Paul RE: East West
FORM TYPE: 10KSB
December 27, 1996
Other Activities. In addition to the foregoing, the Company has
acquired an option to purchase all of the capital stock of East West
Herbs, Ltd.("EWH"), an operating Company with sales of approximately
$2 million, founded in 1987 with its head office located in the
United Kingdom ("UK"). EWH sells and distributes herbs and related
products to professional health care providers practicing complementary
medicine throughout the UK, Europe and the US. EWH is a leader in the
highly fragmented herb distribution industry that differentiates
itself from competitors by providing a ready supply of a wide variety
of products all manufactured to the highest quality standards. EWH
also invests in new product research and development and has clinical
trials underway for two new products for cancer patients under the
direction of Oxford University. Under the terms of the option, the
Company has the right, but not the obligation, to acquire EWH on or
before April 6, 1997.
On April 9, 1996, the Company signed an option to acquire East
West Herbs Ltd. of Kingham, England ("EWH"). EWH markets and
distributes traditional Chinese medicines in the United Kingdom and
throughout Europe. Under terms of the option, the Company has the
right to acquire all of the outstanding shares of EWH on or before
April 6, 1997 for $780,000 in cash and shares of the Company with a
value of approximately $2,400,000 for a total proposed acquisition
price of $3.2 million. Additionally, if the option is exercised, the
Company has the obligation to extend an additional working capital loan
to EWH of $300,000. Consideration for the option was made in the form
of an option fee of $20,000 and a working capital loan of $340,000.
The loan bears interest at the LIBOR rate and is payable in eight equal
quarterly installments with the first installment to be paid six months
after the first anniversary of the loan agreement. The loan is
guaranteed by the majority shareholder of EWH.
The loan is to be used by EWH for inventory purchases, continuing
research and development including the clinical trials of two herbal
products for cancer patients and corporate working capital.
EWH is believed to be a leader in its industry and has launched 24
new products during the three month period ended September 30, 1996.
Additionally, the Company anticipates that EWH's United States
operations will expand as the awareness of complementary medicine
increases. Should the Company not exercise its option to acquire EWH,
the eventual collectibility of the loan will be subject to EWH's
ability to obtain alternative financing, achieve profitable operations
and/or positive cash flow in the future as well as the financial
resources of the loan's guarantor. If the Company elects to exercise
its option, it intends to fund the cash portions of the transactions
from its existing funds. |
