding capital stock of EuroMed Europe, B.V. ("EuroMed
Europe") which company owns all of the issued and outstanding capital stock of
Galenica and Confedera. EuroMed Europe is a holding company for Confedera and
Galenica and does not have any operations. In July 1996, EuroMed acquired all of
the capital stock of Mutarestes B.V., a Netherlands limited liability company,
and its wholly-owned operating company, Pluripharm International, B.V., a
Netherlands limited liability company ("Pluripharm"). EuroMed has entered into
an agreement to sell Pluripharm. See "Item 7. Management Discussion and Analysis
of Financial Condition and Results of Operation -- Subsidiary Divestiture and
Capital Stock Restructuring" below.
EuroMed, Inc. ("EuroMed" or the "Company") is engaged, through its
wholly-owned Netherlands subsidiaries, Galenica B.V. ("Galenica") and Confedera
B.V. ("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 sale of EuroSpecialties to other wholesalers in The
Netherlands. The Company is licensed through The Netherlands Ministry of Health,
Welfare and Sports ("Ministry of Health") to import and trade in pharmaceuticals
and controlled substances. The Company is further subject to the Royal
Netherlands Pharmaceutical Inspection ("Pharmaceutical Inspection"), which
authority controls the exercise of the Company's pharmaceutical licenses and its
rights to import, purchase, sell, market, manufacture and distribute
pharmaceuticals in The Netherlands. Although the Company is licensed in The
Netherlands to manufacture pharmaceuticals, at present it is not engaged in any
manufacturing.
EuroSpecialties, DutchSpecialties and generics are registered with The
Netherlands government in The Hague through the Medicines Evaluation Board
("MEB"), a Dutch governmental institution comparable to the U.S. Food and Drug
Administration which authority controls the registration of ethical
pharmaceuticals in The Netherlands. Registering pharmaceuticals with the MEB
affords the Company the right to sell pharmaceuticals. 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. In
summary, 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
fifteen member states of the EU are Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Great Britain, Ireland, Italy, Luxembourg, The Netherlands,
Portugal, Spain and Sweden. The Company currently purchases EuroSpecialties in
Belgium, France, Germany, Great Britain, Greece, Italy and Spain.
The International Pharmacy Journal reported in 1995 that 33% of all
prescriptions in The Netherlands were substituted with less expensive generic
and EuroSpecialty pharmaceuticals. This was encouraged, according to the
International Pharmacy Journal, by measures of The Netherlands government to
economize in the state subsidized health care sector on some of the highest
pharmaceutical prices in Europe. On June 1, 1994, The Netherlands pharmaceutical
industry reduced retail pharmaceutical prices by 5% in a voluntary response to
pressures from The Netherlands government for a 7% reduction in the retail price
for pharmaceuticals. In 1995, the Ministry of Health proposed a decrease in
pharmaceutical prices to the level of neighboring EU member states and in April
1996, The Netherlands Senate approved legislation which would reduce prices
significantly to approximately the average prices for pharmaceuticals in
Belgium, France, Germany and Great Britain. The Netherlands pharmaceutical
market averaged very little growth in 1996, with total revenue of $2.3 billion.
The Company's primary business strategies include the expansion of
Galenica's wholesale pharmaceutical business in EuroSpecialties and generics
with pharmacies and other wholesalers throughout The Netherlands and the EU, the
expansion of Confedera's niche market within the EU in the parallel import of
EuroSpecialties, and the expansion of Confedera's generic pharmaceutical export
business worldwide. Further, the Company will continue to seek business
operations outside The Netherlands through the acquisition of healthcare related
companies or assets.
The Company's sales have increased from $6,780,000 in 1992 to $35,471,000 in
1996.
Galenica
Galenica, founded in 1988, is a wholesale pharmaceutical distributor, to
pharmacies within The Netherlands, of the following products: (i)
EuroSpecialties; (ii) DutchSpecialties; (iii) generics; and (iv)
non-prescription pharmaceuticals. Galenica maintains an inventory of over 6,000
pharmaceutical products, including controlled substances, and the licenses
required from the Ministry of Health for the wholesale distribution of
pharmaceuticals and controlled substances. Galenica is further subject to The
Netherlands Pharmaceutical Inspection which oversees Good Distribution Practice
("GDP") quality control norms for the distribution of pharmaceuticals.
In 1994, Galenica expanded its range of wholesale pharmaceuticals in
response to the demands from client pharmacies for a more comprehensive variety
of pharmaceuticals. In prior years, Galenica focused its wholesale distribution
resources within a more limited, but profitable, range of pharmaceutical
products. As a result of this change in its marketing philosophy, the assortment
of pharmaceuticals in Galenica's inventory increased to over 6,000
pharmaceutical products.
Greater specialization on the part of the pharmacist also demands specialist
wholesale services. Galenica, therefore, sells nothing but pharmaceutical
products registered with the MEB. Galenica's pharmaceutical inventory consists
of many of the registered pharmaceuticals available in The Netherlands used in a
pharmacy. No peripheral items are included in Galenica's product range, only the
pharmaceuticals which form the basis of pharmaceutical practice. This
orientation to the pharmacy excludes most hospital products and
para-pharmaceuticals (medical consumer goods such as bandages and medical
devices) with the exception of some very common products. Special attention is
paid to the product mix and the possibilities for substitution of a variety of
the more expensive DutchSpecialties with generic or EuroSpecialty products.
On February 16, 1996, Galenica entered into an agreement with twelve
pharmacists located in The Netherlands pursuant to which Galenica agreed to pay
the settlement payments owed by such pharmacists to Pragmacare B.V.
("Pragmacare") for terminating their pharmaceutical supply agreements with
Pragmacare, which payments aggregated $523,212. In return for Galenica paying
these settlement payments to Pragmacare, the pharmacists agreed to purchase
their pharmaceuticals from Galenica rather than Pragmacare. Thus, Galenica was
able to establish a supply relationship with these pharmacists. These
pharmacists have agreed to repay these settlement amounts to Galenica without
interest over a 24 month period ending February 16, 1998, through foregoing
pharmaceutical purchase discounts which would otherwise be paid to such
pharmacists by Galenica; provided, however, if any pharmacist terminates its
supply relationship with Galenica before its indebtedness to Galenica has been
paid in full, it shall owe Galenica interest on the original balance of such
indebtedness at the rate of 8% per annum from inception.
In February 1997, EuroMed Europe closed the transactions contemplated by a
purchase agreement with Pantapharma B.V. ("Pantapharma") whereby EuroMed Europe
purchased from Pantapharma, a company owned by Mr. A. Francois Hinnen, the
Chairman of the Board of the Company, all of the outstanding common stock of
Galenica Belgium, S.A. ("Galenica Belgium"). Although this agreement closed in
February 1997 the transfer of shares is treated as having occurred on January 1,
1996 due to the process of share transfers under Dutch law, which requires a
valuation statement from a certified accountant. The purchase price was $60,000.
The purchase price gave rise to the recognition of $14,790 of goodwill. This
goodwill was recognized as expense in the 1996 statement of operations.
Management believes that the acquisition of Galenica Belgium will allow EuroMed
to expand into the Belgium wholesale pharmaceutical, OTC products and active
pharmaceutical ingredients markets.
Confedera
Confedera, founded in 1977, is a wholesale parallel importer of
EuroSpecialties, and since 1994 an exporter of generic pharmaceuticals purchased
from throughout the world. Confedera holds approximately 180 registrations from
the MEB for the parallel import of EuroSpecialties. Confedera also holds six
registrations for EuroMed generic pharmaceuticals. EuroSpecialties are often
relabeled and repackaged with inserts in the Dutch language, before being sold
to Galenica and other pharmaceutical wholesalers in The Netherlands. Repackaging
is often necessary for parallel imports from EU nations such as Italy or Spain
because of the language. When repackaging, normally the original package is only
relabeled and the product information inserts changed. Confedera is further
subject to The Netherlands Pharmaceutical Inspection which oversees Good
Manufacturing Practice ("GMP") and GDP quality control norms for the
manufacture, inventory and distribution of pharmaceuticals. These regulations
set quality control standards for every pharmaceutical repackaged and
distributed by Confedera. Confedera is licensed by the Ministry of Health to
trade in pharmaceuticals and controlled substances. Confedera maintains all of
the required registrations from the MEB for the parallel import of
EuroSpecialties, and though not involved in the direct manufacturing of
pharmaceuticals, Confedera is licensed to manufacture pharmaceuticals and
acquire pharmaceuticals from GMP manufacturers.
Confedera entered into a cooperation agreement (the "Cooperation Agreement")
on July 10, 1995 with International Procurement Agency B.V. ("IPA"), a
Netherlands based development agency procurer, for the export of
pharmaceuticals. Mr. Hinnen owns 100% of the stock of Pantapharma which owns
100% of the stock of Wisteria which owns 33% of the stock of Gentrade which owns
100% of the stock of IPA. The Cooperation Agreement with IPA was the culmination
of a business relationship begun in July 1994, and relates to the sale of
pharmaceutical products and medical consumer goods (collectively, the "Goods")
to foreign clients. Under the Cooperation Agreement, IPA is primarily
responsible for the financial, administrative and logistical activities
concerning the Goods, and Confedera is responsible for purchasing the Goods,
quality control and the legal documentation pertaining thereto. The Cooperation
Agreement further provides that (i) the parties will equally split the profits
and losses of their activities, except that Confedera will receive 66.6% of the
profits (and assume the same percentage of the losses) for customers located by
Confedera; and (ii) as long as Confedera's prices for Goods are competitive, IPA
will purchase Goods exclusively from Confedera, although Confedera shall be
entitled to sell Goods to IPA on a nonexclusive basis. The Cooperation Agreement
expires on July 10, 1997, subject to annual renewal by the parties; provided,
however, that the Cooperation Agreement is automatically terminated if L.D.
Bruinsma ceases to be a director if IPA or if Mr. Hinnen ceases to be a director
of Confedera.
IPA's expertise in working with international development agencies,
charities and relief organizations have provided the Company with an entree into
new international markets. As a consequence of the relationship with IPA,
Confedera has exported pharmaceuticals for Catholic Relief Services to Bosnian
war refugees in Croatia, for World Vision USA to Ethiopia and for the World Bank
to Belarus, Kyrgyzstan, Moldova, Ghana, Niger, Mali, and for the United Nations
in Vietnam. Confedera has pending export orders for the nations of Angola,
Surinam, Cambodia and Mongolia.
Business Strategy
Product Focus. The Company's product strategy has been to focus its
resources on: (i) the expansion of Galenica's wholesale pharmaceutical business
in EuroSpecialties, DutchSpecialties and generics with pharmacies and other
wholesalers in The Netherlands and the EU; (ii) the expansion of Confedera's
dossier of parallel import registrations for EuroSpecialties and as a
consequence its niche market within the EU in the parallel import of
EuroSpecialties; (iii) the expansion of Confedera's dossier of generic
pharmaceutical products registration; and (iv) the expansion of Confedera's
generic pharmaceutical export business worldwide. The Company is undertaking a
change to its business strategy (See "Management's Discussion and Analysis of
Financial Condition and Results of Operation -- Subsidiary Divestiture and
Capital Stock Restructuring").
Growth Strategy. The Company continues to seek opportunities to expand its
operations geographically through the development of new distribution centers
along with undertaking a strategy to acquire healthcare related companies or
assets outside of the Netherlands, including possible purchases of healthcare
companies or assets in the United States. Although the Company may pursue
international mergers, acquisitions or strategic alliances, the Company is
currently not a party to any agreements with respect to such transactions.
Galenica will continue to focus on the development of new pharmacy clients,
joint ventures and alliances with pharmacy groups in The Netherlands and the EU.
Confedera will continue to focus on the exploitation of the parallel import
market for EuroSpecialties and generics in The Netherlands and the EU, and on
the development of the pharmaceutical export market through international
charitable, development and non-profit organizations.
Maximum Price Law. In 1995, the Ministry of Health proposed a decrease in
pharmaceutical prices to the level of neighboring EU member state. In April
1996, The Netherlands Senate approved legislation that reduced the prices of
pharmaceuticals significantly (an average of 17.5%) to approximately the average
prices for pharmaceuticals in Belgium, France, Germany and Great Britain
("Maximum Price Law"). This legislation determines by decree a maximum price for
any registered pharmaceutical. Therefore the maximum price may not exceed the
arithmetic average of the pharmacy purchase prices of comparable pharmaceuticals
in such countries. The legislation establishes a prohibition on the sale of
pharmaceuticals to pharmacies at a higher price than the maximum price decree.
The basis for prices in the reference EU member states will be the generally
accepted price lists issued less than six months before the date of the decree
establishing the maximum price. No maximum price will be established if
comparable pharmaceuticals are quoted on the list of only one reference country.
The scope of the Maximum Price Law and the discretionary power for the Minster
to set a maximum price by decree is restricted to pharmaceuticals, which in the
opinion of the Minister should be available to any person at a reasonable price.
The maximum prices will be reviewed every six months. EuroMed has pursued a
complaint procedure against the Maximum Price Law and the method of setting the
maximum price for pharmaceuticals.
(See Item 3 "Legal Proceedings").
This Maximum Price Law took effect June 1, 1996. Prior to the effective date
of the Maximum Price Law, the expenditure for pharmaceuticals in the Netherlands
for 1996 increased by 5.6%, compared with the same period of 1995. However,
after the implementation of the Maximum Price Law, the expenditure on
pharmaceuticals in The Netherlands decreased by 8.1% compared to the same period
in 1995. The overall effect on EuroMed was a 15.1% decrease in its reimbursement
on products sold. Further, as a result of The Maximum Price Law the Company
experienced the following decreases in reimbursements: DutchSpecialties, a
decrease of 13.6%; EuroSpecialties, a decrease of 17.7%; and generics, a
decrease of 20.7%. Based upon the volume of pharmaceuticals dispensed by the
Netherlands pharmaceutical market in the first nine months of 1996, growth is
expected to be 0.1% to nil. The number of prescriptions written in The
Netherlands increased in 1996 by 2.2%.
Trends in Demand. The Netherlands pharmaceutical market as a whole averaged
very little growth in 1996, with total revenue of $2.3 billion dollars. The
Netherlands pharmaceutical market as a whole averaged 3.5% growth in 1995. Due
to the effect of the Maximum Price Law on DutchSpecialties and price difference
with EuroSpecialties and generic products payor reimbursement EuroMed
experienced a decreased margin. As a consequence, the margin created by
DutchSpecialty, EuroSpecialty and substitution decreased by over 40%. It is the
objective of the Ministry of Health to increase prescribing by generic name (for
1996 this was the case in 29.4% of all prescriptions).
Wholesale Pharmaceutical Market and Competition in the European Union
General. In the European pharmaceutical market, supply and demand do not
currently play the traditional free market role of setting prices. Most
pharmaceutical sales within the EU are made through a doctor's prescription. As
most doctors see the well being of the patient as most important and as the cost
of pharmaceuticals is paid in whole or in part by the state or national
insurance companies, price considerations are not usually paramount in the
doctor's choice of pharmaceuticals. This is one very important reason why price
competition in the European pharmaceutical market is limited. Compared with the
United States, the relatively low degree of substitution of pharmaceutical
products in Europe with generic or parallel imported EuroSpecialties is another
element which further reduces the scope of real price competition in the
European pharmaceutical market. As a result, pharmaceutical marketing and
promotion are more directed to the qualifications of the products than to the
price.
Due to the absence of substantial price competition in the European
pharmaceutical market, some EU member states have imposed some form of direct or
indirect price control. Countries which have historically exercised more control
over individual pharmaceutical prices are Belgium, France, Greece, Luxembourg,
Italy, Portugal and Spain. In Denmark, manufacturers and importers are not
restrained in setting and changing their prices. In the remaining EU member
states, varying methods of price control exist, including the application of
reimbursement systems. Germany and The Netherlands have a system of reference
pricing, pursuant to which pharmaceuticals have been grouped together on the
basis of identical active ingredients (Germany), or in terms of the therapeutic
effect of the pharmaceutical (The Netherlands). If the pharmaceutical is priced
above the reference, the patient must pay the difference. Prices have therefore
converged at the reference price. In Great Britain, however, the Department of
Health controls individual companies' profits on sales made to the national
health service. Prices in EU member states such as Portugal, France, Spain and
Greece are sometimes up to 50% less, in the estimate of the Company, than the
prices for the same products in Denmark, Germany and The Netherlands.
The European Market. The pharmaceutical industry stands to benefit from
substantial savings in the creation of a single European market. Fundamental
aspects of current pharmaceutical marketing lead to increased costs within
Europe. The system of registrations of pharmaceutical products is nationally
based. This results in additional costs for manufacturers and wholesale
importers and exporters who must apply for separate registrations throughout the
EU. Increased costs also result from the differing national price control and
reimbursement systems. Although the creation of a common European market for
pharmaceuticals has been a long standing EU objective, legislation in this field
has gradually developed in the past few years. The legislation is aimed at the
gradual elimination of various obstacles to pharmaceutical trade in Europe,
while at the same time assuring a high standard of protection of health and life
of humans. With respect to the pricing of pharmaceuticals, progress is much less
advanced. The considerable price differences for identical branded products in
different EU member states make parallel trade (i.e., the trade of
pharmaceuticals from a low-priced country into a high-priced country)
particularly attractive.
Management of the Company estimates that Europe has approximately 500
pharmaceutical wholesalers with combined 1994 revenues of over $64 billion,
1,200 wholesale distribution centers and more than 100,000 pharmacists. The
Company further estimates that the majority of the individual national markets
within the EU are supplied by between three and five major companies with the
exception of Belgium, Greece, Italy, Spain and Portugal, where there are still
several dozen or even hundreds of small cooperatives or family businesses which
supply relatively local clientele. Within the EU, more strategic consortia are
being formed between major multinational pharmaceutical companies in order to
share costs and protect market share. Multinationals are strengthening their
position in the field of generic pharmaceuticals by purchasing competitors. The
strategy is to preclude the loss of market share due to the increased
substitution of pharmaceuticals by generics and the expiration of patents.
Manufacturers are expressing a new interest in direct sales in order to
strengthen the preference for their proprietary products. There is also a
tendency toward industrial restructuring as a result of the legislation of EU
import and export regulations and controls.
The Netherlands Market. The Netherlands pharmaceutical market as a whole
averaged very little growth in 1996 with total revenue of $2.3 billion. The
Netherlands has approximately 1,530 pharmacies, according to statistics compiled
by the Royal Netherlands Association for the Advancement of Pharmacy.
Pharmacies, clinical hospitals and specialist drugstores comprised 82.9%, 12.3%,
and 4.8%, respectively, of The Netherlands pharmaceutical market in 1994,
according to the Royal Netherlands Association for the Advancement of Pharmacy.
Market Share and Competition. Management estimates that the Company's
wholesale pharmaceutical market share in The Netherlands in 1996 was
approximately 1.5%, based upon an extrapolation of the Company's revenue
compared with the total revenue of The Netherlands pharmaceutical market. With a
wholesale pharmaceutical market share of approximately 40%, Apothekers
Cooperatie OPG U.A. ("OPG") is the largest pharmaceutical distributor in The
Netherlands, followed by ACF Brocacef and Interpharm with each approximately
20%, according to management estimates. The Company's primary competitors in the
pharmaceutical parallel import market in The Netherlands are, in the estimate of
the Company's management, Polyfarma, an OPG subsidiary, with 3.8% of the market,
and Magnafarma, an ACF Brocacef subsidiary, with 3.7%.
The Price of Pharmaceuticals. The retail price of pharmaceuticals reflects,
among other things, direct production and distribution costs and research and
development costs. These costs vary significantly from country to country.
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.
The Incentive Measures. The incentive measures that were implemented by The
Netherlands government in 1988 aim to substitute generic preparations and
parallel imports for the predominantly more expensive proprietary medicinal
products. The Netherlands Central Health Care Fees Organization has set a
reference price for pharmaceuticals that allows pharmacies to keep one-third of
the difference between the price of the substitution and the reference price.
Demographics. The population of The Netherlands (approximately 16,000,000)
is relatively young compared to that of other EU nations; however, The
Netherlands population is maturing in average age. This aging presents an
opportunity for growth in pharmaceuticals. According to the Foundation for
Pharmaceutical Statistics based in The Netherlands, persons of 65 years and
older on average consume 3.5 times as many pharmaceuticals as persons under 65.
The aging population in The Netherlands is leading to a growing demand for
pharmaceuticals and to strongly rising health care costs.
Parallel Trade in Pharmaceuticals. The European Court of Justice has held
that parallel trade in pharmaceuticals is legal because any restrictive
agreement or practice which tends to compartmentalize the EU and which impedes
or prevents parallel trade, and thus competition, is not compatible with the
completion of the single market. Parallel trade began in the 1970s; however, it
has remained relatively small in relation to the total EU market for
prescription pharmaceuticals. Management believes that the total volume of
parallel trade in the EU is approximately 2% of the total market for
prescription pharmaceuticals.
Government Regulation
General. Galenica's and Confedera's businesses and operations are subject to
comprehensive government regulation in The Netherlands. Government regulation
includes the detailed inspection of and controls over the distribution, import,
export, repackaging and relabeling practices and analysis procedures for
pharmaceuticals. In addition, the Ministry of Health may from time-to-time
establish maximum prices for certain products. (See "-- Business Strategy --
Maximum Price Law" above) As the wholesale pharmaceutical distribution industry
is highly regulated and dependent on national and EU supranational health care
and social policies, there can be no assurance that the regulatory environment
in which the Company operates will not change significantly in the future. The
Company believes that regulations and policies will continue to change, and,
therefore, intends to regularly monitor developments in this area of the law.
Pharmaceutical Registrations and Licenses. The Company is licensed through
the Ministry of Health to import and trade in pharmaceuticals and controlled
substances. The Company is further subject to the Royal Netherlands
Pharmaceutical Inspection ("Pharmaceutical Inspection"), which authority
controls the exercise of the Company's pharmaceutical licenses and its rights to
import, purchase. sell, inventory, market, manufacture and distribute
pharmaceuticals in The Netherlands. The Company's licenses run for an unlimited
period as long as the business operations, buildings and procedures are in
compliance with GMP and GDP quality control norms. Although the Company is
licensed in The Netherlands to manufacture pharmaceuticals, at present it is not
engaged in any manufacturing.
EuroSpecialties, DutchSpecialties and generics are registered with The
Netherlands government in The Hague through the Medicines Evaluation Board
("MEB"), which authority controls the registration of ethical pharmaceuticals in
The Netherlands. Before it can trade in pharmaceuticals. the Company must first
apply to the Ministry of Health for a license, and afterwards may apply with the
MEB for registrations of specific pharmaceuticals it wishes to import and trade
on The Netherlands market. EuroSpecialties are registered with the MEB after
preparation of an application and dossier specifying the specific pharmaceutical
and the specific country of origin within the EU for importation, including the
qualifications of the Company for dealing in the pharmaceutical. Registration
fees are approximately $3,000 per pharmaceutical per country of origin, plus
approximately $1,000 per year for renewal. The Company holds 180 registrations
for the import of EuroSpecialties and 6 registrations for generic pharmaceutical
products.
Confedera maintains all of the required licenses for the parallel import,
packaging, repackaging, labelling, wholesale deliverance and export of
pharmaceuticals in order for Confedera to conduct its current business. Although
Confedera is not presently involved in the direct or indirect manufacturing of
pharmaceuticals, it holds licenses for these purposes. Each country in the EU
imposes licensing requirements on pharmaceutical importers and exporters and on
wholesale pharmaceutical distributors. In connection with the expansion of
existing operations and the entry into new markets, Confedera may therefore be
subject to the compliance standards of other nations.
Galenica is licensed through the Ministry of Health to distribute ethical
pharmaceuticals and certain controlled substances (opiates) purchased from a
manufacturer, wholesale distributor, importer or parallel importer. Galenica
must comply with regulations regarding operating and security standards for its
distribution facility, including the storage, sale, delivery and transportation
of pharmaceuticals. Galenica is further subject to the Pharmaceutical
Inspection, which oversees GDP. The Company believes it is in compliance with
all material regulations applicable to the wholesale distribution of
pharmaceuticals and controlled substances.
The Netherlands Political Economy. The Netherlands government administers
one of Europe's most comprehensive welfare states, with taxes and social
security premiums placing the government in command of nearly one-half the
national income. Participation in the health system is compulsory for everyone
earning less than a certain wage, which includes roughly 70% of the population.
The Netherlands social security covers medical and hospital costs, and insures a
minimum income for people unable to earn a living as a result of illness,
injury, unemployment or retirement. As in many nations of the world,
expenditures on health comprise a major part of The Netherlands' cross domestic
production, and are increasing faster than the cost of living. This trend is
mainly the result of the continued increase in life expectancy, but also in
particular it is due to the progress made by medical and pharmaceutical science,
which in turn gives rise to hopes and demands that social security and medical
insurance will soon not be able to finance. National measures advocated for
slowing down this trend affect everyone involved in the field of health care,
but especially the pharmaceutical industry and pharmaceuticals, even if
pharmaceuticals constitute an increasingly small part of the expenditure on
health.
Reimbursement and Pricing Policies. The Netherlands government has decreed
that new pharmaceuticals introduced on the market should only qualify in
exceptional cases for reimbursement under the state medical insurance scheme.
This follows the incentive measure that was implemented in 1988 to substitute
generic preparations and parallel imports for the predominately more expensive
proprietary medicinal products. Under the incentive measure, pharmacies are
allowed to keep one-third of the difference between the price of the parallel
import and the price of the substituted pharmaceutical. The savings for the
health insurer is thus twice as high as the incentive for the pharmacy.
The Netherlands government announced that it intends to remove as many as
possible of the constraints imposed by public and private sector regulations and
market practices. In particular, The Netherlands Ministry of Economic Affairs is
seeking to make pharmaceutical distribution cheaper and more efficient by
allowing market forces to operate more freely.
Customers and Discounts
The Company distributes pharmaceuticals to pharmacies and wholesalers in The
Netherlands, and exports pharmaceuticals to developing nations for various
international charitable, relief and development organizations. Export orders
are usually large bulk purchases of pharmaceuticals destined for redistribution
within the benefit country. Pharmacy customers, however, generally purchase
pharmaceuticals in less than full case lots on a daily basis as products are
needed at the retail level. Although sales to pharmacies involve small order
quantities, they typically generate relatively high gross margins. Galenica
offers its customers standard industry practice discounts for volume purchases,
timely payment of invoices, and in special cases, product discounts for use of
parallel imports. Galenica operates on a just-in-time basis to keep costs to a
minimum. Pharmaceuticals purchased by 6:00 p.m. are delivered the next day to
client pharmacies via overnight courier. A fully computerized order and stock
control system ensures smooth and reliable processing of customer orders, with
direct electronic ordering via computer modem, or by telephone and fax.
The Company has from time to time entered into written understandings and
agreements with certain of its customers setting forth various terms and
conditions of sale. Galenica has contracts with three client pharmacies which
require the client to purchase a specified volume of pharmaceuticals in return
for favorable discount terms from Galenica. The loss of a key customer of the
Company could have a material adverse effect on the Company. Although the
Company believes that such effect could be minimized through increasing sales to
existing customers, securing additional customers within current distribution
areas and by expanding into new markets, there can be no assurance thereof.
Suppliers
The Company maintains many competing products in inventory and is not
dependent upon any single supplier, although the loss of a major supplier could
adversely affect the business of the Company. The Company distributes the
products of over seventy suppliers, including the products of major
international pharmaceutical manufacturers. Management believes that the
Company's relationships with its suppliers are generally excellent.
Employees
As of December 31, 1996, the Company employed a working staff of twenty
five, including three pharmacists, four pharmacist technicians and five
part-time employees. The Company also uses the services of ten standby employees
from time-to-time for the repackaging of parallel imports. The Company does not
have any collective bargaining agreements and has not experienced any work
stoppages as a result of labor disputes. The Company considers its employee
relations to be good.
Insurance
The repackaging and relabeling of pharmaceutical products may subject the
Company to product liability or professional liability as a result of errors in
repackaging or relabeling or failure to provide appropriate drug literature
warnings or directions with its pharmaceutical products. The Company could be
liable for product liability claims for defective products by its mere
participation in the distribution of pharmaceuticals, even though it does not
manufacture or compound such products. The Company presently maintains in effect
the types of insurance customary in the pharmaceutical industry, including
inventory, transportation, professional liability and product liability
insurance. Galenica maintains approximately $32,500 per event in transport
coverage and approximately $1,00,000 per event and twice that per year in
liability coverage, while Confedera maintains approximately $150,000 per event
in transport coverage and approximately $1,250,000 per event and twice that per
year in liability coverage. Galenica and Confedera have joint coverage for
inventory/goods in the amount of approximately $3,650,000 per year. The Company
believes that its insurance protection is adequate for its present business
operations, but there can be no assurance that the Company will be able to
maintain its insurance coverage in the future, that such insurance coverage will
be available on acceptable terms, or that this insurance coverage will be
adequate to cover any and all potential or professional liability claims.
Tax Issues
United States Foreign Income. As a United States corporation, EuroMed is
taxed on its worldwide income, including foreign branch income as earned, and
foreign dividends when received. Double taxation, under the provisions of The
Netherlands -- United States tax treaty, effective January 1, 1994, is avoided
by means of foreign tax credits, subject to certain limitations.
Alternatively, a deduction may be claimed for actual foreign taxes.
The Netherlands Corporate Income Tax. Corporate income is taxed in The
Netherlands at a rate of 37% on the first 100,000 Dutch Guilders of income, and
at a rate of 35% on income above 100,000 Dutch Guilders. Commencing January 1,
1997, the above 37% was reduced to 36%. As of January 1, 1998, the rate over the
entire amount of the corporate income will be 35%. A Netherlands company is
subject to corporate tax on its total foreign and domestic income. Double
taxation of certain foreign source income, including foreign branch income, is
avoided by reducing The Netherlands tax by the ratio of foreign income to total
income; provided, that the foreign income is subjected to or is considered to be
subjected to a tax according to the income that is levied on account of the
other foreign state. A Netherlands company can claim a deduction for management
service fees and interest paid to foreign affiliates, provided such amounts do
not exceed what would reasonably be paid to an unrelated entity in an arm's
length transaction, and provided the payment of such amounts is not dependent
upon the profit gained by The Netherlands company. Interest and royalties paid
by a Netherlands company to its foreign parent generally are not subject to The
Netherlands withholding tax, provided such amounts do not exceed what would
reasonably be paid to an unrelated entity on an arm's length basis. Service and
management fees are not subject to a withholding tax, unless they constitute a
hidden dividend attracting dividend withholding tax. There are no provincial or
municipal income taxes in The Netherlands.
The Netherlands Corporate Capital Gains. Capital gains are taxed as ordinary
income. Capital gains realized by a foreign corporation on the sale of shares of
a Netherlands company in general are not subject to Netherlands taxation, unless
the shares are treated as a passive investment which is very unlikely where, as
in this case, the seller owns all of the shares of the subsidiary being sold.
The Netherlands Tax of Capital. The Netherlands capital tax is payable once
only on each contribution to the capital of a Netherlands company. The tax is
levied at the rate of 1% on the par value of shares issued or the actual value
of the contribution, whichever is higher.
Dividends. Any dividend policy must take into consideration the need, before
distribution of a dividend to stockholders, for remittances from the Company's
operating subsidiaries in The Netherlands. Any dividends from the Company's
subsidiaries in The Netherlands will be subject to a withholding tax in The
Netherlands of 25%. Dividends received by the Company from its Netherlands
subsidiaries are taxable in the United States as ordinary income. These
dividends are not eligible for the dividends received deduction otherwise
allowed to United States corporate stockholders on dividends from United States
domestic corporations. In the event of a dividend from its subsidiaries, the
Company may elect annually to either deduct The Netherlands withholding tax
against its income or take the withholding taxes as a credit against its United
States tax liability, subject to United States foreign tax credit limitation
rules.
Other Items
The Company is a Nevada corporation; however, a substantial portion of the
Company's assets are located outside the United States. In addition, certain
members of the management and Board of Directors of the Company named herein are
residents of countries other than the United States. As a result, it may not be
possible for investors to effect service of process within the United States
upon such persons or to enforce against such persons or the Company judgments of
courts of the United States predicated upon civil liabilities under the United
States federal securities laws. Since there is no treaty between the United
States and The Netherlands providing for the reciprocal recognition and
enforcement of judgements, U.S. judgments are not automatically enforceable in
The Netherlands. However a final judgement for the payment money obtained in a
U.S. court and not rendered by default, which is not subject to appeal or any
other means of contestation and is enforceable in the United States, would on
principle be upheld and be regarded by a Netherlands court of competent
jurisdiction as conclusive evidence when asked to render a judgment in
accordance with such final judgment by a U.S. court, without substantive
re-examination or relitigation on the merits of the subject matter thereof,
provided that such judgment has been rendered by a court of competent
jurisdiction, in accordance with rules of proper procedure, that it has not been
rendered in proceedings of a penal or revenue nature and that its content and
possible enforcement are not contrary to public policy or public order of The
Netherlands. Notwithstanding the foregoing, there can be no assurance that
United States investors will be able to enforce against the Company, or members
of the management or Board of Directors or certain experts named herein who are
residents of The Netherlands or countries other than the United States, any
judgments in civil and commercial matters, including judgements under the
federal securities laws. In addition, there is doubt as to whether a Netherlands
court would impose civil liability on the Company or on the members of the
management or Board of Directors of the Company in an original action predicated
solely upon the federal securities laws of the United States brought in a court
of competent jurisdiction in The Netherlands against the Company or such
members.
Item 2. Properties
The Company leases its corporate executive offices and an office and
warehouse distribution facility in Oosterhout, The Netherlands of approximately
19,000 square feet, which lease expires upon the earlier of six-months notice or
December 31, 1998, subject to a five-year renewal among the parties. The
Oosterhout facility has been adapted to the Company's specifications for climate
control, alarm and security systems and special secured access storage for
controlled substances. The Company uses modern warehousing techniques and
equipment.
Item 3. Legal Proceedings
Confedera is a defendant in a loan dispute with Beheer Maatschappij Apohold
Slikkerveer B.V. ("Apohold"). The dispute was filed with the District Commercial
Court of Breda, The Netherlands on October 3, 1995. On February 12, 1989,
Apohold loaned Confedera approximately $313,000, which loan was not documented.
The controlling shareholder of Apohold is a 50% equity owner of Hybrida B.V.,
which at one time owned all the capital stock of Confedera. In this lawsuit,
Apohold is claiming that Confedera owes Apohold not only the principal balance,
but interest of approximately $147,000. Under Netherlands law, interest is only
due on a loan of capital if the interest rate is agreed to by the parties, and
if agreed but not stated, the interest rate is equal to the legal interest
(currently 5%). Confedera acknowledges that it owes Apohold the principal
balance of the loan, but denies that it ever agreed to pay any interest to
Apohold. Confedera intends to vigorously defend this lawsuit in its first court
hearing on May 29, 1997.
As a result of the implementation of the Maximum Price Law, EuroMed Europe
has filed a formal complaint with the Ministry of Health. This complaint argues
the validity of the provisions of this Maximum Price Law and the method of price
fixing for the individual products. Also, in March 1997, EuroMed Europe filed a
lawsuit with the Federal Court of the Netherlands against the Ministry of Health
(V.W.S.), demanding timely adoptions of currency rates that effect the
subsequent setting of prices related to these adapted rates. Further, EuroMed
Europe has claimed damages as a result of the non-timely action by the Ministry
of Health in this regard.
EuroMed, Inc. has filed two separate lawsuits against one of its directors,
Gregory Alan Gaylor. The first, Case No. A366523, was filed against Mr. Gaylor
and Mr. Robert Jansonius, a former director of EuroMed, in the State District
Court of Clark County, Nevada on November 15, 1996. In the suit, the Company
alleges that Mr. Gaylor acted improperly by diverting Company funds to improper
uses, representing himself as having managerial authority over Company affairs,
and making untrue statements regarding Company business. The Company seeks
temporary and permanent injunctive relief prohibiting Mr. Gaylor from taking
certain actions, and the Court has granted a temporary restraining order and has
signed an order granting a preliminary injunction in the Company's favor. The
Company is in the process of negotiating a settlement agreement with Mr.
Jansonius.
The second lawsuit against Mr. Gaylor was initiated on February 18, 1997 in
Dallas, Texas in the United States District Court for the Northern District of
Texas, and bears Civil Action No. 3-97CV0322-H. The lawsuit alleges that Mr.
Gaylor violated Section 13(d) of the Securities Exchange Act of 1934, as
amended, by failing to make necessary federal securities law filings upon his
acquisition of more than a 5% beneficial interest in the Company's common stock,
par value $0.01 per share (the "Common Stock"). In addition, the Company has
requested injunctive relief and damages resulting from Mr. Gaylor's alleged
disparagement of the Company and Mr. Gaylor's alleged interference with the
Company's operations arising from his communications with the Company's
investors, customers, stockholders and accountants.
Discovery has not commenced in either of these matters and it is not
possible to predict the outcome of these cases.
Item 4: Submission of Matters to a Vote of Security Holders
On November 13, 1996, by written consent, the holders of a majority in
interest of the issued and outstanding Common Stock, elected C.D.J. Evers as a
director of the Company, to fill a vacancy on the Board of Directors of the
Company created by the resignation of Mr. Jan Bowman. 1,990,627 votes were cast
for Mr. Evers. Because this vote was by written consent rather than by
solicitation of proxies there were no abstentions or broker non-votes.
PART II
Item 5: Market for the Registrant's Common Equity and Related Stockholder
Matters
The Common Stock has been included for quotation on the Bulletin Board
National Market under the symbol "EMED" since December 30, 1996. From March 19,
1996 to December 11, 1996 the stock was listed on the Nasdaq National Market
under the symbol "EMED".
The following table sets forth the high and low sales prices on the Nasdaq
National Market for the Common Stock for fiscal year 1996.
1996
------
High Low
Quarter
First Quarter. $ 7.875 $ 6.625
Second Quarter 7.250 5.750
Third Quarter. 6.875 4.500
Fourth Quarter 4.500 0.625
At January 17, 1997, the Company had 517 stockholders of record of its
Common Stock and 3,977,000 shares outstanding.
Dividend Policy
The Company has never paid cash dividends on its Common Stock. The Company
presently intends to retain all cash for use in the operation and expansion of
the Company's business and does not anticipate paying any cash dividends in the
near future. In addition, the Company's existing bank credit agreement prohibits
the declaration or payment of cash dividends on its Common Stock.
<PAGE>
Item 6: Selected Financial Data
The following selected consolidated financial data for each of the five
years in the period ended December 31, 1996, have been derived from the audited
consolidated financial statements of the Company included herein. The selected
consolidated financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto included
elsewhere in this report.
<TABLE>
<CAPTION>
(In Thousands of U.S. Dollars)
Except for Per Share Data
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
----------- ------------ ------------ ------------ --------
INCOME STATEMENT DATA
SALES......................... $ 6,780 $ 12,470 $ 20,271 $ 32,978 $ 35,471
GROSS PROFIT.................. 659 1,362 2,027 3,356 3,045
OPERATING PROFIT (LOSS)....... 179 590 915 1,256 (297)
NET INCOME (LOSS)............. 118 444 637 836 (7,708)
EARNINGS (LOSS) PER SHARE..... .06 .22 .34 .42 $ (2.35)
WEIGHTED Average Number of
Shares Outstanding......... 2,000,000 2,000,000 2,000,000 2,000,000 3,276,923
</TABLE>
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
--------- --------- --------- --------- -------
(In Thousands of U.S. Dollars)(QC)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA AT YEAR END
INVENTORY................................ $ 668 $ 1,460 $ 2,497 $ 4,719 $ 4,526
TOTAL CURRENT ASSETS..................... 972 2,093 3,837 8,013 12,186
TOTAL ASSETS............................. 1,131 2,342 4,375 8,845 13,374
CURRENT LIABILITIES...................... 1,182 2,149 3,433 6,653 8,057
LONG-TERM DEBT........................... 672 611 685 1,075 90
STOCKHOLDERS' EQUITY (DEFICIT)........... (723) (418) 257 1,117 5,227
</TABLE>
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Year ended December 31, 1996 Compared to Year ended December 31, 1995
Sales. Sales of pharmaceuticals by the Company increased 7.5% to $35,471,000
in 1996 (Confedera represented 23% of total sales, while Galenica represented
the remaining 77%), compared with $32,978,000 in 1995. The increase in sales was
primarily the result of the growth in the wholesale distribution volume of
pharmaceuticals within The Netherlands, especially in parallel imported
EuroSpecialties, and in DutchSpecialties and generics which was spread equally
among these categories. The market as a whole only grew by 0.1% or nil. The
Company anticipates that this market would not continue to grow.
The growth in the sales volume of parallel imported EuroSpecialties, and in
DutchSpecialties and generics, within The Netherlands was primarily the result
of the increasing acceptance and success of the Company's sales strategy and
marketing efforts with pharmacies and other wholesale distributors without
pharmaceutical registrations. The Company diversified and expanded its
pharmaceutical inventory in order to improve its position within the market, and
equally important, the Company strengthened its relationship with individual
pharmacies through its expertise as a parallel importer. As a result, the use of
less expensive, higher margin parallel imported pharmaceuticals, such as
EuroSpecialties, and also generics, increased as a variable substitute for more
expensive branded pharmaceuticals. Sales of parallel imports were largely
dependent upon the number of registered pharmaceuticals in the Company's dossier
file.
Cost of Goods Sold. Cost of pharmaceuticals sold by the Company increased
9.4% to 32,426,000 (91.4%) in 1996, compared with $29,622,000 (89.8% of sales)
in 1995. The increase in the cost of goods sold was primarily the result of
greater sales volume. The 1.6% increase in the cost of goods sold percentage was
primarily due to the Maximum Price Law which took effect June 1, 1996, (See Item
1 "Business -- Business Strategy, Maximum Price Law") and the currency exchange
rates experienced between the Dutch Guilder and all other foreign currencies.
Gross Profit. Gross profit declined 9.2% to 3,045,000 (8.6% of sales), in
1996, compared with $3,356,000 (10.2% of sales) in 1995. The decline was
primarily the result of the implementation of the Maximum Price Law, which took
effect on June 1, 1996 (See Item 1 "Business -- Business Strategy, Maximum Price
Law").
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 59.1% to $3,342,000 (9.4% of sales) in 1996,
compared with $2,100,000 (6.4% of sales) in 1995. The increase in selling,
general and administrative expense was primarily a result of the increase in
sales and the increase in costs associated with the expansion of business
operations. The increase in selling, general and administrative expenses as a
percent of sales was primarily a result of higher cost associated with the newly
created publicly traded company ($600,000 in professional fees), which are
variable and subject to the Company's ongoing litigation and the increase in
wages and salaries associated with employees who were initially hired in mid to
late 1995 ($600,000), which are fixed expenses. Professional fees were
materially higher as a result of the Company's initial public offering in March
1996 (the "IPO") and larger than anticipated professional and administrative
costs of the acquisition and operation of Pluripharm.
Interest Expense. Interest expense increased 199.1% to $359,000 in 1996,
compared with $120,000 in 1995. The increase in interest expense was primarily
the result of an increase in use of the Company's line of credit to finance its
pharmaceutical inventory and a result of the Pluripharm acquisition (See "--
Subsidiary Divestiture and Capital Stock Restructuring").
Loss on Investment. The Company purchased Mutarestes, B.V. in July 1996 for
$5,992,000. Due to disputes with the management and prior owners of Mutarestes,
B.V., the Company made the decision that its investment in Mutarestes, B.V.
should be liquidated. The estimated realizable value of the investment was
$4,502,000, therefore, a valuation provision of $7,227,000 was charged against
operations in December 1996.
Income (Loss) from Operations Excluding Investment Valuation Provision.
Income (loss) from operations decreased 157.5% to a $481,000 loss (1.3% of
sales), in 1996, compared with $836,000 income (2.5% of sales) in 1995. The
decline in income for operations declined as a result of lower margin on sales,
higher operating costs, higher professional fees, and an increase in interest
costs.
Year ended December 31, 1995 Compared to Year ended December 31, 1994
Sales. Sales of pharmaceuticals increased 63% to $32,978,000 in 1995,
compared with $20,271,000 in 1994. The increase in sales was primarily the
result of the growth in the wholesale distribution volume of pharmaceuticals
within The Netherlands, especially in parallel imported EuroSpecialties, and in
DutchSpecialties and generics, and of the growth in the export of generic
pharmaceuticals to developing nations.
The growth in the sales volume of parallel imported EuroSpecialties, and in
DutchSpecialties and generics, within The Netherlands was primarily the result
of the increasing acceptance and success of the Company's sales strategy and
marketing efforts with pharmacies and other wholesale distributors without
pharmaceutical registrations. The Company diversified and expanded its
pharmaceutical inventory in order to improve its position within the market, and
equally important, the Company strengthened its relationship with individual
pharmacies through its expertise as a parallel importer. As a result, the use of
less expensive, higher margin parallel imported pharmaceuticals, such as
EuroSpecialties, and also generics, increased as a viable substitute for more
expensive branded pharmaceuticals. Sales of parallel imports were largely
dependent upon the number of registered pharmaceuticals in the Company's dossier
file. During 1995, registered pharmaceuticals increased from 136 to 180.
The growth in the export of generic pharmaceuticals was primarily the result
of the rapid development of the pharmaceutical export market as a result of the
Company's business relationship with IPA (See Item 1 "Business -- Confedera").
IPA's expertise in working with international development agencies, charities
and relief organizations provided the Company with an entree into this new
market.
Cost of Goods Sold. Cost of pharmaceuticals sold increased 62.4% to
$29,622,000 (89.8% of sales) in 1995, compared with $18,244,000 (90.2% of sales)
in 1994. The increase in the cost of goods sold was primarily the result of
greater sales volume.
Gross Profit. Gross profit increased 65.6% to $3,356,000 (10.2% of sales) in
1995, compared with $2,027,000 (10% of sales) in 1994. The increase in gross
profit was primarily the result of the growth in sales volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 88.8% to $2,100,000 (6.4% of sales), in 1995,
compared with $1,112,000 (5.5% of sales) in 1994. The increase in selling,
general and administrative expenses was primarily a result of the increase in
sales and the increase in costs associated with the expansion of business
operations, while the increase in selling, general and administrative expenses
as a percent of sales was primarily a result of a reclassification of expense
related accounts.
Interest Expense. Interest expense increased 100% to $120,000 in 1995,
compared with $60,000 in 1994. The increase in interest expense was primarily
the result of an increase in use of the Company's line of credit to finance the
growth in its pharmaceutical inventory.
Net Income. Net income increased 22% to $836,000 (2.5% of sales) in 1995,
compared with $687,000 (3.4% of sales) in 1994. The increase in net income was
primarily the result of the increase in sales volume, while the decrease in net
income as a percent of sales was primarily the result of an increase in taxes.
See "Note 7 to the Notes to the Consolidated Financial Statements" contained
elsewhere in this Report.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Sales. Sales of pharmaceuticals increased 62.6% to $20,271,000 in 1994, from
$12,470,000 in 1993. The increase in sales was primarily the result of the
growth in the wholesale distribution volume of pharmaceuticals within The
Netherlands, especially in parallel imported EuroSpecialties, and in
DutchSpecialties and generics, and of the growth in the export of generic
pharmaceuticals to developing nations.
The growth in the sales volume of parallel imported EuroSpecialties, and in
DutchSpecialties and generics, within The Netherlands, was primarily the result
of the increasing acceptance and success of the Company's sales strategy and
marketing efforts with pharmacies. The Company diversified and expanded its
pharmaceutical inventory in order to improve its position within the market, and
equally important, the Company strengthened its relationship with individual
pharmacies through its expertise as a parallel importer. As a result, the use of
less expensive, higher margin parallel imported pharmaceuticals, such as
EuroSpecialties, and also generics, increased as a viable substitute for more
expensive branded pharmaceuticals. Sales of parallel imports were largely
dependent upon the number of registered pharmaceuticals in the Company's dossier
file. During 1994, registered pharmaceuticals increased from 62 to 136.
The growth in the export of generic pharmaceuticals was primarily the result
of the rapid development of the pharmaceutical export market as a consequence of
the Company's business relationship with IPA (See "Item 1 Business --
Confedera"). IPA's expertise in working with international development agencies,
charities and relief organizations provided the Company with an entree into this
new market. As a consequence of the IPA relationship, in 1994 the Company
exported pharmaceuticals for Catholic Relief Services to Bosnian war refugees in
Croatia, and for World Vision USA to Ethiopia.
Cost of Goods Sold. Cost of pharmaceuticals sold increased 64.2% to
$18,244,000 (90% of sales) in 1994, from $11,108,000 (89% of sales) in 1993. The
increase in the cost of goods sold was primarily the result of greater sales
volume.
Gross Profit. Gross profit increased 48.8% to $2,027,000 (10% of sales) in
1994, from $1,362,000 (10.9% of sales) in 1993. The increase in gross profit was
primarily the result of the growth in sales volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 44% to $1,112,000 (5.5% of sales) in 1994,
from $772,000 (6.2% of sales) in 1993. The increase in selling, general and
administrative expenses was primarily a result of the increase in sales and the
increase in costs associated with the expansion of business operations, while
the decrease in selling, general and administrative expenses as a percent of
sales was primarily a result of increased operating efficiencies, the spread of
costs over increasing sales volume, and the addition of a fully-automated
ordering system.
Interest Expense. Interest expense increased 9.1% to $60,000 in 1994, from
$55,000 in 1993. The increase in interest expense was primarily the result of a
minimal increase in use of the Company's line of credit to finance the growth in
its pharmaceutical inventory.
Net Income. Net income increased 55% to $687,000 (3.2% of sales) in 1994,
from $444,000 (3.6% of sales) in 1993. The increase in net income was primarily
a result of the increase in sales volume and the reduction in taxes due to the
utilization of a tax loss carryforward.
Liquidity and Capital Resources
Historically, the Company has financed its growth principally with cash flow
from operations, borrowings under inventory and accounts receivable credit
facilities and other indebtedness.
Cash provided by (used in) operations was $756,000 in 1994, ($2,343,000) in
1995, ($1,009,000) in 1996. An increase in bank financing was the significant
source of cash in 1996, along with the sale of common stock.
Working capital at December 31, 1996 was $4,129,000 compared to $1,360,000
at December 31, 1995. This increase was primarily a result of the inclusion of
$4,502,000 of net assets to be realized on the divestiture of Pluripharm. (See
"-- Subsidiary Divestiture and Capital Stock Restructuring"). Without this
current asset, the actual working capital of the Company would have declined by
$1,733,000 due to reduction in accounts receivable ($946,000) and increase in
bank overdraft of ($895,000). The Company used its available working capital in
1996 to acquire $418,000 of licenses, vehicles and equipment and to repay
$985,000 of long-term debt.
At December 31, 1996, the Company's cash and cash equivalents totaled
$411,000. Management is of the opinion that these resources, together with the
Company's existing borrowing capacity, should be sufficient to finance and
sustain operations at the present growth rate through December 31, 1997. The
long-term liquidity requirements will be met from operating sources in 1998 and
beyond, assuming a significant reduction in the litigation expenses currently
incurred by the Company. Otherwise, the Company intends to divest itself of its
European operating subsidiaries in order to meet its long-term liquidity
requirements. See "Item 3 -- Legal Proceedings."
Galenica and Confedera jointly entered into a finance agreement with Bank
MeesPierson N.V. ("MeesPierson"), as of February 7, 1995, as amended on November
9, 1995, pursuant to which MeesPierson has made available a total amount of
approximately $4,300,000, of which approximately $2,600,000 is available for
Confedera, and approximately $1,700,000 is available for Galenica. The facility
is for working capital. The interest rate is equal to the promissory note
interest rate of The Netherlands Central Bank, plus 2.5%. As of December 31,
1996, the interest rate was 5.5%. MeesPierson has been provided with a first
priority lien on the accounts receivable of Galenica and Confedera, a first
priority lien on the pharmaceutical registrations of Confedera, and a first
priority lien on all present and future pharmaceutical inventory of Galenica and
Confedera. Pantapharma has agreed to subordinate its indebtedness to MeesPierson
and has further agreed to guarantee this credit facility (See "Note 5 to the
Notes to Consolidated Financial Statements" contained elsewhere in this Report).
The Company's bank credit facility restricts the Company's ability to declare
and pay dividends. In February 1997, this credit facility was increased to
$4,870,000.
Inflation
Management believes that inflation has had no impact on the Company's
operations.
Nasdaq National Market Delisting
On November 22, 1996, EuroMed received written notice from The Nasdaq Stock
Market, Inc. ("Nasdaq") that Nasdaq had determined to delist the Common Stock
from trading on the Nasdaq National Market effective November 27, 1997. The
stated basis for this action was the failure by the Company to comply with
certain Nasdaq rules and Nasdaq concerns with the nature of the Company's
corporate governance and control in view of recent actions by the Company
(including the filing by the Company of a lawsuit against Gregory A. Gaylor in
the State District Court of Clark County, Nevada) and Mr. Gaylor and allegations
made by the Company and Mr. Gaylor against each other. Thereafter, EuroMed
appealed the delisting and trading in the Common Stock was halted until the
decision on the appeal was rendered.
On December 2, 1996, EuroMed submitted a formal written response to Nasdaq
addressing Nasdaq's specific areas of concern. On that same date, EuroMed
received a letter from Nasdaq requesting responses as to numerous additional
questions and comments. EuroMed attended the delisting hearing on December 5,
1996, and presented its arguments against delisting of the Common Stock. On
December 10, 1996, EuroMed was informed that its appeal had been unsuccessful
and that Nasdaq was delisting the Common Stock effective December 11, 1996.
Subsequently, the Common Stock has been included for quotation on the Bulletin
Board National Market.
Subsidiary Divestiture and Capital Stock Restructuring
On March 25, 1997, the Board of Directors approved a five-point
restructuring plan. First, the Company has entered into an agreement to sell its
Pluripharm subsidiary, which it acquired in July 1996, to a pharmacy wholesale
management group located in The Netherlands. This transaction is subject to
certain conditions precedent, including receipt of a fairness opinion. This
transaction will result in the Company receiving approximately 6,100,000 Dutch
Guilders (approximately $3,104,000). In connection therewith, the Company will
have an estimated loss of approximately $7,227,000.
Second, the Company has entered into a Settlement Agreement with the two
former owners of Pluripharm, A. Doets and N.T.P. Roozekrans, whereby, among
other things, the Company and Messrs. Doets and Roozekrans have agreed to mutual
releases and the Company has agreed to indemnify Messrs. Doets and Roozekrans
from certain third parties claims. In consideration for such releases, Messrs.
Doets and Roozekrans have delivered to the Company the 850,000 shares of Common
Stock which they received in the Pluripharm acquisition. Third, the Company and
Mr. Francois Hinnen, the Chairman of the Board of the Company, have agreed that,
at the closing of the sale of its Pluripharm division, Mr. Hinnen shall return
to the Company 850,000 shares of Common Stock owned by B.V. Wisteria, a company
owned by Mr. Hinnen. Fourth, the Board of Directors has authorized a share
buy-back program whereby the Company may attempt to repurchase up to 300,000
shares of Common Stock from time to time. The shares of Common Stock being
repurchased and returned to the Company as described above will reduce the
outstanding Common Stock from 4,000,000 shares to approximately 2,000,000
shares.
Finally, the Company announced that it will undertake a strategy of
acquiring healthcare related companies or assets outside of The Netherlands,
including possible purchases of health care companies or assets in the United
States.
The above transactions are being undertaken by the Company primarily as a
result of the changing pharmaceutical wholesale market in The Netherlands, which
has resulted in significantly lowered prices and decreased margins, and the
Company's inability to consolidate the Pluripharm operations into the Company's
operations in The Netherlands. Management believes that the cash to be received
in the Pluripharm transaction will allow the Company to pursue its new
acquisition strategy, with the intention of bringing greater value to the
stockholders of the Company.
Item 8: Financial Statements and Supplementary Data
The response to this item is submitted as a separate section of this Form
10-K. See "Item 14, Exhibits, Financial Statement Schedules and Reports in Form
8-K."
<PAGE>
EUROMED, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENT
DECEMBER 31, 1996 AND 1995
<PAGE>
<TABLE>
<S> <C>
TABLE OF CONTENTS
Auditor's Report............................................................. 21
Consolidated Balance Sheets as of December 31, 1995 and 1996................. 23
Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and
1996....................................................................... 24
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994,
1995 and 1996.............................................................. 25
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996....................................................................... 26
Notes to the Consolidated Financial Statements............................... 27
</TABLE>
<PAGE>
AUDITOR'S REPORT
Board of Directors and Stockholders
EuroMed, Inc. and Subsidiaries
We have audited the consolidated balance sheets of EuroMed, Inc. and
Subsidiaries as of December 31, 1996, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of EuroMed, Inc. and
Subsidiaries' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. 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 audit provides 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 EuroMed,
Inc. and Subsidiaries as of December 31, 1996, and the results of their
operations and cash flows for the year then ended, in conformity with generally
accepted accounting principles in the United States of America.
/s/ KILLMAN, MURRELL & COMPANY, P.C.
KILLMAN, MURRELL & COMPANY, P.C.
Date: March 21, 1997
Dallas, Texas
<PAGE>
AUDITORS' REPORT
To the Board of Directors of
EuroMed, Inc. and subsidiaries
We have audited the consolidated balance sheets of EuroMed, Inc., and
subsidiaries as of December 31, 1994 and 1995, the related consolidated
statements of income, shareholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 1995. These consolidated financial
statements are the responsibility of EuroMed, Inc. and subsidiaries 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 in the United States of America. 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 EuroMed,
Inc. and subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and cash flows for each of the years in the three-year period ended
December 31, 1995, in conformity with generally accepted accounting principles
in the United States of America.
/s/ KPMG ACCOUNTANTS N.V.
KPMG Accountants N.V.
Amstelveen, The Netherlands
February 15, 1996.
<PAGE>
EUROMED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands of U.S. Dollars)
December 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS
Year Ended
December 31,
1995 1996
Current Assets
<S> <C> <C>
Cash and cash equivalents......................................... $ 64 $ 411
Trade accounts receivable......................................... 2,101 1,155
Loan receivable................................................... 304 548
Due from affiliated companies and other related parties-- Note 3.. 703 695
Inventory......................................................... 4,719 4,526
Other receivables and prepaid expenses............................ 122 349
Investment in Mutarestes B.V. and Subsidiary, net of valuation
allowance of $7,227 -- 4,502
------ --------
TOTAL CURRENT ASSETS...................................... 8,013 12,186
------ --------
Vehicles, Furniture and Equipment, at cost.......................... 591 815
Less: Accumulated depreciation and amortization................... (266) (406)
------ --------
NET VEHICLES, FURNITURE AND EQUIPMENT..................... 325 409
------ --------
Other Assets
Intangible assets less accumulated amortization of $181 and $256
in 1995 and 1996, respectively................................. 507 607
Other............................................................. -- 172
------ --------
TOTAL OTHER ASSETS........................................ 507 779
------ --------
TOTAL ASSETS.............................................. $8,845 $ 13,374
====== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Loan payable...................................................... $ 311 $ 311
Bank overdraft-- Note 4........................................... 2,645 3,540
Trade accounts payable............................................ 3,002 3,076
Due to affiliated companies, controlling interests and other
related 10 69
parties-- Note 5...............................................
Taxes payable and other Accrued Expenses-- Note 12................ 685 1,061
------ --------
TOTAL CURRENT LIABILITIES................................. 6,653 8,057
Long-term debts -- Note 6
Unsecured loan from B.V. Wisteria................................. 423 --
Unsecured loan from Hybrida B.V................................... 496 --
Unsecured loan from Pantapharma B.V............................... 125 90
Other long-term debt.............................................. 31 --
------ --------
TOTAL LIABILITIES......................................... 7,728 8,147
------ --------
Commitments and contingencies-- Note 8.............................. -- --
Stockholders' 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 20 40
authorized;
2,000,000 and 4,000,000 shares issued and outstanding in 1995
and 1996, respectively..............................................
Additional paid-in capital........................................ 48 12,013
Retained earnings (deficit)....................................... 1,047 (6,661)
Cumulative currency translation adjustment........................ 2 (33)
------ --------
1,117 5,359
Less: 23,000 Treasury Shares, at cost.......................... -- (132)
------ --------
TOTAL STOCKHOLDERS' EQUITY................................ 1,117 5,227
------ --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $8,845 $ 13,374
====== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
EUROMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of U.S. Dollars, Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended
December 31,
1994 1995 1996
----------- ----------- --------
<S> q <C> <C> <C>
Sales..................................... $ 20,271 $ 32,978 $ 35,471
Cost of goods sold........................ 18,244 29,622 32,426
----------- ----------- -----------
Gross profit.................... 2,027 3,356 3,045
Selling, general and administrative 1,112 2,100 3,342
----------- ----------- -----------
expenses..................................
Operating income (loss)......... 915 1,256 (297)
Other Income (Expense)
Interest income......................... 17 72 187
Interest (expense)...................... (60) (120) (359)
Loss on investment in Mutarestes B.V.
and
Subsidiary-- -- -- (7,227)
----------- ----------- -----------
Note 13..............................
Income loss before income taxes......... 872 1,208 (7,696)
Income taxes-- Note 7..................... 185 372 12
----------- ----------- -----------
Net income (loss)............... $ 687 $ 836 $ (7,708)
=========== =========== ===========
Earnings (loss) per share................. $ 0.34 $ 0.42 $ (2.35)
=========== =========== ===========
Weighted average number of shares 2,000,000 2,000,000 3,276,923
=========== =========== ===========
outstanding...............................
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
EUROMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands of U.S. Dollars)
For the Years Ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
Cumulative
Common Common Retained currency
Stock Stock Additional Earnings/ translation Treasury Total
EuroMed Galenica & Paid-in (Deficit) adjustment Share Shareholders'
Inc. Confedera Capital (QC) ---- (QC) ----- Purchase Equity
--------- ----------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of December 31,
1993........................ $ 56 $ 7 $ (476) $ (5) $ -- $ (418)
Net income.................. -- -- -- 687 -- -- 687
Currency translation
adjustment................ -- -- -- -- (17) -- (17)
Formation of EuroMed,
Inc....................... -- -- 5 -- -- -- 5
------- ----- ------ ------- ----- ----- -------
Balance as of December 31,
1994........................ -- 56 12 211 (22) -- 257
Formation of the operating
group:
Change in par value and
150 for 1 stock split... 2 -- (2) -- -- -- --
Acquisition of Galenica
B.V. and Confedera B.V.
by EuroMed, Inc. through
the issuance of
1,850,000 shares of
common stock............ 18 (56) 38 -- -- -- --
Net income................ -- -- -- 836 -- -- 836
Currency translation
adjustment.............. -- -- -- -- 24 -- 24
------- ----- ------ ------- ----- ----- -------
Balance as of December 31,
1995........................ 20 -- 48 1,047 2 -- 1,117
Sale of Common Stock March
1996, net of issuing
cost of $1,228.......... 12 -- 6,236 -- -- -- 6,248
Acquisition of Subsidiary
July 1996-- Note........ 8 -- 5,729 -- -- -- 5,737
Treasury Stock Purchase... -- -- -- -- -- (132) (132)
Net Loss.................. -- -- -- (7,708) -- -- (7,708)
Currency Translation
Adjustment.............. -- -- -- -- (35) -- (35)
------- ----- ------ ------- ----- ----- -------
Balance as of December 31,
1996........................ $ 40 $ -- $12,013 $(6,661) $ (33) $(132) $ 5,227
======= ===== ======= ======= ===== ===== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
EUROMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
Year Ended
December 31,
1994 1995 1996
<S> <C> <C> <C>
--------- --------- -------
Cash flows from operating activities:
Net income (Loss)................................... $ 687 $ 836 $(7,708)
Adjustments to reconcile net income (loss) to cash
flow from
operations:
Amortization of intangible assets................ 40 75 75
Depreciation expense............................. 62 106 151
Increase in Investment Valuation Allowance - 7,226
Changes in operating assets and liabilities:
Trade accounts receivable........................... (106) (1,531) 946
Due from affiliated companies and other related (88) (596) 8
parties...............................................
Inventory........................................... (826) (1,981) 193
Other receivables and prepaid expenses.............. (35) (64) (391)
Trade accounts payable.............................. 1,165 1,013 74
Taxes payable and other accrued expenses............ (61) 253 376
Due to affiliated companies, controlling interests
and other (82) (454) 59
------- ------- -------
related parties..................................
Net cash provided by (used in) operating 756 (2,343) 1,009
------- ------- -------
activities............................................
Cash flows from investing activities:
Acquisition of intangible assets.................... (222) (200) (174)
Borrowings by and repayments from a customer........ (354) 52 (244)
Purchase of vehicles, furniture and equipment, at (129) (231) (243)
cost..................................................
Investment in Mutarestes B.V. and Subsidiary........ -- -- (5,992)
------- ------- -------
Net cash used in investing activities....... (705) (379) (6,653)
------- ------- -------
Cash flows from financing activities:
Common stock issued................................. -- -- 6,248
Borrowing under bank overdraft facility............. 34 2,174 895
Repayment of long-term debt......................... (27) (24) (985)
Long-term debt borrowings........................... 2 357 --
Purchase of Treasury Shares......................... -- -- (132)
------- ------- -------
Net cash provided by financing activities... 9 2,507 6,026
------- ------- -------
Effect of currency translation adjustment on cash..... 7 (34) (35)
------- ------- -------
Net increase (decrease) in cash and cash equivalents.. 67 (249) 347
Cash and cash equivalents at the beginning of the year 246 313 64
------- ------- -------
Cash and cash equivalents at the end of the year...... $ 313 $ 64 $ 411
======= ======= =======
Cash paid during the year:
Interest............................................ $ 28 $ 96 $ 291
======= ======= =======
Income taxes........................................ $ -- $ -- $ 112
======= ======= =======
Supplemental schedule of noncash investing and
financing activities:
Increase in assets $ - $ - $ 62
Assumption of liabilities - - (33)
Reduction in due from affiliated companies in
connection with acquisition of Galenica Belgium S.A. - - (29)
Investment in Mutarestes, B.V. and subsidiary - - 5,737
Common stock - - (8)
Additional paid-in-capital - - (5,729)
------ -------- -------
$ - $ - $ -
====== ======= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
EUROMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1995 AND 1996
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
Swiss Nassau Corporation was incorporated on May 17, 1994 in the state of
Nevada, United States of America, with authorized and issued share capital of
1,000 shares of common stock with no par value (the "Common Stock"). On June 15,
1994, computer equipment with estimated value of $4,998 was contributed in
exchange for all of the shares of Swiss Nassau Corporation. On October 20, 1995,
Swiss Nassau Corporation changed its name into EuroMed, Inc. ("Euro-Med" or the
"Company") and increased its authorized share capital to 20,000,000 Common Stock
with a new par value of $0.01 per share, and 5,000,000 preferred stock with a
par value of $0.01 per share. On October 20, 1995, EuroMed, Inc. effected a 150
for 1 stock split of its Common Stock.
On November 17, 1995, all of the shares of Galenica B.V. ("Galenica") and
Confedera B.V. ("Confedera"), both based in Oosterhout, the Netherlands, were
exchanged by the ultimate shareholder of both companies for all of the shares of
a newly-formed company, EuroMed Europe B.V. ("EuroMed Europe"). Prior to this
transaction Galenica and Confedera were owned by B.V. Wisteria ("Wisteria"), a
Netherlands limited liability company, which is owned by Pantapharma B.V., which
is owned by Mr. A. Francois Hinnen, the CEO of EuroMed. All of the shares of
EuroMed Europe were then exchanged for 1,850,000 shares of Common Stock. Neither
EuroMed Europe nor the Company had any operations, and these transactions were
completed in contemplation of an initial public offering of shares of EuroMed.
These transactions are considered as having no effect on the basis of accounting
for assets and liabilities and are viewed as having occurred among members of a
commonly controlled group in connection with a proposed capital-raising
transaction after which the controlling shareholder will have retained control.
The accompanying consolidated financial statements reflect the historical
combined financial position as of December 31, 1995 and the combined results of
operations and cash flows for each of the years in the two year period ended
December 31, 1995 of Galenica and Confedera. The nominal equity of EuroMed
between June 15, 1994 and November 17, 1995 has been included where appropriate.
The consolidated financial statements for the year ended December 31, 1996
include the accounts of EuroMed, EuroMed Europe, Galenica, Confedera, and
Galenica Belgium S.A. All intercompany balances and transactions have been
eliminated in consolidation.
Description of Business
EuroMed and its operating companies, Galenica and Confedera (collectively,
the "Companies"), which are 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.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Accounts Receivable
Accounts receivable consists of amounts due from the wholesale distribution of
medicine to pharmacies. Collections of accounts receivable are made by wire
transfer (wire transfer is the customary payment method in the Netherlands). The
Company has not established an allowance for doubtful accounts and does not use
the reserve method for recognizing doubtful accounts. Uncollectible accounts
receivable are treated as direct write-offs when the Company's management
determines that collection is not profitable. Bad debt exposure as determined
under this method would not vary significantly for the reserve method since bad
debt losses are insignificant.
EUROMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1995 AND 1996
Inventory
Inventory is stated at the lower of cost or net realizable value.
Vehicles, Furniture and Equipment
Vehicles, furniture and equipment are stated at cost. Depreciation is
calculated on the straight-line method over the estimated useful lives of the
assets.
The estimated useful lives are:
-- Cars -- 5 years
-- Furniture and equipment -- 3 up to 5 years
Intangible Assets
Intangible assets consist of the capitalized cost for licenses to trade
medicines in The Netherlands. Such licenses which are valid for an indefinite
period of time are amortized on a straight-line basis over eight years, being
the expected economic life of the licenses. Experience has indicated that such a
period is appropriate.
Taxation
Income taxes are accounted for in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes." Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recognized or settled. The effect on tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Pension and Other Post-Retirement and Post-Employment Plans
The Companies have no defined benefit pension plan nor other post-retirement
or post-employment plans.
Foreign Currencies Translation
The functional currency of the Companies is the Dutch guilder. The reporting
currency herein is the US dollar. The translation of guilders into US dollars is
performed for balance sheet accounts using exchange rates in effect at the
balance sheet dates and for income statement amounts using average exchange
rates during the period. The gains and losses resulting from translations are
included in stockholders' equity.
Cash Equivalents
All highly liquid investments purchased with original maturities of
approximately three months or less are considered to be cash equivalents.
Earnings Per Share
Earnings per share for the year ended December 31, 1994 and 1995 is based upon
net income divided by 2,000,000 shares of Common Stock outstanding. Earnings
per share for the year ended December 31, 1996 is based upon the weighted
average number of EUROMED,
INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1995 AND 1996
common shares of common stock outstanding during the year.
NOTE 2: LONG-TERM INCENTIVE PLAN
The Company adopted its 1995 Long-Term Incentive Plan ("Plan") as of
November 18, 1995. An aggregate of 300,000 shares of Common Stock has been
authorized and reserved for issuance under the plan pursuant to the exercise of
options or the grant of restricted stock awards. The Plan provides for the grant
of incentive stock options, non-qualified stock options, restricted stock awards
and stock appreciation rights. All of the Company's and its subsidiaries'
employees, independent directors and advisors are eligible to receive awards
under the plan, but only employees of EuroMed and its subsidiaries are eligible
to receive incentive stock options. The exercise price for incentive stock
options granted under the Plan may be no less than the fair market value of the
Common Stock on the day of the grant.
As of December 31, 1996 and 1995, no grants have been awarded under this
plan.
NOTE 3: DUE FROM AFFILIATED COMPANIES AND OTHER RELATED PARTIES
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
---------------- ----------
<S> <C> <C>
(in thousands of US dollars) (QC)
Topaas B.V........................ $ -- $ 262
B.V. Wisteria..................... 561 410
International Procurement Agency 65 10
B.V...............................
Dr. A. Francois Hinnen............ 19 13
Galenica Belgium S.A.............. 29 --
Other............................. 29 --
----- -----
$ 703 $ 695
===== =====
</TABLE>
See Note 5 for description of related party transactions.
All amounts due from affiliated companies and the related parties are due
upon demand and non-interest bearing, except for the loan to Wisteria which
bears interest at 7% as from January 1, 1996. Confedera sold medicines for
$29,000 to Galenica Belgium S.A.
in 1995, prior to the acquisition of Galenica Belgium S.A. by EuroMed.
NOTE 4: BANK OVERDRAFT
On November 9, 1995, EuroMed concluded a $4,300,000 bank credit facility
with a maximum of $1,700,000 for Galenica. The facility is secured by pledge of
intangible assets, inventory and accounts receivable. The unused position of
this facility as of December 31, 1996, was $760,000. The long-term loan from
Pantapharma is subordinated to the credit facility. In February 1997, the credit
facility was increased to $4,870,000. The interest rate is equal to promissory
note interest rate of The Netherlands Central Bank, plus 2.5% (5.5% and 6.25% at
December 31, 1996 and 1995, respectively).
According to the November 9, 1995, bank credit facility retained earnings
may not be distributed by Galenica and Confedera as long as the liability
capital, which is defined as the shareholders' equity plus subordinated loans
minus intercompany receivables from EuroMed Europe of Galenica and Confedera
minus 50% of the net book value of the intangible assets, is less than 25% of
the balance sheet total. At December 31, 1996 and 1995, no retained earning may
be distributed.
No commitment fee is due for the bank credit facility.
NOTE 5: DUE TO AFFILIATED COMPANIES, CONTROLLING INTERESTS AND OTHER
RELATED PARTIES
At December 31, 1995 and 1996, EuroMed was indebted to Pantapharma in the
amount of $10,000 and $69,000, respectively, and is reflected as a current
liability.
The ultimate shareholder of Pantapharma charged either directly or through a
controlled company $120,000 in 1996 (1995: $125,000, 1994: $224,000) as
management fees, which is shown under selling, general and administrative
expenses in the statements of operation.
The amounts due to Pantapharma primarily arose from the accounting for
corporate taxes due within the fiscal unity with the (ultimate) parent company.
Galenica sells medicines to two pharmacies owned by the ultimate owner of
Galenica and a relative of his. These two pharmacies buy products and receive
discounts and quarterly bonuses comparable to the prices and discounts and
bonuses received by the other pharmacies to which Galenica is selling.
During the three years ended December 31, the following amounts were sold:
1994 1995 1996
--------- --------- -------
(in thousands of US
dollars)(QC)
Sales by Galenica to two pharmacies
owned by the $ 1,799 $ 2,486 $ 2,846
ultimate owner and a relative of his......
In July 1994, Confedera began a business relationship which was formalized
in July 1995 by the Cooperation Agreement with International Procurement Agency
B.V. ("I.P.A."). The purpose of the cooperation relationship is to sell
medicines and other goods to third world countries. Mr. Hinnen, CEO of EuroMed,
owns 100% of the stock of Pantapharma B.V. which owns 100% of the stock of B.V.
Westeria which owns 33% of the stock of Gentrade B.V. which owns 100% of the
stock of I.P.A. B.V. Westeria has an option to purchase the remaining 67% of
Gentrade B.V. The profits of these contracts are distributed to Confedera and
I.P.A. based on certain percentages which vary depending upon whether the
project is managed by Confedera or I.P.A.
Inventory includes $25,000 of medicines and other products relating to
these projects which have not been sold as of December 31, 1996. The amounts due
from I.P.A. relate to medicines sold by Confedera B.V. to I.P.A.
Confedera sold the following amounts under the cooperation agreement with
I.P.A.:
1995 1996
(in thousands of
US dollars)(QC)
Sales under the cooperation agreement with $ 4,619 $ 2,905
I.P.A......................................
In February 1997, EuroMed Europe entered into a purchase agreement with
Pantapharma BV (which is owned 100% by Mr. Hinnen, CEO of Euromed Europe)
whereby EuroMed Europe would purchase from Pantapharma all of the outstanding
common stock of Galenica Belgium, S.A. effective January 1, 1996. The purchase
price was $60,000. The balance sheet of Galenica Belgium S.A. of January 1, 1996
was as follows:
January 1,
ASSETS(QL) 1996
-------------------------- -------
Cash...................... $ 16,517
Other Assets
Current Assets........ 58,739
Furniture and Equipment, net 3,357
--------
TOTAL ASSETS.... $ 78,613
========
Current Payables.......... $ 33,403
Stockholder's Equity...... 45,210
--------
$ 78,613
The $60,000 purchase price was determined by Francois Hinnen and the
acquisition was treated as a purchase for financial accounting purposes. The
assets and liabilities of Galenica Belgium were considered to be stated at their
fair value at January 1, 1996; therefore, EuroMed recognized $14,790 of goodwill
related to the acquisition and the goodwill was recognized as an expense in the
1996 statement of operations. For the year ended December 31, 1996, Galenica
Belgium recognized a loss of $18,563, which included the $14,790 goodwill
charge.
Actual regulatory approval for the acquisition was not obtained until
February 1997; however, the operations of Galenica Belgium were included in
EuroMed's operations statement due to EuroMed's management control of Galenica
Belgium operations in 1996, EuroMed was responsible financially for the losses
of Galenica Belgium, and the ownership relation with the Company's CEO, Francois
Hinnen. Management believed that Galenica Belgium would allow EuroMed to expand
into Belgium's wholesale pharmaceutical, OTC products, and active pharmaceutical
ingredients markets.
NOTE 6: LONG-TERM DEBTS
Hybridia B.V. owned Confedera until March 2, 1995. On that date, Hybrida
B.V. sold the Confedera shares to Wisteria for $16,000, representing the par
value of the issued common stock. The unsecured loan from Hybrida B.V. is
interest-free, has no repayment schedule, and is subordinated to the bank
overdraft. The loan will not be due before January 1, 1997. The interest
charges, by applying the companies borrowing rate of 8% in 1994 and 6.25% in
1995 would have been $35,000 for 1994 and $31,000 for 1995. The balance was paid
in January 1996.
The unsecured loan from Wisteria has no repayment schedule, and is
subordinated to the bank overdraft. The loan will not be due before January 1,
1998. This loan from Wisteria was interest bearing at 8% until December 31,
1994, and is interest-free starting January 1, 1995. The interest charge, by
applying the Companies' borrowing rate for 1995 of 6.25% would have been $26,000
for 1995. This balance was repaid in early 1996.
The unsecured loan from Pantaphama is interest-free, has no repayment
schedule and is subordinated to the bank overdraft since November 9, 1995. The
loan will not be due until January 1, 1998. The interest charge, by applying the
Companies' borrowing rate for 1996 and 1995 of 7.00% and 6.25%, respectively,
would have been approximately $1,000 for each year.
NOTE 7: TAXATION
Income taxes for Galenica and Confedera are calculated based on their
combined income before income taxes. The actual income tax expense attributable
to income before income taxes for the years ended December 31, 1995, and 1994
differed from the amounts computed by applying The Netherlands statutory rates
(for the year 1995, and for the period July 1, 1994 to December 31, 1994; 40%
for the first Dutch Guilders 100,000 of taxable income and 35% for taxable
income in excess of Dutch Guilders 100,000; for the period January 1, 1994 to
June 30, 1994) to pre-tax income from continuing operation. In 1996, an
effective tax rate of 36% was used to compute income tax expense. Income tax
expense (benefit) is less than the amount computed by multiplying earnings from
continuing operations by the statutory income tax rates due to the following:
1994 1995 1996
------- ------ ------
Tax expense (benefit) at statutory rates.... $ 310 $ 433 $ (169)
Utilization of tax loss carry forward....... (137) (57) --
Effect of tax loss in United States parent -- -- 193
company.....................................
Other....................................... 12 (4) (12)
------ ------ ------
$ 185 $ 372 $ 12
====== ====== ======
At December 31, 1996, the Company has a tax loss carryforward in EuroMed
(the United States parent company) of $538,000 which could be used to offset
future taxable income in the United States. This loss carryforward will expire
in 2011. The $182,000 tax benefit of the loss carryforward was not recognized
since, in the Company's estimate, there was less than a fifty percent (50%)
chance that sufficient taxable income would be earned to offset the loss
carryforward. There are no material temporary tax differences that would give
rise to deferred tax assets or liabilities.
NOTE 8: COMMITMENTS AND CONTINGENCIES
Lease Commitments
Obligations under the long-term non-cancelable operating lease for the
premises in Oosterhout for the remainder of its term are as follows:
(in thousands of US
dollars)
1997.........$..105........
1998............110........
1999............115........
2000............121........
$ 451
Loan Payable
A shareholder (Apohold) of Hybrida B.V., the former parent of Confedera,
granted a loan of $288,000 to Confedera on February 12, 1989. This loan is
treated in the consolidated financial statements as an interest-free loan since
there is no loan agreement. In July 1995, Apohold started legal proceedings to
demand the repayment of the loan plus interest in the aggregate amount of
$518,000. In the opinion of management, the amount of ultimate liability with
respect to this action will not have a material effect on results of operations,
cash flow or financial position of the company. The debt amounting to $311,000
as at December 31, 1995 and 1996, has been classified as a current liability.
Management Contracts
Dr. A. Francois Hinnen provides his services to the Companies through
Management Contracts with a term of January 1, 1996 through December 31, 2000.
Under the term of these contracts, the Companies agree to pay Pantapharma
$125,000 annually plus a car allowance. In the event that the Companies
terminate these contracts prior to their expiration, Pantapharma shall be
entitled to continue to receive the management fee for the remainder of the term
of the contracts. In the event that Dr. A. Francois Hinnen is unable to fulfill
his duties to the Companies for any reason, Pantapharma shall be entitled to
receive the management fee for one year thereafter.
NOTE 9: BUSINESS AND CREDIT CONCENTRATIONS
Most of the Companies' customers are located in The Netherlands. No single
customer accounted for more than 10% of the company's sales in 1996, 1995 or
1994.
NOTE 10: ESTIMATED FAIR VALUES
The estimated fair values of the company's financial instruments are
summarized below:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1996
----------------------------- ------------------------
Carrying Estimated fair Carrying Estimated Fair
value value value value
(in thousands of US dollars) (QC)
<S> <C> <C> <C> <C>
Cash and cash equivalents........ $ 64 $ 64 $ 411 $ 411
Trade accounts receivable........ 2,101 2,101 1,155 1,155
Due from affiliated companies.... 703 703 695 695
Bank overdraft................... 2,645 2,645 3,540 3,540
Trade accounts payable........... 3,002 3,002 3,076 3,076
Due to affiliated companies...... 10 10 69 69
Long-term debts:
Unsecured loan from Pantapharma
B.V......................... 125 116 90 84
Unsecured loan from B.V. 423 398 -- --
Wisteria.........................
Unsecured loan from Hybrida B.V 496 434 -- --
Other....................... 31 29 -- --
------ ------ ------ ------
1,075 977 90 84
====== ====== ====== ======
</TABLE>
NOTE 11: FOREIGN CURRENCY CONTRACTS
Beginning in 1994, the Companies hedge certain of their committed British
pound expenditures for purchases in the United Kingdom through the purchase of
forward exchange contracts. During 1995, the Companies entered into and utilized
forward contracts with values aggregating $1,870,000. As of December 31, 1995
and 1996, there were no forward contracts outstanding.
Confedera issues bank guarantees towards suppliers in order to guarantee the
payment in respect of the import of goods. As of December 31, 1996, bank
guarantees amounting to $129,000 were outstanding.
NOTE 12: TAXES PAYABLE AND OTHER ACCRUED LIABILITIES
At December 31, 1995 and 1996, the taxes payable and other accrued
liabilities consist of:
1995 1996
Taxes payable........ $ 421 $ 602
Other accrued liabilities 264 459
------ -------
$ 685 $ 1,061
====== =======
NOTE 13: ACQUISITION OR DISPOSITION OF SIGNIFICANT ASSET
EuroMed, Inc. and EuroMed Europe entered into a Stock Purchase Agreement, dated
as of June 19, 1996 (the "Purchase Agreement") with Mr. A. Doets, Dr. N. Th. P.
Roozekrans, Mutarestes B.V. ("Mutarestes"), Pluripharm, a wholly-owned
subsidiary of Mutarestes ("Pluripharm"), and Financieringsmaatschappij De Nieuwe
Wereld, B.V., a wholly-owned subsidiary of Pluripharm ("FDNW"), pursuant to
which Doets and Roozekrans sold to EuroMed Europe all of the capital stock of
Mutarestes, Pluripharm and FDNW. The purchase price paid by EuroMed for such
companies consisted of: (i) $5,992,000 (10 million Dutch guilders); and (ii)
850,000 shares of Common Stock. The closing of the Purchase Agreement occurred
on July 5, 1996. The purchase price paid under the Purchase Agreement was
determined pursuant to arms-length transactions, and were based upon, among
other things, multiples of earnings and potential earnings. The cash portion of
the purchase price was funded by the use of available funds of EuroMed
(8,560,000 Dutch guilders), which included proceeds from the Company's initial
public offering completed on March 19, 1996, with the remaining portion of the
purchase price (1,440,000 Dutch guilders) being funded through a loan to the
Company from Bank MeesPierson, N.V. The purchase price was determined by mutual
agreement of the companies' management and no independent valuation was used to
arrive at the purchase price. Pluripharm, the operating company, is engaged in
the wholesale distribution of branded and generic medicines within The
Netherlands. Prior to the acquisition of Mutarestes B.V. by EuroMed Europe, the
only relationship the two companies had was that each sold pharmaceuticals to
the other. These sales between the two companies were as follows:
Amount
Year ended December 31, 1995 $2,914,000
Six months ended June 30, 1996 $1,798,000
The Company has determined that it will divest itself of the capital stock
of Pluripharm and other related assets in the second quarter of 1997. The
Company is taking this step primarily as a result of the changing pharmaceutical
wholesale market in The Netherlands, which has resulted in significantly lowered
prices and decreased margins, and the Company's inability to consolidate the
Pluripharm operations into the Company's operations in The Netherlands. The
operations were not consolidated due to the objections of the management of
Pluripharm and the problems resulting from the litigation initiated by the
various owners/managers of the companies. The divestiture includes; (i)
Houdstermaatschappij Singultus B.V. ( a private company with limited liability
under the laws of the Netherlands, which is owned by management of Pluripharm)
will acquire all of the capital stock of Pluripharm for an estimated $3,104,000
(6,100,000 Dutch guilders), and (ii) the return of 850,000 shares of common
stock. The terms of divestiture agreement included the provision that EuroMed
will not be entitled to any of the earnings of Pluripharm during the time of
ownership.
The following summarizes the investment in Mutarestes B.V. and Subsidiary
and the resulting estimated loss upon disposal:
Acquisition
Cash $ 5,877,000
Cost of acquisition 115,000
------------
Total cash advanced 5,992,000
850,000 shares of common stock issued
at a fair value of $6.75 per share 5,737,500
Total investment 11,729,500
Disposal
Estimated cash proceeds 3,104,000
Disposal costs (302,000)
Net cash provided 2,802,000
Stock returned to Company:
850,000 shares of common stock
held by the owners of Mutarestes
B.V. at a fair value of $1.50
(March 1997) 1,275,000
850,000 shares of common stock
held by Francois Hinnen at a
fair value of $.50 (September 1997) 425,000
-----------------------
4,502,000
Estimated net loss $ 7,227,500
===========
The 850,000 shares returned to EuroMed Mr. Francois Hinnen, CEO of EuroMed, are
included in the loss estimate since the Board of Directors requested that Mr.
Hinnen give up shares to help mitigate the loss on the disposal for those
shareholders who purchased stock in the March 1996 initial public offering.
EUROMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
The following pro forma balance sheet reflects the sale of the investment
as if it had occurred on December 31, 1996: (in thousands of U.S. dollars):
EUROMED, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS
Pro Forma Pro Forma
Historical Adjustment Total
<S> <C> <C> <C>
Current Assets Cash and cash equivalents........ $ 411 $ 2,802 $ 3,213
Receivable and prepaid assets................. 2,747 -- 2,747
Inventory..................................... 4,526 -- 4,526
Investment in Mutarestes B.V. and Subsidiary.. 4,502 (4,502) --
-------- ------- -------
Total Current Assets.................. 12,186 (1,700) 10,486
Net Vehicles, Furniture and Equipment........... 409 -- 409
Other Assets.................................... 779 -- 779
-------- ------- -------
Total Assets.......................... $ 13,374 $(1,700) $11,674
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities............................. $ 8,057 $ -- $ 8,057
Long-Term Debt.................................. 90 -- 90
-------- ------- -------
Total Liabilities..................... 8,147 -- 8,147
Stockholders' Equity............................ 5,227 (1,700) 3,527
-------- -------- -------
$ 13,374 $(1,700) $11,674
======== ======== =======
</TABLE>
The following pro forma statement of operations reflects the operations of
EuroMed, Inc. and Subsidiaries without the loss on the disposal of a significant
asset (in thousands of U.S. dollars, except loss per share):
EUROMED, INC. AND SUBSIDIARIES
PRO FORMA STATEMENT OF OPERATIONS
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Historical Adjustment Total
<S> <C> <C> <C>
Sales........................................... $35,471 $ -- $ 35,471
Cost of Goods Sold.............................. 32,426 -- 32,426
------- ------- ---------
Gross Profit.................................. 3,045 -- 3,045
Selling, general and administrative expense..... 3,342 -- 3,342
------- ------- ---------
Operating Loss................................ (297) -- (297)
Other Income (Expense)
Interest Income............................... 187 -- 187
Interest Expense.............................. (359) -- (359)
Loss on investment in Mutarestes B.V. and (7,227) 7,227 --
------- ------- ---------
Subsidiary......................................
Loss before income taxes...................... (7,696) 7,227 (469)
Income Taxes.................................... 12 -- 12
------- ------- ---------
Net (Loss)...................................... $(7,708) $ 7,227 $ (481)
= ======= =========
Pro Forma (Loss) per share...................... $ (.15)
===========
Weighted average number of shares outstanding... 3,276,923
=========
</TABLE>
NOTE 14: QUARTERLY FINANCIAL DATA (UNAUDITED)
Thousands of U.S. Dollars
Income
(Loss)
<TABLE>
<S> <C> <C> <C> <C>
Before Net Income Earnings
1996 (QL) Revenues Income Taxes (Loss) Per Share
----------- ----------- ------------------------- -----------
December... $9,852 $(7,970) $(7,793) $(2.42)
September.. 7,743 (278) (278) (0.07)
June....... 8,508 270 187 0.06
March...... 9,368 282 176 0.08
1995 (QL)
December... 10,059 323 212 .011
September.. 7,745 325 208 0.10
June....... 8,563 289 221 0.11
March...... 6,611 271 195 0.10
</TABLE>
The quarterly results of operations for the quarter ended December 31, 1996
includes a loss resulting from the valuation allowance provision of $7,226,000
related to the Company's investment in Mutarestes B.V. and Subsidiary.
<PAGE>
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On November 19, 1996, KPMG Accountants N.V. ("KPMG") resigned as EuroMed's
independent public accountant. No report of KPMG for EuroMed has contained an
adverse opinion or a disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope, or accounting principles. There have been no
disagreements between KPMG and EuroMed as described in Item 304(a)(1)(iv) of
Regulation S-K or events of the kind set forth in Item 304(a)(1)(v) of
Regulation S-K.
EuroMed provided KPMG with the above disclosures prior to filing a Current
Report Form 8-K with the Securities and Exchange Commission. KPMG responded to
the above disclosures by stating that they resigned as principal accountants for
EuroMed because they believed that the then current internal control structure
of EuroMed was not adequate to develop reliable financial statements. KPMG did
not disclose to EuroMed specific concerns or problems.
On February 20, 1997, EuroMed engaged Killman, Murrell and Company, P.C.
("Killman") as its independent public accountant. Prior to engaging Killman,
EuroMed discussed with Killman the reason given by KPMG for its resignation.
Killman has told EuroMed that it believes EuroMed has resolved the problems that
led to KPMG's resignation. EuroMed provided Killman with the above disclosures
prior to filing a Current Report on Form 8-K with the Commission and Killman did
not file any response to such disclosures.
PART III
Item 10. Directors and Executive Officers of EuroMed, Inc.
Executive Officers and Directors
Set forth below are the names, ages and positions of the executive officers
and directors of the Company:
Name Age Position
A. Francois Hinnen... 54 Chairman of the Board
Robert W. L. Veldman. 48 Chief Executive Officer and
President
David Anderson....... 41 Chief Financial Officer
Jesse Shelmire, IV... 39 Director
Robert A. Shuey, 42 Director
III(1)...............
C.D.J. Evers......... 52 Director
Gregory A. Gaylor.... 38 Director
- ----------
(1) Member of the Audit Committee and the Compensation Committee.
A. Francois Hinnen, MSc has served as Chairman of the Board of the Company
since November 18, 1995. Mr. Hinnen served as Chief Executive Officer of the
Company from November 18, 1995 until October 31, 1996, and as President of the
Company from November 18, 1995 until February 28, 1997, and has served, through
a controlled company, as the Managing Director of Galenica B.V. ("Galenica") and
Confedera B.V. ("Confedera") since January 1991. Mr. Hinnen has also served the
Company as the chief pharmacist for Galenica and Confedera, which are
wholly-owned subsidiaries of the Company organized under the laws of The
Netherlands. Mr. Hinnen has 28 years experience as a certified pharmacist and 24
years business experience as an entrepreneur in the pharmaceutical industry. Mr.
Hinnen graduated first of year in 1967 with a Masters in Mathematics and Natural
Sciences, and in 1968 with a degree in Microbiology and Pharmacy from the
University of Utrecht, The Netherlands. Mr. Hinnen was a member of the staff of
the University of Nijmegen, The Netherlands, from 1969-1970.
Robert W. L. Veldman, MSc has served as Chief Executive Officer of the
Company since February 1997. Mr. Veldman has twenty-three years of related
health care management experience. Before joining EuroMed, Mr. Veldman worked as
director of business development at Merck, Sharp & Dohme B.V. in Haarlem from
1995 to 1997. Prior to that he worked as Pharmaceutical Director and Managing
Director Hospital Division, Brocacef BV -- Maarssen from 1988 to 1995, as
Director of European Operations, Centocor Europe BV -- Leiden from 1987 to 1988
and served as managing director and chief operating officer of Centrafarm Group
NV -- Etten Leur from 1978 to 1987 and as an industrial pharmacist, Organon
International BV -- Oss from 1975 to 1978.
David Anderson has served as the Company's Chief Financial Officer since
February 1997. Mr. Anderson brings fifteen years of healthcare experience in the
United States, including experience in the home infusion drug market as well as
the free standing and hospital based home nursing and equipment service
businesses. Mr. Anderson served as western division vice president of Nurse
Finders, Inc., a home health and medical staffing company, from 1995 to 1997 and
served as director and senior vice president of operations for OptionCare, Inc.,
a home infusion therapy company, from 1993 to 1995. Prior to that, he founded
and was an equity director and chief development officer for Earthstone, a
division of EPIC Health Care Group, from 1990 to 1993, served as executive vice
president of ABC Home Health, a privately held home health care company, from
1987 to 1990 and served as associate and district director for T-2 Medical
Management, a home infusion therapy provider company, from 1985 to 1987.
Jesse Shelmire, IV has served as a director of the Company since November
27, 1996. Mr. Shelmire has 15 years of experience in the investment banking and
stock underwriting business. Upon graduating from the Warton School of Business
he worked from 1981 to 1989, for Smith Barney, Inc. in their Dallas, Texas
office. From 1989 to 1993, he served as the Portfolio Manager for Stonegates
Securities, Inc. of Dallas, Texas where he managed $250 million of assets in
equity and fixed income accounts, he served at Dillon-Gage Securities Corp. as
Director of Corporate Finance from 1993 to 1995 and he served as Director of
Corporate Finance for LaJolla Securities Corporation from 1994 to 1995. Mr.
Shelmire currently serves as Managing Director of Investment Banking for First
London Securities Corporation in Dallas, Texas.
Robert A. Shuey, III has served as a director of the Company since June
1996. Mr. Shuey has been employed by National Securities Corporation of Dallas,
Texas as the Director of Corporate Finance since October 1996. Prior to that,
Mr. Shuey was with LaJolla Securities Corporation from March 1995 until October
1996 in the position of Director of Corporate Finance. Mr. Shuey was employed as
Director of Corporate Finance by Dillon-Gage Securities Corp., an investment
banking firm, from January 1994 to March 1995, and prior to that held the
position of Senior Vice President, Corporate Finance, of Dickinson & Company, a
brokerage firm. Mr. Shuey was Vice President of Rauscher Pierce Refsnes, Inc.
from June 1984 to September 1987. From May 1980 until June 1984, he was director
of the corporate finance department and a Vice President of Institutional Equity
Corporation. Prior to that time, Mr.
Shuey was an associate in the corporate finance department of Salomon Brothers,
Inc.
C.D.J. Evers served as a director of the Company from November 13, 1996
until his resignation on February 12, 1997. Mr. Evers owns a pharmacy in
Westervourt, The Netherlands and is a member of the Board of Directors of RABO
Bank in Arnhem, The Netherlands.
Gregory A. Gaylor has served as a Director of the Company since June 1,
1994. Mr. Gaylor served as President of the Company from June 1, 1994 to
November 17, 1995, and served as Secretary and Treasurer of the Company from May
1994 to November 17, 1995. Mr. Gaylor has ten years of experience in
international business. Since 1986, Mr. Gaylor has managed personal investments.
Mr. Gaylor holds a Bachelors of Business Administration degree in Finance, with
honors, from Southern Methodist University, and was a Masters of Arts graduate
student in Foreign Affairs at the University of Virginia from 1983 to 1985.
Section 16 Requirements
Section 16(a) of the Exchange Act, requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission (the "SEC").
Such persons are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it with
respect to fiscal 1996, or written representations from certain reporting
persons, the Company believes that all filing requirements applicable to its
officers, directors and persons who own more than 10% of a registered class of
the Company's equity securities have been complied with, except that one Form 5
was filed to report two late Form 4 transactions for Mr. Hinnen, the late Form 3
filing for Wisteria, the direct owner of shares held indirectly by Pantapharma,
which is owned by Mr. Hinnen, and eight late Form 4 transactions for Wisteria
and Pantapharma. Additionally, Louis van den Reek failed to file a Form 3.
Item 11. Executive Compensation
The following table sets forth certain information regarding compensation
paid during the Company's last completed fiscal year to the Company's Chief
Executive Officer and each of the Company's executive officers (other than the
Chief Executive Officer) whose total annual salary and bonuses earned during the
fiscal year ended December 31, 1996, exceeded $100,000:
Management Compensation and Transactions
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation Awards
Annual Compensation Securities
Underlying
Other Options/ All Other
Name/Title(QC) Year Salary($) Bonus($) Compensation($) SARs(#) Compensation($)
<S> <C> <C> <C> <C> <C> <C>
A. Francois 1996 $ 125,000 -- -- -- --
Hinnen(1)
1995 $ 125,000 -- -- -- --
</TABLE>
- ----------
(1) Mr. Hinnen contracts his services to Confedera and Galenica through
Pantapharma B.V. See "Employment Agreements."
Compensation of Directors
The Company pays $3,500 per quarter to its directors who are not employees
or affiliates of the Company ("Independent Directors"). In addition, Independent
Directors may receive options to purchase Common Stock under the Company's 1995
Long-Term Incentive Plan.
Employment Agreements
Mr. Hinnen provides his services to Confedera B.V., a wholly-owned
subsidiary of the Company ("Confedera"), through a management agreement ("Hinnen
I Agreement") between Confedera and Pantapharma B.V., a Netherlands private
limited liability company ("Pantapharma"). Mr. Hinnen owns 100% of Pantapharma.
Pursuant to the Hinnen I Agreement, Pantapharma has agreed to fulfill the duties
assigned to a director of Confedera for a period commencing on January 1, 1995
through December 31, 2000, for which Confedera has agreed to pay Pantapharma a
management fee of approximately $62,000, excluding sales tax, subject to review
annually (with the understanding that the management fee shall be annually
increased by a percentage equal to the price index figure for family consumption
as determined by the Central Bureau of Statistics of The Netherlands). In
addition, Confedera has agreed to reimburse Pantapharma for all business
expenses incurred by Pantapharma for acting, in such capacity, including, an
automobile allowance of approximately $.37 per kilometer. The Hinnen I Agreement
is terminable by either party on at least one year prior written notice. In the
event Confedera terminates the Hinnen I Agreement prior to the expiration of the
term without cause (with cause being defined as: (i) failure by Pantapharma to
fulfill its duties and obligations under the Hinnen I Agreement; (ii)
Pantapharma has been adjudicated bankrupt or has been granted suspension of
payment; or (iii) Pantapharma for a continuous period of thirteen weeks or more
has not placed any staff at the disposal of Confedera for the execution of the
Hinnen I Agreement), Pantapharma shall be entitled to continue to receive the
management fee for the remainder of the term. In the event Pantapharma is unable
to fulfill its duties and obligations under the Hinnen I Agreement for any
reason, Pantapharma shall be entitled to receive the management fee for one-year
thereafter.
Mr. Hinnen provides his services to Galenica B.V., a wholly-owned subsidiary
of the Company ("Galenica"), through a management agreement ("Hinnen II
Agreement") between Galenica and Pantapharma. Pursuant to the Hinnen II
Agreement, Pantapharma has agreed to fulfill the duties assigned to a director
of Galenica for a period commencing on January 1, 1995 through December 31,
2000, for which Galenica has agreed to pay Pantapharma a management fee of
approximately $62,000, excluding sales tax, subject to review annually (with the
understanding that the management fee shall be annually increased by a
percentage equal to the price index figure for family consumption as determined
by the Central Bureau of Statistics of The Netherlands). In addition, Galenica
has agreed to reimburse Pantapharma for all business expenses incurred by
Pantapharma for acting in such capacity, including an automobile allowance of
approximately $.37 per kilometer. The Hinnen II Agreement is terminable by
either party on at least one-year prior written notice. In the event Galenica
terminates the Hinnen II Agreement prior to the expiration of the term without
cause (with cause being defined as: (i) failure by Pantapharma to fulfill its
duties and obligations under the Hinnen II Agreement; (ii) Pantapharma has been
adjudicated bankrupt or has been granted suspension of payment; or (iii)
Pantapharma for a continuous period of thirteen weeks or more has not placed any
staff at the disposal of Galenica for the execution of the Hinnen II Agreement),
Pantapharma shall be entitled to continue to receive the management fee for the
remainder of the term. In the event Pantapharma is unable to fulfill its duties
and obligations under the Hinnen II Agreement for any reason, Pantapharma shall
be entitled to receive the management fee for one-year thereafter.
David Anderson provides his services to EuroMed through a management
agreement between EuroMed and the Anderson Group, a sole proprietorship. This
contractual relationship states that Mr. Anderson will be reimbursed for his
Company related expenses and a $10,000 per month management fee. The term of
this contract is for six months beginning February 15, 1996.
Robert W.L. Veldman is supplying his services to the Company through a
management contract with Beheer-en Beleggingsmaatschappij File B.V. ("Management
Company"). His contract specifies that he will be the managing director of
EuroMed Europe and its subsidiaries. Mr. Veldman is considered an employee of
the Management Company and not of EuroMed. Mr. Veldman's compensation shall be
200,000 Dutch gilders per year (approximately $100,000) for all work done for
the Company. He is also reimbursed 3,000 Dutch gilders (approximately $1,580)
per month for expenses incurred on behalf of the Company. EuroMed Europe is to
pay these amounts in 12 monthly payments upon invoicing by the Management
Company over the term of this contract. The term of the management contract is
one year from January 1, 1997 to December 31, 1997, and may be extended upon
agreement of both parties. The management contract shall terminate if (i)
EuroMed Europe files bankruptcy; (ii) a suspension of payment to the Management
Company occurs; (iii) Mr. Veldman dies; or (iv) Mr. Veldman is ill or unable to
work for 90 consecutive days.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information with respect to beneficial
ownership of Common Stock as of April 16, 1997 by (i) all persons known to the
Company to be the beneficial owner of 5% or more of the Common Stock, (ii) each
director of the Company, (iii) the chief executive officer and each of the
Company's four other most highly compensated executive officers whose total
annual compensation for 1996 based on salary and bonus earned during 1996
exceeded $100,000 (the "Named Executive Officers"), and (iv) all the Company
directors and executive officers as a group. All persons listed have sole voting
and investment power with respect to their shares unless otherwise indicated.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent
Name of Beneficial Owner Ownership of Class
------------------------------------------- ------------------ --------
<S> <C> <C>
A. Francois Hinnen,(1)..................... 1,945,130 62.39%
Robert W. L. Veldman,...................... -- --
David Anderson............................. -- --
Jesse Shelmire, IV......................... 14,000(2) *
Robert A. Shuey, III....................... 20,000(3) *
Gregory A. Gaylor.......................... 125,000 4.00%
Louis van den Reek......................... -- --
All directors and executive officers as a
group (7 2,104,130 67.49%
persons).................................
</TABLE>
- ----------
* Less than 1%
(1) Of the shares beneficially owned by Mr. Hinnen 1,923,130 are owned directly
through B.V. Wisteria, a Netherlands limited liability company, which
company is owned by Pantapharma B.V., which is owned by Mr. Hinnen.
Additionally, Mr. Hinnen holds the voting power over 22,000 shares through
an irrevocable proxy which expires on June 30, 1997. Mr. Hinnen's address is
Beekhuizenseweg 87, 6881 A G Velp, The Netherlands.
(2) Consists of warrants to purchase Common Stock, which warrants were issued in
connection with the Company's initial public offering (the "Representatives
Warrants"). In addition, First London Securities Corporation, of which Mr.
Shelmire is the Managing Director of Investment banking, was issued 20,000
Representative Warrants, of which Mr. Shelmire disclaims beneficial
ownership.
(3) Consists of 20,000 Representative Warrants. In addition, National Securities
Corporation, of which Mr. Shuey was formerly Director of Corporate Finance,
was issued 6,667 Representatives Warrants, of which Mr. Shuey disclaims
beneficial ownership.
Item 13. Certain Relationships and Related Transactions
Confedera has had a business relationship with International Procurement
Agency B.V. ("IPA"), a Netherlands based development agency procurer for the
export of pharmaceutical, since July 1994 and entered into a Cooperation
Agreement with IPA on July 10, 1995. Under the Cooperation Agreement, IPA is
primarily responsible for the financial, administrative and logistical
activities concerning the sale of pharmaceutical products and medical consumer
goods and Confedera is responsible for purchasing the pharmaceutical products
and medical consumer goods, quality control and the legal documentation
pertaining thereto. The Cooperation Agreement further provides that (i) the
parties will equally split the profits and losses of their activities, except
that Confedera will receive 66% of the profits (and assume the same percentage
of the losses) for customers located by Confedera, and (ii) as long as
Confedera's prices for goods are competitive, IPA will purchase pharmaceutical
and medical consumer goods exclusively from Confedera, although Confedera shall
be entitled to sell the pharmaceutical and medical consumer goods on a
non-exclusive basis. Mr. Hinnen owns 100% of the stock of Pantapharma which owns
100% of the stock of Wisteria which owns 33% of the capital stock of Gentrade
B.V., which owns 100% of the capital stock of IPA. Mr. Hinnen had contracted
with Gentrade B.V. to acquire an additional 32% of the capital stock of the
Company on or before June 1, 1996, under certain conditions. These conditions
were not met at that time, therefore, Mr. Hinnen did not acquire this
percentage. Further, Mr. Hinnen has a continuing option to purchase another 35%
of Gentrade B.V. if offered by the owner of this stock. The Company believes
that all transactions between IPA and Confedera have been, and will be, on an
arms-length basis.
Mr. Hinnen is the sole owner of the Rhedense Apotheek, a pharmacy located in
Rheden, The Netherlands. In 1994, 1995 and 1996, Rhedense Apotheek purchased an
aggregate of $1,096,000, $1,492,000 and $1,365,941, respectively, of
pharmaceutical products from Galenica. The prices paid by Rhedense Apotheek are
the same as those charged to third parties unrelated to the Company and the
Company believes that all transactions between Rhedense Apotheek and Galenica
have been, and will be, on an arms-length basis.
Mr. Hinnen's brother is the sole owner of the Apotheek Neede, a pharmacy
located in Neede, The Netherlands. In 1994, 1995 and 1996, Apotheek Neede
purchased an aggregate of approximately $700,000, $994,000 and $1,358,683,
respectively, of pharmaceutical products from Galenica. The prices paid by
Apotheek Neede are the same as those charged to third parties unrelated to the
Company and the Company believes that all transactions between Apotheek Neede
and Galenica have been, and will be, on an arms-length basis.
Mr. Hinnen's wife is the sole owner of Ariano Voorthuizen Beheer B.V.
("AVP"). On September 1, 1993, Galenica borrowed approximately $219,000 from AVP
("AVP Loan"). Interest on the AVP Loan was equal to the promissory note interest
rate of Nederlandsche Bank N.V., plus 2%. The remaining principal balance of,
and accrued but unpaid interest on, the AVP Loan was paid in full by Galenica in
July 1995.
Pursuant to a loan agreement dated February 1, 1995 between Galenica and
Wisteria ("Wisteria Agreement"), of which Mr. Hinnen is the sole equity owner,
Galenica borrowed approximately $421,000 from Wisteria. As of December 31, 1996,
the principal balance of this loan had been paid in full.
Since 1991, Pantapharma and Confedera have loaned or advanced money to each
other on a "when needed", and "if available" basis. As of December 31, 1995,
Confedera owed Pantapharma approximately $10,000 which has been since paid in
full. Following the pay-off of the outstanding loan balance, Pantapharma and
Confedera agreed to immediately discontinue such loan arrangement. As a
condition to an amendment to the loan agreement between Confedera, Galenica and
Bank MeesPierson, N.V. on November 9, 1995, Pantapharma agreed to loan to
Confedera approximately $125,000 interest free, due after January 1, 1998 by
agreement with Management. As of December 31, 1996 $90,000 of that loan remained
outstanding.
In February 1997, EuroMed Europe entered into a purchase agreement with
Pantapharma, whereby EuroMed Europe purchased from Pantapharma all of the
outstanding capital stock of Galenica Belgium, S.A., effective January 1, 1996.
Topaas B.V. is the management company owned by Mr. Jean Kaiser, the manager
of Confedera's export department. In 1995, when Confedera hired Mr. Kaiser,
Confedera agreed to pay a fee to his prior employer for Mr. Kaiser's violation
of his noncompetition agreement. Additionally Mr. Kaiser receives a management
fee of approximately $7,500 per month and is entitled to receive one third of
the profits of Confedera's export department.
It is the policy of the Company that any future transactions with affiliated
individuals or entities will be on terms no less favorable to the Company than
are reasonably available from unrelated third parties, and any such affiliated
transactions will require the approval of a majority of the independent
directors.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as a part of this Annual Report on
Form 10-K:
(1) Financial Statements:
The financial statements filed as a part of this report are listed in
the "Index to Consolidated Financial Statements and Financial Statement
Schedules" at Item 8.
(2) Financial Statement Schedules:
The financial statement schedules filed as a part of this report are
listed in the "Index to Consolidated Financial Statements and Financial
Statement Schedules" at Item 8.
(3) Exhibits
The exhibits filed as a part of this report are listed under "Exhibits"
at subsection (c) of this Item 14.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated November 19, 1996,
regarding the resignation of KPMG Accountants N.V. ("KPMG") as the Company's
independent public accountant, which was amended on Form 8-K/A filed
December 12, 1996 to include the Letter Regarding Change in Principal
Accountant by KPMG and on Form 8-K/A filed January 3, 1997 to include the
reasons given by KPMG for their resignation.
(c) Exhibits:
<TABLE>
<S> <C>
Exhibit
Number Description of Exhibit
2.1 Stock Purchase Agreement dated as of June 19, 1996, by and among
EuroMed, Inc., EuroMed Europe, B.V., A. Doets, N. Th. P.
Roozekrans,
Mutarestes B.V., Pluripharm International B.V.,
Financieringsmaatschappij de Nieuwe Wereld B.V., and B.V.
Wisteria.(3)
2.2 Stock Purchase Agreement dated as of June 19, 1996, by and among
EuroMed, Inc., EuroMed Europe, B.V., A. Doets and N. Th. P.
Roozekrans.(4)
2.3 Settlement Agreement April 3, 1997*
2.4 Share Purchase Agreement April 3,
1997*
2.5 Compensation Agreement April 3,
1997*
3.1 Restated Articles of Incorporation(1)
3.2 Bylaws of the Company(1)
4.1 Specimen of Common Stock Certificate(1)
10.1 Consulting, Management and Noncompetition Agreement, dated as of
July 5,
1996, by and between EuroMed Europe B.V. and Doets.(4)
10.2 Consulting, Management and Noncompetition Agreement, dated as of
July 5,
1996, by and between EuroMed Europe B.V. and Roozekrans.(4)
10.3 Consulting, Management and Noncompetition Agreement, dated as of
July 5,
1996, by and between EuroMed Europe B.V. and Hinnen.(4)
10.4 Management Agreement by and among EuroMed Europe, B.V., B.V.
Wisteria
and Beheer Beleggingsmaatschappij B.V. dated January 21, 1997.*
10.5 Letter Agreement between the Company and The
Anderson Group*
16.1 Letter of the Change of
Certified Accountants(2)
21.1 Subsidiaries of the
Registrant*
23.1 Consent of Killman, Murrell &
Company, PC
23.2 Consent of KPMG Accountants N.V.
27.1 Financial Data Schedules(5)
</TABLE>
- ----------
* Previously filed
(1) Previously filed as an exhibit to the Company's Registration Statement No.
33-80805 on Form S-1 and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Current Report on Form 8-K/A
(Amendment No. 1) dated November 19, 1996 and incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated July 5, 1996 and incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Current Report on Form 8-K/A
(Amendment No. 1) dated July 5, 1996 and incorporated herein by reference.
(5) Filed herewithin
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: December 1, 1998 By: /s/ Elbert G. Tindell
-------------------------
Elbert G. Tindell
Chairman of the Board,
and President
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
/s/ Elbert G. Tindell President and Chairman of December 01, 1998
---------------------
the Board.
/s/ ROBERT A. SHUEY, III Chief Executive Officer and December 01, 1998
------------------------
Chief Financial Officer,
Treasurer, and Director
Robert A. Shuey, III
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit
Number Description of Exhibit
2.1 Stock Purchase Agreement dated as of June 19, 1996, by and among
EuroMed, Inc., EuroMed Europe, B.V., A. Doets, N. Th. P.
Roozekrans, Mutarestes B.V., Pluripharm International B.V.,
Financieringsmaatschappij de Nieuwe
Wereld B.V., and B.V.
Wisteria.(3)
2.2 Stock Purchase Agreement dated as of June 19, 1996, by and among
EuroMed, Inc., EuroMed Europe, B.V., A. Doets and N. Th. P.
Roozekrans.(4)
2.3 Settlement Agreement April 3, 1997*
2.4 Share Purchase Agreement April 3, 1997*
2.5 Compensation Agreement April 3, 1997*
3.1 Restated Articles of Incorporation(1)
3.2 Bylaws of the Company(1)
4.1 Specimen of Common Stock Certificate(1)
10.1 Consulting, Management and Noncompetition Agreement, dated as
of July 5,
1996, by and between EuroMed Europe
B.V. and Doets.(4) 10.2 Consulting, Management and
Noncompetition Agreement, dated as
of July 5,
1996, by and between EuroMed Europe B.V. and Roozekrans.(4)
10.3 Consulting, Management and Noncompetition Agreement, dated as
of July 5,
1996, by and between EuroMed Europe B.V. and Hinnen.(4)
10.4 Management Agreement by and among EuroMed Europe, B.V., B.V.
Wisteria
and Beheer Beleggingsmaatschappij B.V. dated January 21,
1997.*
10.5 Letter Agreement between the Company and The Anderson Group*
11.1 Statement Re: Computation of Per Share Earnings*
16.1 Letter of the Change of Certified Accountants(2)
21.1 Subsidiaries of the Registrant*
23.1 Consent of Killman, Murrell & Company(5)
23.2 Consent of KPMG Accountants N.V.*
27.1 Financial Data Schedules (5)
</TABLE>
- ----------
* Previously filed
(1) Previously filed as an exhibit to the Company's Registration Statement No.
33-80805 on Form S-1 and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Current Report on Form 8-K/A
(Amendment No. 1) dated November 19, 1996 and incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated July 5, 1996 and incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Current Report on Form 8-K/A
(Amendment No. 1) dated July 5, 1996 and incorporated herein by reference.
(5) Filed Here within
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby concent to the incorporation of our report dated March 21,
1997, which is incorporated in this Annual Report on Form 10-K, Amendment No. 4.
/S/: Killman, Murrell & Company, P.C.
Killman, Murrell & Company, P.C.
Dallas, Texas
December 1, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000852447
<NAME> EUROMED INC
<MULTIPLIER> 1
<CURRENCY> $US
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 411,000
<SECURITIES> 0
<RECEIVABLES> 2,398,000
<ALLOWANCES> 0
<INVENTORY> 4,526,000
<CURRENT-ASSETS> 12,186,000
<PP&E> 815,000
<DEPRECIATION> 406,000
<TOTAL-ASSETS> 13,374,000
<CURRENT-LIABILITIES> 8,057,000
<BONDS> 0
0
0
<COMMON> 40,000
<OTHER-SE> 5,187,000
<TOTAL-LIABILITY-AND-EQUITY> 13,374,000
<SALES> 35,471,000
<TOTAL-REVENUES> 35,658,000
<CGS> 32,426,000
<TOTAL-COSTS> 35,768,000
<OTHER-EXPENSES> 7,227,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 359,000
<INCOME-PRETAX> (7,696,000)
<INCOME-TAX> (12,000)
<INCOME-CONTINUING> (7,708,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,708,000)
<EPS-PRIMARY> (2.35)
<EPS-DILUTED> (2.35)
</TABLE>
