SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): February 17, 1998
GLOBAL SPILL MANAGEMENT, INC.
(Exact name of registrant as specified in charter)
Nevada 0-20317 88-0270266
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
2300 Computer Avenue (Bldg. G-25), Willow Grove, Pennsylvania 19090
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (610) 495-8413
<PAGE>
ITEM 2. AQUISITION OR DISPOSITION OF ASSETS
On February 17, 1998, Global Spill Management, Inc. (the Registrant) entered
into an agreement with Litchfield Continental, Ltd. (Seller) to acquire not less
than eighty (80%) percent of the issued and outstanding shares of capital stock
of Biofarm S.A. (Biofarm), a Romanian pharmaceutical company located in
Bucharest, Romania. Biofarm is a manufacturer and distributor of homeopathic
pharmaceutical products for human and animal use. The Registrant agreed to issue
its Convertible Secured Debenture in the principal amount of $6,434,681, which
amount represents eighty (80%) percent of Biofarm's total stockholders' equity
at June 30, 1997. Neither the Registrant nor any of its affiliates, directors or
officers had any relation whatsoever, material or otherwise, with the Seller.
Seller is a British Virgin Island entity with its principal office located in
London, England.
The Registrant's Debenture will be non-callable, non-interest bearing and
convertible, in increments of ten (10%) percent, into a maximum aggregate of
eighty-five (85%) percent of the number of issued and outstanding shares of
Common Stock of the Registrant at the time of conversion. Such conversion may
not occur until a Special Meeting of the Shareholders of Registrant is called
and held after dissemination of the requisite Proxy Statement, at which Special
Meeting the Registrant's shareholders will be asked to approve of the
acquisition of Biofarm, of the election of Biofarm nominees to control of the
Board of Registrant (in conformity with 14f-1), of the change in Registrant's
corporate name to "Biofarm, Inc.," and of the increase in Registrant's Common
Stock to accommodate potential conversion of the Debenture. (Registrant has no
shares of Preferred Stock issued and outstanding.) Seller will be a control
person of Registrant, will be required to file a Form 13-D with the Commission,
and will be able to dispose publicly of Registrant's shares of Common Stock only
pursuant to an effective Registration Statement under the 1933 Act or pursuant
to an applicable exemption from such registration requirements.
At June 30, 1997, total assets of Biofarm of $9,678,833 consisted substantially
of net property, plant and equipment of $7,727,553 (at cost or valuation of
$10,676,492 less accumulated depreciation of $2,948,939). Registrant intends to
continue the use of such property, plant and equipment in the same continuing
business.
ITEM 5. OTHER EVENTS
The Registrant has previously brought to the attention of the Commission (by
letter and by filings under the 1934 Act) the litigation instituted by
Registrant against thirteen persons and firms (including former counsel,
recipients of Registrant's Common Stock and broker-dealers) who, collectively
and individually, participated in a scheme to defraud Registrant and to violate
the registration requirements of the 1933 Act.
Such scheme involved the filings of Form S-8 with the Commission in August and
September, 1996, and the purported registration under the 1933 Act of an
aggregate of 1,135,000 shares of Registrant's Common Stock. Form S-8 was not
available for the registration of such 1,135,000 shares because (a) Registrant
was not current in its 1934 Act filings when such Form S-8 filings
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were made (cf letter from the Commission to Registrant dated September 19,
1996), and (b) the recipients of the 1,135,000 shares were not bona fide
consultants to the Registrant or of the type of consultant envisioned by Form
S-8.
On January 22, 1998, Registrant's complaint was sustained as to four of the five
causes of action alleged by Registrant against the several defendants. In a
Memorandum and Order entered on January 22, 1998 (96 CV 6246), Judge Platt
(USDC, Eastern District of New York), sustained the complaint filed by
Registrant as to the causes of action for malpractice, breach of contract,
breach of fiduciary duty and unjust enrichment, and dismissed the cause of
action for fraud. Registrant has determined not to appeal the denial of the
cause of action for fraud because the relief sought by Registrant (return of the
1,135,000 shares and of the proceeds derived from the sale thereof) is
encompassed by the four causes of action that have been sustained. (On August 2,
1996, an aggregate of 385,000 shares of Registrant's Common Stock was filed on
Form S-8 at the price of $6.00 per share ($2,310,000 in the aggregate); and on
September 18, 1996, an aggregate of 750,000 of Registrant's Common Stock was
filed on Form S-8 at the price of $2.06 per share ($1,545,000 in the aggregate),
or a total of 1,135,000 shares at the registration price of $3,855,000. With the
exception of 50,000 of such 1,135,000 shares that were returned to the
Registration for cancellation, all of the remaining 1,085,000 were immediately
sold publicly by the recipients.)
Among the broker-dealers who executed orders for the sales of such shares were:
Colin, Winthrop; H.J. Meyers; Meyers, Pollock and Robbins; SFI Investments;
Baker & Company; and Ernst; and among the clearing brokers for such selling
broker-dealers were: Bear, Stearns; Cowen; and Robb, Peck McCooey. Each of such
firms has been advised in writing by Registrant of its liability for the sale of
unregistered stock (1933 Act) and of liability pursuant to Exchange Act Release
#28878 (1934 Act).
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
a) Financial Statements of Business Acquired
The financial statements at June 30, 1997, and for the two years and six
months then ended, and the Coopers & Lybrand Report dated November 18,
1997, annexed as an Exhibit hereto, do not satisfy the requirements of Item
7(a)(1) or (2). Such report does not cover the periods specified in or meet
the requirements of Regulation S-X.
Because it is impracticable to provide the required financial statements
for the acquired business (Biofarm) with the filing of this Form 8-K, the
Registrant is filing herewith such of the financial statements of Biofarm
as are now available and the Coopers & Lybrand Report of Independent
Accountants for the two years and six months ended June 30, 1997. The
Registrant is advised that a Coopers & Lybrand audit and Report thereon for
the six months ended December 31, 1997 (without a qualification as to
inventory) is now in process of completion and is scheduled for delivery
prior to March 31, 1998. Therefore, the Registrant will file the financial
statements for the acquired business (Biofarm) on Form 8-K promptly upon
receipt of the Coopers & Lybrand Report for the
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period ended December 31, 1997 (and in no event, later than sixty (60) days
from the date hereof).
The Debenture issuable by Registrant to Seller and the shares of Biofarm
deliverable by Seller to Registrant, will be placed in escrow pursuant to
the Agreement. The purpose of such escrow is to (a) permit Coopers &
Lybrand to complete its audit and issue its Report for the period ended
December 31, 1997, (b) render not only the acquisition itself subject to
approval by the Registrant's shareholders, but also the change in control
(14f-1) of the Registrant, the change in the name of the Registrant and the
increase in the Registrant's Common Stock, and (c) afford the Registrant
and its independent auditors (BDO Seidman, LLP) the opportunity not only to
review the financial statements of Biofarm and the Coopers & Lybrand Report
for the periods ended December 31, 1997, but also to examine the same in
relation to Regulation S-X and to afford an opportunity, if necessary, to
consult with the Staff of the Commission to discuss the possible resolution
of any remaining Regulation S-X issues.
Prior to the June 27, 1997, privatization of Biofarm, the latter was
operated by the State Ownership Fund (SOF) of Romania. The procedures of
the SOF did not mandate financial statement audits and reports of the type
envisioned by Regulation S-X. Therefore, the Coopers & Lybrand Report for
the period ended June 30, 1997, was required to be qualified as to
observation of the counting of physical inventory for the periods ended
December 31, 1994, 1995 and 1997 and the interim six-month period ended
June 30, 1997, since those dates were prior to their appointment as
auditors of the Company. Since inventory amounts enter into the
determination of Cost of Sales for these periods, the balance sheets and
earnings could not be audited. (See the Coopers and Lybrand Report annexed
as an Exhibit hereto.)
In conjunction with the audit being performed for the six-month period
ended December 31, 1997, Coopers & Lybrand is also being requested to
determine the availability of alternative procedures to satisfy itself as
to the June 30, 1997, inventory.
Assuming an unqualified Report for the six-month period ended December 31,
1997, and further assuming an additional unqualified Report for the
six-month period ending June 30, 1998, the Registrant, then in possession
of one full year's unqualified audited statements, intends to request that
the Staff waive the requirements of Regulation S-X and accept audited
financial statements for a period less than that required by Regulation S-X
as Biofarm was a state-owned entity which did not operate in a market-based
economy until June 27, 1997, and in circumstances in which the Registrant
is able to file "audited financial statements that include post-acquisition
results of operations of the acquired entity for an appropriate period..."
The Registrant recognizes that the issues presented above must be resolved
prior to the Registrant's filing with the Commission of a Proxy Statement
covering the matters to be presented to the Registrant's shareholders for
approval (as stated above).
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Inasmuch as the shareholders of Seller will have voting, Board and
management control of the Registrant once the acquisition is approved by
the shareholders of the Registrant, for financial accounting purposes the
acquisition of Biofarm by the Registrant will be accounted for as a reverse
purchase in accordance with generally accepted accounting principles.
Accordingly, the statement of financial condition and statements of
operations and cash flows will reflect the historical balance sheet and
activities of Biofarm for all of the required reporting periods as well as
the balance sheet of the Registrant from the acquisition date. (As
previously reported, the Registrant has been a non-operating entity since
June 30, 1996.)
(b) Pro Forma Financial Information
Any pro forma financial information required pursuant to Article 11 of
Regulation S-X will be submitted to the Commission on the Form 8-K to be
filed within sixty (60) days of the filing of this Form 8-K, as is
permitted by Item 7(a)(4).
(c) Exhibits
The Form 8-K to be filed by the Registrant within sixty (60) days of the
date hereof, will, in addition to the financial information stated above,
also include the definitive, executed copies of each of the following
Exhibits:
Stock Purchase Agreement
Escrow Agreement
Convertible Secured Non-Negotiable Debenture
Filed herewith are the (a) Coopers & Lybrand Report dated November 18,
1997, and the financial statements for the two years and six-months ended
June 30, 1997, and (b) press release issued by the Registrant, dated
February 18, 1997, relating to the transaction between the Registrant and
Seller.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GLOBAL SPILL MANAGEMENT, INC.
By: /s/ Allan Esrine
-----------------------------------
Allan Esrine
Acting Principal Financial Officer
Dated: February 4, 1998
5
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BIOFARM S.A.
Report to Stockholders
December 31, 1995
December 31, 1996
June 30,1997
6
<PAGE>
BIOFARM S.A.
Directors' report for the years ended 31 December 1995 and 31 December 1996 and
the interim period to 30 June 1997
The directors present their report and the audited financial statements for the
years ended 31 December 1995 and 31 December 1996 and the interim period to 30
June 1997.
Principal activities
The principal activities of the company are unchanged from the previous years,
and are the manufacture of pharmaceutical drugs for human and veterinary use.
Review of business
The profit and loss account for the years audited is set out on page 3. The
level of business and the 30 June interim period financial position show a
significant improvement from the previous periods. The directors expect that
earnings and turnover growth will continue to be sustained for the foreseeable
future with an increasing portion of earnings contributed by export sales.
While a state owned company, BIOFARM SA had been forced to comply with pricing
guidelines established by the Romanian Ministry of Health (MOH) with little
consideration given to their effects on the company's financial position. During
1995 and 1996 the MOH resisted giving approval for product price increases, a
policy which, in the hyper-inflationary economic conditions prevailing during
this period, had a particularly negative effect on earnings performance.
The change in government in November 1996 led to a renewed commitment to
economic reforms and an accelerated privatisation program with an emphasis on
preparing state-owned firms such as BIOFARM for sale to the private sector.
These reforms have resulted in greater pricing freedom for the company and
closer co-operation with the MOH on establishing profit driven price structures.
The result has been a significant increase in earnings as reported in the 30
June 1997 interim period, a trend which is expected to continue.
Changes in fixed assets
The movements in fixed assets during the interim period are set out in note 5 in
the financial statements. In view of the hyper-inflation existing in Romania,
the value of BIOFARM's buildings have been revalued in accordance with US GAAP
and Romanian government ordinances.
Other fixed assets such as machinery and equipment were also revalued by an
independent professional and qualified valuer at US$9,789,122. However,
machinery and equipment were stated in the financial statements at their
depreciated historical cost of US$976,718. If UK GAAP or International
Accounting Standards were used to prepare the financial statements the higher
value could
7
<PAGE>
have been accounted for in the balance sheet which would have resulted in total
assets of US$18,491,237.
The directors have made arrangements to insure the company's assets at their
higher values which, in the opinion of the directors, is more prudent as it
reflects a more true value of the covered assets.
Intangible assets
In the opinion of the directors BIOFARM owns several valuable patents and
trademarks. These have not been accounted for in the financial statements.
Land
Although BIOFARM does not own title to the deeds of the land used by the
company, Shapiro Bancorp LLC does have the option and pre-emptive right to
purchase the land in use on behalf of BIOFARM from the State Ownership Fund at a
negotiated price. Once purchased, additional shares will be issued to Shapiro
Bancorp or its assignees with the total number of shares issued determined by
the price paid.
In accordance with the share purchase agreement signed by Shapiro Bancorp and
the State Ownership Fund on 27 June 1997, a price paid of US$2 million would
result in an ownership of approximately 70%; a price paid of US$4 million would
result in approximately a 78% ownership.
A qualified valuation company belonging to the National Association of Romanian
Evaluators has valued the land at US$5,666,834. The directors are confident that
the State Ownership Fund will accept a substantially lower price given that
BIOFARM has exclusive rights to use the land making it the only logical buyer.
Substantial shareholdings
The directors have been advised that Shapiro Bancorp has sold its beneficial
interest in 4,597,752 issued ordinary shares representing 51% ownership to
Litchfield Continental Limited in October 1997. Shapiro Bancorp will hold
Litchfield's shares in trust until further notice.
Auditors
A resolution to re-appoint Coopers & Lybrand, will be proposed at the annual
general meeting.
By order of the board
Keith D. Beekmeyer Dr David C. Costa
18 November 1997
8
<PAGE>
BIOFARM S.A.
Financial Statements for the year ended 31 December 1995
for the year ended 31 December 1996
and six month period ended 30 June 1997
9
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[Coopers & Lybrand Letterhead]
To the Board of Directors and Stockholders of BIOFARM S.A.
99 Logofat Tautu St.
Bucharest 3, Romania
Report of Independent Accountants
We have audited the balance sheets of BIOFARM S.A. as of December 31, 1995,
December 31, 1996 and June 30, 1997, and the related statements of earnings,
stockholders' equity and cash flows for the two years and the six month period
ended on those dates, as set out on pages 2 to 13. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
Except as discussed in the following paragraph, we conducted our audit in
accordance with United States 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
misstatements. 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 the
management, as well as evaluating the overall financial statements presentation.
We believe that our audit provides a reasonable basis for our opinion.
We did not observe the counting of physical inventory as of December 31, 1994,
December 31, 1995, December 31, 1996 and June 30, 1997, since those dates were
prior to our appointment as auditors of the Company. Therefore we are not able
to certify the existence of the inventories of the Company at those dates.
Inventory amounts as of December 31, 1994, December 31, 1995, December 31, 1996
and June 30, 1997 enter into the determination of Cost of Sales for the year
ended December 31, 1995, December 31, 1996 and the period ended June 30, 1997.
Because of the matter discussed in the preceding paragraph we are not able to
express and we do not express an opinion on the amounts within Cost of Sales and
hence the earnings for the year ended December 31, 1995, December 31, 1996 and
the period ended June 30, 1997.
In our opinion, with the possible exception of inventory amounts in the balance
sheet and in determining cost of sales, the financial statements referred to
above present fairly, in all material respects, the financial position of
BIOFARM S.A. at December 31, 1995, December 31, 1996 and June 30, 1997, and the
results of its operations and cash flows for the two years and the six month
period ended on those dates, in conformity with United States generally accepted
accounting principles.
/s/ Coopers & Lybrand
- -------------------------------
Coopers & Lybrand
Bucharest
18 November 1997
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BIOFARM S.A. Balance Sheet
(all figures in USD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Note 30 June 1997 31 Dec. 1996 31 Dec. 1995
---- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalent 2 29,532 89,108 67,100
Receivables, net 3 409,408 331,617 391,330
Inventories, net 4 1,396,904 1,387,502 1,913,069
Other current assets 115,436 147,752 305,408
---------- ---------- ----------
Total current assets 1,951,280 1,955,979 2,676,907
Property plant and equipment, at cost or
valuation
Buildings 5 6,644,539 1,686,496 1,686,496
Machinery and equipment 3,925,657 3,874,631 3,849,188
Construction in progress 106,296 79,049 57,050
Less accumulated depreciation (2,948,939) (3,835,130) (3,620,516)
---------- ---------- ----------
7,727,553 1,805,046 1,972,218
---------- ---------- ----------
Total assets 9,678,833 3,761,025 4,649,125
========== ========== ==========
Liabilities
Short term borrowings 6 82,825 92,709 317,088
Accounts payable 7 1,427,459 1,686,785 1,401,895
Other liabilities 39,474 25,168 55,045
Taxes except tax on profit 47,008 73,085 75,263
Tax on profit 38,716 0 0
Dividends payable 0 65,641 108,041
---------- ---------- ----------
Total current liabilities 1,635,482 1,943,388 1,957,332
Long term debts 0 0 0
---------- ---------- ----------
Total liabilities 1,635,482 1,943,388 1,957,332
---------- ---------- ----------
Stockholders'Equity
Common stock 8 5,375,790 5,375,790 5,375,790
Earnings reinvested in the business (3,323,463) (3,558,153) (2,683,997)
Revaluation reserve 5,991,024 0 0
---------- ---------- ----------
Total stockholder's equity 8,043,351 1,817,637 2,691,793
---------- ---------- ----------
Total liabilities and stockholders' equity 9,678,833 3,761,025 4,649,125
========== ========== ==========
</TABLE>
The accompanying notes form an integral part of these financial statements
and should be read in conjunction therewith.
The financial statements on pages 2 to 13 were approved by the board of
directors on 18 November 1997 and were signed on its behalf by:
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BIOFARM S.A. Statement of Earnings
(all figures In USD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period ended Year ended Year ended
30 June 1997 31 Dec. 1996 31 Dec. 1995
------------ ------------ ------------
<S> <C> <C> <C>
Operating revenues 2,922,121 6,008,157 7,227,953
Cost of sales
Materials (931,653) (3,327,364) (3,765,568)
Labour (570,571) (1,305,207) (1,483,538)
Depreciation (146,790) (279,379) (214,614)
Others (23,345) (112,685) (350,496)
---------- ---------- ----------
(1,672,359) (5,024,635) (5,814,216)
Gross profit 1,249,762 983,522 1,413,737
Marketing, administration and
research costs
Administration expense (52,580) (1,003,330) (1,217,737)
Marketing expense (14,893) (42,558) (18,848)
Transport expense (46,564) (86,056) (29,988)
Research costs (64) (2,699) (905)
---------- ---------- ----------
(588,101) (1,134,643) (1,267,478)
Operating income/(loss) 661,661 (151,121) 146,259
Interest and other debt expense, net (20,025) (97,733) (108,630)
Loss from net monetary position (239,512) (347,591) (216,849)
Exceptional income 12,056 16,616 63,768
Exceptional expense (100,685) (294,327) (143,609)
---------- ---------- ----------
Earnings/(loss) before Income 313,495 (874,156) (259,061)
taxes
Provision for income taxes (78,805) 0 0
---------- ---------- ----------
Net earnings/(loss) (234,690) (874,156) (259,061)
========== ========== ==========
Dividends -- -- 59,558
---------- ---------- ----------
</TABLE>
The accompanying notes form an integral part of these financial statements
and should be read in conjunction therewith.
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BIOFARM S.A. Statement of Cash Flows
(all figures in USD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period ended Year ended Year ended
30 June 1997 31 Dec. 1996 31 Dec. 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash provided by (used in) operating activities
Net earnings/(loss) 234,690 (874,156) (259,061)
Adjustments
Depreciation 146,790 279,379 214,614
Loss from net monetary position 239,512 347,591 216,849
Changes in operating working capital
Receivables (77,791) 59,713 160,366
Inventory (9,402) 525,567 (386,433)
Other current assets 32,316 157,582 (185,166)
Accounts payables (259,326) 284,890 682,482
Other current liabilities 26,945 (32,055) (114,007)
-------- -------- --------
Net cash provided by operating activities 333,734 748,511 329,644
Cash used in investing activities
Capital expenditure (78,273) (112,133) (298,102)
Cash used in financing activities
Net (repayment)/increase of short term borrowings (9,884) (224,379) 91,730
Dividends paid (65,641) (42,400) 0
Effect of exchange rate changes (239,512) (347,591) (216,849)
-------- -------- --------
(59,576) 22,008 (93,577)
Cash and cash equivalents (note 2)
(Decrease)/increase (59,576) 22,008 (93,577)
Balance at beginning of year 89,108 67,100 160,677
Balance at end of year 29,532 89,108 67,100
</TABLE>
The accompanying notes form an integral part of these financial statements
and should be read in conjunction therewith.
- --------------------------------------------------------------------------------
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BIOFARM S.A. Statement of Stockholders' Equity
(all figures In USD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Earnings Total
Common reinvested in Revaluation stockholder's
stock the business reserve equity
--------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1995 5,375,790 (2,365,378) -- 3,010,412
Net earnings (259,061) (259,061)
Cash dividends declared (59,558) (59,558)
Balance, January 1, 1996 5,375,790 (2,683,997) -- 2,691,793
Net earnings (874,156) (874,156)
Cash dividends declared -- --
Balance, December 31, 1996 5,375,790 (3,558,153) -- 1,817,637
Net earnings 234,690 234,690
Cash dividends declared -- --
Revaluation of buildings 5,991,024 5,991,024
Balance, June 30, 1997 5,375,790 (3,323,463) 5,991,024 8,043,351
</TABLE>
- --------------------------------------------------------------------------------
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BIOFARM S.A.
Notes to the Financial Statements (all figures in USD)
1. Summary of Significant Accounting Policies:
The Financial Statements have been prepared in accordance with United States
generally accepted accounting principles. A summary of the most important
accounting policies is set out below.
Basis of preparation:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of operating revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
The financial statements are prepared in accordance with the historical cost
convention modified by the revaluation of certain fixed assets. The underlying
accounting records maintained in conformity with Romanian accounting legislation
have been restated to reflect significant differences between Romanian
legislation and United States generally accepted accounting principles.
Currency translation:
The Company operates in a hyper-inflationary economy. In accordance with FAS 52,
the financial statements have been remeasured into the functional currency,
namely USD. Monetary assets and liabilities are translated into USD at a current
exchange rate. Non monetary assets and liabilities are translated into USD at
appropriate historical rates of exchange. Reserves and expenses are translated
at their date of recognition; in practice using an average monthly exchange
rate. The gain or loss from the net monetary position is accounted for in the
statement of earnings.
Cash and cash equivalents:
Cash equivalents include demand deposits with banks and all highly liquid
investments with original maturity of three months or less.
Inventories:
Inventories are stated at lower of cost or market. The weighted average method
is used to cost substantially all domestic inventories, except for finished
goods which are valued using the first-in, first out ("FIFO") method. Where
necessary provision is made for obsolete, slow moving and defective stocks.
15
<PAGE>
BIOFARM S.A.
Notes to the Financial Statements (all figures in USD)
Trade receivables:
Trade receivables are stated at their estimated realisable value, after
provision for doubtful accounts.
Fixed assets cost and depreciation:
All BIOFARM fixed assets were revalued in accordance with Romanian Government
ordinance no. 500 from June 1994 (a specific ordinance with the object of
restating fixed assets to counter the effect of hyper-inflation existing in
Romania). As a result fixed assets have been restated in terms of their
historical cost in US dollar terms as of their date of purchase (for fixed
assets acquired after June 1994) or their US dollar equivalent of revalued cost
in accordance with Government Ordinance 500 (for those fixed assets acquired
before June 1994).
Additionally, a full valuation of the company's buildings has been made by an
independent professional qualified valuer. The basis and results are explained
in note 5.
Depreciation is recorded by the straight-line method using the following
economic useful lives:
Useful life (years)
Buildings 30-40
Special constructions 20-40
Equipment 8-10
Motor vehicles 5
Research costs:
Any research and development costs are charged to expenses as incurred.
Taxation:
Income tax is recorded in accordance with the liability falling due, as
calculated in accordance with Romanian legislation. Deferred tax liabilities are
recorded if appropriate using the balance sheet liability method. Deferred tax
assets are not accounted for on the ground of prudence and uncertainty of future
tax legislation.
Intangible assets:
Intangible assets such as brands, patents and trademarks have not been valued.
<PAGE>
BIOFARM S.A.
Notes to the Financial Statements (all figures in USD)
2. Cash and cash equivalents
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
Description 30 June 1997 31 Dec. 1996 31 Dec. 1995
<S> <C> <C> <C>
Cheques 13,226 28,594 7,556
Cash in bank, in ROL account 4,042 39,175 1,588
Cash in bank, in currency accounts 684 18,646 45,333
Cash in hand 8,652 2,039 11,163
Other cash equivalents 2,928 654 1,460
TOTAL 29,532 89,108 67,100
</TABLE>
3. Trade receivables
Trade receivables are presented net of provisions:
<TABLE>
<CAPTION>
Description 30 June 1997 31 Dec. 1996 31 Dec. 1995
<S> <C> <C> <C>
Domestic customers 233,936 161,902 146,862
Foreign customers 61,305 52,895 90,542
Advances to suppliers 122,978 124,013 174,145
Less provisions for doubtful debts (8,811) (7,193) (20,219)
TOTAL 409,408 331,617 391,330
</TABLE>
Foreign customers are represented by Romanian trading companies which export
BIOFARM's products. Their debt to BIOFARM is stated in hard currency.
<PAGE>
BIOFARM S.A.
Notes to the Financial Statements (all figures in USD)
4. Inventories
Inventories can be presented as follows:
<TABLE>
<CAPTION>
Description 30 June 1997 31 Dec. 1996 31 Dec. 1995
<S> <C> <C> <C>
Raw material 555,505 582,115 874,619
Packagings 239,973 331,280 518,055
Finished goods 454,393 287,481 378,366
WIP 50,248 76,039 96,210
Other stocks 112,008 145,159 86,452
Less provisions for stock
Raw materials (5,488) (14,582) (8,301)
Packagings (6,622) (11,280) (12,660)
Finished goods (3,113) (8,710) (19,672)
TOTAL 1,396,904 1,387,502 1,913,069
</TABLE>
Provision for stock is based on ageing analysis of items held in warehouses.
5. Buildings
For the purpose of the financial statements at 30 June 1997, buildings were
valued at depreciated replacement cost. These valuations were performed by SC
Inter-Ex Consulting S.R.L., a qualified valuation company, belonging to the
National Association of Romanian Evaluators. In the opinion of the directors,
this valuation provides a more accurate value for buildings due to the economic
situation in Romania, including the existence of hyper-inflation.
The revaluation of buildings has been included in the financial statements at 30
June 1997. This is permitted by AICPA Accounting Principles Board Opinion no. 6,
as the Company operates under the conditions of serious inflation and currency
devaluation.
The restated historical cost and revaluation of buildings is
disclosed below (gross book value):
30 June 1997
Restated historical cost 1,686,496
Accumulated depreciation (1,032,981)
Revaluation write up 5,991,024
Valuation 6,644,539
<PAGE>
BIOFARM S.A.
Notes to the Financial Statements (all figures in USD)
6. Short term borrowings
<TABLE>
<CAPTION>
Description 30 June 1997 31 Dec. 1996 31 Dec. 1995
<S> <C> <C> <C>
Short term loans 38,396 0 147,401
Overdraft 44,429 92,709 169,687
TOTAL 82,825 92,709 317,088
</TABLE>
During 1995 BIOFARM S.A. arranged a short term loan in ROL accruing at an
interest rate of 41% p.a. and secured against equipment. The loan was used for
payment of debts to RADET.
Based on an agreement concluded between the State Ownership Fund and BIOFARM
S.A. in March 1995, BIOFARM S.A. received from the former the amount of ROL
thousand 295,000 (equivalent to 161,200 USD at the granting date). The funds
were used to modernise one of its production lines. As the State Ownership Fund
was one of the principle shareholders in BIOFARM S.A., the loan was granted free
of interest and collateral. BIOFARM S.A. only had the obligation to make loan
repayments from dividends for years 1995, 1996 and 1997.
For the year ended 31 December 1995, BIOFARM S.A. returned ROL thousand 10,000.
The year end balance was ROL thousand 285,000 (equivalent to 110,551 USD using
the year end exchange rate of 2,578 ROL/USD).
As of 31 December 1996 this debt was considered by the SOF to be fully
reimbursed and the debt was transferred to reserves.
Between January 1996 and June 1997 BIOFARM S.A. concluded with its bank numerous
credit agreements for ROL short term loans and overdraft facilities of varying
amounts. Overdraft facilities have been arranged to finance BIOFARM's working
capital requirements, whilst short term loans were arranged to finance BIOFARM's
debt to RADET. As collateral BIOFARM S.A. has pledged its fixed assets.
The interest rate applied by the bank, for the year ended 31 December 1996
ranged between 48-50% p.a. The interest rate charged by the bank for the six
month period ended 30 June 1997 ranged between 50-100% p.a.
<PAGE>
BIOFARM S.A.
Notes to the Financial Statements (all figures in USD)
7. Accounts payable
Accounts payable as at 31 December 1996 and 30 June 1997 are split between
domestic and foreign suppliers as follows
<TABLE>
<CAPTION>
30 June 1997 31 Dec. 1996 31 Dec. 1995
<S> <C> <C> <C>
Domestic suppliers 568,395 499,092 744,310
Foreign suppliers 165,140 412,080 114,940
RADET (domestic) 693,924 775,613 542,645
TOTAL 1,427,459 1,686,785 1,401,895
</TABLE>
RADET is the supplier to BIOFARM S.A. of steam and hot water. RADET invoice the
services to BIOFARM S.A. on a monthly basis. The commercial contract with the
supplier states precise penalties which are to be charged for any delays in
payment. The contract in force as at 30 June 1997, concluded between RADET and
BIOFARM as at 28 February 1997 states penalties of 0.2% for any day of delay in
payment. BIOFARM signed the contract with reserve due to difficulties in
measurement of real consumption, The previous contract valid until February
1997, stipulated penalties of 0.15% per day of delay in payment.
BIOFARM is in litigation with RADET for outstanding debts, RADET cut the supply
on a number of occasions, but BIOFARM S.A. was supported by the City Council,
which administrates RADET, in its demands to re-establish the supply and to
obtain a rescheduling of debts, on the basis that it produces medicines. It is
unlikely that the City Council will get involved again, giving the fact that
BIOFARM S.A. is now privately owned.
As at 31 December 1995, the total balance of RADET of USD 542,645 comprises
USD 110,150 representing penalties invoiced by RADET to BIOFARM S.A. for delay
in payments of services supplied up to the date mentioned above.
As at 31 December 1996, the total balance of RADET of USD 775,613 comprises
USD 308,613 representing penalties invoiced by RADET to BIOFARM S.A. for delay
in payments of services supplied up to the date mentioned above.
As at 30 June 1997 the total balance of RADET of USD 693,924 comprises
USD 276,371 representing penalties invoiced by RADET to BIOFARM S.A. for delay
in payments of services supplied up to the date mentioned above.
<PAGE>
BIOFARM S.A.
Notes to the Financial Statements (all figures in USD)
8. Common stock
Common stock as at 30 June 1997 consisted of 9,015,200 shares having a nominal
value of USD 0.596/share. As at 31 December 1995 and 31 December 1996 common
stock consisted of 360,608 shares with a nominal value of USD 14.907/share.
Both at 31 December 1996 and 30 June 1997 the shareholders of BIOFARM S.A. were
the State Ownership Fund (SOF) with 40% and Individual shareholders with 60%.
On 27 June 1997 the State Ownership Fund entered into a sale purchase contract
with Shapiro Bancorp LLC, Carson City, Nevada, USA for the sale of the SOF's 40%
holding to Shapiro Bancorp LLC. Ownership was transferred to the buyer after
payment on 20 August 1997.
During October 1997, Shapiro Bancorp LLC sold 4,597,752 shares to Litchfield
Continental Limited representing 51% of total shares outstanding.
9. Dividends
For the year ended 31 December 1995 net dividends amounting to USD 59,558 were
proposed. For the year ended December 31, 1996 no dividends were proposed, due
to statutory loss obtained by BIOFARM S.A. The Company obtained a statutory
profit for the six month period ended June 30, 1997 but by the present no
dividends were proposed or distributed related with this period,
<PAGE>
BIOFARM S.A.
Notes to the Financial Statements (all figures in USD)
10. Capital commitments
Under the terms of contract number 975, dated 27 June 1997, between the State
Ownership Fund and Shapiro Bancorp LLC, the latter are required to follow an
investment programme between 1997 and 2001.
Required capital expenditure is as follows:
Year Currency Capital expenditure required
1997 USD 665,000
1998 USD 1,610,000
1999 USD 14,091,000
2000 USD 10,695,000
2001 USD 7,970,000
TOTAL USD 3,5031,000
Investments for
environment protection USD 1,300,000
GRAND TOTAL USD 36,331,000
Non compliance with this investment programme will result in a penalty of 30% of
any required expenditure not made, calculated annually on a cumulative basis,
payable to the State Ownership Fund.
The agreement allows BIOFARM S.A. and the SOF to modify the investment programme
by mutual consent.
11. Land
BIOFARM S.A. does not have ownership deeds for the land. When the ownership
deeds for land will be available, Shapiro Bancorp LLC has the option to purchase
the land from the State Ownership Fund at a price established through
negotiation.
Under the terms of the contract between the State Ownership Fund and Shapiro
Bancorp LLC, the latter has the pre-emptive right to buy the shares issued in
connection with the sale of the land. The number of shares issued will result
from the price paid for the land divided by the price per share.
BIOFARM S.A. requested a valuation for the land. These valuations were performed
by SC Inter-Ex Consulting S.R.L., a qualified valuation company, belonging to
the National Association of Romanian Evaluators. The value of the land obtained
as at 30 June 1997 was USD 5,666,834.
Contact: Global Spill Management, Inc. FOR IMMEDIATE RELEASE
Desiree Pierson
(610) 495-8413
GLOBAL SPILL MANAGEMENT, INC. AND
LITCHFIELD CONTINENTAL, LTD. CLOSE SALE
OF BIOFARM S.A. (ROMANIA) TO GLOBAL
Willow Grove, Pennsylvania, February 19, 1998 ... Global Spill Management, Inc.
(GEGI) announced today that final documents have been executed providing for
the acquisition of Biofarm S.A. (Romania) by Global from Litchfield Continental,
Ltd.
(Previously, Global had announced (a) negotiations to acquire Biofarm (September
17, 1997), (b) execution of a letter of intent to acquire Biofarm (October 13,
1997), (c) receipt by Global of Biofarm's financial statements for the period
ended June 30, 1997, prepared by Coopers & Lybrand (November 24, 1997), and (d)
Global's intention to complete the Biofarm acquisition (January 7, 1998).)
The documents executed today by Global and Litchfield provide for the deposit
into escrow of the Global Debenture ($6,434,681) and of the Biofarm shares
owned by Litchfield. The purpose of such escrow (expected to be terminated in
or about April, 1998) is to permit Litchfield an opportunity to deliver to
Global (a) the Coopers & Lybrand audit of Biofarm for the additional six-month
period ended December 31, 1997, (b) additional Biofarm shares equal to eighty
(80%) percent of Biofarm, and (c) proof of the resolution of certain accounting
matters between Biofarm and entities now or previously owned by the Romanian
Government.
Global shareholders will be furnished with a Proxy Statement containing all
information relevant to Global and Biofarm prior to the calling of a Special
Meeting of Global shareholders in April, 1998. At such Special Meeting Global
shareholders will be asked to (a) approve the acquisition of Biofarm, (b)
approve the election of Biofarm nominees to control of the Global Board (in
compliance with Rule 14f-1), (c) change the name of Global to Biofarm, and
(d) increase the authorized capital stock of Global.
<PAGE>
The Debenture issued by Global to Litchfield in exchange for the Biofarm shares
is both non-interest-bearing and non-redeemable for cash, and is convertible,
over a period of time, in increments of ten (10%) percent only after the
meeting of Global shareholders. Litchfield will be a control person of Global,
will be required to file a Form 13-D with the SEC, and will be able to dispose
publicly of the Global shares issuable upon conversion of the Debenture only
pursuant to an effective Registration Statement or an applicable exemption from
registration requirements.
The Global Proxy Statement will contain the most recent financial statements of
both Global and Biofarm and will detail the business of Biofarm. Global intends
to utilize such Proxy Statement as the basis for a filing with NASDAQ to list
thereon shares of Global Common Stock.
Prior to the dissemination of the Proxy Statement to precede the anticipated
April, 1998 meeting of the Global shareholders, Global intends to make public
additional information concerning Biofarm, including preliminary results of
the December 31, 1997, Biofarm audit, description of Biofarm's business and new
products now being developed, potential acquisitions now being negotiated by
Biofarm itself, and the potential acquisition of other businesses now owned by
Litchfield and not yet consolidated with Biofarm (with no corresponding increase
in the ultimate consideration to be delivered by Global to Litchfield).
Global and Biofarm emphasize that, prior to the privatization of Biofarm that
occured on June 27, 1997, Biofarm was operated by and under the control of the
State Ownership Fund (SOF) of Romania. The divestiture of Biofarm by the SOF was
predicated upon commitments made to the SOF to the effect that Biofarm would
achieve good market practice (GMP) status (thereby permitting Biofarm to enjoy
world-wide pharmacopoeia stature), would be infused with additional capital to
permit growth in its world-wide status, and would have its growth fostered to
create not only job opportunities in Romania but recognition of Biofarm as an
international provider of pharmaceutical products. Both Global and Biofarm
believe that, Biofarm becoming a public entity as a result of the transaction
with Global, the objectives of the SOF will be met and that Biofarm will
achieve GMP status and will honor all of its commitments to the SOF by being
able to tap into world financial markets.
