Item 1. Business
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 to EuroMed, Inc. ("EuroMed" or the "Company") and increased its authorized shares to 20,000,000 shares of Common Stock with a new par value of $0.01 per share, and 5,000,000 preferred shares 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 was owned by A. Francois Hinnen. 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 ("IPO") of shares of EuroMed. In March 1996 EuroMed completed its IPO by selling 1,150,000 shares of its common stock at $6.50 per share. The proceeds of the IPO and 850,000 shares of its common stock were used to acquire Mutarestes B.V. and Subsidiary ("Mutarestes") in July 1996 (estimated acquisition price of $11,729,500). Almost immediately, upon completion of the acquisition of Mutarestes, differences developed between various officers, directors and shareholders. Mutarestes was subsequently sold in July 1997 with a significant loss being recognized and the 850,000 shares of common stock being returned to the Company. In addition, A. Francois Hinnen returned 850,000 shares of common stock to the Company to mitigate the effect of the loss on the Mutarestes transactions.
As a result of the failed acquisition of Mutarestes and a significant change in the Dutch law as it related to the wholesale price of pharmaceuticals, the Board of Directors concluded that it was in the best interest of EuroMed to divest itself of its remaining Dutch pharmaceutical operations. In November 1997, EuroMed Europe and its subsidiaries were sold. EuroMed recognized a substantial loss on the disposal of EuroMed Europe; therefore, the Board of Directors negotiated with A. Francois Hinnen the return of 1,000,000 shares of EuroMed's common stock to lessen the effects of the loss on disposal for the remaining shareholders of EuroMed.
Effective February 16, 1999, RedstoneSecurities, Inc. ("Redstone") was merged into a newly organized subsidiary of the Company with Redstone as the survivor ( the "Redstone Merger"). The Company issued 600,000 shares of its Common Stock to the three principal of Redstone, Thomas Laundrie, Gary Prucell, and Richard belz (collectively referred to as the "Redstone Shareholders") and is obligated to issue an additional 500,000 shares (the "Restricted Shares"), upon the market price of the Company's Common Stock reaching certain price levels or the Company reporting certain levels of net income. Notwithstanding the price levels of the Common Stock or net income performance levels, the Restricted Shares will vest on February 16, 2002. The 500,000 Restricted Shares are not considered outstanding and are not included in any computations in from 10K. Redstone has been a registered broker dealer since 1988 and currently has 70 retail brokers. Redstone has offices in Plainview, New York, and New York, New York.
Item 3.
Item 3. Legal Proceedings
The Company is still involved in three legal proceedings, two in Nevada State Court and one in the United States District Court for the Northern District of Texas. There has been no substantive activity in the past three months in the first Nevada suit filed by the Company against former directors Gregory Alan Gaylor and Robert Jansonius.
The second legal proceeding is a lawsuit filed by the Company in the United States District Court for the Northern District of Texas against Gaylor in which a Final Judgment in the total amount of approximately $16 million was awarded in favor of the Company against Gaylor. Gaylor has not tendered any payments under the Final Judgment and it remains wholly unsatisfied.
The third legal proceeding is a Nevada lawsuit filed by Gaylor and Jan Bouwman (another former director), on behalf of themselves and the Company's minority shareholders, against the Company. A special master was appointed, with the Company's agreement, to investigate Gaylor and Bouwman's allegations against the Company. The special master conducted hearings in December 1997, and issued his report dated July 30, 1998, in which he reached the conclusion that: (i) the current board of directors has restructured the Company with competent management, new objectives and adequate capital to maximize the Company's value and the shareholders' return on investment, (ii) further interference by shareholders, former officers, third parties and the court is not warranted, and (iii) the Company should promptly complete all SEC filings and bring all SEC and shareholder reports current. The Company completed and filed all such delinquent reports in December 1998.
PART II
Item 5:
Item 5: Market for the Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock has been included for quotation of the Bulletin Board National Market under the symbol "EMED" since December 1996. Before this time, from March 19, 1996 to December 30, 1996 the stock was traded on the Nasdaq National market under the symbol "EMED".
The following table sets forth the high and low sales prices on the Nasdaq for the Common Stock for fiscal years ended 1997 and 1998.
At April 9, 1999 the Company had 50 stockholders of record of its common stock and 2,007,000 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.
Sales of Unregistered Securities In November 1998 the Company agreed to issue 35,000 shares of its Common Stock in settlement of professional fees related to the sale of the Company's subsidiary in 1997. At December 31, 1998, the shares had not been issued.
In February 1999, the Company issued 600,000 shares of Common Stock to the Redstone Shareholders in connection with the Redstone Merger. See Item 1 - Business.
Item 6:
Item 6: Selected Financial Data
The following selected consolidated financial data for each of the five years in the period ended December 31, 1997, 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.
FISCAL YEAR ENDED DECEMBER 31,
*There were no operating activities in EuroMed, Inc. in these years.
Item 7:
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations ......... Year ended December 31, 1998 Compared to Year ended December 31, 1997
As of December 31, 1998 the Company had no sales. Selling, general and administrative expenses for the year ended December 31, 1998 were $363,012 and were comprised primarily of legal and professional fees incurred as part of the legal proceeding described in Part I, Item 3, Legal Proceedings.
Selling, general and administrative expenses for the year ended December 31, 1997 were $618,198 and were comprised primarily of legal and professional fees for the recurring public reporting.
Liquidity and Capital Resources
Cash (used in) continuing operations was $(441,859) for the year ended December 31, 1998 compared with $(509,524) used by operations for the year ended December 31, 1997. The cash used in operations was offset partially by advances from the discontinued operations.
Cash and cash equivalents at the end of the year ended December 31, 1998 was $118,130 compared with $232,170 at the year ended December 31, 1997. The decrease is mainly due to the payment of legal and professional fees.
Management is of the opinion that proceeds from the sale of discontinued operations should be sufficient to finance and sustain operations at the present level for at least twelve months or until such time as a merger is completed.
Year ended December 31, 1997 Compared to Year ended December 31, 1996
For the years ended December 31, 1996 and 1997 the Company had no sales. Selling, general and administrative expenses for the year ended December 31, 1997 were $618,198 and were comprised primarily of legal and professional fees incurred as part of the legal proceeding described in Part I, Item 3, Legal Proceedings.
Selling, general and administrative expenses for the year ended December 31, 1996 were $590,313 and were comprised primarily of legal and accounting expenses incurred with the Company's initial public offering and professional fees for the recurring public reporting. The $69,600 interest was earned on the funds raised on the initial public offering prior to the time the funds were expended for the investment in Mutarestes B.V.
Liquidity and Capital Resources
Cash (used in) continuing operations was $(509,524) for the year ended December 31, 1997 compared with $(530,811) used by operations for the year ended December 31, 1996. The cash used in operations was offset partially by advances from the discontinued operations.
Net cash provided by financing activities was $0 for the year ended December 31, 1997 compared with $6,115,250 for the year ended December 31, 1996. The Company's initial public offering of shares on March 19, 1996, was the significant source of cash for the year ended December 31, 1996.
Cash and cash equivalents at the end of the year ended December 31, 1997 was $232,170 compared with $26,757 at the year ended December 31, 1996. The increase is due to collection of amounts due from the disposal of the subsidiary.
ITEM 7 - a Quantitative and Qualitative Disclosures about Market Risks. Not Applicable.
Item 8:
Item 8: Financial Statements and Supplementary Data
......... TABLE OF CONTENTS
Euromed, Inc.
Auditors' Report
Balance Sheets as of December 31, 1997 and 1998
Statements of Operations for the years ended December 31, 1996, 1997 and 1998
Statements of Stockholders' Equity and Comprehensive Income (Loss) .........for the years ended December 31, 1996, 1997 and 1998
Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998
Notes to the Financial Statements
Pro Forma Financial Information (Unaudited)
Pro Forma Consolidating Balance Sheet as of December 31, 1998
Pro Forma Consolidating Statements of Operations for the Year Ended December 31, 1998
Notes to Pro Forma Consolidating Financial Statements
Redstone Securities, Inc.
Independent Auditor's Report
Statements of Financial Condition for the Years Ended December 31, 1997 and 1998
Statements of Income and Expense for the Years Ended December 31, 1996, 1997 and 1998
Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998
Statements of Changes in Stockholders' Equity for the Years Ended .........December 31, 1996, 1997 and 1998
Notes to Financial Statements
AUDITOR'S REPORT
Board of Directors and Stockholders Euromed, Inc.
We have audited the accompanying balance sheets of Euromed, Inc. as of December 31, 1997 and 1998, and the related statements of operations, stockholders' equity, and comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Euromed, Inc. as of December 31, 1997 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles.
/s/ KILLMAN, MURRELL & COMPANY, P.C. KILLMAN, MURRELL & COMPANY, P.C.
Dallas, Texas March 29, 1999
EUROMED, INC.
BALANCE SHEETS (IN THOUSANDS OF U.S. DOLLARS)
DECEMBER 31, 1997 AND 1998
ASSETS
The accompanying notes are an integral part of these financial statements.
EUROMED, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
The accompanying notes are an integral part of these financial statements.
EUROMED, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS OF U.S. DOLLARS)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
The accompanying notes are an integral part of these financial statements.
EUROMED, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(Continued)
The accompanying notes are an integral part of these financial statements.
EUROMED, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
EUROMED, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company History
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 to Euromed, Inc. ("Euromed" or the "Company") and increased its authorized share capital to 20,000,000 common stock with a par value of $0.01 per share, and 5,000,000 preferred stock with a par value of $ 0.01 per share (no shares of preferred stock have been issued). 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 A. Francois Hinnen. 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 ("IPO") of shares of Euromed. In March 1996 Euromed completed its IPO by selling 1,150,000 shares of its common stock at $6.50 per share. The proceeds of the IPO and 850,000 shares of its common stock were used to acquire Mutarestes B.V. and Subsidiary ("Mutarestes") in July 1996 (estimated acquisition price of $11,729,500). Almost immediately, upon completion of the acquisition of Mutarestes, differences developed between various officers, directors and shareholders. Mutarestes was subsequently sold in July 1997 with a significant loss being recognized and the 850,000 shares of common stock being returned to the Company. In addition, A. Francois Hinnen returned 850,000 shares of common stock to the Company to mitigate the effect of the loss on the Mutarestes transactions.
As a result of the failed acquisition of Mutarestes and a significant change in the Dutch law as it related to the wholesale price of pharmaceuticals, the Board of Directors concluded that it was in the best interest of Euromed to divest itself of its remaining Dutch pharmaceutical operations. In November 1997, Euromed Europe and its subsidiaries were sold. Euromed recognized a substantial loss on the disposal of Euromed Europe; therefore, the Board of Directors negotiated with A. Francois Hinnen the return of 1,000,000 shares of Euromed's common stock to lessen the effects of the loss on disposal for the remaining shareholders of Euromed.
Euromed currently has no business operations; however, its President and Board of Directors are actively seeking appropriate business acquisitions.
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.
EUROMED, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Euromed has recognized significant losses from its disposal of subsidiaries and general corporate expenses incurred in the United States. Realization of any portion of the deferred tax asset resulting from the net operating loss carryforward is not considered more likely than not. No deferred tax asset or valuation allowance has been estimated due to the anticipated change in ownership which severely restricts the use of the net operating loss carryforward. At December 31, 1998, Euromed has approximately $6,422,000 of net operating loss carryforward for federal income tax purposes, which will begin to expire in 2011.
Pension and Other Post-Retirement and Post-Employment Plans
The Companies have no defined benefit pension plan or other post-retirement or post-employment plans.
Cash Equivalents
All highly liquid investments purchased with original maturities of approximately three months or less are considered to be cash equivalents.
Earnings (Loss) Per Share
Basic (loss) per common share has been calculated using the weighted average number of shares of common stock outstanding during the year. The weighted average includes 35,000 shares of common stock which were authorized for issuance in November 1998 in settlement of professional fees related to the selling of Euromed's foreign subsidiary. These shares were issued subsequent to December 31, 1998. Diluted (loss) per common share is not disclosed because the effect of the exercise of the common stock warrants would be anti-dilutive.
Concentration of Credit Risk
The Company deposits its cash with high credit quality financial institutions. At times such deposits may be in excess of FDIC insurance limits. At December 31, 1998, the cash deposits exceeding FDIC insurance limits were $21,130.
EUROMED, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
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, 1997 and 1998, no grants have been awarded under this plan.
NOTE 3: RELATED PARTY TRANSACTION
The Board of Directors authorized the issuance of common stock to Euromed's President and to an unaffiliated individual for services rendered to Euromed in Europe in November and December 1997. The summary below sets forth these transactions:
In addition to the $28,438 charge against fourth (4th) quarter operations, a $23,000 bonus for Elbert Tindell was approved in December 1997.
In December 1997, the Board of Directors authorized the issuance of 100,000 five year warrants to purchase common stock of Euromed to each of the three (3) Directors of Euromed at a price of $.30. The fair value of the common shares was $.20 (Bid Price) at the date the warrants were authorized; therefore, no expense was recognized in connection with the warrant issue. As of December 31, 1998, none of these warrants had been exercised.
(Continued)
EUROMED, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
NOTE 3: RELATED PARTY TRANSACTION (CONTINUED)
In December 1997, the Board of Directors was authorized the following monthly compensation:
In December 1997, Mr. Shuey and Mr. Shelmire were each paid $7,000 for services rendered as Directors of Euromed.
For the year ended December 31, 1998, the three (3) directors of the Company were paid $200,562 for services rendered to the Company.
Jesse B. Shelmire resigned as a director of Euromed on October 27, 1998.
NOTE 4: DISCONTINUED OPERATIONS
In the summer of 1997, Euromed's management concluded the sale of its investment in Mutarestes B.V. and Subsidiary and determined that Euromed should divest itself of the remaining operating subsidiaries. On November 26, 1997, the Company executed the "Purchase Agreement by and between Euromed, Inc. and Neopharm B.V." Selected provisions of the agreement are as follows:
o 80% of capital stock sold to Neopharm B.V. of Euromed Europe B.V. o Sale proceeds $1,000,000 o Retainment of $300,000 receivable from Euromed Europe B.V. o Assignment to the Company of $500,000 of the claim against the purchaser of Mutarestes B.V.
Management has determined that the remaining 20% interest held in Euromed Europe B.V. had no realizable value and the collection of the $500,000 claims against the purchase of Mutarestes B.V. was not probable; therefore, no value was given to these assets at September 30, 1997. Additionally, in connection with the sale of Euromed Europe V.B., the Company entered into a settlement agreement with Dr. A. Francois Hinnen and his affiliates which included the following provisions:
Hinnen's affiliate to return 1,000,000 shares of Euromed's common stock Hinnen to resign as director of Euromed Hinnen and his affiliates resign as the managers of Euromed's operating subsidiaries Hinnen to receive Euromed's 51% interest in Confedera Philippines, Inc. and title to a used automobile and personal computer Each party to the agreement to release each other for any claims they may have against each other
(Continued)
EUROMED, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
NOTE 4: DISCONTINUED OPERATIONS (CONTINUED)
The financial statement of Euromed Europe B.V. as of September 30, 1997, are as follows:
EUROMED EUROPE, B.V. BALANCE SHEET
September 30, 1997
ASSETS
EUROMED, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
NOTE 4: DISCONTINUED OPERATIONS (CONTINUED)
EUROMED EUROPE, B.V. STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1997
In November 1998, Euromed's Board of Directors authorized the issuance of 35,000 shares of its common stock in settlement of professional fees related to the sale of the Company's foreign subsidiary in 1997. The $1.50 per share value was determined by taking the average of the bid and asked price for Euromed's common stock on the date the shares were authorized for issuance. The $52,500 was recognized as additional loss on disposal of the discontinued operation in the statement of operations for the year ended December 31, 1998.
In 1998, the $300,000 receivable due from Euromed Europe, B.V. was collected net of $123,681 of selling expenses paid by Euromed Europe, B.V. on behalf of Euromed, Inc. The $123,681 has been recognized in the statement of operations for the year ended December 31, 1998, as additional loss on disposal of the discontinued operation.
EUROMED, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
NOTE 5: ACQUISITION AND DISPOSAL OF A 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:
The Company divested itself of the capital stock of Pluripharm and other related assets in the second quarter of 1997. The Company took 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: (1,) 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.
(Continued)
EUROMED, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
NOTE 5: ACQUISITION AND DISPOSAL OF A SIGNIFICANT ASSET (CONTINUED)
The following summarizes the investment in Mutarestes B.V. and Subsidiary and the resulting estimated loss upon disposal:
The fair value of 850,000 shares returned to Euromed by Mr. Francois Hinnen, CEO of Euromed, is 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.
(Continued)
EUROMED, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
NOTE 6: QUARTERLY FINANCIAL DATA (UNAUDITED)
NOTE 7: SUBSEQUENT EVENTS
In 1998 Euromed advanced monies to Redstone Securities, Inc. as follows:
The $510,000 of subordinated loans were subject to certain National Association Securities Dealers (NASD) subordination restrictions and could not be repaid to Euromed without prior written approval of the NASD. In 1999 the $510,000 of subordinated loans were converted to equity in Redstone Securities, Inc.
On November 6, 1998, the "Agreement and Plan of Reorganization" by and among the Company, Redstone Acquisition Corp. and Redstone Securities, Inc. was executed. As of February 16, 1999, the Company
(Continued)
EUROMED, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
NOTE 7: SUBSEQUENT EVENTS (CONTINUED)
acquired a ninety-six percent (96%) ownership interest in Redstone Acquisition Corp. (which owns one hundred percent (100%) of the outstanding common shares of Redstone Securities, Inc.) by issuing one million, one hundred thousand (1,100,000) shares of its common stock for nine hundred and sixty (960) shares of Redstone Acquisition Corp's common stock. Five hundred thousand (500,000) of the acquisition shares were issued subject to certain vesting restrictions. These restricted shares will vest as follows:
o Shares will vest if the Company's stock trades for twenty consecutive trading days as follows:
o Any remaining restricted shares will vest in their entirety on the third anniversary of the closing date of the merger transaction.
The transaction will be accounted for as if Redstone Securities, Inc. acquired the Company (a reverse merger) since the Company had no active business.
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
EUROMED, INC.
DECEMBER 31, 1998
EUROMED, INC. PRO FORMA CONSOLIDATING BALANCE SHEET (UNAUDITED) DECEMBER 31, 1998
The accompanying notes are an an integral part of these pro forma financial statements.
EUROMED, INC.
PRO FORMA CONSOLIDATING STATEMENTS OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1998
The accompanying notes are an integral part of these pro forma financial statements.
EUROMED, INC.
NOTES TO PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 1: MERGER
On November 6, 1998, the "Agreement and Plan of Reorganization" by and among Euromed, Inc. (the "Company"), Redstone Acquisition Corp. and Redstone Securities, Inc. ("Redstone") was executed. As of February 16, 1999, the Company acquired a ninety-six percent (96%) ownership interest in Redstone Acquisition Corp. (which owns one hundred percent (100%) of the outstanding common shares of Redstone Securities, Inc.) by issuing one million one hundred thousand (1,100,000) shares of its common stock for nine hundred and sixty (960) shares of Redstone Acquisition Corp.'s common stock. Five hundred thousand (500,000) of the acquisition shares were issued subject to certain vesting restrictions. These restricted shares will vest as follows:
o Shares will vest if the Company's stock trades for twenty consecutive trading days as follows:
Vesting Number of Trading Shares Value 166,667 $2.25 166,667 $3.75 166,666 $5.25
o All shares will vest if the Company achieves the following earnings level:
Net Year Ending Income December 31, $200,000 1999 $350,000 2000 $525,000 2001
o Any remaining restricted shares will vest in their entirety on the third anniversary of the closing date of the merger transaction.
The unaudited Pro Forma Consolidating Balance Sheet as of December 31, 1998, gives pro forma effect to the acquisition as if it had occurred on December 31, 1998. The unaudited Pro Forma Consolidating Statement of Operations gives pro forma effect to the acquisition as if it had occurred on January 1, 1998. The Pro Forma Consolidating Balance Sheet and Statement of Operations are based on the audited financial statements of the respective companies. The Pro Forma Financial Statements should be read in conjunction with and are qualified by the historical financial statements of the respective companies.
The Pro Forma Information is intended for informational purposes only and is not necessarily indicative of the future financial position or results of operations of the Company after the acquisition of Redstone, or the financial position or the results of operations of the Company that would have actually occurred had the acquisition of Redstone been effected as of the date or for the period presented.
EUROMED, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENT (CONTINUED) (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 2: ACCOUNTING METHOD
The management and stockholders of Redstone Securities, Inc. gained actual and effective operating control of the Company subsequent to the merger; therefore, the merger was accounted for as a reverse acquisition except that no goodwill or other intangible asset was recognized. This transaction is equivalent to the issuance of stock by Redstone (the private company) for the net assets of the Company, accompanied by a recapitalization.
NOTE 3: ADJUSTMENTS TO PRO FORMA FINANCIAL STATEMENTS
The consolidating entries to these pro forma financial statements are as follows:
(A) In 1998 the Company advanced monies to Redstone, which were reflected in the financial statement of Redstone as follows:
Loan payable $ 210,000
Loans subordinated to claims of general creditors - others 300,000 -----------
$ 510,000
In addition, in December 1998 the Company paid Redstone's January 1999 office rent in the amount of $8,500.
(B) The merger is treated as if Redstone acquired the Company; therefore, the combined stockholders' equity remains unchanged; however, the following reclassifications are necessary:
o Issuance of 1,100,000 shares of $.01 par value common stock ($11,000) offset by reduction in Redstone's common stock ($1).
o Reclassification of the Company's retained deficit of $9,459,681 to additional paid-in capital so that retained deficit reflects only the activity of Redstone.
(C) The Company owns ninety-six percent (96%) of Redstone; therefore, the loss applicable to the Company's ownership interest was reduced by four percent (4%).
(D) Weighted average number of common shares includes 1,100,000 common shares applicable to the merger, unadjusted for the 500,000 that will vest at some time between the initial date of the merger and the third anniversary of the merger.
(E) Eliminate interest on Redstone's Notes Payable to Euromed.
REDSTONE SECURITIES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1998
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders Redstone Securities, Inc.
I have audited the accompanying statements of financial condition of Redstone Securities, Inc. as of December 31, 1997 and 1998, and the related statements of income and expense, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audits.
I conducted my audits in accordance with generally accepted audited standards. Those standards require that I 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. I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all material respects, the financial condition of Redstone Securities, Inc. as of December 31, 1997 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles.
/s/ Arnold G. Greene
February 22, 1999
REDSTONE SECURITIES, INC.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1998
See notes to financial statements.
REDSTONE SECURITIES, INC.
STATEMENTS OF INCOME AND EXPENSE
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
See notes to financial statements.
REDSTONE SECURITIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
See notes to financial statements.
REDSTONE SECURITIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
See notes to financial statements.
REDSTONE SECURITIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Income Taxes
The Company elected to be taxed as an "S" Corporation as of January 1, 1994. The net income or loss of the Company is passed through to the shareholders, and tax is then incurred by the individual shareholders. As of January 1, 1999, the Company will elect to be taxed as a regular "C" Corporation.
Depreciation
Depreciation is calculated using the Modified Accelerated Cost Recovery System (MACRS).
NOTE 2:
The following supplementary information is submitted:
Exemption from Rule 15c3-3 is claimed under (K) (2) (b):
All customer transactions are cleared through another broker-dealer, J. W. Genesis Clearing Corp. on a fully disclosed basis.
Net capital as reported in Form X-17A-5 indicated net capital of $153,941. In February 1999, the Corporation filed Part IIA of form X-17A-5 (unaudited) and reported net capital of $154,752. The difference of $811 is accounted for by net accruals made during the audit, and various reclassifications.
NOTE 3:
The Company is involved in three arbitrations with customers. All matters are being vigorously defended and management believes it has a meritorious defense in each case.
NOTE 4:
As of January 6, 1999, Redstone Securities, Inc. entered into an agreement with Euromed, Inc., a Nevada corporation, to merge its company into a subsidiary. The acquiring company will own 96% of the shares and the existing shareholders of Redstone will retain a 4% interest in the Company.
PART III
Item 10.
Item 10. Directors and Executive Officers of EuroMed, Inc.
Elbert G. Tindell, has served as CEO and a director of the Company since October 15, 1997. Mr. Tindell is involved in the management and direction of public and private Companies in the United States, Asia Pacific, and Europe, specializing in the re-engineering of corporate environments through implementing capital restructuring and planning strategies. Prior to graduating from the University of North Texas, Mr. Tindell served in the United States Marine Corps from January 1967 to December 1970.
Robert A. Shuey, III, isa director, CEO and a Managing Director, Investment Banking, of EuroMed and Redstone Securities, Inc. He also serves as a member of the Board of Directors of Autobond Corporation, Westower Corporation and Transnational Financial Corporation. Mr. Shuey has been associated with Redstone Securities, Inc. since January 1, 1999. Prior thereto, he was Chief Executive Officer of Tejas Securities Group, Inc. since September 1997. He has been in the investment banking business for more than the past five years, with National Securities Corporation from September 1996 until August 1997; with La Jolla Securities Corporation from April 1995 until August 1996; with Dillon Gage Securities Corporation from January 1994 until April 1995 and Dickinson & Co. from March 1993 to December 1993, Mr. Shuey is a graduate of Babson with a degree in Economics and Finance.
Richard Belz, CPA has been a director of EuroMed since February of 1999. Mr. Belz has been in the financial industry for the past 15 years and has acted as Chief Financial Officer and Managing Director of Redstone Securities, Inc. since 1998. During this time he managed all investment banking and trading activities for Redstone. Mr. Belz has served as an officer or director of many corporations including Standard Funding Corporation and Apple Homes Corporation, both of which are publicly traded corporations. He graduated from Illinois State University with a Bachelor of Science degree.
Anthony F Vaccaro, Jr. has been a director of EuroMed since February of 1999. He also is a Vice President of investment banking at EuroMed. Mr. Vaccaro joined the Company in January of 1999. Prior thereto, Mr. Vaccaro was a an investment banking generalist specializing in mergers and acquisitions and initial public offerings for Salomon Smith Barney in New York City. Prior to his association with Salomon Smith Barney, Mr. Vaccaro was employed by a private equity group to specialize in bridge and mezzanine financing, private placements, mergers and acquisitions, and initial public offerings in a variety of industries. Mr. Vaccaro is a graduate of Texas A&M University with a degree in Finance.
Todd M. Cornelius is a Vice President, Investment Banking, of EuroMed, Inc. Mr. Cornelius joined the company in April of 1999. Prior thereto, Mr. Cornelius was a Financial Consultant with Akzo Nobel specializing in small business expansions, mergers and general consulting. Prior to his work with Akzo Nobel, Mr. Cornelius performed underwriting and risk analysis in the energy arena for American International Group. Mr. Cornelius is a graduate of Texas A&M University with a degree in Chemical Engineering. Mr. Cornelius is currently matriculating on a Masters of Business Administration, with a concentration in Finance and Accounting, at Southern Methodist University.
William M. Mosley is a Vice President, investment Banking, of EuroMed. Mr. Mosley has been associated with EuroMed since November I, 1997. Prior thereto, he was a Vice President of Tejas Securities Group, inc. since January 1998. During this time he was responsible for supervising syndicate activities and ail aspects of the Underwriting process. Previously, Mr. Mosley was employed by Stone Media Corporation as a Senior Analyst from November 1996 to January 1998. Mr. Mosley is a graduate of Southern Methodist University with a degree in Finance.
Meetings and Committees of the Board of Directors The business of the Company is under the direction of the board of directors. The board of directors meets on matters requiring approval of the board of directors. It also holds special meetings when an important matter requires action by the board of directors between scheduled meetings. The board of directors held one formal meeting and acted by unanimous written consent 5 times during 1998. During 1998, each member of the board of directors participated in at least 75% of all Board of Directors meetings during the period for which he was a director. Item 11.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Principal Stockholders and Management Ownership.
The following table sets forth information with respect to beneficial ownership of Common Stock as of April 12, 1998 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 1998 based on salary and bonus earned during 1998 exceeded $100,000 (the "Named Executive Officers"), and (iv) all the Company directors and executive officers as a group.
*Less than 1%
(1) Includes warrants to purchase 100,000 shares of common stock granted on December 29, 1997 exercisable immediately at $0.30. (2) Does not include 166,666 shares subject to vesting restrictions pursuant to the Redstone Merger. See "Item 1 - Business" (3) Does not include 166,667 shares subject to vesting restrictions pursuant to the Redstone Merger. See "Item 1 - Business" (4) Includes Mr. Shuey's, Mr. Tindell's, and Mr. Vaccaro's combined warrants to purchase 300,000 shares of common stock. (5) Does not include the right to vote 125,000 shares granted to the Board of Directors by a Federal judge. In compliance with the Injunction and Civil Contempt Order of January 6, 1999, Gregory Alan Gaylor has signed an irrevocable proxy dated January 21, 1999 appointing EuroMed, Inc. as his sole proxy with respect to 125,000 shares of EuroMed Common Stock. (6) Includes warrants to purchase 100,000 shares of Common Stock at a purchase price of $1.00 per share, exercisable immediately.
PART IV
*Filed Herewith
(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/A (Amendment No. 1) dated July 5, 1996 and incorporated herein by reference.
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: April 14, 1999 By: /s/ 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.