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SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
[X] Filed by Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
GLOBAL SPILL MANAGEMENT, INC.
(Name of Registrant As Specified in its Charter)
DAVID R. STITH, PRESIDENT, GLOBAL SPILL MANAGEMENT, INC.
(Name of Person(s) Filing the Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
N/A
---------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
N/A
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
N/A
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
N/A
----------------------------------------------------------------------
(1) Set forth the amount on which the filing fee is calculated and state
how it was determined.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and date of its filing.
1) Amount Previously Paid:
N/A
---------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
N/A
---------------------------------------------------------
3) Filing Party:
N/A
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4) Date Filed:
N/A
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<PAGE>
GLOBAL SPILL MANAGEMENT, INC.
244 Main Street
Linfield, Pennsylvania 19468
----------------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
BE HELD ON August __, 1998
---------------------------------------
To the Stockholders of Global Spill Management, Inc.:
NOTICE IS HEREBY GIVEN that the Special Meeting of Stockholders (the
"Special Meeting") of Global Spill Management, Inc., a Nevada corporation (the
"Company"), will be held on September __, 1998, at _____________________ at
9:00 a.m., local time, and thereafter as it may from time to time be
adjourned, for the purposes stated below:
1. To elect eight (8) directors to the Board of Directors of the
Company for a one (1) year term;
2. To amend the Company's Certificate of Incorporation to
change the Company's name to Biofarm, Inc. (the "Name Change");
3. To amend the Company's Certificate of Incorporation to increase
the number of authorized shares of Common Stock from 25,000,000 shares to
100,000,000 shares;
4. To ratify the appointment of BDO International as the Company's
independent certified public accountants; and
5. To transact such other business as may properly come before the
Special Meeting or any adjournments thereof.
All Stockholders are cordially invited to attend the Special Meeting.
Only those Stockholders of record at the close of business on August __, 1998
are entitled to notice of and to vote at the Special Meeting and any
adjournments thereof. The stock transfer books will not be closed. A complete
list of stockholders entitled to vote at the Special Meeting will be available
at the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
OF GLOBAL SPILL MANAGEMENT, INC.
________ __, 1998 David R. Stith, President
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE DATE AND SIGN
THE ENCLOSED FORM OF PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE TO
AMERICAN STOCK TRANSFER & TRUST COMPANY, 40 WALL STREET, NEW YORK, NEW YORK
10005.
<PAGE>
GLOBAL SPILL MANAGEMENT, INC.
244 Main Street
Linfield, Pennsylvania 19468
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Global Spill Management, Inc., a
Nevada corporation (the "Company"), for use at the special meeting of the
Company's stockholders to be held at ______________________ on September __,
1998, at 9:00 a.m., local time, and at any adjournments thereof (the "Special
Meeting").
The Special Meeting has been called to consider and take action on
the following proposals:
1. To elect eight (8) directors to the Board of Directors of
the Company for a one (1) year term;
2. To amend the Company's Certificate of Incorporation to
change the Company's name to Biofarm, Inc. (the "Name Change");
3. To amend the Company's Certificate of Incorporation to increase
the number of authorized shares of Common Stock from 25,000,000 shares to
100,000,000 shares; and
4. To ratify the appointment of BDO International as the Company's
independent certified public accountants; and
5. To transact such other business as may properly come before the
Special Meeting or any adjournments thereof.
The Company's Board of Directors has taken unanimous affirmative
action with respect to each of the foregoing proposals and recommends that the
Stockholders vote in favor of each of the proposals. Only holders of record of
common stock, $.001 par value ("Common Stock"), of the Company at the close of
business on August __, 1998 (the "Record Date") will be entitled to vote at
the Special Meeting.
The principal executive offices of the Company are located at 244
Main Street, Linfield, PA 19468 and its telephone number is (610) 495-8413.
The approximate date on which this Proxy Statement, the proxy card and other
accompanying materials are first being sent or given to Stockholders is August
__, 1998. The Company's Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1997, including audited financial statements, and the Company's
consolidated financial statements for the period ended March 31, 1998, and June
30, 1997, the Biofarm, Inc. consolidated pro forma financial statements and the
Biofarm S.A. financial statements are being sent to stockholders together with
this Proxy Statement.
<PAGE>
Voting at the Special Meeting
The Board of Directors of the Company has fixed the close of business
on August __, 1998, as the record date (the "Record Date") for the
determination of stockholders entitled to notice of and to vote at the Special
Meeting. At the close of business on the Record Date, there were 4,211,930
shares of the Company's Common Stock, $.001 par value (the "Common Stock"),
validly issued and outstanding, each of which is entitled to one (1) vote at
the Special Meeting. The Company has approximately 2000 beneficial holders of
its Common Stock.
The presence in person or by proxy of holders of record of a majority
of the shares outstanding and entitled to vote as of the Record Date shall be
required for a quorum to transact business at the Special Meeting. If a quorum
should not be present, the Special Meeting may be adjourned until a quorum is
obtained. The nominees to be selected as a Director named in Proposal 2, must
receive a plurality of the eligible votes cast at the Special Meeting with
respect to such proposals. The affirmative vote of the holders of a majority
of the issued and outstanding shares of common stock of the Company is
necessary to approve and consent to (i) the Common Stock Proposal, (ii) the
Name Change and (iii) the appointment of BDO Seidman as the Company's
independent certified public accountants. Accordingly, an abstention or broker
non-votes with respect to Proposal 1 will have no effect on the outcome of the
voting on this proposal and will have the effect as a negative vote on
Proposals 2, 3 and 4. Brokers who hold shares in street name, may vote on
behalf of beneficial owners with respect to Proposals 1, 3 and 4. The Board of
Directors recommends voting FOR Proposals 1, 2, 3, and 4. Unless otherwise
instructed, proxies solicited by the Board of Directors will be voted FOR
Proposals.
In order to vote in favor of or against any of the proposals at the
Special Meeting, stockholders may attend the Special Meeting or deliver
executed proxies to American Stock Transfer & Trust Company, 40 Wall Street,
New York, NY 10005 on or before the date of the Special Meeting. Stockholders
attending the meeting may abstain from voting by marking the appropriate boxes
designated as Abstain on the Proxy. Abstentions shall be counted separately
and shall be used for purposes of calculating a quorum.
It is not anticipated that any other matters will be brought before
the Special Meeting.
Proxy Solicitation
The expense of preparing, printing and mailing this Proxy Statement,
exhibits and the proxies solicited hereby will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by officers and
directors and regular employees of the Company, without additional
remuneration, by personal interviews, telephone, telegraph or facsimile
transmission. The Company will also request brokerage firms, nominees,
custodians and fiduciaries to forward proxy materials to the beneficial owners
of shares of capital stock held of record and will provide reimbursements for
the cost of forwarding the material in accordance with customary charges.
Proxies given by stockholders of record for use at the Special
Meeting may be revoked at any time prior to the exercise of the powers
conferred. In addition to revocation in any other manner permitted by law,
stockholders of record giving a proxy may revoke the proxy by an instrument in
writing, executed by the stockholder or his attorney authorized in writing or,
if the stockholder is a corporation, under its corporate seal, by an officer
or attorney thereof duly authorized, and deposited either at the corporate
headquarters of the Company at any time up to and including the last business
day preceding the day of the Special Meeting, or any adjournment thereof, at
which the proxy is to be used, or with the chairman of such
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Special Meeting on the day of the Special Meeting or adjournment thereof, and
upon either of such deposits the proxy is revoked.
ALL PROXIES RECEIVED WILL BE VOTED IN ACCORDANCE WITH THE CHOICES
SPECIFIED ON SUCH PROXIES. PROXIES WILL BE VOTED IN FAVOR OF A PROPOSAL IF NO
CONTRARY SPECIFICATION IS MADE. ALL VALID PROXIES OBTAINED WILL BE VOTED AT
THE DISCRETION OF THE BOARD OF DIRECTORS WITH RESPECT TO ANY OTHER BUSINESS
THAT MAY COME BEFORE THE SPECIAL MEETING.
None of the matters to be acted on at the Special Meeting give rise
to any statutory right of a Stockholder to dissent and obtain the appraisal of
or payment for such Stockholder's shares.
RECENT DEVELOPMENTS
-------------------
The Company has entered into a Stock Purchase Agreement dated April
1, 1998, as described, (the "Stock Purchaser Agreement") by and among
Litchfield Continental, Ltd., a British Virgin Island corporation
("Litchfield"), the parent of Biofarm, S.A., a Romanian corporation
("Biofarm") and the Company. Pursuant to the Stock Purchase Agreement, the
Company agreed to acquire approximately 87% of the issued and outstanding
shares of capital stock of Biofarm, a Romanian pharmaceutical company located
in Bucharest, Romania.
The Stock Purchase Agreement provides that the Company shall purchase
from Litchfield approximately 87% of the issued and outstanding shares of
Biofarm, representing all of the issued and outstanding shares of Biofarm
owned by Litchfield and certain companies that it controls (the "Controlled
Companies"). In consideration for the purchase of the shares of Biofarm, the
Company has agreed to issue to Litchfield a convertible non-negotiable secured
debenture (the "Debenture") in the principal sum of Six Million Four Hundred
and Thirty Four Thousand Six Hundred Eighty One Dollars ($6,434,681).
The Debenture provides that there is no interest due or payable on
the principal sum and is non-negotiable and non-transferable. The Debenture is
non-redeemable and does not represent a debt obligation of the Company. The
Debenture will provide that from time to time for a period of five (5) years
from the date of the Debenture, the holder thereof may convert a portion, but
not less than ten percent (10%), of the original principal sum into shares of
the Company's Common Stock. The Debenture is convertible at the rate of 8% of
the then issued and outstanding Common Stock of the Company for each ten
percent of the principal sum of the Debenture that is converted. Therefore,
and in accordance with the terms of the Debenture, if the entire principal sum
of the Debenture is converted, the holder shall own eighty percent (80%) of
the Company's issued and outstanding stock based upon the number of shares
thereof outstanding as of the date of conversion. The transaction was closed
in escrow on August 5, 1998, the sole conditions of such escrow being the
affirmative vote of the shareholders of the Company to elect the nominees to
the Board of Directors (to satisfy Rule 14f-1 of the Securities Exchange Act
of 1934) and to change the name of the Company to "Biofarm, Inc." (which
matters are the subject of this Proxy Statement). The escrow arrangement will
terminate upon the holding of the meeting to which this Proxy Statement
relates and the obtaining of the requisite affirmative votes. The Company has
a sufficient number of shares of Common Stock authorized to effectuate the
entire conversion. Such conversion is not permitted prior to March 31, 1999,
is permissible thereafter and for a period of five years from the escrow
closing date, and is convertible only in increments of ten percent (10%) of
the principal amount of the Debenture. An additional maximum of ten percent
(10%) of the Company's then issued and outstanding shares will be
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issued to Litchfield dependent upon the realization by Biofarm of certain
earnings increases (measured by the earnings of Biofarm for the calendar year
ended December 31, 1997).
BIOFARM, S.A.
- -------------
Biofarm, S.A., is a Romanian corporation that was registered in 1991
in Romania. The origins of Biofarm date back to 1924 when a Frenchmen, Renee
Dunod, established a lab to develop and manufacture medicinal solutions, vials
and tablets from plant and animal extract in Bucharest. In 1936 Mr. Dunod
formed Lutetia which was located at one of Biofarms present day sites on Iancu
de Hundora. In 1948, the Romanian government nationalized Lutetia and renamed
several of the Company's factories. In 1961, the Company was renamed Biofarm
Medicine Factory and in 1969 was merged with Biofarm to become Biofarm
Medicine Company, which was still a state owned Company.
In 1990, after the fall of communist government, certain government
decrees led to the formation of the new "Commercial Society" and to the
formation of the State Ownership Fund and the Private Ownership Fund. All
commercial societies established as a result of the new laws were restructured
such that 70% of the shares, or "social capital" were issued to the State
Ownership Fund and 30% to the Private Ownership Fund. This led to Biofarm
becoming registered with the Bucharest Office of Trade Registry under
registration number J40/199/1991 as both a state and privately owned company.
In 1995, a mass privatization program began in Romania with the
passage of laws which compelled the State Ownership Fund to distribute 30%
ownership and the Private Ownership Fund to distribute its entire
shareholdings to Romanian citizens in exchange for Ownership Certificates held
by private citizens. This resulted in Biofarm becoming 60% privately owned and
40% state owned through the State Ownership Fund's remaining shareholdings. In
June 1997, Shapiro Bancorp, LLC succeeded in bidding for the State Ownership
Fund's remaining shares (40% or 3,606,080) which was formalized in a share
purchase agreement signed by the State Ownership Fund and Shapiro Bancorp.
Shapiro Bancorp is a "controlled company" of Litchfield as that term is
defined in the Stock Purchase Agreement. Through other "controlled companies",
Litchfield has acquired an additional 1,009,663 shares on the Romanian Rasdaq
OTC Stock Market. In April 1998, an extraordinary shareholders meeting
approved a resolution to issue 27,045,600 new shares. Shareholders of record
as of April 3, 1998, had until May 15, 1998, to declare their intention to
purchase three shares for every one share owned and until June 15, 1998, to
pay for the subscribed shares. Existing shareholders also had the option to
purchase "all or none" of any unsubscribed shares provided a $50,000
non-refundable deposit was submitted. On June 15, 1998, the rights issue
closed and of the 27,045,600 shares available for subscription, Shapiro
Bancorp met all the rights issue terms and conditions to be issued 26,737,797
shares, while other shareholders were issued 214,881.
As a result of the share issuances, the total number of Biofarm
shares presently issued and outstanding is 35,967,878, of which 30,343,877 is
owned by Shapiro Bancorp, and 1,009, 663 is owned by other Litchfield
controlled entities. Thus, Litchfield effectively controls an aggregate of
31,353,450 shares of Biofarm or, approximately 87% of the total number of
Biofarm shares now issued and outstanding.
Biofarm's principal activity is the manufacture of pharmaceutical
over-the-counter and ethical medicines for human and veterinary use. Principal
products, in order of their 1997 sales levels are:
(1) Triferment - a pancreatic enzyme in coated tablet form to treat
digestive problems
(2) Romazulan - an anti-inflammatory chamomile extract syrup
(3) Silimarina - a heptoprotective compressed tablet for liver treatment
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(4) Bixtonim - an external solution to relieve nasal congestion
(5) Colebil - a coated tablet cholerectic for digestive problems
(6) Heparina - an anticoagulant injectable solution
(7) Vitamin E Forte - a gelatinous capsule Vitamin E
(8) Sirop De Patlagina 100ml - an expectorant cough syrup to treat
bronchial secretions
(9) Sirogal - expectorant cough syrup to treat bronchial secretions
(10) Hidrocortizon - an anti inflammatory injectable solution.
In 1997 these products accounted for approximately 65% of total
sales. Biofarm's products are primarily sold to hospitals, pharmacies and to
distributors. The distributors sell their products to pharmacies and
hospitals. Biofarm's financial statements for the years ended December 31,
1995, 1996 and 1997 and for the three (3) month period ended March 31, 1998
all being sent to stockholders together with this Proxy Statement.
Most of Biofarms raw materials needs are commodities readily
available from suppliers and traders located throughout the world. Biofarm
meets most of its raw material needs from suppliers located in Romania,
Germany, Holland, United Kingdom, France, Greece, Turkey and Italy.
The principal focus of Biofarm's management since privatization has
been to improve operating margins, increase sales, and develop new products.
To the end, management has sought to improve margins by renegotiating
contracts for products or services still furnished by state-owned entities, to
increase sales by entering into new distribution agreements, and to upgrade
the existing product line as well as develop new pharmaceutical products.
Central to the realization of each of such three objectives has been
Biofarm's appointment of Linde AG to conduct an engineering study preliminary
to upgrading Biofarm's production processes to conform to International Good
Marketing Practices (GMP). Achieving GMP status (which, to Biofarm's
knowledge, is not now enjoyed by any Romanian pharmaceutical manufacturer)
will afford Biofarm the ability to manufacture and distribute pharmaceutical
products both for itself and for other pharmaceutical manufacturers at a cost
less than the latters' current expenditures. This accords with Biofarm's
planned discussions with other pharmaceutical manufacturers to obtain from the
latter their manufacturing and distribution rights.
Biofarm's engagement of Linde and its emphasis upon obtaining as soon
as possible GMP status is consistent with Biofarm's strategic planning to
obtain a greater percentage of the domestic Romanian market for pharmaceutical
products. The International Trade Administration ("ITA") has noted that the
Romanian market (encompassing 25 million people) continues to expand steadily.
The growth in such market was 11% during the period 1994-1996. The total
Romanian pharmaceutical market amounted to approximately $250 million ex
manufacturer's prices in 1996. Biofarm recognizes that much of the Romanian
manufacturing capacity is in need of modernization because of the absence of
capital investment. This is the principal reason for Biofarm's decision to
retain Linde to upgrade Biofarm's production facilities. Obtaining GMP status
will position Biofarm to capitalize upon the growth in the Romanian market,
which growth, it is estimated, will result in total domestic pharmaceutical
sales of $500 million by year 2000.
Achieving GMP status also has global implications for Biofarm.
Biofarm recently concluded an agreement with Romferchim, Romania's largest
pharmaceutical export distributor, pursuant to which Biofarm signed an initial
export sales contract of $1.4 million.. Romferchim intends to sell the Biofarm
products to Russia's largest pharmaceutical distributors. This first stage
contract permits Biofarm to
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increase its export sales with minimal overhead costs (including the
elimination of the need for in-house export sales personnel). Export costs
will be absorbed by the distributor. Initially, five drugs have been selected
for sale to Romferchim at margins higher that sold for in the domestic
Romanian market. All Russian sales will be for U.S. dollars. The most
significant of the initial five products in Romazulan, an anti-inflammatory
chamomile extract spray. Biofarm is advised that a Russian research institute
has reported that Romazulan was also found to be effective in treating chronic
tonsillitis. This represents a totally new therapeutic application for
Romazulan.
Litchfield has completed an investment that will facilitate the
distribution of Biofarm's pharmaceutical products in China through Fuzhou
Fujian Drug Co., Ltd. ("FFDC"). FFDC possesses a Customs Registration
Certificate, which is a license to import and export drug products in China.
FFDC also possesses a Drug Producing Enterprise Permit, a Drug Producing
Enterprise Quality License and a Legal Business License, all issued to FFDC by
the Chinese Government. These permits and licenses give Biofarm the
opportunity to produce and distribute Biofarm products in China. Moreover,
such permits and licenses also provide Biofarm the opportunity to negotiate
joint venture agreements with other pharmaceutical companies seeking to
produce and distribute their products in the Chinese market. FFDC already has
in place its own sales and distribution network in China, consisting at this
time of an aggregate of 131 outlets in mainland China.
OTHER POTENTIAL TRANSACTIONS WITH LITCHFIELD
--------------------------------------------
Litchfield has interests in marine and aviation, mining, and
biotechnical properties. In addition, Litchfield has advised the Company that
negotiations are on-going to acquire, for Biofarm, additional pharmaceutical
manufacturers located in Eastern Europe, Africa and Asia. Litchfield has
assured the Company that, beyond its own costs basis for any such assets
transferred to the Company, no additional consideration will be sought. There
can, of course, be no assurance when assets will be transferred or the effect
of such transfers upon the financial condition and profitability of the
Company and of Biofarm. To the extent that assets so transferred were acquired
by Litchfield/Biofarm for debt, such debt will by operation of law become an
obligation of the Company. The business judgment of the Board of Directors of
the Company will be the ultimate determinant.
BACKGROUND AND REASONS FOR THE ACQUISITION OF BIOFARM
-----------------------------------------------------
In April, 1996, because of a demonstrable inability to meet its debts
as they matured, the Company and its designated financial advisors determined
to undertake a comprehensive Plan of Reorganization (the "Plan"). Such Plan
included the (a) sale of the four operating subsidiaries for cash
consideration only, (b) liquidation of the debt due to the senior secured
creditor (Meridan Bank) and, (c) elimination of debt in its entirety.
Sales of Subsidiaries
- ---------------------
On June 20, 1996, the Company sold the capital stock or the net
assets of its then four operating subsidiaries. An aggregate of $1,200,000 was
paid to Meridian Bank in full and complete satisfaction of secured
indebtedness to Meridian Bank in the principal amount of $1,480,000 (plus
accrued interest of $47,000). Meridian Bank satisfied its lien and executed a
General Release in favor of the Company on June 28, 1996
As a result of the disposition of the above-mentioned subsidiaries,
the Company ceased to be an operating company.
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Elimination of Debt
- -------------------
In addition to the discharge of all obligations due to Meridan Bank,
the Company also undertook the elimination of all other debt. Employment
contracts (under which the Company was obligated in the amounts of $1,230,600
for 1996 and $848,000 for 1997, respectively), were terminated, lease
obligations were canceled and general, unsecured creditors (other than those
owed minimal amounts or those professionals and firms continuing to provide
necessary services for the Company), were resolved with an offer of 37.5 cents
on the dollar.
Giving effect to (a) the satisfaction of the indebtedness due Meridan
Bank, and (b) the liabilities assumed by the purchasers of the four operating
subsidiaries, being treated herein as having occurred on June 28, 1996, the
Company remained, as of June 30, 1996, with fixed liabilities of $814,000.
Commencing in July 1996, the Company as an alternative to creditor proceedings
that would have involved legal and accounting costs disproportionate to the
dollar amount of its remaining liabilities, commenced a voluntary plan of
payment at a discount. Creditors were offered an immediate settlement equal to
37.5% on the dollar (except for claims under $100 (which were liquidated in
full)). Such offer resulted, as of March 31, 1998, in $794,622 in the
aggregate of claims being settled for the sum of $433,148. As of March 31,
1998, total liabilities of the Company were $18,545.
The results of the Plan were as follows: approximately $6.9 million
of indebtedness existing at June 30, 1996, has been eliminated in full,
approximately $1.2 million in cash was arranged by management to be
contributed to the Company, all inchoate claims against the Company (beyond
the $6,900,000 of fixed obligations) were resolved, and (except for the
matters described hereinafter under "Litigation") all litigation has been
resolved.
Acquisition of Biofarm
- ----------------------
Management did not deem it prudent to consider seriously the
acquisition of a going business until the Plan proved feasible. Accordingly,
early in 1998, after a period of eighteen months during which the Plan was
activated, management determined that the Company was now in a position to
effect a major acquisition. Accordingly, negotiations were commenced with
Suisse Capital Complex ("SCC"), to acquire Biofarm, S.A. from Litchfield
Continental, Ltd. SCC has acted as the intermediary between the Company and
Litchfield. Management's goals during the negotiations were to avoid the use
of cash, minimize the debt to be issued to effect the acquisition, avoid the
immediate issuance of any substantial number of shares of Common Stock, and
defer the conversion of debt into Common Stock as long as was possible in
order to afford time for the anticipated earnings of Biofarm to develop to
their full potential.
Accounting Treatment
- --------------------
Inasmuch as the shareholders of Litchfield will have voting, Board
and management control of the Company once the election of nominees to the
Board is approved by the shareholders of the Company, for financial accounting
purposes the acquisition of Biofarm by the Company will be accounted for as a
reverse purchase in accordance with generally acceptable accounting
principles. Accordingly, the statement of financial condition and statements
of operations and cash flow 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 Company from the acquisition date. (As previously
discussed hereinabove ("BACKGROUND AND REASONS FOR THE SALE TRANSACTION"), the
Company has itself been a non-operating entity since June 30, 1996).
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
The Company
- -----------
As a direct consequence of the implementation of the Plan described
hereinabove ("Background and Reasons for the Sale Transaction"), the Company
(as of June 30, 1996) disposed of all of its operating subsidiaries and,
thereafter, may be fairly characterized as a "shell" corporation. Therefore,
there is no need for discussion herein of prior results of operations, of
year-to-year operating results and comparisons, and of liquidity and capital
resources. As of this date, the Company is able to discharge all of its
capital requirements and to meet its obligations as they mature. Such
obligations (giving effect to the successful implementation of the Plan)
consist exclusively of legal, accounting and miscellaneous expenses endemic to
any public company. Such liabilities amounted to $18,545 at March 31, 1998.
The Company received, during the fourth quarter ended June 30, 1998, an
aggregate of $82,500 in payment of subscriptions receivable, thereby leaving a
balance of $217,500 due and payable to the Company. All prior subscriptions
receivable created subsequent to the adoption of the Plan on June 28, 1996,
have been paid in full; and the Company expects to receive the balance of
$217,500 prior to September 30, 1998.
Biofarm
- -------
Prior Year's Results
- --------------------
The level of business and year end 1997 financial position show a
significant improvement from the previous years. Management expects that
earnings and turnover growth will continue to be sustained for the foreseeable
future with an increasing proportion of earnings contributed by export sales.
Until recently, prices of domestic products were controlled by the
Ministry of Health and the Ministry of Finance which established a maximum
wholesale and retail price. However, since early 1997, the Ministry of Finance
is no longer involved.
Given the problems of a devaluing currency and late payment by
purchasers, Romania's pharmaceutical manufacturers sought freedom to align
prices according to the US dollar. Up until 1997, the Ministry of Health had
been reluctant to allow price increases due to lei devaluation and as a
consequence, domestic manufacturers, including Biofarm, were producing at a
loss to June, 1996. During this period, prices had been established in June
1995, when the exchange rate was approximately 2,000 lei to the $US. By the
end of 1996 the lei had devalued to approximately 4,000 lei to the $US
resulting in significantly increased costs for imported raw materials. As a
result, the Pharmaceutical Directorate approved both a price increase of 92%
on March 1, 1997, and a provision allowing automatic adjustment of prices
during periods of high inflation.
Due to these improvements in the regulatory environment, Biofarm's
net earnings improved considerably from a $876,156 loss in 1996 to a $758,465
profit in 1997. Operating income increased from a loss of $151,121 in 1996 to
a income of $1,048,648 in 1997.
It is expected that inherent market demand for Biofarm's products and
the new regulatory regime should protect these earnings. In general, earnings
growth will be driven by dismissals of redundant staff, implementation of
western management practices, improved information systems, significantly
reduced reliance on Radet as a supplier of steam and other factors discussed
hereinafter.
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The current financial position of the company is sound despite delays
in payment from some of the Ministry of Health funded customers. As of July
15, 1998, cash balances were over $1.3 million.
Market Review
- -------------
The Romanian pharmaceutical market has undergone tremendous growth in
the past three years almost doubling in size between 1994 and 1997. The trend
indicates 1996 sales at approximately US$320 million; 1997 sales are estimated
to be US$400 million. Pharmaceutical industry analysts Exmarket Global Pharma
projects that Romanian market to grow to close to US$600 million by 2000.
Romanian per capita expenditure on medicines is among the lowest in
the region at US$13.20. By comparison, the corresponding figures in 1995 in
the Czech Republic are US$94 and in Hungary US$83. Continued market growth is
expected over the next five years, driven by economic growth; per capita
pharmaceuticals expenditure growing from a low relative base; increased
purchasing power; and the aging of the population.
Almost none of the domestic Romanian manufacturers produce products
conforming to International GMP standards; however, most can comply with
Romanian standards, those that do not are not allowed to manufacture. There is
a requirement for Romanian manufacturers to conform to GMP standards; by
2000-2001. However, according to a report published recently by the National
Economic Research Associates, it is unlikely that Biofarm's competitors will
meet these guidelines due to their lack of capital. It is also highly unlikely
that the government would actually force Romanian manufacturers to cease
production if they are not GMP complaint by the current dates established as
deadlines.
In order for pharmaceutical companies to export medicines in most
markets they must manufacture according to International GMP standards. Thus,
GMP compliance is important for export growth to be possible. Compared to most
Romanian manufacturers, Biofarm does have a broader portfolio of products,
such as veterinary medicines, nutritional supplements, vitamins and some 100%
natural medicines (free of synthetic compounds) that can be exported to some
of these same markets even if manufactured under non-GMP conditions.
Discussions are currently being held with several distributors and
manufacturers interested in distributing these products or licensing Biofarm
to manufacture similar, proprietary products for both the export and domestic
market.
Management believes that Biofarm will gain a competitive advantage by
implementing GMP standards sooner than the other Romanian manufacturers. This
will position the company to be the Romanian manufacturing partner of choice
for the major western pharmaceutical firms already active in the market, but
still importing finished product. Management believes that market and
regulatory conditions will eventually motivate foreign firms either to license
manufacturing locally or invest in acquisition of or construction of their own
manufacturing plants. Licensing will be far less risky (and preferable) and
those companies with GMP manufacturing conditions will be preferred partners.
For example, labeling laws applicable in 1999 will require all foreign
products to carry Romanian labeling. For those products with insufficient
economies of scale to justify the investment needed to produce Romanian
packaging in the country of origin, it would be more economical to ship in
bulk for local packaging.
Biofarm's sales growth is expected to surpass that of domestic market
due primarily to: access to the capital needed to invest in GMP and provide
working capital, increased export sales, and staffing of a new sales and
marketing department. In April 1998, Biofarm appointed the German engineering
group Linde to conduct a comprehensive study advising the company on how best
to upgrade production facilities and operations to conform to GMP standards.
9
<PAGE>
As a state owned company, Biofarm functioned with virtually no sales
and marketing organization. Management believes that by providing the working
capital needed to meet inherent market demand for Biofarm products and by
hiring key sales and marketing personnel, sales growth will exceed market and
historical growth. Growth beyond these levels should be driven by the pace of
capital investment and manufacturing partnerships entered into with western
pharmaceuticals firms.
In June 1998, Biofarm signed a contract with Horphag Research Ltd.
("Horphag") to manufacture Pycnogenol-a powerful antioxidant made from
maritime pine bark extract. Horphag owns use and formula patents and the
trademark Pyenogenol which Biofarm now has the right to use. Biofarm now has
exclusive manufacturing rights to Romania and is allowed to distribute the
finished product worldwide. An announcement providing more details will be
made as soon as market study has been completed and a launch strategy
finalized.
Recent Developments
- -------------------
Organizational Restructuring:
-----------------------------
Thirty six 36 employees will be retiring beginning June 1998, and six
(6) have been dismissed, which will reduce costs by just over $100,000 per
annum. The marketing department was formed in May and is headed by an
experienced executive recruited from Hoffman La Roche. The sales department
was formed in July and is headed by Eli Lilly's former top salesman in
Romania. A new Support Services department was created in June to produce
efficiencies in the engineering, transportation and maintenance departments
and to cut waste. Since its formation in June 1998, costs savings of over
$30,000 per annum have been identified and implemented. A new Information
Technology department was formed to support the existing PC network, assist in
planning for modern management information systems and provide ongoing PC
training and support. A new Human Resources department was created to assist
in identifying opportunities to reduce head counts, hire and develop the new
skills needed by the organization and to propose performance driven incentives
for employees.
The reorganization will result in (i) a replacement of redundant
employees with those that have the necessary skills, (ii) a flat reporting
structure, (iii) more efficient communication between the departments, and
(iv) reduced overhead. Despite the hiring of highly qualified personnel,
Biofarm's staff overheads are expected to be below historical levels.
Creditors:
----------
In June Biofarm submitted a proposal to Radet to settle the legal
dispute concerning calculation of steam usage and reschedule $1.1 million debt
for repayment over two years. The Radet debt is now accounted for as part of
current accounts payable. If the proposal is accepted, as expected, Biofarm's
current ratio will improve considerably. Biofarm is currently negotiating a
receivables backed line of credit from ABN Amro Bank to assist in financing
working capital. Although Biofarm has sufficient cash resources to meet all
its projected working capital needs, even after accounting for the 60%
increase in production planned to begin in August, return on equity should
also be improved by a prudent level of debt to finance working capital needs.
10
<PAGE>
Suppliers:
----------
Historically, Biofarm has purchased materials from numerous suppliers
on a short term basis without effective purchase planning. Purchase decisions
have been driven by production plans made with little regard to market
conditions and product profitability. In addition, on numerous occasions,
highly profitable products have not been produced due to a shortage of the
cash needed to secure supplies from foreign companies. Management is currently
developing requests for proposals and is researching the market for new
suppliers in order to obtain more favorable prices, payment terms and lead
times by entering into longer contracts for greater quantities with fewer
suppliers. Management expects this to result in reduced costs and more
efficient inventory and production management. The review and reorganization
of Biofarm's procurement procedures is expected to be completed by the end of
September after the one year production forecast has been finalized in August.
Customers:
----------
The new Marketing Director and Sales Director have already begun
developing closer relationships with Biofarm's customers and have identified
two major distributors interested in purchasing Biofarm products but who never
received any cooperation from prior management. Feedback from customers
indicates frustration at Biofarm not producing enough of the highly demanded
(and highly profitable) products. It s expected that marketing will complete
its comprehensive survey and analysis of the market in order to consolidate
the current product range, recommend new products to introduce, and propose
those that can benefit from promotion.
Production:
-----------
Beginning in August, production will be increased by approximately
60% in wholesale value over most recent levels. This level of production is
close to capacity. This will be the first time Biofarm has planned production
according to market demands and the first time since 1989 that Biofarm has had
the financial resources to produce at near capacity. Management expects that
by September, sales and operating income should begin to show the benefits of
production planning.
Capital Requirements:
---------------------
Investment needs until the end of 1998 is approximately US$2 million,
which will be needed primarily to purchase a granulator and a tablet
compressor (increase tablet production capacity), to finance building works,
and to install new information systems. Capital expenditure requirements
beyond 1998 are uncertain, but will become more clear once Linde has completed
its GMP study.
Linde AG:
---------
Linde has been contracted to conduct a comprehensive analysis of what
will be required to upgrade Biofarm's manufacturing facilities to conform to
International GMP standards. Once completed, management believes that Biofarm
will become the first Romanian pharmaceutical manufacturer to have planned to
the extent needed to start GMP implementation. This should position Biofarm to
implement GMP conditions sooner than the other domestic manufacturers.
11
<PAGE>
CERTAIN INFORMATION CONCERNING THE COMPANY
Litigation Instituted by the Company:
-------------------------------------
The Company has previously advised its shareholders (and has brought
to the attention of the Securities and Exchange Commission both by letters and
by filings under the 1934 Act) of the litigation instituted by the Company
against thirteen persons and firms (including former counsel, recipients of
the Company's Common stock and broker-dealers) who, collectively and
individually, participated in a scheme to defraud the Company and to violate
the registration requirements of the 1933 Act.
Such scheme involved the filing of two Form S-8 Registration
Statements 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 the Company's Common Stock. Form S-8 was not available for the registration
of such 1,135,000 shares because (a) the Company was not then current in its
1934 Act filings when such two Form S-8 filings occurred (as indicated in a
letter, dated September 19, 1996, from the Commission to the Company), and (b)
the recipients of the 1,135,000 shares were not bona fide consultants to the
Company or the type of consultant envisioned by Form S-8.
On January 22, 1998, the Company's complaint was sustained as to four
of the five causes of action alleged by the Company against the several
defendants. In a Memorandum and Order entered on January 22, 1998, Judge Platt
(USDC, Eastern District of New York), sustained the complaint filed by the
Company 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. The Company determined not to appeal the dismissal of the cause of
action for fraud because the relief sought by the Company (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 were sustained.
On August 2, 1996, an aggregate of 385,000 shares of the Company'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 shares
of the Company'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 Company for cancellation, all of
the remaining 1,085,000 shares were immediately sold publicly by the
recipients. At least two of the defendants were indicted for securities law
violations in an unrelated matter in January, 1998; two of the defendants were
then registered broker-dealers; one defendant-recipient received 300,000
shares in "settlement" of a claim (without even the pretense of acting as
consultant to the Company); and one defendant is a public relations firm
involved in publicizing public companies. Among the broker-dealers who
executed orders for the sale of the 1,085,000 shares were; Colin, Withrop;
H.J. Meyers; Meyers, Pollack & Robbins; SFI Investments; and Baker & Company.
Among the clearing brokers for such selling broker-dealers were Bear Stearns;
Cowen; Ernst; Lewco; Philadep; and Robb, Peck McCooley. Each of such
introducing and clearing broker-dealers has been advised in writing by the
Company of its liability for the sale of unregistered stock (1933 Act) and of
liability pursuant to Exchange Act Release #28878 (1934 Act).
None of the present directors and officers of the Company
participated in any manner in any aspect of the two Form S-8 filings. No Board
of Directors meeting was attended by any of such persons at which the subject
of the S-8 filings was discussed; in fact, no Board meetings were held between
June 28, 1996, and November 15, 1996. Nor did any of the present officers of
the Company execute the Form S-8 filings or any of the documents incident to
the issuance of the 1,135,000 shares. Not only were the two Form S-8
12
<PAGE>
filings not authorized by the Board but, also, the signatories thereto were
not holders of the offices indicated in such filings.
It is the position of the Company that the (a) 1,135,000 shares
issued pursuant to the two Form S-8 filings and 1,085,000 shares sold publicly
have not been registered under Section 5(a) of the 1993 Act and that it was
unlawful to sell such shares in interstate commerce; (b) persons who received
and sold the 1,085,00 shares were not persons entitled to receive the same
pursuant to the Instruction to the use of Form S-8; (c) sellers of the
1,085,000 shares violated the anti-fraud provisions of Section 10(b) of the
1934 Act and Rule 10b-5 promulgated thereunder; (d) former counsel violated
Section 10(b) and Rule 10b-5 when it filed with the Commission two Form S-8
Registration Statements that were materially false and misleading; and (e)
former counsel violated the anti-fraud provisions of Section 17(a)(1) of the
1933 Act by making an untrue statement of a material fact when filing the two
Form S-8 Registration Statements, as well as Section 17(a)(3) in obtaining
money by means of an untrue statement of a material fact.
The recovery by the Company of any portion of the sales proceeds
received by the sellers of the 1,085,000 shares will, by agreement with
Litchfield, belong exclusively to the shareholders of the Company other than
Litchfield. Since Litchfiield is able to convert its Debenture into Common
Stock in increments over a five year period, and since the recovery date (if
there be such) is not known, Litchfield's non-participation in any such
recovery will be assured by assigning the proceeds of any such recovery to a
new entity to be organized simultaneously with the Litchfield closing. The
sole directors of the new entity will be the present three directors of the
Company. The shares of capital stock of the new subsidiary will be distributed
to the shareholders of the Company other than Litchfield upon the earlier of
the (a) recovery of any such proceeds, or (b) date on which Litchfield
commences conversion of its Debenture. Notwithstanding that recovery is
mandated by the Instruction to Form S-8, there can be no assurance that
recovery will be awarded or that , if rewarded, any resulting judgment will be
collectible. It is for this reason that the Company has notified the
introducing and clearing broker-dealers of potential liability for the
recovery of such proceeds.
Certain Transactions:
---------------------
On February 17, 1997, during the pendency of the Plan of
Reorganization described hereinabove under the caption "Background and Reasons
for the sale Transaction", Messrs. Stith, McDonald and Esrine committed to the
Company and to its then creditors their stand-by undertakings to contribute an
aggregate of $100,000 to the Company in the form of subscriptions receivable.
The Company's Common Stock was then trading at a price of approximately $.20
per share. Such $100,000 was in addition to the aggregate sum of $1.2 million
contributed to the Company to implement the Plan. On June 7, 1998, it being
evident that the Plan had been successfully completed but that indeterminate
amounts would be required to pay the lawyers and accountants engaged to draft
this Proxy Statement (as well as the printing costs, mailing costs and
Transfer Agent costs associated with the distribution of this Proxy
Statement), promissory notes manifesting subscription agreements were
delivered to the Company in the aggregate amount of $100,000 and the Company
issued to the three named persons an aggregate of 400,000 shares of Common
Stock. None of such shares is registered for sale, all of such shares bear
restrictive legends and are subject to appropriate "stop transfer"
instructions, and all of such shares are non-deliverable until paid for.
Litigation:
------------------
From the time the Company became a public company in 1992 until the
time (June 28, 1996), the Company disposed of all of its then operating
subsidiaries, the Company itself never engaged in environmental clean-up
activities. All such work was conducted by the former wholly-owned
subsidiaries.
13
<PAGE>
Subsequent to June 28, 1996, various claims have been asserted against the
Company seeking damages for non-performance by certain of the former
subsidiaries. All such matters have been resolved and disposed of
conclusively, except that the Company remains a defendant in two unrelated
matters
The Company was named a defendant in a 1995 complaint filed in the
Court of Common Pleas (Philadelphia County) in 1995. In 1992, Plaintiff hired
the co-defendant (Terminix International) to remedy a termite infestation
problem. While doing so defendant Terminix ruptured an oil line, thereby
causing fuel to be deposited in and around plaintiff's residence. Plaintiff
then retained a former subsidiary of the Company (GSME) to clean-up the
resulting oil spill. The gravament of the complaint is that the Company
conspired with Terminix to cover-up the true extent of damages to the
residence. In March, 1998, the matter was submitted to binding, non-appealable
arbitration. Plaintiff has reduced its original demand to $300,000;' Terminix
has offered to purchase plaintiff's residence for an amount less than
$300,000; the purchase price for the residence was $138,000 and the assessed
value is $5,100. The Company's defense is that is did not cause the damage,
the claim of conspiracy is false, Terminix is solely responsible and, in any
event, the Company is not a proper party defendant because its former
subsidiary (GSME) and not the Company itself performed the services for
plaintiff.
In the second matter, the same former subsidiary (GSME) was retained
by Coastal Oil to clean-up an oil spill on the Delaware River. Plaintiff
claims it was retained by GSME to assist in the spill clean-up. Plaintiff is
in bankruptcy in Louisiana and has sued the Company for its alleged unpaid
invoices in the amount of $78,000. The Company's time to answer the complaint
was deferred from June 8 to August 8, 1998. The Company sought such extension
to be able to demonstrate to plaintiff that the Company is not a proper party
defendant, that the work was done by GSME and that plaintiff was retained by
GSME, that all payments received from Coastal (including amounts due
plaintiff) were deposited into the GSME bank account, and that the sole reason
the Company has been named a defendant is because GSME, in 1994, filed with
the Commonwealth of Pennsylvania a fictitious name certificate to be able to
use the tradename "Global Spill Management". The latter is not an actual
entity in being.
The Company knows of no other pending or threatened litigation of any
amount in excess of $5,000.
It is the position of the Company that, should certain former
subsidiaries of the Company receive claims that they are or may be liable for
environmental clean-up costs and related damages, and should the Company also
be named a party defendant, the Company will vigorously defend any such claims
based upon the facts and the current laws and regulations applicable to
environmental matters. On the basis of its experience and the information
currently available to it, the Company believes that the two claims described
herein will not have a material adverse effect on its results of operations,
financial position or liquidity. Buttressing the Company's position (and
consistent with the general rule of corporate law), the United States Supreme
Court recently decided in a "superfund" matter that non-operating parent
companies are not responsible for the environmental problems of wholly-owned
subsidiaries.
The Company has had dismissed conclusively the litigation previously
instituted against the Company by F. T. Trading et. al. (which litigation is
referred to in previous Form 10-KSB and 10-QSB filings). With a view toward
saving legal costs and associated time and expenses, and without admitting any
liability of any kind whatsoever, the Company, on January 30, 1998, caused to
be issued to plaintiff an aggregate of 100,000 shares of its Common Stock
having a market value on that date of approximately $50,000. On April 27,
1997, the Company agreed to issue an additional 100,000 shares to complete the
settlement. The matter was marked "dismissed" and settled on that date.
Plaintiffs stipulated to the court that they may sell such shares only upon a
specific date, only above a specified price and only in specified
14
<PAGE>
maximum daily amounts. Plaintiffs have also stipulated that they will engage
in no other transactions of any king whatsoever in the Company's Common Stock.
Finally, plaintiff's judgment against Phoenix Wrecking Corporation et. al. has
been assigned to the Company. Upon the closing of the Biofarm transaction to
which this Proxy Statement relates, the intermediary in that transaction
(Suisse Capital Complex), which will be paid solely in Common Stock and not in
cash, has agreed to return to the Company 100,000 of the 200,000 shares
delivered by the Company to the F.T. plaintiffs. Thereby, the net cost to the
Company to dispose of the F.T. matter is 100,000 shares. (See "Background and
Reasons for Acquisition of Biofarm" hereinabove).
PROPOSAL ONE
TO ELECT EIGHT DIRECTORS TO SERVE FOR ONE YEAR AND UNTIL THEIR
SUCCESSORS HAVE BEEN DULY ELECTED AND QUALIFIED
Under the Certificate of Incorporation of the Company ("Certificate
of Incorporation"), the Board of Directors of the Company is required to be
comprised of a minimum of one to a maximum of ten directors, with all
directors elected by the stockholders each year at the special stockholders
meeting. The Company's board presently consists of three (3) directors whose
terms expire at the Special Meeting. Officers are elected annually by and
serve at the discretion of the Board of Directors.
The Board has nominated eight (8) candidates to serve as directors
none of whom is currently a director. The names and biographical summaries of
the eight (8) persons who have been nominated by the Board of Directors to
stand for election at the Special Meeting have been provided below for your
information. The Board of Directors has proposed that these persons be elected
at the Special Meeting to serve until the next special meeting of
stockholders. The Proxies will be voted for the election of the nominees
listed below as directors of the Company unless otherwise specified on the
form provided. The vote of a majority of the Common Stock, present and
constituting a quorum at the Special Meeting, will be necessary to elect the
directors listed below. If, for any reasons, any of the nominees shall be
unable or unwilling to serve, the Proxies will be voted for a substitute
nominee who will be designated by the Board of Directors at the Special
Meeting. Stockholders may abstain from voting by marking the appropriate boxes
on the enclosed Proxy. Abstentions shall be counted separately and shall be
used for purposes of calculating a quorum.
Biographical Summaries of Nominees for the Board of Directors
The following eight nominees have been designated by Litchfield
pursuant to the Stock Purchase Agreement:
Herbert Marcus, III, resident of Dallas; grandson of the founder of
Neiman-Marcus; manager of private investments since 1991; previously, Senior
Vice President (International Investment Division) Henry S.
Miller/Grubb & Ellis & Company (Dallas).
Keith D. Beekmeyer, resident of London; degree (BS) from London
Business School; a principal of Litchfield and one of its founders;
previously, property portfolio manager with Niskham Foundation, with
subsidiary of Petrofina Oil and with a department of Barclay's Bank brokering
international clients' businesses.
Anil K. Mahan, resident of London; Law degree (LLB Hons.) from the
University of Birmingham, England; member of the Inner Temple and Bar; Masters
degree from Howard University School of Law,
15
<PAGE>
Washington, D.C.; member of District of Columbia bar (U.S.); previously with
Branch and Associates (Birmingham), a firm specializing in accounting and
financial advice to private clients; presently General Counsel for Litchfield
Continental Ltd. and all U.S. affiliates.
Laurence Baer, resident of Maryland; degree from New York Institute
of Technology; currently, principal of L. Baer & Associates (international
marketing company), located in Laurel, Maryland; previously, Executive
Assistant to Chairman of Global Economic Action Institute (not-for-profit
international economic cooperation institute).
Cesara Brega, resident of Rome; degrees from University of Milan in
Economics and Finance; previously Vice President of Finmeccanica, Ltd.
(prominent Italian diversified manufacturer in aerospace, energy,
transportation, defense and automation), with responsibility for sales and
financing of aerospace and defense divisions; previously, Senior Vice
President responsible for sale financing of Aera International Regional
(Toulouse, France), producer of aircraft in consortium with Aerospatiale and
British Aerospace.
Cartsen Rykov, resident of Geneva; degree from Copenhagen Business
School in economics and marketing; currently Financial Manager for Celestine
Conseils Financiers S.A. (Geneva); previously, Senior Account Manager Jyske
Bank (Copenhagen) and head of bond trading section for member of Copenhagen
Stock Exchange.
Robert Ferran, resident of London; degree (MBA) from City University
Business School (London) in finance; B.S. from University of California
(Berkeley); independent corporate and project finance manager in London since
1995; previously, Assistant Vice President (corporate finance) with Bankers
Trust Company (London), Business Development Manager for 3Com Inc. (U.K.),
Sales Manager of Motorola Codex, Inc. (San Francisco) and Assistant Director
(fiber optic network sales) of Pacific Bell.
Donald M. Coon, resident of Florida; degree (Juris Doctor) University
of Miami School of Law; currently director of Caledonian Group, Ltd.;
previously, director and Secretary-Treasurer of Fulcrum Industries, Inc. and
of Riverside Group, Inc.; since 1980 has devoted full-time to real estate
activities.
The Board of Directors unanimously recommends a vote FOR the election
of the eight nominees named above. Unless otherwise instructed or unless
authority to vote is withheld, the enclosed proxy will be voted FOR the
election of the above listed nominees.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities, to
file with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of common stock and other equity
securities of the Company. Officers, directors and greater than ten percent
shareholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
To the Company's knowledge, based solely on its review of the copies
of such reports furnished to the Company during the years ended June 30, 1998,
1997 and 1996 all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were
satisfied.
16
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Summary Compensation Table
The following table shows all the cash compensation paid or to be paid by the
Company to the Acting President for the fiscal years ended June 30, 1998, 1997
and 1996:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Name and Principal Year Annual Compensation Long-Term Compensation
Position (b)
(a)
----------------------------------------------
Awards Payouts
----------------------------------------------------------------------
Salary ($) Bonus Securities Underlying All Other
(d) Options/SARs(#) Compensation
(c) (g) (i)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
David R. Stith, 1998 $ - - - -
Acting President, Director
----------------------------------------------------------------------------
1997 $ - - - -
----------------------------------------------------------------------------
1996 $ - - - -
---------------------------------------------------------------------------------------------------------
Herbert S. McDonald, 1998 $ - - - -
Director
----------------------------------------------------------------------------
1997 $ - - - -
----------------------------------------------------------------------------
1996 $ - - - -
---------------------------------------------------------------------------------------------------------
Allan Esrine, 1998 $ - - - -
Acting Chief Financial
Officer, Director
----------------------------------------------------------------------------
1997 $ - - - -
----------------------------------------------------------------------------
1996 $ - - - -
---------------------------------------------------------------------------------------------------------
All Executive Officer 1998 $ - - - -
as a Group (3 persons)
----------------------------------------------------------------------------
1997 $ - - - -
---------------------------------------------------------------------------
1996 $ - - - -
---------------------------------------------------------------------------------------------------------
</TABLE>
None of the present three directors and officers of the Company has
received any remuneration of any kind (including reimbursement of expenses)
during the three year period ended June 30, 1998. Desiree L. Pierson,
Secretary, has received the sum of $800 per month (plus accountable expenses)
for services rendered to the Company on a part-time basis. There have been no
employment contracts in effect since all such contracts existing as of June
28, 1996, were canceled as of that date as part of the Plan of Reorganization
(see "BACKGROUND AND REASONS FOR THE SALE TRANSACTION" hereinabove). See
"CERTAIN TRANSACTIONS" hereinabove for information concerning capital
contribution to the Company by the three officers and directors.
PRINCIPAL STOCKHOLDERS AND
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth, as of the Record Date, certain
information with regard to the beneficial ownership of outstanding shares of
the Common Stock by (i) each person known by the
17
<PAGE>
Company to own beneficially five percent (5%) or more of the outstanding
shares of the Company's Common Stock; (ii) each director and executive officer
individually; and (iii) all executive officers and directors of the Company as
a group.
Number of Shares Percentage (%)
Name and Address of Common Stock of Class
of Beneficial Owner Beneficially Owned(1) Outstanding (2)
- ------------------- --------------------- ---------------
David R. Stith 100,000 2.4%
Herbert S. McDonald 100,000 2.4%
Allan Esrine 200,000 4.7%
Directors and Officers 400,000 9.5%
as a Group (3 persons)
- -----------------------
(1) Beneficial ownership as reported in the table above has been
determined in accordance with Instruction (4) to Item 403 of
Regulation S-B of the Securities Exchange Act.
(2) Percentage of Class based upon 4,211,930 shares of Common Stock
outstanding on the Record Date.
18
<PAGE>
PROPOSAL TWO
CHANGE OF NAME OF COMPANY TO BIOFARM, INC.
The Board of Directors has voted to amend the Certificate of
Incorporation to change the name of the Company from Global Spill Management,
Inc. to Biofarm, Inc. (the "Name Change"). The Board of Directors has
determined that such amendment is advisable and directed that the proposed
amendment be considered at the Special Meeting of shareholders. The
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock of the Company is required to approve the Name Change. To effect
this Name Change, shareholder approval is sought to amend Article First of the
Company's Certificate of Incorporation relating to the name of the
corporation:
FIRST: The name of the corporation is Biofarm, Inc.
Reasons for change of name. The Board of Directors believes that the
change of name is desirable to reflect the business of the Company after the
acquisition of Biofarm.
The Board of Directors recommends that stockholders vote "For" the
foregoing amendment to the Company's Certificate of Incorporation to change
the Company's name to Biofarm, Inc.
PROPOSAL THREE
INCREASE THE NUMBER OF AUTHORIZED SHARES OF
COMMON STOCK OF THE COMPANY
The Board of Directors has voted to amend the Certificate of
Incorporation to increase the number of authorized shares of Common Stock from
25,000,000 shares, par value $.001 per share, to 100,000,000 shares, par value
$.001 per share, subject to the approval of the majority of the stockholders
of the Company (the "Common Stock Proposal"). The Board of Directors
determined that such amendment is advisable and directed that the proposed
amendment be considered at the Special Meeting of Shareholders. The
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock of the Company is required to approve the Common Stock Proposal.
To effect this increase in the number of authorized shares of Common
Stock of the Company, shareholder approval is sought to amend Article Fourth
of the Company's Certificate of Incorporation relating to the authorized
capital stock with the following:
"FOURTH: The amount of the total authorized capital stock of
the Corporation is One Hundred Thousand Dollars ($100,000) consisting of One
Hundred Million (100,000,000) shares of Common Stock of the par value of $.001
each.
There are no present agreements, understandings, or arrangements for
the issuance of the additional shares of Common Stock that would be authorized
by the above described Amendment, other than in connection with the possible
additional shares that may be issued to Litchfield dependent upon the
realization by Biofarm of certain earnings increases. (See "RECENT DEVELOPMENTS"
(p.3) hereinabove.)
Reasons For Proposed Increase in Authorized Shares. The Board of Directors
believes that this increase is desirable for a number of reasons. While the
Company has no present plans or intentions with respect to the issuance of
additional shares of its Common Stock, the Company deems it desirable to have
additional
19
<PAGE>
shares of Common Stock authorized in the event the same are required to
satisfy the needs of future acquisitions, if any.
The Board of Directors recommends that stockholders vote "FOR" the
foregoing amendment to the Company's Certificate of Incorporation to increase
the number of authorized shares of Common Stock from 25,000,000 shares to
100,000,000 shares.
PROPOSAL FOUR
TO RATIFY THE SELECTION OF THE FIRM OF BDO INTERNATIONAL
AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE COMPANY
The Board of Directors concluded that the engagement of BDO
International, as the Company's independent public accountants for the 1998
fiscal year was in the best interests of the Company. The Board of Directors
recommends that Stockholders ratify its choice of BDO International.
The Board of Directors unanimously recommends a vote FOR the ratification of the
selection of BDO International, as independent public accountants for the
Company. Unless marked to the contrary, proxies received from stockholders will
be voted in favor of the proposed amendment.
OTHER PROPOSED ACTION
The Board of Directors does not intend to bring any other matters before the
meeting, nor does the Board of Directors know of any matters which other
persons intend to bring before the meeting. If, however, other matters not
mentioned in this Proxy Statement properly come before the Special Meeting,
the persons named in the accompanying form of Proxy will vote thereon in
accordance with the recommendation of the Board of Directors.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE SPECIAL MEETING, PLEASE SIGN
AND RETURN THE ENCLOSED PROXY PROMPTLY. YOUR VOTE IS IMPORTANT. IF YOU ARE A
STOCKHOLDER OF RECORD AND ATTEND THE SPECIAL MEETING AND WISH TO VOTE IN
PERSON, YOU MAY WITHDRAW YOUR PROXY AT ANY TIME PRIOR TO THE VOTE.
GLOBAL SPILL MANAGEMENT, INC.
________ __, 1998 By:
<PAGE>
GLOBAL SPILL MANAGEMENT, INC.
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS
The undersigned hereby appoints David R. Stith, Herbert S. McDonald
and Allan Esrine as proxies (the "Proxies"), each with power of substitution
and resubstitution, to vote all shares of Common Stock, $.001 par value per
share, of Global Spill Management, Inc. (the "Company") held of record by the
undersigned on September 1, 1998 at the Annual Meeting of Stockholders to be
held at the ______________________________________________________________ on
_____ __, 1998 at ____ _.M. Eastern Daylight Savings Time, or at any
adjournments thereof, as directed below, and in their discretion on all other
matters coming before the meeting or any adjournments thereof.
Please mark boxes / / in blue or black ink.
1. Election of eight (8) directors: Herbert Marcus, III,
Keith D. Beekmeyer, Anil K. Mahan, Laurence Baer, Cesara Brega, Carsten Rykov,
Robert Ferran and Donald M. Coon.
(Mark only one of the two boxes for this item)
/ / VOTE FOR all nominees named above except those who may be
named on this line:
-----------------------
(OR)
/ / VOTE WITHHELD as to all nominees named above.
2. Proposal to amend the Company's Certificate of Incorporation
to change the Company's name to Biofarm, Inc.
FOR / / AGAINST / / ABSTAIN / /
3. Proposal to amend the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock from
25,000,000 shares to 100,000,000 shares.
FOR / / AGAINST / / ABSTAIN / /
4. Proposal to ratify appointment of BDO International as the
Company's independent certified public accountants:
FOR / / AGAINST / / ABSTAIN / /
<PAGE>
5. To consider and transact such other business as may properly
come before the Special Meeting or any adjournments thereof.
In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
When properly executed, this Proxy will be voted as directed. If no
direction is made, this Proxy will be voted "FOR" Proposals 1, 2, 3 and 4.
Please mark, date, sign and return this Proxy promptly in the enclosed
envelope.
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney or executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Dated: , 1998
------------------
X
----------------------------
Signature
X
----------------------------
Print Name(s)
X
----------------------------
Signature, if held jointly
<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 0-20317
------------------
GLOBAL SPILL MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0270266
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2300 Computer Avenue (Bldg. G-25), Willow Grove, Pennsylvania 19090
(Address of principal executive officers, including zip code)
Registrant's telephone number, including area code: (215) 830-1351
----------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.001 Par Value)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporation by reference in Part III of this Form 10-KSB or any
amendment to this Form 10KSB [ ].
As of July 31, 1997, 3,011,930 shares of Common Stock ($.001 par value)
were issued and outstanding and fully paid and non-assessable. The aggregate
market value of the Common Stock held by non-affiliates was approximately
$1,315,593, determined by the closing sale price on that same day based upon
3,007,069 shares owned by non-affiliates.
================================================================================
<PAGE>
TABLE OF CONTENTS
Part I
Item 1. Description of Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Item 6. Management's Discussion and Analysis
Item 7. Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
Part III
Item 9. Directors and Executive Officers of the Registrant;
Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
Part IV
Item 13. Exhibits and Reports on Form 8-K
<PAGE>
PART I
Item 1. Description of Business
Global Spill Management, Inc., a Nevada corporation (hereinafter
referred to as Global), was organized under the laws of the State of Nevada on
September 26, 1990, under the name Happy Mergers, Inc. ("Happy Mergers"). On
November 25, 1991, Global Spill Management, Inc., a Delaware corporation
organized on June 12, 1991, was merged with and into Happy Mergers. Happy
Mergers, which was the surviving corporation, changed its name to Global Spill
Management, Inc.
PLAN OF REORGANIZATION
In April, 1996, because of a demonstrable inability to meet its debts
as they matured, Global, with the assistance of its financial advisors
determined to undertake a comprehensive Plan of Reorganization (the "Plan").
Such Plan included the (a) sale of the four operating subsidiaries for cash
consideration only, (b) liquidation of the debt due to the senior secured
creditor (Meridian Bank), (c) elimination of debt in its entirety, and (d)
reclassification of the issued and outstanding shares of Common Stock. The Plan
also provided for the acquisition by Global of a going business, one that would
permit Global to satisfy the then continuous listing standards of NASDAQ (on
which Small Cap market shares of Global Common Stock were listed). The results
of the implementation of the Plan were as follows:
Sale of Subsidiaries
By June 30, 1997, Global sold the capital stock or the net assets of its then
four operating subsidiaries. An aggregate of $1,200,000 was paid to Meridian
Bank in full and complete satisfaction of secured indebtedness to Meridian Bank
in the principal amount of $1,480,000 (plus accrued interest of $47,000). In
addition, Global was a co-maker and co-guarantor of the Note of a former
subsidiary, in the principal amount of $100,000, issued to Meridian Bank under
date of June 28, 1996. Such note provided for a discount of $50,000 if paid
prior to September 30, 1996. The co-maker paid such $50,000 prior to September
30, 1996; Global repaid $37,500 of such $50,000 to the co-maker prior to
September 30, 1996, and the balance of $12,500 on July 18, 1997. Meridian Bank
satisfied its lien and executed a General Release in favor of Global on June 28,
1996.
(The $50,000 paid by Global to the co-maker is included within the amount of
$1,200,000 mentioned above.)
As a result of the disposition of the above-mentioned subsidiaries, Global
ceased to be an operating company.
1
<PAGE>
Elimination of Debt
In addition to the discharge of all obligations due to Meridian Bank, Global
also undertook the elimination of all other debt. Employment contracts (under
which Global was obligated in the amounts of $1,230,600 for 1996 and $848,000
for 1997, respectively), were terminated, lease obligations were canceled and
general unsecured creditors (other than those owed minimal amounts or those
professionals and firms continuing to provide necessary services for Global),
were settled for 37.5 cents on the dollar.
Giving effect to (a) the satisfaction of the indebtedness due Meridian Bank and
(b) the liabilities assumed by the purchasers of the four operating
subsidiaries, each occurring on June 28, 1996, Global remained, as of June 30,
1996, with accounts payable and accrued expenses totaling $814,000. Commencing
in July 1996, Global, as an alternative to creditor proceedings that would have
involved legal and accounting costs disproportionate to the dollar amount of its
remaining liabilities, commenced a voluntary plan of payment at a discount.
Creditors were offered an immediate settlement equal to 37.5% on the dollar
(except for claims under $100 (which were liquidated in full)). Such offer,
denominated as a common law composition, required that all creditors be treated
equally. Such offer resulted in these claims (including current liabilities)
being settled for the sum of $359,754. As of June 30, 1997, total liabilities of
Global were $148,427 and represented current accounts payable endemic to any
public entity. Such amount does not encompass any sums Global may be forced to
pay as a result of current litigation. (See "Legal Proceedings" hereinafter.)
In addition, amounts due to the former shareholders of Allied Environmental
Services, Inc., one of the subsidiaries sold by the Company, amounting to
$932,727 were also forgiven.
Acquisition and Disposition of Phoenix
Because Global would not, as a result of such Plan, (a) be an operating company,
and (b) remain in compliance with NASDAQ continuous listing requirements,
Global, on June 28, 1996 (the date on which the sales of the operating
subsidiaries was effected), agreed to acquire 100% of the issued and outstanding
shares of capital stock of Phoenix Wrecking Corporation (Phoenix), a New York
corporation which was also engaged in the remediation business. The proposed
acquisition of Phoenix, which was publicly announced on July 1, 1996, was
rescinded nunc pro tunc on November 6, 1996.
Two issues remain unresolved from the association of Phoenix with Global: (a) an
aggregate of 1,135,000 shares of Global Common Stock were caused to be issued by
Phoenix pursuant to two filings on Form S-8 with the Securities and Exchange
Commission. Global was not current in its required filings when such two
Registration Statements were filed. Therefore, no effective Registration
Statement could have been filed on Form S-8. Global has instituted proceedings
to recover all such shares as well as the proceeds derived from the sale
thereof; and (b) Global is a defendant in a lawsuit brought in New York State
Supreme Court to recover the sum of $1.3 million allegedly made available to
Phoenix by plaintiff. Global received none of such proceeds.
2
<PAGE>
Global is a party defendant because Phoenix utilized Global Debentures to obtain
such funds. A motion for summary judgment against the Phoenix defendants and not
against Global was decided on July 30, 1997, and judgment was entered against
the Phoenix defendants only. Global intends to move to have the matter dismissed
as to Global. At a conference held before the Judge to whom the case has been
assigned on September 11, 1997, Plaintiff was given until October 30, 1997 to
proceed against Global or be marked off the calendar as to Global only.
Common Stock Reconciliation
Excluding the transactions initiated by Phoenix and described hereinabove,
Global has, since June 30, 1996, caused the following shares to be issued:
(616,463 issued and outstanding giving effect to the May 13, 1996, Amendment to
the Articles of Incorporation):
100,000 shares issued on July 5, 1996, accounted for as issued and outstanding
as of June 30, 1996, upon conversion of a Convertible Debenture (in the
principal amount of $50,000) issued in 1992 (plus all accrued interest thereon,
the cancellation of a long-term employment contract having a remaining liability
of $43,750 and the forgiveness of accrued interest of $2,500); and,
750,000 shares (on July 18, 1996), accounted for as issued and outstanding as of
June 30, 1996, 250,000 shares (on August 19, 1996), 800,000 shares (on October
13, 1996), and 500,000 shares (on March 7, 1997) the aggregate having been
issued in exchange for cash value of $1,095,000, plus a commitment to fund the
additional amount of $120,000 (as of September 4, 1997).
As of the date hereof, therefore, Global has an aggregate of 3,011,930 shares of
its Common Stock validly issued and outstanding, fully paid and non-assessable.
Upon the assumption that the 1,197,500 shares of Global still not returned for
cancellation (out of the 6 million shares originally issued on July 10, 1996,
for Phoenix) may be cancelled because the transaction with Phoenix has been
rescinded nunc pro tunc, and upon the further assumption that the aggregate of
1,085,000 shares issued pursuant to the two improperly filed Form S-8 filings
are not validly issued, fully paid and non-assessable because such shares either
were not registered for public sale, or were issued without consideration
(because no services were rendered to Global by the recipients), or were not
authorized to be issued by the Global Board, the result is that Global would
have an aggregate of 3,011,930 shares of its Common Stock validly issued, fully
paid and non-assessable as of the date hereof.
Item 2. Properties
Since June 28, 1996 (the date on which Global divested itself of all of
its operating subsidiaries), the principal offices of Global have been located
at 2300 Computer Avenue (Bldg. G-25), Willow Grove, Pennsylvania 19090, on a
month-to-month leasehold basis. Such premises had been occupied by Global's
former Chief Financial Officer principally for the purposes of
3
<PAGE>
completing the June 30, 1996, audited and September 30, 1996, unaudited (first
quarter) financial statements, closing-out the books and accounts of the
subsidiaries disposed of on June 28, 1996, resolving the remaining creditor
claims, and assisting in the preparation of the June 30, 1995, and 1996 tax
returns. Global utilizes such premises today solely for mail and telephone
purposes.
Global (through a subsidiary) owns a 2,400 square foot office building
and garage (400 feet) located on approximately 10 acres of land (waterfront
property) in Camden, New Jersey. Global intends, upon the resolution of certain
environmental issues, to offer such parcel and building and garage for sale for
cash. Global carries such property at zero value on its books.
Item 3. Legal Proceedings
Global is a defendant in several lawsuits in which the principal
defendant is the former Global subsidiary that incurred the underlying debt.
Global is vigorously defending all such suits, on the basis that Global is not a
proper party defendant because Global entered into no contractual relationship
with the particular plaintiff and bears no responsibility to such plaintiff.
Global does not deem such litigation to be material.
Prior to June 30, 1995, Global sold to Corporate Relations Group,
Orlando, Florida (CRG), 1,150,000 shares, of Global's pre-reverse split
authorized and unissued Common Stock. CRG is indebted to Global today in the
amount of $677,000, such amount representing the remaining balance on the
purchase price for such shares. Global believes that all such shares have been
sold by CRG. Global has sued CRG in Federal court for such amount. A motion,
made by CRG to dismiss, was denied on July 24, 1997.
Global was sued by Peter V. White, a former Global Executive Vice President,
Chief Financial Officer and Treasurer. Mr. White has demanded payment to him by
Global of amounts allegedly due pursuant to a termination agreement entered into
between Mr. White and Global upon Mr. White's resignation of all positions with
Global as of June 30, 1995. Global's alleged liability under such termination
amounts to $57,000. Such suit was settled for the sum of $21,375 payable on or
before September 30, 1997.
In November 1996, Global was sued by Alpine Petroleum Company/Raymond Kerwood
(Plaintiff) pursuant to a certain consulting agreement entered into between
Global and Plaintiff on December 1, 1994. Plaintiff claims it is due the amount
of $51,000 through August 1, 1996. Global intends to defend vigorously such
lawsuit upon the basis that such consulting agreement was entered into in
connection with Global's acquisition of Professional Pipe Services Corporation
(Propipe) on December 1, 1994; that such consulting agreement was a disguised
attempt to increase the acquisition cost of Propipe by Global; that Common Stock
of Global was issued to Plaintiff as a shareholder of Propipe (and that
Plaintiff executed a Stock Restriction Agreement) with respect to the shares of
Global Common Stock received by Plaintiff as a shareholder of Propipe; that
Plaintiff performed no services for Global pursuant to such consulting
agreement; that the execution and delivery of the disputed consulting agreement
to Plaintiff was an ultra vires act on the part of Global; that Plaintiff has
been fully compensated by its receipt of shares of
4
<PAGE>
Global Common Stock in exchange for its interest in Propipe; and that (in any
event) the sale by Global of Propipe to the latter's former principal
shareholder on June 28, 1996, effectively rescinded such alleged consulting
agreement. (See the discussion in Item 7 hereinafter.)
In November, 1996, Global was sued by F.T. Trading Company et al (F.T.) in New
York State Supreme Court (trial court). F.T. alleges that it funded $1.3 million
upon the receipt of Global Debentures executed and delivered to F.T. by the
Phoenix designees. F.T. further alleges that such amount was wire transferred to
a Phoenix account maintained in a Queens County, New York, bank. Global held no
Board meetings between June 28 and September 30, 1996 (the latter being
disputed): and, the minutes prepared for such disputed meeting by Phoenix'
designee as counsel contain no mention of F.T., of the prior issuance of Global
debentures to F.T., or of the receipt by Phoenix of $1.3 million of F.T.
funding. Global intends to defend vigorously such action, on the basis that
Global's Board did not authorize any Reg S transaction or any other funding by
F.T., any Global documents delivered to F.T. were fraudulently executed and
delivered by Phoenix nominees, none of the alleged F.T. funding was received by
Global and the rescission agreement between Global and Phoenix specifically
provides that the liability for any F.T. proceeds rests with Phoenix.
Plaintiff's summary judgment motion against the Phoenix defendants only was
granted on July 30, 1997. (See Item 1 ("Acquisition and Disposition of Phoenix")
hereinabove.)
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were submitted to a vote of the securities
holders:
None
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
On July 29, 1992, Global's Common Stock commenced quotation on the
NASDAQ Small Cap Market (NASDAQ) under the symbol GSMI. (The symbol was changed
to GEGI coincident with the May 13, 1996, Amendment to the Articles of
Incorporation.) The following table sets forth the reported high and low bid and
high and low asked quotations for Global's Common Stock on NASDAQ for the period
January 1, 1995, to June 30, 1997. (The quarters set forth below are based on
Global's June 30 fiscal year period.) Such quotations reflect inter-dealer
prices, without retail mark-up, mark-down, or commissions and may not represent
actual transactions. No bid or asked quotations are available from November 28,
1996, through April 17, 1997:
5
<PAGE>
<TABLE>
<CAPTION>
High Bid Low Bid Closing Bid High Ask Low Ask Closing Ask
-------- ------- ----------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
1995
Jan 1 - Mar 31 45.045 19.707 22.523 48.799 20.646 25.337
Apr 1 - Jun 30 22.523 9.384 10.323 25.338 11.261 12.2
Jul 1 - Sep 30 24.399 9.584 12.2 28.153 11.261 13.138
Oct 1 - Nov 30 15.015 7.508 9.384 15.953 8.446 12.2
1996
Jan 1 - Mar 31 9.384 5.631 6.569 10.323 6.569 8.446
Apr 1 - Jun 30 6.569 2.25 4 8.446 3 4.75
Jul 1 - Sep 30 9 31/32 13/16 9.25 0.75 7/8
Oct 1 - Nov 27 27/32 0.25 N/A 7/8 5/16 N/A
1997
Apr 17 - Jun 30 0.3125 0.1 0.27 0.46875 0.2 0.4375
</TABLE>
(The prices stated for all periods give effect to the 30-1 reverse stock split
that was effective on May 13, 1996)
On November 27, 1996, Global's Common Stock was delisted from trading
on NASDAQ. On April 17, 1997, Global's Common Stock commenced listing on the OTC
Electronic Bulletin Board. Such delisting was prompted by Global's inability to
file a timely Form 10-K with audited financials for the fiscal year ended June
30, 1996. (In addition, the NASDAQ hearing held on November 21, 1996, raised
issues relating to the issuance of the aggregate of 1,135,000 S-8 Common Stock
and the Reg S transaction with F.T. See "The Acquisition and Disposition of
Phoenix" hereinabove.) Having been delisted, Global is now required to meet
NASDAQ standards applicable to an initial listing application. Presently, such
criteria include $4 million in total assets, $2 million in capital and surplus,
$1 million market value of the public float and a minimum bid price of $3 per
share. There can be no assurance that Global will be able to meet such initial
listing requirements, that Global's Common Stock will be included on NASDAQ even
if such initial listing requirements are met, or that thereafter the
requirements for continuous listing will continue to be met. In any such event,
Global's Common Stock would continue to be traded on the OTC Electronic Bulletin
Board, in which event a shareholder may find it more difficult to dispose of (or
to obtain accurate quotations as to the price of) Global's Common Stock.
As of the date hereof there were 3,011,930 shares of Common Stock
validly issued and outstanding, fully paid and non-assessable. (See "Common
Stock Reconciliation" in Part I, Item 1 hereinabove). There were a total of 485
holders of record as of July 15, 1997. Global believes, based upon available
information, that there are in excess of 1,000 beneficial owners of Global
Common Stock. No shares of Global's authorized Preferred Stock have ever been
issued.
6
<PAGE>
DIVIDENDS
The payment of dividends, if any, by Global rests within the discretion
of its Board of Directors and depends, among other things, upon Global's
earnings, its capital requirements, its financial condition, as well as other
relevant factors. As of the date hereof, Global has not issued or declared any
dividends. Global does not anticipate paying any dividends on its Common Stock
in the foreseeable future.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
As a direct consequence of the implementation of the Plan of Reorganization
described in Part I hereinabove, Global has (as of June 30, 1996) disposed of
all its operations and may today be fairly characterized as a non-operating
"shell" corporation. Therefore, there is no need for discussion herein of prior
results of operations, of year-to-year operating results and comparisons, and of
liquidity and capital resources. As of the date hereof, Global is able to meet
its debts as they mature, which obligations (giving effect to the completion of
the Plan of Reorganization described in Part I hereinabove) consist exclusively
of legal, accounting and miscellaneous expenses endemic to any public company.
Management believes that its principal focus today should be directed toward the
(a) realization of the cash value of Global's remaining assets and (b)
acquisition of a going concern that will provide stability of operation and cash
flow. The Company received $100,000 subsequent to June 30, 1997 as payment on
subscriptions receivable as of that date. The balance of the subscription will
be collected to pay liabilities and expenses of the Company as they become due.
Management expectes ongoing operating expenses to be minimal until and upon
which time an acquisition may occur.
Item 7. Financial Statements
Consolidated Financial Statements and supplementary financial
information specified by this Item 7 are presented following Item 13 in Part IV
of this report.
7
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
This Item is inapplicable.
PART III
Item 9. Directors and Executive Officers of the Company;
Compliance with Section 16(a) of the Exchange Act
The executive officers, directors and key personnel of Global are as
follows: (the information set forth hereunder is as of June 30, 1997 (the end of
the fiscal period), and gives effect to the resignations of directors whose
services were terminated by Global upon the sale of the subsidiaries occurring
on June 28, 1996.
<TABLE>
<CAPTION>
Name Age Positions held with the Company
- ---- --- -------------------------------
<S> <C> <C>
David R. Stith 69 Acting President and Director
Herbert S. McDonald 61 Director
Desiree L. Pierson 34 Secretary
</TABLE>
Biographies of the directors and executive officers of Global are set forth
below. All directors hold office until the next annual stockholders meeting and
until their successors have been elected and qualified or until their death,
resignation, retirement, removal or disqualification. Vacancies in the existing
Board are filled by majority vote of the remaining directors. Officers of Global
serve at the will of the Board of Directors.
David R. Stith became Vice Chairman and a Director of Global on
November 1, 1991, and of the Company on November 25, 1991. Mr. Stith founded
Underwater Technics in 1967 and has served as its Chairman and President since
such date. Mr. Stith led the crew that cleaned up the major oil spills from the
tankers the "Elias," the "Mellon," and the "Athos." Mr. Stith was also involved
in underwater testing for the National Aeronautics and Space Administration, and
led the crew that dove for sunken treasure on the Spanish Galleon "San Jose"
which sank off Colombia in 1708.
Herbert S. McDonald became a director of Global on December 27, 1995.
Mr. McDonald has, since January 1993, been the President of The Fulcrum Group, a
management consulting firm specializing in the restructuring and
merger/acquisition of corporate clients. Prior thereto, Mr. McDonald was (since
August 1990) the President (CEO) and principal shareholder of European
Automotive Products, Inc., a major importer of imported cars specializing in
higher end German automotive parts. Prior thereto, Mr. McDonald was the
President (CEO) and principal shareholder of Fulcrum Investments, a firm making
investments in manufacturing, leasing, automobile dealerships and real estate.
8
<PAGE>
Desiree L. Pierson became Secretary of Global in January, 1996. Ms.
Pierson was an employee of Global from 1991 until June 28, 1996. In her capacity
as Secretary, Ms. Pierson's duties include shareholder relations, matters
involving the Transfer Agent and corporate record keeping and do not include
corporate decision making or substantive matters involving Global.
No director, officer or affiliate of Global is an adverse party to
Global or any of its subsidiaries in any material proceeding.
The Company and its directors and executive officers are in compliance
with the requirements of Section 16(a) of the Exchange Act.
Item 10. Executive Compensation
The following table sets forth the cash compensation earned by each of
Global's executive officers for the fiscal year ended June 30, 1997 (the "named
executive officers"). Global became a reporting company under the Securities
Exchange Act of 1934 on July 29, 1992, the effective date of its Registration
Statement on Form 8-A.
Directors who are also officers of the Company receive no remuneration
for their services as directors, other than reimbursement of expenses incurred
in connection with such service. It is the current policy of Global not to pay
director's fees or other forms of remuneration to directors who are not officers
of Global, other than reimbursement of expenses incurred in connection with such
service as a director.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Name and Principal Position Other Annual
Year Salary($) Bonus($) Compensation($)
<S> <C> <C> <C> <C>
Thomas D. Lewis, Sr. (1)(2) 1997 -- -- --
Chairman of the Board, 1996 183,980 -- 28,560
1995 178,345 -- --
Aubrey L. Pettit, Jr. (3)(2) 1997 -- -- --
President, General Counsel 1996 84,502 -- 28,560
& Secretary 1995 163,051 -- --
David R. Stith 1997 -- -- --
Acting President 1996 74,997 -- --
1995 150,500 10,313 --
</TABLE>
9
<PAGE>
- ----------
(1) From July 1, 1992 to April 20, 1994, Mr. Lewis served as a consultant
to the Company, at an annual consulting fee of $175,000 per annum. Mr.
Lewis' employment contract was terminated on June 28, 1996.
(2) In August, 1995, Messrs. Lewis and Pettit each received 50,000 shares
of pre-reverse split Common Stock of Global having a value of $28,075.
None of the other named executive officers received perquisites or
other personal benefits.
(3) Employment terminated on January 3, 1996.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Prior to June 28, 1996, Global had in effect various plans designed to
benefit senior management. These included a Senior Management Incentive
Compensation Plan, an Equity Incentive Plan, management employment contracts, a
Qualified Profit Sharing Plan and an Employee Stock Purchase Plan. Each and all
of such compensation arrangements was canceled as of June 28, 1996. Aggregate
employment and consulting agreement obligations of Global for the fiscal years
ending June 30, 1997 and 1998, respectively, would have amounted to $848,800 and
$395,500, respectively.
The following tables set forth the number and percentage of Global's
shares of Common Stock owned of record and beneficially by (a) each person or
entity owning more than five percent of such shares, (b) each executive officer
and director, and (c) all executive officers and directors as a group as of June
30, 1997 (giving effect to the May 13, 1996, reverse split):
Name and Address(1)(2) Number of Shares Owned Percentage
- --------------------- ---------------------- ----------
David R. Stith (3)(4) 4,861 *
721 St. Davids Avenue
Warminster, PA 18974
Herbert S. McDonald (5) -- --
160 Abraham's Lane
Villanova, PA 19085
Desiree L. Pierson (6) -- --
244 Main Street
Linfield, PA 19468
All Officers and Directors 4,861 *
as a Group (3 persons)
10
<PAGE>
- ------------------
* Less than 1%
(1) Unless otherwise noted, Global believes that the person named in the
above table has sole voting and dispositive power with respect to all
shares of Common Stock beneficially owned by him.
(2) Based on 3,011,930 shares of Global's Common Stock issued and
outstanding at June 30, 1997.
(3) This individual may be deemed a "parent" and/or "promoter" of Global
under the rules and regulations of the Securities Act by virtue of his
efforts in the organization of Global.
(4) Executive officer and director.
(5) Director.
(6) Officer.
Item 12. Certain Relationship and Related Transactions
Employment Agreements
For information regarding former employment agreements for Messrs.
Lewis, Pettit, and Stith, see Item 10 "Executive Compensation" hereinabove.
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) 1. All financial statements - see index to Consolidated
Financial Statements on page 14
2. Exhibits - see Exhibits below.
Schedules not included are omitted because they are not applicable, or
are not required, or the information is shown in the Consolidated Financial
Statements or the Notes thereto.
(b) The following Current Reports on Form 8-K were filed by the Company
with the Securities and Exchange Commission during the last quarter of the
period covered by this Annual Report on Form 10-K:
(i) Form 8-K filed on April 15, 1997.
(ii) Form 8-K filed on June 9, 1997.
11
<PAGE>
(The following Exhibits (filed with Form 10-KSB for the fiscal year
ended June 30, 1996) are applicable to the period commencing July 1, 1995, and
terminating as of the date of the filing of such Form 10-KSB):
A. Amendment to Articles of Incorporation, filed May 13, 1996.
B. Amendment to Articles of Incorporation, filed July 3, 1996.
C. Agreement, dated June 27, 1996, between Registrant and shareholders of
Phoenix Wrecking Corporation.
D. Rescission Agreement, dated November 6, 1996, between Registrant and
shareholders of Phoenix Wrecking Corporation.
E. Memorandum from counsel to Registrant summarizing subsidiary sales
effected as of June 28, 1996.
F. Press Releases issued by Registrant since July 1, 1995.
(i) July 1, 1996
(ii) August 29, 1996
(iii) September 3, 1996
(iv) October 23, 1996
(v) October 25, 1996 (#1)
(vi) October 25, 1996 (#2)
(vii) November 7, 1996
G. Disputed Form S-8 filing under the 1993 Act, dated August 2, 1996, and
relating to 385,000 shares (incorporated herein by reference).
H. Disputed Form S-8 filing under the 1933 Act, dated September 19, 1996,
and relating to 750,000 shares (incorporated herein by reference).
I. Disputed Form 8-K filed on October 4, 1996 (incorporated herein by
reference).
(The following Exhibits (incorporated herein by reference) are applicable to the
period subsequent to the filing of Form 10-KSB for the fiscal year ended June
30, 1996, and prior to the filing date hereof):
A. Form 10-KSB, for the fiscal year ended June 30, 1996, filed on February 19,
1997.
B. Form 10-QSB, for the quarter ended September 30, 1996, filed on March 5,
1997.
C. Form 10-QSB, for the quarter ended December 31, 1996, filed on March 5, 1997.
D. Form 10-QSB, for the quarter ended March 31, 1997, filed on May 15, 1997.
E. Form 8-K, filed on April 15, 1997.
F. Form 8-K, filed on June 9, 1997.
G. Press Release, dated June 6, 1997 (filed herewith).
H. Press Release, dated September 17, 1997 (filed herewith).
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized on September , 1997.
GLOBAL SPILL MANAGEMENT, INC.
By: /s/
-----------------------------
David R. Stith,
Acting President & Director
September , 1997
Pursuant to the requirements 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 indicated, on September , 1997.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Acting President and Director September , 1997
- ---------------------------
David R. Stith
/s/ Acting Principal Financial September , 1997
- --------------------------- and Accounting Officer
Allan Esrine
</TABLE>
13
<PAGE>
Global Spill Management, Inc.
and Subsidiaries
Contents
- --------------------------------------------------------------------------------
Report of Independent Certified Public Accountants F-1
Consolidated financial statements
Balance sheet F-2
Statements of operations F-3
Statements of capital deficit F-4
Statements of cash flows F-5 - F-6
Summary of significant accounting policies F-7 - F-9
Notes to consolidated financial statements F-10 - F-16
14
<PAGE>
Report of Independent Certified Public Accountants
Global Spill Management, Inc.
Willow Grove, Pennsylvania
We have audited the accompanying consolidated balance sheet of Global Spill
Management, Inc. and subsidiaries as of June 30, 1997, and the related
consolidated statements of operations, capital deficit, and cash flows for each
of the two years in the period ended June 30, 1997. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Global Spill Management, Inc.
and subsidiaries as of June 30, 1997, and the results of their operations and
their cash flows for each of the two years in the period ended June 30, 1997, in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Philadelphia, Pennsylvania
September 4, 1997
F-1
<PAGE>
- -------------------------------------------------------------------------------
Spill Management, Inc.
and Subsidiaries
Consolidated Balance Sheet
================================================================================
June 30, 1997
- --------------------------------------------------------------------------------
Assets
Current assets
Cash $ 2,111
Subscriptions receivable (Note 1) 100,000
- --------------------------------------------------------------------------------
Total assets $ 102,111
================================================================================
Liabilities and Capital Deficit
Current liabilities
Note payable, stockholder (Note 5) 12,500
Accounts payable 148,427
- --------------------------------------------------------------------------------
Total current liabilities 160,927
- --------------------------------------------------------------------------------
Commitments and contingencies (Notes 1, 9 and 10)
Capital deficit (Notes 6, 8 and 9)
Preferred stock, $.001 par value
Authorized 5,000,000 shares, none issued --
Common stock, $.001 par value,
Authorized 25,000,000 shares
Issued and outstanding 3,011,930 3,012
Additional paid-in capital 13,225,917
Deficit (13,167,745)
Less: subscriptions receivable (120,000)
- --------------------------------------------------------------------------------
Total capital deficit (58,816)
- --------------------------------------------------------------------------------
Total liabilities and capital deficit $ 102,111
================================================================================
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
Global Spill Management, Inc.
and Subsidiaries
Consolidated Statements of Operations
================================================================================
Year ended June 30, 1997 1996
- --------------------------------------------------------------------------------
Revenues $ -- $ --
- --------------------------------------------------------------------------------
Expenses
General and administrative expenses 227,136 255,800
Loss on investment and note receivable -- 90,000
Debenture conversion expense (Note 8) -- 2,595,703
Interest expense -- 394,304
- --------------------------------------------------------------------------------
Total expenses 227,136 3,335,807
- --------------------------------------------------------------------------------
(Loss) from continuing operations (227,136) (3,335,807)
(Loss) from discontinued operations (Note 2) -- (6,724,912)
- --------------------------------------------------------------------------------
(Loss) before extraordinary item (227,136) (10,060,719)
Extraordinary income - gain
on forgiveness of indebtedness (Note 11) 1,740,594 --
- --------------------------------------------------------------------------------
Net income (loss) $1,513,458 $(10,060,719)
================================================================================
(Loss) per share from continuing operations $ (.10) $ (5.47)
(Loss) per share from discontinued operations -- (11.02)
Extraordinary income per share .73 --
- --------------------------------------------------------------------------------
Net income (loss) per share $ .63 $ (16.49)
================================================================================
Weighted average number of shares outstanding 2,387,639 610,044
================================================================================
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
Global Spill Management, Inc.
and Subsidiaries
Consolidated Statements of Capital Deficit
<TABLE>
<CAPTION>
==================================================================================================================
Additional
Common Paid-In Subscriptions
Stock Capital (Deficit) Receivable
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, June 30, 1995 $ 15,974 $ 9,282,609 $ (4,620,484) $ (497,875)
1 for 30 reverse stock split (15,442) 15,442 -- --
Shares issued for services 37 56,213 -- --
Shares issued for cash 28 219,972 -- --
Shares issued as additional
consideration for acquired
companies 19 296,588 -- --
Shares issued upon conversion
of debentures 850 2,959,853 -- --
Payment of subscriptions -- -- -- 108,438
Adjustment to subscriptions resulting
from decline in market value of
Common Stock -- (189,437) -- 189,437
Allowance for subscriptions
receivable -- (200,000) -- 200,000
Other adjustments -- 57,223 -- --
Net (loss) for the year -- -- (10,060,719) --
- ------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996 1,466 12,498,463 (14,681,203) --
Shares issued for cash
and subscriptions 1,550 727,450 -- (250,000)
Shares retired during the year (4) 4 -- --
Payment of subscriptions -- -- -- 30,000
Reclassification of
subscriptions receivable -- -- -- 100,000
Net income for the year -- -- 1,513,458 --
- ------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 $ 3,012 $ 13,225,917 $ (13,167,745) $ (120,000)
==================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Global Spill Management, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
==================================================================================================================
Years ended June 30, 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Income (loss) from continuing operations $ 1,513,458 $(3,335,807)
(Loss) from discontinued operations -- (6,724,912)
Adjustments to reconcile net (loss) to net
cash (used) in operating activities
Extraordinary gain on forgiveness of indebtedness (1,740,594) --
Depreciation and amortization -- 376,714
Issuance of common stock for services -- 56,250
Loss on investment and note receivable -- 90,000
Bond conversion expense -- 2,595,703
Loss on sale of subsidiaries -- 183,252
Gain on abandonment of subsidiary -- (311,058)
Write-off of goodwill -- 4,697,254
Other, net -- 246,925
Loss on abandonment of assets -- 165,190
Write-off of other assets -- 179,531
Decrease in assets
Accounts receivable -- 977,477
Inventory -- 18,090
Prepaid expenses and other assets -- 359,716
Increase (decrease) in liabilities
Accounts payable (45,922) (56,271)
Accrued expenses (165,222) 82,864
- ------------------------------------------------------------------------------------------------------------------
Net cash (used in) operating activities (438,280) (399,084)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Proceeds from sale of assets 805,000 --
Decrease in amounts due to related parties -- 169,970
Proceeds from sale of subsidiaries -- 175,000
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 805,000 344,970
- ------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Borrowings on line of credit, net -- 54,553
Repayments of stockholder note (37,500) --
Repayment of note payable, bank (855,000) --
Repayments of long-term debt (43,125) (450,428)
Issuance of common stock, net of expenses 479,000 220,000
Payments of common stock receivables 30,000 108,438
- ------------------------------------------------------------------------------------------------------------------
Net cash (used in) financing activities (426,625) (67,437)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-5
<PAGE>
Global Spill Management, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
==========================================================================================================
Years ended June 30, 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net (decrease) in cash $ (59,905) $ (121,551)
Cash, at beginning of year 62,016 183,567
- ----------------------------------------------------------------------------------------------------------
Cash, at end of year $ 2,111 $ 62,016
==========================================================================================================
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ -- $ 354,610
Taxes $ -- $ --
- ----------------------------------------------------------------------------------------------------------
Noncash investing and financing activities
Amounts to be collected upon sale of subsidiaries $ -- $ 805,000
Stock issued as additional consideration
for acquired companies -- 296,607
Issuance of common stock upon conversion
of debenture -- 2,960,703
Debenture converted to common stock -- (365,000)
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
Global Spill Management, Inc.
and Subsidiaries
Summary of Accounting Policies
================================================================================
Organization Global Spill Management, Inc. ("Global") was incorporated
and Principles in June 1991, to acquire, operate and develop environmental
of Consolidation contracting and consulting companies and related
businesses.
The accompanying consolidated financial statements include
the accounts of Global Spill Management, Inc. and its
wholly owned subsidiaries (the "Company"), after
elimination of all significant intercompany balances and
transactions.
Use of Estimates 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
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Income Taxes Income taxes are calculated using the liability method
specified by Statement of Accounting Standards No. 109,
"Accounting for Income Taxes."
Income (Loss) The income (loss) per share data are computed by dividing
Per Share the loss applicable to common stock by the weighted average
number of common shares outstanding. For the years ended
June 30, 1997 and 1996, outstanding warrants and options
were excluded from the computation because their effect
would have been antidilutive.
F-7
<PAGE>
Global Spill Management, Inc.
and Subsidiaries
Summary of Accounting Policies
================================================================================
Recent In March 1997, the Financial Accounting Standards Board
Accounting issued Statement of Financial Accounting Standards No. 128,
Pronouncements Earnings Per Share ("SFAS 128"). SFAS 128 provides a
different method of calculating earnings per share than is
currently called for in Accounting Principle Board Opinion
15. SFAS 128 provides for the calculation of basic and
diluted earnings per share. Basic earnings per share includes
no dilution and is computed by dividing income available to
common stockholders by the weighted average number of common
shares. Diluted earnings per share reflects the potential
dilution of securities that could share in the earnings of an
entity, similar to existing fully diluted earnings per share.
The Company believes adopting SFAS 128 will not have a
material effect on its calculation of earnings per share. The
Company will adopt the provisions for computing earnings per
share set forth in SFAS 128 for its quarter ending December
31, 1997.
Statement of Financial Accounting Standards No. 129,
Disclosure of Information about Capital Structure ("SFAS
129") effective for periods ending after December 15, 1997,
establishes standards for disclosing information about an
entity's capital structure. SFAS 129 requires disclosure of
the pertinent rights and privileges of various securities
outstanding (stock, options, warrants, preferred stock, debt
and participation rights) including dividend and liquidation
preferences, participant rights, call prices and dates,
conversion or exercise prices and redemption requirements.
Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," ("SFAS 130") establishes
standards for reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive income
is defined to include all changes in equity except those
resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS No. 130 requires that
all items that are required to be recognized under current
accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the
same prominence as other financial statements.
F-8
<PAGE>
Global Spill Management, Inc.
and Subsidiaries
Summary of Accounting Policies
================================================================================
Statement of Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information," ("SFAS
No. 131") which supersedes SFAS No. 14, "Financial Reporting
for Segments of a Business Enterprise," establishes standards
for the way that public enterprises report information about
operating segments in annual financial statements and
requires reporting of selected information about operating
segments in interim financial statements issued to the
public. It also establishes standards for disclosures
regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as
components of an enterprise about which separate financial
information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate
resources and in assessing performance.
SFAS 130 and 131 are effective for financial statements for
periods beginning after December 15, 1997 and require
comparative information for earlier years to be restated.
The Company has discontinued their operations. Management
does not believe that adoption of any of these pronouncements
would materially effect the Company's financial statements.
Environmental Environmental expenditures that relate to existing conditions
Expenditures caused by past operations, and which do not contribute to
current or future revenues, are charged to expense.
Liabilities are recorded when environmental assessments
and/or cleanups are probable, and the costs can be reasonably
estimated. Generally, the timing of these accruals have
coincided with the Company's commitment to a formal plan of
action.
F-9
<PAGE>
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
1. Business The Company has discontinued its operating activities (see
Notes 2 and 3) and has liquidated all of the debts that
existed as of June 30, 1996 (see Note 11). It is actively
looking to acquire other businesses.
Subsequent to June 30, 1997, the Company received $100,000 as
payment on subscriptions receivable. The balance of the
subscription ($120,000) will be collected to pay liabilities
and expenses of the Company as they become due.
2. Discontinued During 1996, as a result of significant losses from the
Operations Company's operations and an inability to obtain sufficient
working capital, the Company discontinued all operating
activities of its environmental contracting and consulting
companies and related businesses. As discussed in Note 3, the
Company sold Land N' Sea Environmental Services, Inc.
("LNS"), GSM Environmental, Inc. ("GSMI") and Global
Environmental, Inc. ("GE") and agreed to sell Allied
Environmental, Inc., Allied Environmental Services West, Inc.
and Professional Pipe Services Corporation ("Propipe"). The
Company's other operating subsidiary, Environmental Disposal
Options Corporation ("EDOC"), was shut down in March 1996.
EDOC was subsequently put into involuntary bankruptcy by its
creditors and is currently liquidating its assets in
accordance with Chapter 7 of the United States Bankruptcy
Code.
As a result of the disposal of all its operations, in 1996
the Company recorded a charge of $4,816,372 as a loss on
disposal of discontinued operations. This amount included,
among other things, a write-off of goodwill amounting to
$4,697,255, and a charge for $183,250, representing a loss on
the sales and abandonment of the Company's subsidiaries.
There were no material losses incurred during the phase out
period.
F-10
<PAGE>
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The operating results from discontinued operations for 1996 are summarized as
follows:
Year ended June 30, 1996
- --------------------------------------------------------------------------------
Total revenues $ 17,043,156
Gross profit 4,136,242
(Loss) from discontinued operations
(Loss) from discontinued operations $ (1,908,540)
(Loss) on disposal of discontinued
operations (4,816,372)
- --------------------------------------------------------------------------------
$ (6,724,912)
================================================================================
(Loss) per share amounts from discontinued operations are summarized as follows:
Year ended June 30, 1996
- --------------------------------------------------------------------------------
(Loss) from discontinued operations
(Loss) from discontinued operations $ (3.13)
(Loss) from disposal of discontinued
operations (7.89)
- --------------------------------------------------------------------------------
$ (11.02)
- --------------------------------------------------------------------------------
F-11
<PAGE>
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
3. Sale of On June 28, 1996, the Company sold all of the issued and
Subsidiaries outstanding stock of its subsidiaries, Land 'N Sea
Environmental Services, Inc. ("LNS"), GSM Environmental, Inc.
("GSMI") and Global Environmental, Inc. ("GE") for $175,000
in cash. LNS was purchased by a former employee and
stockholder of the Company for $75,000. GSMI and GE were
purchased by the Company's former chairman of the board and
chief executive officer for $100,000.
On June 28, 1996, the Company entered into an agreement to
sell the assets net of substantially all of the liabilities
of Allied Environmental, Inc. and Allied Environmental
Services, West, Inc., in exchange for Common Stock of the
purchaser, Eastern Environmental Services, Inc. ("EESI")
valued at $700,000. The sale was consummated in July 1996.
On June 30, 1996, the Company signed an agreement to sell the
assets, net of substantially all of the liabilities, of
Professional Pipe Services Corporation ("Propipe") to a
former employee and stockholder of the Company for $105,000
in cash. The sale was completed in July 1996.
All of the proceeds from the sale of the subsidiaries,
including $700,000 received upon sale of the EESI shares,
which amounted to $980,000, were used to pay down the notes
payable, bank (see Note 4).
4. Notes Payable, The Company had a revolving line of credit, for which the
Bank balance payable at June 30, 1996, including accrued interest,
was $1,134,556. That obligation was liquidated in full for
$855,000 during July, 1996, with a full release being
obtained. The gain on that forgiveness is reflected within
the statement of operations for the year ended June 30, 1997.
5. Note Payable, The note, repaid on July 19, 1997, was payable to the
Stockholder Company's former chief executive officer.
6. Subscriptions The Company has fully reserved promissory notes receivable
Receivable with face amounts totalling $677,000, issued to the Company
in 1995 as payment for the purchase price of shares of Common
Stock. The Company is pursuing the collection of these notes
(see Note 9).
F-12
<PAGE>
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
7. Income Taxes The Company had deferred tax assets of approximately
$2,800,000 as of June 30, 1997, related to net operating loss
carryforwards ("NOL"), which have yet to be utilized. As a
result of the sale of the Company's operating subsidiaries
and the issuance of additional shares of Common Stock, the
amount of the NOL of approximately $8,300,000 may be limited.
Also, the utilization of these losses, if available, to
reduce the future income taxes will depend upon the
generation of sufficient taxable income prior to the
expiration of the net operating loss carryforwards.
Therefore, at June 30, 1997, the Company established a 100%
valuation allowance against the deferred tax assets as the
likelihood of recognizing this benefit cannot be certain. The
net operating losses will expire in various years through
June 2011.
8. Common Stock In April 1996, the Company borrowed $315,000 from an investor
in exchange for a subordinated convertible debenture in the
amount of $350,000. Based on the conversion provisions, the
debenture was convertible into 119,658 shares of stock. On
June 28, 1996, the debentures were converted into 750,000
shares of common stock and the amount of $2,284,990 was
charged to operations as a debenture bond conversion expense
in accordance with Statement of Financial Accounting
Standards 84. The remaining original issue discount of
$35,000 was also charged to operations.
On June 28, 1996, a $50,000 debenture was converted into
100,000 shares of common stock. As a result of the
conversion, the Company charged operations for $310,713 as a
bond conversion expense.
On May 13, 1996, the Company effected a 1 for 30 reverse
stock split. All references in the accompanying statements to
the number of shares and per share amounts have been adjusted
to reflect the reverse stock split.
On July 2, 1996, the Company amended its Certificate of
Incorporation to increase the authorized shares of common
stock to 25,000,000 shares.
F-13
<PAGE>
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
9. Litigation The Company is a defendant in several lawsuits in which the
principal defendants are the former subsidiaries that
performed allegedly negligent remediation work for a
particular plaintiff. The Company is vigorously defending all
such suits, on the basis that it is not a proper party
defendant because the parent company has no contractual
relationship with the respective plaintiffs and bears no
responsibility to such plaintiffs. Management has determined
that the outcome of these matters will not have a material
effect on the financial statements of the Company.
Prior to June 30, 1995, the Company (upon the advice of
former counsel that sales of Common Stock for promissory
notes was legal under Nevada law), sold to Corporate
Relations Group, Orlando, Florida ("CRG") 21,667 shares of
the Company's authorized and unissued Common Stock, pursuant
to two promissory notes in the amounts of $177,000 and
$500,000, respectively. CRG is currently indebted to the
Company in such original amount of $677,000, such amount
representing the remaining balance on the purchase price for
such shares. The Company believes that all such shares have
been sold by CRG. The Company has instructed counsel to
pursue diligently the collection of that amount.
Global, on June 28, 1996 (the date on which the sales of the
operating subsidiaries was effected), agreed to acquire 100%
of the issued and outstanding shares of capital stock of
Phoenix Wrecking Corporation ("Phoenix"), a New York
corporation which was also engaged in the remediation
business. The proposed acquisition of Phoenix, which was
publicly announced on July 1, 1996, was rescinded nunc pro
tunc on November 6, 1996.
Two issues remain unresolved from the association of Phoenix
with Global: (a) an aggregate of 1,135,000 shares of Global
Common Stock were caused to be issued by Phoenix pursuant to
two filings on Form S-8 with the Securities and Exchange
Commission. Global was not current in its required filings
when such two Registration Statements were filed. Therefore,
no effective Registration Statement could have been filed on
Form S-8. Global has instituted proceedings to recover all
such shares (none of which have been reflected as issued and
outstanding in the Company's financial statements) as well as
F-14
<PAGE>
the proceeds derived from the sale thereof; and (b) Global is
a defendant in a lawsuit brought in New York State Supreme
Court to recover the sum of $1.3 million allegedly made
available to Phoenix by Plaintiff. Global received none of
such proceeds. Global is a party defendant because Phoenix
utilized Global Debentures to obtain such funds. A motion for
summary judgment against the Phoenix defendants and not
against Global was decided on July 30, 1997, and judgment was
entered against the Phoenix defendants only. Global intends
to move to have the matter dismissed as to Global.
The Company is unable to determine the outcome of the two
above-mentioned legal matters and has not recorded any
adjustments for them in the financial statements.
10. Environmental The Superfund Act imposes strict joint and several liability
Risks upon the generators of hazardous substances and those
transporters who have arranged for disposal of hazardous
substances or those who have selected the disposal site for
such substances. All such persons may be liable for waste
site investigation, waste site cleanup and natural resource
damages, regardless of whether they exercised due care and
complied with all relevant laws and regulations. Such costs
can be substantial. Certain of the Company's subsidiaries
were transporters of hazardous waste materials, but should
not be liable therefore, unless they are deemed to have
arranged for such disposal or the selected disposal sites.
The Company's policy and practice was to refrain from
arranging for the disposal of hazardous substances, including
waste, and/or the selection of disposal sites, and to have
the generator do so. However, there can be no assurance that
the Company did not fail to adhere to such practice and
thereby could be potentially liable for claims in connection
with the transportation and disposal of such materials.
F-15
<PAGE>
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
11. Forgiveness In fiscal 1997, the Company concluded settlement with its
of Debt unsecured creditors to retire all outstanding indebtedness at
37.5 cents on the dollar, except for amounts under $100
(which were paid in full). In addition, the Company settled
outstanding secured debt at less than face value (see Note 4
for amounts relating to certain notes payable to bank).
Finally, debt payable to the former owners of one of the
subsidiaries (which was sold in 1997) was forgiven. The
forgiveness of indebtedness was recorded as an extraordinary
item in 1997 and consisted of the following:
Unsecured creditors $ 454,181
Former owners of a subsidiary 932,727
Secured debt 353,686
- --------------------------------------------------------------------------------
$1,740,594
- --------------------------------------------------------------------------------
F-16
<PAGE>
Report of Independent Certified Public Accountants for
Global Spill Management, Inc. F-1
Consolidated Balance Sheet for Global Spill Management, Inc. as
Of June 30, 1997 F-2
Consolidated Statements of Operations of Global Spill Management,
Inc. For the years ended June 30, 1997 and 1996 F-3
Consolidated Statements of Capital Deficit of Global Spill Management,
Inc. For the years ended June 30, 1997 and 1996 F-4
Consolidated Statements of Cash Flows of Global Spill Management,
Inc. For the years ended June 30, 1997 and 1996 F-5-F-6
Summary of Significant Accounting Policies F-7-F-9
Notes to the Consolidated Financial Statements F-10-F-16
Consolidated Balance Sheet for Global Spill Management, Inc. as
Of March 31, 1998 and June 30, 1997 F-17
Consolidated Statements of Operations of Global Spill Management,
Inc. For the nine months ended March 31, 1998 and 1997 F-18
Consolidated Statements of Operations of Global Spill Management,
Inc. For the three months ended March 31, 1998 and 1997 F-19
Consolidated Statements of Cash Flows of Global Spill Management,
Inc. For the nine months ended March 31, 1998 and 1997 F-20
Notes to the Consolidated Financial Statements F-21
Biofarm, Inc Introduction to Proforma financial statements F-22
Proforma Consolidated Balance Sheet of Biofarm, Inc.
as of March 31, 1998 F-23
Proforma Consolidated Statement of Income of Biofarm, Inc. for
the twelve months ended December 31, 1997 F-24
Proforma Consolidated Statement of Income of Biofarm, Inc. for
the three months ended March 31, 1998 F-25
<PAGE>
Report of Independent Certified Public Accountants for
Biofarm S.A. F-26
Balance Sheets for Biofarm S.A. as of December 31, 1997, 1996 and 1995 F-27
Statements of Earnings of Biofarm, S.A. for the years ended
December 31, 1997, 1996 and 1995 F-28
Statements of Cash Flows as of Biofarm, S.A. for the years ended
December 31, 1997, 1996 and 1995 F-29
Statements of Stockholders' Equity of Biofarm, S.A. for the years ended
December 31, 1997, 1996 and 1995 F-30
Notes to the Financial Statements F-31-F-41
Balance Sheets for Biofarm S.A. as of December 31, 1997, and
March 31, 1998 F-42
Statements of Earnings of Biofarm, S.A. for the year ended
December 31, 1997 and the three months ended MArch 31, 1998 F-43
Statements of Cash Flows as of Biofarm, S.A for the year ended
December 31, 1997 and the three months ended March 31, 1998 F-44
Statements of Stockholders' Equity of Biofarm, S.A. for the years ended
December 31, 1997 and 1996 F-45
Notes to the Financial Statements F-46-F-56
<PAGE>
Report of Independent Certified Public Accountants
Global Spill Management, Inc.
Willow Grove, Pennsylvania
We have audited the accompanying consolidated balance sheet of Global Spill
Management, Inc. and subsidiaries as of June 30, 1997, and the related
consolidated statements of operations, capital deficit, and cash flows for
each of the two years in the period ended June 30, 1997. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Global Spill Management, Inc.
and subsidiaries as of June 30, 1997, and the results of their operations and
their cash flows for each of the two years in the period ended June 30, 1997,
in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Philadelphia, Pennsylvania
September 4, 1997
F-1
<PAGE>
Global Spill Management, Inc.
and Subsidiaries
Consolidated Balance Sheet
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Assets
Current assets
Cash $ 2,111
Subscriptions receivable (Note 1) 100,000
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 102,111
- -------------------------------------------------------------------------------------------------------------------
Liabilities and Capital Deficit
Current liabilities
Note payable, stockholder (Note 5) 12,500
Accounts payable 148,427
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 160,927
- -------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 1, 9 and 10)
Capital deficit (Notes 6, 8 and 9)
Preferred stock, $.001 par value
Authorized 5,000,000 shares, none issued -
Common stock, $.001 par value,
Authorized 25,000,000 shares
Issued and outstanding 3,011,930 3,012
Additional paid-in capital 13,225,917
Deficit (13,167,745)
Less: subscriptions receivable (120,000)
- -------------------------------------------------------------------------------------------------------------------
Total capital deficit (58,816)
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and capital deficit $ 102,111
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
F-2
<PAGE>
Global Spill Management,
Inc. and Subsidiaries
Consolidated Statements of Operations
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended June 30, 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ - $ -
- -------------------------------------------------------------------------------------------------------------------
Expenses
General and administrative expenses 227,136 255,800
Loss on investment and note receivable - 90,000
Debenture conversion expense (Note 8) - 2,595,703
Interest expense - 394,304
- -------------------------------------------------------------------------------------------------------------------
Total expenses 227,136 3,335,807
- -------------------------------------------------------------------------------------------------------------------
(Loss) from continuing operations (227,136) (3,335,807)
(Loss) from discontinued operations (Note 2) - (6,724,912)
- -------------------------------------------------------------------------------------------------------------------
(Loss) before extraordinary item (227,136) (10,060,719)
Extraordinary income - gain
on forgiveness of indebtedness (Note 11) 1,740,594 -
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 1,513,458 $ (10,060,719)
- -------------------------------------------------------------------------------------------------------------------
(Loss) per share from continuing operations $ (.10) $ (5.47)
(Loss) per share from discontinued operations - (11.02)
Extraordinary income per share .73 -
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) per share $ .63 $ (16.49)
- -------------------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 2,387,639 610,044
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
Global Spill Management,
Inc. and Subsidiaries
Consolidated Statements of Capital Deficit
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Paid-In Subscriptions
Stock Capital (Deficit) Receivable
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, June 30, 1995 $ 15,974 $ 9,282,609 $ (4,620,484) $ (497,875)
1 for 30 reverse stock split (15,442) 15,442 - -
Shares issued for services 37 56,213 - -
Shares issued for cash 28 219,972 - -
Shares issued as additional
consideration for acquired
companies 19 296,588 - -
Shares issued upon conversion
of debentures 850 2,959,853 - -
Payment of subscriptions - - - 108,438
Adjustment to subscriptions resulting
from decline in market value of
Common Stock - (189,437) - 189,437
Allowance for subscriptions
receivable - (200,000) - 200,000
Other adjustments - 57,223 - -
Net (loss) for the year - - (10,060,719) -
- -------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996 1,466 12,498,463 (14,681,203) -
Shares issued for cash
and subscriptions 1,550 727,450 - (250,000)
Shares retired during the year (4) 4 - -
Payment of subscriptions - - - 30,000
Reclassification of
subscriptions receivable - - - 100,000
Net income for the year - - 1,513,458 -
- -------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 $ 3,012 $ 13,225,917 $ (13,167,745) $ (120,000)
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
Global Spill Management, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended June 30, 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Income (loss) from continuing operations $ 1,513,458 $ (3,335,807)
(Loss) from discontinued operations - (6,724,912)
Adjustments to reconcile net (loss) to net
cash (used) in operating activities
Extraordinary gain on forgiveness of indebtedness (1,740,594) -
Depreciation and amortization - 376,714
Issuance of common stock for services - 56,250
Loss on investment and note receivable - 90,000
Bond conversion expense - 2,595,703
Loss on sale of subsidiaries - 183,252
Gain on abandonment of subsidiary - (311,058)
Write-off of goodwill - 4,697,254
Other, net - 246,925
Loss on abandonment of assets - 165,190
Write-off of other assets - 179,531
Decrease in assets
Accounts receivable - 977,477
Inventory - 18,090
Prepaid expenses and other assets - 359,716
Increase (decrease) in liabilities
Accounts payable (45,922) (56,271)
Accrued expenses (165,222) 82,864
- -------------------------------------------------------------------------------------------------------------------
Net cash (used in) operating activities (438,280) (399,084)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Proceeds from sale of assets 805,000 -
Decrease in amounts due to related parties - 169,970
Proceeds from sale of subsidiaries - 175,000
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 805,000 344,970
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Borrowings on line of credit, net - 54,553
Repayments of stockholder note (37,500) -
Repayment of note payable, bank (855,000) -
Repayments of long-term debt (43,125) (450,428)
Issuance of common stock, net of expenses 479,000 220,000
Payments of common stock receivables 30,000 108,438
- -------------------------------------------------------------------------------------------------------------------
Net cash (used in) financing activities (426,625) (67,437)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-5
<PAGE>
Global Spill Management, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended June 30, 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net (decrease) in cash $ (59,905) $ (121,551)
Cash, at beginning of year 62,016 183,567
- -------------------------------------------------------------------------------------------------------------------
Cash, at end of year $ 2,111 $ 62,016
- -------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ - $ 354,610
Taxes $ - $ -
- -------------------------------------------------------------------------------------------------------------------
Noncash investing and financing activities
Amounts to be collected upon sale of subsidiaries $ - $ 805,000
Stock issued as additional consideration
for acquired companies - 296,607
Issuance of common stock upon conversion
of debenture - 2,960,703
Debenture converted to common stock - (365,000)
See accompanying notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
Global Spill Management, Inc.
and Subsidiaries
Summary of Accounting Policies
- -------------------------------------------------------------------------------
Organization Global Spill Management, Inc. ("Global") was
and Principles incorporated in June 1991, to acquire, operate and
of Consolidation develop environmental contracting and consulting
companies and related businesses.
The accompanying consolidated financial statements
include the accounts of Global Spill Management,
Inc. and its wholly owned subsidiaries (the
"Company"), after elimination of all significant
intercompany balances and transactions.
Use of Estimates 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 revenues and
expenses during the reporting period. Actual results
could differ from those estimates.
Income Taxes Income taxes are calculated using the liability
method specified by Statement of Accounting
Standards No. 109, "Accounting for Income Taxes."
Income (Loss) The income (loss) per share data are computed by
Per Share dividing the loss applicable to common stock by the
weighted average number of common shares
outstanding. For the years ended June 30, 1997 and
1996, outstanding warrants and options were excluded
from the computation because their effect would have
been antidilutive.
F-7
<PAGE>
Global Spill Management, Inc.
and Subsidiaries
Summary of Accounting Policies
- -------------------------------------------------------------------------------
Recent In March 1997, the Financial Accounting Standards
Accounting Board issued Statement of Financial Accounting
Pronouncements Standards No. 128, Earnings Per Share ("SFAS 128").
SFAS 128 provides a different method of calculating
earnings per share than is currently called for in
Accounting Principle Board Opinion 15. SFAS 128
provides for the calculation of basic and diluted
earnings per share. Basic earnings per share
includes no dilution and is computed by dividing
income available to common stockholders by the
weighted average number of common shares. Diluted
earnings per share reflects the potential dilution
of securities that could share in the earnings of an
entity, similar to existing fully diluted earnings
per share. The Company believes adopting SFAS 128
will not have a material effect on its calculation
of earnings per share. The Company will adopt the
provisions for computing earnings per share set
forth in SFAS 128 for its quarter ending December
31, 1997.
Statement of Financial Accounting Standards No. 129,
Disclosure of Information about Capital Structure
("SFAS 129") effective for periods ending after
December 15, 1997, establishes standards for
disclosing information about an entity's capital
structure. SFAS 129 requires disclosure of the
pertinent rights and privileges of various
securities outstanding (stock, options, warrants,
preferred stock, debt and participation rights)
including dividend and liquidation preferences,
participant rights, call prices and dates,
conversion or exercise prices and redemption
requirements.
Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," ("SFAS 130")
establishes standards for reporting and display of
comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include
all changes in equity except those resulting from
investments by owners and distributions to owners.
Among other disclosures, SFAS No. 130 requires that
all items that are required to be recognized under
current accounting standards as components of
comprehensive income be reported in a financial
statement that is displayed with the same prominence
as other financial statements.
F-8
<PAGE>
Global Spill Management, Inc.
and Subsidiaries
Summary of Accounting Policies
- -------------------------------------------------------------------------------
Statement of Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and
Related Information," ("SFAS No. 131") which
supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise," establishes
standards for the way that public enterprises report
information about operating segments in annual
financial statements and requires reporting of
selected information about operating segments in
interim financial statements issued to the public.
It also establishes standards for disclosures
regarding products and services, geographic areas
and major customers. SFAS No. 131 defines operating
segments as components of an enterprise about which
separate financial information is available that is
evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and in
assessing performance.
SFAS 130 and 131 are effective for financial
statements for periods beginning after December 15,
1997 and require comparative information for earlier
years to be restated.
The Company has discontinued their operations.
Management does not believe that adoption of any of
these pronouncements would materially effect the
Company's financial statements.
Environmental Environmental expenditures that relate to existing
Expenditures conditions caused by past operations, and which do
not contribute to current or future revenues, are
charged to expense. Liabilities are recorded when
environmental assessments and/or cleanups are
probable, and the costs can be reasonably estimated.
Generally, the timing of these accruals have
coincided with the Company's commitment to a formal
plan of action.
F-9
<PAGE>
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
1. Business The Company has discontinued its operating
activities (see Notes 2 and 3) and has liquidated
all of the debts that existed as of June 30, 1996
(see Note 11). It is actively looking to acquire
other businesses.
Subsequent to June 30, 1997, the Company received
$100,000 as payment on subscriptions receivable. The
balance of the subscription ($120,000) will be
collected to pay liabilities and expenses of the
Company as they become due.
2. Discontinued During 1996, as a result of significant losses from
Operations the Company's operations and an inability to obtain
sufficient working capital, the Company discontinued
all operating activities of its environmental
contracting and consulting companies and related
businesses. As discussed in Note 3, the Company sold
Land N' Sea Environmental Services, Inc. ("LNS"),
GSM Environmental, Inc. ("GSMI") and Global
Environmental, Inc. ("GE") and agreed to sell Allied
Environmental, Inc., Allied Environmental Services
West, Inc. and Professional Pipe Services
Corporation ("Propipe"). The Company's other
operating subsidiary, Environmental Disposal Options
Corporation ("EDOC"), was shut down in March 1996.
EDOC was subsequently put into involuntary
bankruptcy by its creditors and is currently
liquidating its assets in accordance with Chapter 7
of the United States Bankruptcy Code.
As a result of the disposal of all its operations,
in 1996 the Company recorded a charge of $4,816,372
as a loss on disposal of discontinued operations.
This amount included, among other things, a
write-off of goodwill amounting to $4,697,255, and a
charge for $183,250, representing a loss on the
sales and abandonment of the Company's subsidiaries.
There were no material losses incurred during the
phase out period.
F-10
<PAGE>
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
The operating results from discontinued operations for 1996 are summarized as
follows:
<TABLE>
<CAPTION>
Year ended June 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
Total revenues $ 17,043,156
Gross profit 4,136,242
(Loss) from discontinued operations
(Loss) from discontinued operations $ (1,908,540)
(Loss) on disposal of discontinued
operations (4,816,372)
- -------------------------------------------------------------------------------
$ (6,724,912)
- -------------------------------------------------------------------------------
</TABLE>
(Loss) per share amounts from discontinued operations are summarized as
follows:
<TABLE>
<CAPTION>
Year ended June 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
(Loss) from discontinued operations
(Loss) from discontinued operations $ (3.13)
(Loss) from disposal of discontinued
operations (7.89)
- -------------------------------------------------------------------------------
$ (11.02)
- --------------------------------------------------------------------------------
</TABLE>
F-11
<PAGE>
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
3. Sale of On June 28, 1996, the Company sold all of the issued
Subsidiaries and outstanding stock of its subsidiaries, Land 'N
Sea Environmental Services, Inc. ("LNS"), GSM
Environmental, Inc. ("GSMI") and Global
Environmental, Inc. ("GE") for $175,000 in cash. LNS
was purchased by a former employee and stockhold- er
of the Company for $75,000. GSMI and GE were
purchased by the Company's former chairman of the
board and chief executive officer for $100,000.
On June 28, 1996, the Company entered into an
agreement to sell the assets net of substantially
all of the liabilities of Allied Environmental, Inc.
and Allied Environmental Services, West, Inc., in
exchange for Common Stock of the purchaser, Eastern
Environmental Services, Inc. ("EESI") valued at
$700,000. The sale was consummated in July 1996.
On June 30, 1996, the Company signed an agreement to
sell the assets, net of substantially all of the
liabilities, of Professional Pipe Services
Corporation ("Propipe") to a former employee and
stockholder of the Company for $105,000 in cash. The
sale was completed in July 1996.
All of the proceeds from the sale of the
subsidiaries, including $700,000 received upon sale
of the EESI shares, which amounted to $980,000, were
used to pay down the notes payable, bank (see Note
4).
4. Notes Payable, The Company had a revolving line of credit, for
Bank which the balance payable at June 30, 1996,
including accrued interest, was $1,134,556. That
obligation was liquidated in full for $855,000
during July, 1996, with a full release being
obtained. The gain on that forgiveness is reflected
within the statement of operations for the year
ended June 30, 1997.
5. Note Payable, The note, repaid on July 19, 1997, was payable to
Stockholder the Company's former chief executive officer.
6. Subscriptions The Company has fully reserved promissory notes
Receivable receivable with face amounts totalling $677,000,
issued to the Company in 1995 as payment for the
purchase price of shares of Common Stock. The
Company is pursuing the collection of these notes
(see Note 9).
F-12
<PAGE>
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
7. Income Taxes The Company had deferred tax assets of approximately
$2,800,000 as of June 30, 1997, related to net
operating loss carryforwards ("NOL"), which have yet
to be utilized. As a result of the sale of the
Company's operating subsidiaries and the issuance of
additional shares of Common Stock, the amount of the
NOL of approximately $8,300,000 may be limited.
Also, the utilization of these losses, if available,
to reduce the future income taxes will depend upon
the generation of sufficient taxable income prior to
the expiration of the net operating loss
carryforwards. Therefore, at June 30, 1997, the
Company established a 100% valuation allowance
against the deferred tax assets as the likelihood of
recognizing this benefit cannot be certain. The net
operating losses will expire in various years
through June 2011.
8. Common Stock In April 1996, the Company borrowed $315,000 from an
investor in exchange for a subordinated convertible
debenture in the amount of $350,000. Based on the
conversion provisions, the debenture was convertible
into 119,658 shares of stock. On June 28, 1996, the
debentures were converted into 750,000 shares of
common stock and the amount of $2,284,990 was
charged to operations as a debenture bond conversion
expense in accordance with Statement of Financial
Accounting Standards 84. The remaining original
issue discount of $35,000 was also charged to
operations.
On June 28, 1996, a $50,000 debenture was converted
into 100,000 shares of common stock. As a result of
the conversion, the Company charged operations for
$310,713 as a bond conversion expense.
On May 13, 1996, the Company effected a 1 for 30
reverse stock split. All references in the
accompanying statements to the number of shares and
per share amounts have been adjusted to reflect the
reverse stock split.
On July 2, 1996, the Company amended its Certificate
of Incorporation to increase the authorized shares
of common stock to 25,000,000 shares.
F-13
<PAGE>
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
9. Litigation The Company is a defendant in several lawsuits in
which the principal defendants are the former
subsidiaries that performed allegedly negligent
remediation work for a particular plaintiff. The
Company is vigorously defending all such suits, on
the basis that it is not a proper party defendant
because the parent company has no contractual
relationship with the respective plaintiffs and
bears no responsibility to such plaintiffs.
Management has determined that the outcome of these
matters will not have a material effect on the
financial statements of the Company.
Prior to June 30, 1995, the Company (upon the advice
of former counsel that sales of Common Stock for
promissory notes was legal under Nevada law), sold
to Corporate Relations Group, Orlando, Florida
("CRG") 21,667 shares of the Company's authorized
and unissued Common Stock, pursuant to two
promissory notes in the amounts of $177,000 and
$500,000, respectively. CRG is currently indebted to
the Company in such original amount of $677,000,
such amount representing the remaining balance on
the purchase price for such shares. The Company
believes that all such shares have been sold by CRG.
The Company has instructed counsel to pursue
diligently the collection of that amount.
Global, on June 28, 1996 (the date on which the
sales of the operating subsidiaries was effected),
agreed to acquire 100% of the issued and outstanding
shares of capital stock of Phoenix Wrecking
Corporation ("Phoenix"), a New York corporation
which was also engaged in the remediation business.
The proposed acquisition of Phoenix, which was
publicly announced on July 1, 1996, was rescinded
nunc pro tunc on November 6, 1996.
Two issues remain unresolved from the association of
Phoenix with Global: (a) an aggregate of 1,135,000
shares of Global Common Stock were caused to be
issued by Phoenix pursuant to two filings on Form
S-8 with the Securities and Exchange Commission.
Global was not current in its required filings when
such two Registration Statements were filed.
Therefore, no effective Registration Statement could
have been filed on Form S-8. Global has instituted
proceedings to recover all such shares (none of
which have been reflected as issued and outstanding
in the Company's financial statements) as
F-14
<PAGE>
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
well as the proceeds derived from the sale thereof;
and (b) Global is a defendant in a lawsuit brought
in New York State Supreme Court to recover the sum
of $1.3 million allegedly made available to Phoenix
by Plaintiff. Global received none of such proceeds.
Global is a party defendant because Phoenix utilized
Global Debentures to obtain such funds. A motion for
summary judgment against the Phoenix defendants and
not against Global was decided on July 30, 1997, and
judgment was entered against the Phoenix defendants
only. Global intends to move to have the matter
dismissed as to Global.
The Company is unable to determine the outcome of
the two above-mentioned legal matters and has not
recorded any adjustments for them in the financial
statements.
10. Environmental The Superfund Act imposes strict joint and several
Risks liability upon the generators of hazardous
substances and those transporters who have arranged
for disposal of hazardous substances or those who
have selected the disposal site for such substances.
All such persons may be liable for waste site
investigation, waste site cleanup and natural
resource damages, regardless of whether they
exercised due care and complied with all relevant
laws and regulations. Such costs can be substantial.
Certain of the Company's subsidiaries were
transporters of hazardous waste materials, but
should not be liable therefore, unless they are
deemed to have arranged for such disposal or the
selected disposal sites. The Company's policy and
practice was to refrain from arranging for the
disposal of hazardous substances, including waste,
and/or the selection of disposal sites, and to have
the generator do so. However, there can be no
assurance that the Company did not fail to adhere to
such practice and thereby could be potentially
liable for claims in connection with the
transportation and disposal of such materials.
F-15
<PAGE>
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
11. Forgiveness In fiscal 1997, the Company concluded settlement
of Debt with its unsecured creditors to retire all
outstanding indebtedness at 37.5 cents on the
dollar, except for amounts under $100 (which were
paid in full). In addition, the Company settled
outstanding secured debt at less than face value
(see Note 4 for amounts relating to certain notes
payable to bank). Finally, debt payable to the
former owners of one of the subsidiaries (which was
sold in 1997) was forgiven. The forgiveness of
indebtedness was recorded as an extraordinary item
in 1997 and consisted of the following:
Unsecured creditors $ 454,181
Former owners of a subsidiary 932,727
Secured debt 353,686
- --------------------------------------------------------------------------------
$ 1,740,594
- --------------------------------------------------------------------------------
F-16
<PAGE>
Global Spill Management, Inc.
and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash $ 29,967 $ 2,111
Subscriptions receivable - 100,000
- -------------------------------------------------------------------------------------------------------------------
Total current assets $ 29,967 $ 102,111
- -------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Notes payable, stockholder $ - $ 12,500
Accounts payable 18,545 148,427
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 18,545 160,927
- -------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity (deficit)
Preferred stock, $.001 par value
Authorized 5,000,000 shares, none issued - -
Common stock, $.001 par value,
Authorized 25,000,000 shares
Issued and outstanding 3,711,930 and 3,011,930 3,712 3,012
Additional paid-in capital 13,475,215 13,225,917
Deficit (13,267,507) (13,167,745)
Less: subscriptions receivable (200,000) (120,000)
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) 11,422 (58,816)
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity (deficit) $ 29,967 $ 102,111
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-17
<PAGE>
Global Spill Management, Inc.
and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months ended March 31, 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ - $ -
- -------------------------------------------------------------------------------------------------------------------
Costs and expenses
Selling, general and administrative expenses 99,762 -
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 99,762 -
- -------------------------------------------------------------------------------------------------------------------
(Loss) from operations (99,762) -
Gain from debt forgiveness, net of administrative costs - 1,569,672
- -------------------------------------------------------------------------------------------------------------------
Net (loss) income $ (99,762) $ 1,569,672
- -------------------------------------------------------------------------------------------------------------------
Net (loss) income per share $ (.03) $ .72
Weighted average number of common shares outstanding 3,165,215 2,179,877
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-18
<PAGE>
Global Spill Management, Inc.
and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended March 31, 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ - $ -
- -------------------------------------------------------------------------------------------------------------------
Costs and expenses
Selling, general and administrative expenses 56,234 -
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 56,234 -
- -------------------------------------------------------------------------------------------------------------------
(Loss) from operations (56,234) -
(Loss) from debt forgiveness, net of administrative costs - (14,710)
- -------------------------------------------------------------------------------------------------------------------
Net (loss) $ (56,234) $ (14,710)
- -------------------------------------------------------------------------------------------------------------------
Net (loss) per share $ (.02) $ (.01)
Weighted average number of common shares outstanding 3,478,597 2,649,202
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE>
Global Spill Management, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months ended March 31, 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net (loss) income $ (99,762) $ 1,569,672
Adjustments to reconcile net (loss) income to
net cash (used in) operating activities
Non-cash litigation settlement 50,000 -
Gain from debt forgiveness - (1,569,672)
(Decrease) in liabilities
Accounts payable and accrued expenses (129,882) (278,454)
- -------------------------------------------------------------------------------------------------------------------
Net cash (used in) operating activities (179,644) (278,454)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Sale of subsidiaries - 805,000
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Borrowings (repayments) on line of credit, net - (855,000)
(Repayments) of long-term debt - (53,530)
Issuance of common stock, net of expenses - 481,500
Proceeds from common stock receivable 220,000 -
Payments on notes payable, stockholder (12,500) (37,500)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 207,500 (464,530)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 27,856 (62,016)
Cash, at beginning of year 2,111 62,016
- -------------------------------------------------------------------------------------------------------------------
Cash, at end of year $ 29,967 $ -
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
Global Spill Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Unaudited
1. The accompanying unaudited consolidated financial statements, which
are for an interim period, do not include all disclosures provided in
the annual consolidated financial statements. These unaudited
consolidated financial statements should be read in conjunction with
the consolidated financial statements and footnotes thereto contained
in the Annual Report on Form 10-KSB for the year ended June 30, 1997
of Global Spill Management, Inc. ("Global"), as filed with the
Securities and Exchange Commission. The June 30, 1997 balance sheet
was derived from audited consolidated financial statements, but does
not include all disclosures required by generally accepted accounting
principles.
2. In the opinion of Global, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal
recurring nature) necessary for a fair presentation of the financial
statements. The results of operations for the nine months and three
months ended March 31, 1998 are not necessarily indicative of the
results to be expected for the full year.
3. Per share data was calculated by dividing the net income (loss) by the
weighted average number of shares outstanding during the period.
F-21
<PAGE>
Biofarm, Inc.
Unaudited Pro Forma Financial Statements
----------------------------------------
On April 1, 1998, Global Spill Management, Inc. ("Global") entered into a
Stock Purchase Agreement with Litchfield Continental, Ltd. ("Litchfield") to
acquire 86.95% of the issued and outstanding shares of Biofarm, S.A.
("Biofarm"), a Romanian pharmaceutical company located in Bucharest, Romania.
In consideration for the purchase of the shares of Biofarm, the Company has
agreed to issue to Litchfield a convertible non-negotiable secured debenture
(the "Note") in the principal sum of $6,434,681.
The Note provides that there is no interest due or payable on the principal
sum and is non-negotiable and non-transferable. In addition, in lieu of
repayment of the Note and subject to certain conditions precedent, the Note
will provide that from time to time for a period of five (5) years from the
date of the Note, the holder thereof may convert a portion, but not less than
ten percent (10%), of the original principal sum into shares of the Company's
Common Stock. The Note is convertible at the rate of 8.0% of the then issued
and outstanding Common Stock of the Company for each ten percent of the
principal sum of the Note that is converted. Therefore, and in accordance with
the terms of the Note, if the entire principal sum of the Note is converted,
the holder shall own eighty percent (80%) of the Company's issued and
outstanding stock based upon the number of shares thereof outstanding as of
the date of conversion.
Upon approval by the shareholders of Global, the Company will change its name
to Biofarm, Inc.
Upon election of the new Board of Directors, the shareholders of Litchfield
will have Board and management control of Global. Accordingly, for accounting
purposes, Biofarm is considered the continuing entity. Therefore, the
acquisition will be accounted for as a reverse purchase in accordance with
generally acceptable accounting principles.
The consolidated balance sheet has been prepared based on the unaudited
financial statements of Global and Biofarm at March 31, 1998 giving effect to
the acquisition as if it had occurred on that date. The consolidated statements
of income for the twelve months ended December 31, 1997 and the three months
ended March 31, 1998 give effect to the acquisition as if it had occurred as of
January 1, 1997, and 1998, respectively.
F-22
<PAGE>
Biofarm, Inc.
(Formerly Biofarm, S.A.)
Pro Forma Consolidated Balance Sheet
(In Thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, 1998
- -----------------------------------------------------------------------------------------------
Biofarm, S.A. Global Pro Forma
As Reported As Reported Balance Sheet
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 399 $ 30 $ 429
Receivables, net 557 -- 557
Investments, net 1,978 -- 1,978
Other current assets 832 -- 832
- -----------------------------------------------------------------------------------------------
Total current assets 3,766 30 3,796
Property and equipment, net 7,688 -- 7,688
- -----------------------------------------------------------------------------------------------
Total assets $ 11,454 $ 30 $ 11,484
- -----------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Payables $ 1,899 $ 19 $ 1,918
Other current liabilities 236 -- 236
- -----------------------------------------------------------------------------------------------
Total current liabilities 2,135 19 2,154
- -----------------------------------------------------------------------------------------------
Stockholders' equity 9,319 11 9,330
- -----------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 11,454 $ 30 $ 11,484
- -----------------------------------------------------------------------------------------------
</TABLE>
F-23
<PAGE>
Biofarm, Inc.
(Formerly Biofarm, S.A.)
Pro Forma Consolidated Statement of Income
(In Thousands, Except for Per Share Data)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Twelve months ended December 31, 1997
- -----------------------------------------------------------------------------------------------------------------------
Pro Forma
Statement
Biofarm, S.A. Global of Income
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenues $ 6,752 $ -- $ 6,752
Cost of revenues 4,538 -- 4,538
- -----------------------------------------------------------------------------------------------------------------------
Gross profit 2,214 -- 2,214
Operating expenses 839 224 1,063
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 1,375 (224) 1,151
Other income (expense) (359) -- (359)
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) before income
taxes 1,016 (224) 792
Taxes on income 257 -- 257
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 759 $ (224) $ 535
- -----------------------------------------------------------------------------------------------------------------------
Basic income (loss) per common share $ (.01) $ .03
- -----------------------------------------------------------------------------------------------------------------------
Weighted average common
shares and equivalents outstanding 19,771,430 19,771,430
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
F-24
<PAGE>
Biofarm, Inc.
(Formerly Biofarm, S.A.)
Pro Forma Consolidated Statement of Income
(In Thousands, Except Per Share Data)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
F-25
Three months ended March 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
Pro Forma
Statement
Biofarm, S.A. Global of Income
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenues $ 2,513 $ -- $ 2,513
Cost of revenues 1,905 -- 1,905
- -----------------------------------------------------------------------------------------------------------------------
Gross profit 608 -- 608
Operating expenses 441 56 497
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 167 (56) 111
Other income 36 -- 36
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) before income
taxes 203 (56) 147
Taxes on income 148 -- 148
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 55 $ (56) $ (1)
- -----------------------------------------------------------------------------------------------------------------------
Basic income (loss) per common share $ -- $ --
- -----------------------------------------------------------------------------------------------------------------------
Weighted average common
shares and equivalents outstanding 20,326,317 20,326,317
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
F-25
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Coopers Coopers & Lybrand Romania 12. Domnita Ruxandra Str telephone (401)-2109842
& Lybrand Audit & Accountants srl Sector 2 (401)-2109532
RC J40/1172211993 RO 72129 (401)-2109533
CF R4282940 Bucharest, Romania (401)-2109329
faximile (401)-2107773
</TABLE>
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, 1997,
1996 and 1995, and the related statements of earnings, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1997, as set out on pages 2 to 16. 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 audits.
Except as discussed in the following paragraph, we conducted our audits 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
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.
We did not observe the physical inventories as of December 31, 1996, 1995 and
1994 since those dates were prior to our appointment as auditors of the
Company. As discussed in the following paragraph, we were able to satisfy
ourselves by other auditing procedures as to the inventory quantities on hand
as of December 31, 1996. Inventory amounts as of December 31, 1995 and 1994
enter into the determination of Cost of Sales for the years ended December 31,
1996 and 1995.
In our report dated May 6, 1998, we expressed an opinion that the December 31,
1997 financial statements might not have presented fairly, in all material
respects, the financial position as of December 31, 1996 and the results of
operations and cash flows for the year ended December 31, 1997, as we had not
observed the physical inventory as of December 31, 1996. Subsequently, we have
satisfactorily completed alternative procedures on inventory records and
movements for the period January 1, 1997 through December 31, 1997.
Accordingly, our present opinion on the financial position as of December 31,
1996 and the results of operations and cash flows for the year ended December
31, 1997, as presented herein, is different from that expressed in our
previous report.
In our opinion, except for the effects of such adjustments, if any, as might
have been determined to be necessary had we been able to observe the physical
inventories as of December 31, 1995 and 1994, the financial statements
referred to above present fairly, in all material respects, the financial
position of BIOFARM S.A. as of December 31, 1997, 1996 and 1995, and the
results of its operations and its cash flows for the three years in the period
ended December 31, 1997, in conformity with United States generally accepted
accounting principles.
Bucharest
June 5, 1998 /s/ Coopers & Lybrand Coopers & Lybrand
---------------------
F-26
<PAGE>
BIOFARM S.A. Balance Sheet
(all figures in USD)
Note 31 Dec. 31 Dec. 31 Dec.
1997 1996 1995
Assets
Cash and cash equivalent 2 144,492 89,108 67,100
Receivables, net 3 318,396 207,604 217,185
Inventories, net 4 1,838,869 1,387,502 1,913,069
Other current assets 5 942,271 271,765 479,553
--------- --------- ---------
Total current assets 3,244,028 1,955,979 2,676,907
Property plant and equipment,
at cost or valuation
Buildings and buildings equipment 6 6,685,484 1,686,496 1,686,496
Machinery and equipment 4,419,701 3,874,631 3,849,188
Construction in progress 17,193 79,049 57,050
Less accumulated depreciation (3,331,849) (3,835,130) (3,620,516)
---------- --------- ---------
7,790,529 1,805,046 1,972,218
---------- --------- ---------
Ttoal assets 11,034,557 3,761,025 4,649,125
---------- --------- ---------
Liabilities
Short term borrowings 7 0 92,709 317,088
Accounts payable 8 1,589,615 1,686,785 1,401,895
Other liabilities 48,358 25,168 55,045
Taxes except tax on profit 131,976 73,085 75,263
Tax on profit 0 0 0
---------- --------- ---------
Dividends payable 0 65,641 108,041
Total current liabilities 1,769,949 1,943,388 1,957,332
---------- --------- ---------
Long term debts 0 0 0
---------- --------- ---------
Total liabilities 1,769,949 1,943,388 1,957,332
Stockholders' Equity
Common stock 9 5,375,790 5,375,790 5,375,790
Additional paid in capital 10 697,482 0 0
Revaluation reserve 5,991,024 0 0
Retained losses (2,799,688) (3,558,153) (2,683,997)
---------- --------- ---------
Total stockholder's equity 9,264,608 1,817,637 2,691,793
Total liabilities and stockholders'
equity 11,034,557 3,761,026 4,649,125
---------- --------- ---------
The accompanying notes form an integral part of these financial statements and
should be read in conjunction therewith.
F-27
<PAGE>
BIOFARM S.A. Statement of Earnings
(all figures in USD)
<TABLE>
<CAPTION>
Year ended Year ended Year ended
31 Dec. 1997 31 Dec. 1996 31 Dec. 1995
<S> <C> <C> <C>
Operating revenues 6 751 699 6 008 157 7 227 953
Cost of sales
Materials and energy (2 788 227) (3 605 075) (3 845 409)
Labor (1 311 011) (1 305 207) (1 483 538)
Depreciation (380 992) (279 379) (214 614)
Others (57 272) (112 685) (350 496)
-------- --------- ---------
(4 537 502) (5 302 346) (5 894 057)
Gross profit 2 214 197 705 811 1 333 896
Marketing, administration and
research costs
Administration expense (note 14) (544 600) (1 003 330) (1 217 737)
Marketing expense (140 783) (42 558) (18 848)
Transport expense (112 620) (86 056) (29 988)
Research costs (40 837) (2 699) (905)
------- ------- -----
(838 840) (1 134 643) (1 267 478)
Operating income/(loss) 1 375 357 (428 832) 66 418
Interest and other debt expense, net (50 154) (97 733) (108 630)
Loss from translation and exchange (309 302) (347 591) (216 849)
--------- --------- ---------
Earnings/(loss) before income taxes 1 015 901 (874 156) (259 061)
Provision for income taxes (note 15) (257 436) 0 0
--------- - -
Net earnings/(loss) 758 465 (874 156) (259 061)
======= ======= ========
Dividends - - 59 558
--------
Earnings per share (note 16) 0.084 (0.097) (0.029)
</TABLE>
The accompanying notes form an integral part of these financial statements and
should be read in conjuction therewith.
F-28
<PAGE>
BIOFARM S.A. Statement of Cash Flows
(all figures in USD)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
31 Dec. 1997 31 Dec. 1996 31 Dec. 1995
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings/(loss) 758 465 (874 156) (259 061)
Adjustments to reconcile net earnings to net cash
Depreciation 380 992 279 379 214 614
Loss from translation and exchange rate 160 147 347 591 216 849
Changes in assets and liabilities
Receivables (110 792) 9 581 160 366
Inventory (451 367) 525 567 (386 433)
Other current assets (670 506) 207 714 (185 166)
Accounts payables (97 170) 284 890 682 482
Other current liabilities 82 081 (32 055) (114 007)
------ -------- ---------
Net cash provided by operating activities 51 850 748 511 329 644
Cash used in investing activities
Capital expenditure (375 451) (112 133) (298 102)
Cash used in financing activities
Net (repayment)/increase of short term borrowings (92 709) (224 379) 91 730
Additional paid in capital 697 482 0 0
Dividends paid (65 641) (42 400) 0
Effect of translation and exchange rate changes (160 147) (347 591) (216 849)
--------- --------- ---------
55 384 22 008 (93 577)
Cash and cash equivalents (note 2)
(Decrease)/ Increase 55 384 22 008 (93 577)
Balance at beginning of year 89 108 67 100 160 677
Balance at end of year 144 492 89 108 67 100
</TABLE>
The accompanying notes form an integral part of these financial statements and
should be read in conjunction therewith.
F-29
<PAGE>
<TABLE>
<CAPTION>
BlOFARM S.A. Statement of Stockholders' Equity
(all figures in USD)
- -------------------------------------------------------------------------------
Additional Total
Common Retained paid in Revaluation stockholder's
stock losses capital reserve equity
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 5 375 790 (2 365 378) - - 3 010 412
Net loss (259 061) (259 061)
Dividends declared (59 558) (59 558)
Balance, 12/31/1995 5 375 790 (2 683 997) - - 2 691 793
Net loss (874 156) (874 156)
Dividends declared - -
Balance, 12/31/1996 5 375 790 (3 558 153) - - 1 817 637
Net earnings 758 465 758 465
Dividends declared - -
Additional paid in capital 697 482 697 482
Revaluation of buildings 5 991 024 5 991 024
Balance, 12/31/1997 5 375 790 (2 799 688) 697 482 5 991 024 9 264 608
</TABLE>
F-30
<PAGE>
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 reporting 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. Revenues 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.
F-31
<PAGE>
BIOFARM S.A.
Notes to the Financial Statements (all figures in USD)
- -------------------------------------------------------------------------------
Trade receivables:
Trade receivables are stated at their estimated realizable 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
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 grounds of prudence and uncertainty of
future tax legislation.
Intangible assets:
Intangible assets such as brands, patents and trademarks have been developed
internally, and are not included in the balance sheet.
F-32
<PAGE>
BIOFARM S.A.
Notes to the Financial Statements (ail figures in USD)
- -------------------------------------------------------------------------------
Revenue recognition:
Costs and revenues are included in the income statement at the date at which
legal title to the goods changes hands. The full transaction value is recorded
in the financial statements at the date of transfer of title to the goods
concerned.
Exchange rate information
The principal currency in which the Company does business is the Romanian Lei
("ROL"). The evolution of the ROL/US Dollar exchange rate is summarized below:
Exchange rate ROL/USD
December 31, 1994 1,767
December 31, 1995 2,578
December 31, 1996 4,035
December 31, 1997 8,023
May 31, 1998 8,511
F-33
<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:
Description 31 Dec. 1997 31 Dec. 1996 31 Dec. 1995
Cash in bank, ROL 117 419 67 769 9 144
Cash in bank, hard currency 12 020 18 646 45 333
Cash in hand, ROL 9 2 039 11 163
Other cash equivalents, ROL 15 044 654 1 460
TOTAL 144 492 89 108 67 100
3. Trade receivables
Trade receivables are presented net of provisions:
Description 31 Dec. 1997 31 Dec. 1996 31 Dec. 1995
Domestic customers 237 657 161 902 146 862
Foreign customers 98 384 52 895 90 542
Less provisions for doubtful debt (17 645) (7 193) (20 219)
TOTAL 318 396 207 604 217 185
Foreign customers are represented by Romanian trading companies which export
BIOFARM's products. Their debt to BIOFARM is denominated in hard currency.
F-34
<PAGE>
BIOFARM S.A.
Notes to the Financial Statements (all figures in USD)
- -------------------------------------------------------------------------------
4. Inventories
Inventories, net of provisions, are made up as follows:
Description 31 Dec. 1997 31 Dec. 1996 31 Dec. 1995
Raw material 692 728 567 533 866 318
Packaging 324 279 320 000 505 395
Finished goods 634 448 278 771 358 694
WIP 140 262 76 039 96 210
Other stocks 47 152 145 159 86 452
TOTAL 1 838 869 1 387 502 1 913 069
Provisions for inventory are based on an aging analysis of inventory,
comparing usage and use by date by product and by batch, and a comparison of
cost with net realizable value.
5. Other current assets
Other current assets are made up as follows:
Description 31 Dec. 1997 31 Dec. 1996 31 Dec. 1995
Advances to domestic suppliers 129 927 124 013 174 145
Advances to foreign suppliers 712 500 0 0
Tax on profits paid in advance 33 301 35 325 142 538
Other 33 242 112 427 162 870
TOTAL 908 970 271 765 479 553
The principal other current asset as of December 31, 1997 consists of an
advance payment of USD 712,500 for raw materials to be imported.
Tax on profits paid in advance can be carried forward indefinitely and offset
against future tax liabilities, or reclaimed from the tax authorities.
F-35
<PAGE>
BlOFARM S.A.
Notes to the Financial Statements (all figures in USD)
- -------------------------------------------------------------------------------
6. Buildings
The Company's buildings were valued as of June 30, 1997 at depreciated
replacement cost. These valuations were performed by SC Inter-Ex Consulting
S.R.L., an accredited valuation company, member of the National Association of
Romanian Evaluators. The revaluation of buildings has been included in the
financial statements at December 31, 1997. This is permitted by AICPA
Accounting Principles Board Opinion no. 6, as the Company operates under
conditions of serious inflation and currency devaluation, and the historical
ROL cost records and USD/ROL exchange rates do not permit the establishment of
a fair USD equivalent cost.
The restated historical cost and revaluation of buildings is disclosed below
(gross book value):
June 30, 1997
Restated historical cost 1 686 496
Accumulated depreciation (1 032 981)
Revaluation write up 5 991 024
Valuation June 30, 1997 6 644 539
Acquisitions July to December 1997 40 945
Depreciation July to December 1997 (94 085)
Revalued net value December 31, 1997 6 591 399
7. Short term borrowings
Description 31 Dec. 1997 31 Dec. 1996 31 Dec. 1995
Short term loans 0 0 147 401
Overdraft 0 92 709 169 687
TOTAL 0 92 709 317 088
Between January 1996 and December 1997 BlOFARM 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
BlOFARM's working capital requirements, whilst short term loans were arranged
to finance BIOFARM's debt to RADET. As collateral BlOFARM S.A. had pledged its
fixed assets.
F-36
<PAGE>
BlOFARM S.A.
Notes to the Financial Statements (all figures in USD)
- -------------------------------------------------------------------------------
The interest rates applied by the bank, for the year ended 31 December 1996
ranged between 48-50% p.a. The interest rates charged by the bank for the year
ended 31 December 1997 ranged between 50-100% p.a..
8. Accounts payable
Accounts payable as at 31 December 1996 and 31 December 1997 are split between
domestic and foreign suppliers as follows
31 Dec. 1997 31 Dec. 1996 31 Dec. 1995
Domestic suppliers 558 508 499 092 744 310
Foreign suppliers 149 057 412 080 114 940
RADET (domestic) 882 050 775 613 542 645
TOTAL 1 589 615 1 686 785 1 401 895
RADET is the supplier to BIOFARM S.A. of steam and hot water. RADET invoices
the services to BIOFARM S.A. on a monthly basis. The contract with the
supplier states precise penalties which are to be charged for any delays in
payment. The contract in force as at 31 December 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. The balance at 31
December 1995, included USD 110,150 representing penalties invoiced by RADET.
The balance at 31 December 1996, included USD 308,613 representing penalties
invoiced by RADET. As at 31 December 1997 the balance of RADET of USD 882,050
includes no penalties, as the Company is negotiating a settlement under which
all penalties will be forgiven, see note 18.
F-37
<PAGE>
BIOFARM S.A.
Notes to the Financial Statements (ail figures in USD)
- -------------------------------------------------------------------------------
9. Common stock
Common stock as at December 31, 1997 consists of 9,015,200 authorized and
issued shares having a nominal value of ROL 1,000 per share, following a 25
for 1 share split. As at 31 December 1995 and 31 December 1996 common stock
consisted of 360,608 authorized and issued shares with a nominal value of ROL
25,000 per share.
Both at 31 December 1996 and 30 June 1997 the registered 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.
The General Meeting of Shareholders, held on April 14, 1998, approved the
issue of 27,045,600 new shares at their nominal value of ROL 1,000 each with
pre-emptive subscription rights for shareholders registered as of April 3,
1998. 30% of the value of shares subscribed must be paid by June 15, 1998,
while the balance must be paid by December 31, 1998.
10. Additional paid in capital
Under the terms of the sale purchase agreement with the SOF, subsequent to the
purchase by Shapiro Bancorp LLC of 40% of the shares of the Company, the SOF
made a cash capital grant to the Company of ROL 5,595,900,000. These funds are
to be used, in agreement with the SOF, for the repayment of certain
obligations of the Company and for additional investments in the Company's
facilities.
11. Dividends
For the year ended 31 December 1995 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. No dividends are proposed for the
year ended December 31, 1997.
F-38
<PAGE>
BIOFARM S.A.
Notes to the Financial Statements (all figures in USD)
- -------------------------------------------------------------------------------
12. 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 program 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 35 031 000
Investments for environment protection USD 1 300 000
GRAND TOTAL USID 36 331 000
Non compliance with this investment program will result in a penalty of 30% of
any required expenditure not made, calculated annually on a cumulative basis,
payable by Shapiro Bancorp LLC to the State Ownership Fund.
The agreement allows Shapiro Bancorp LLC and the SOF to modify the investment
program by mutual consent.
13. Land
I
BIOFARM S.A. does not yet have ownership deeds for the land occupied by the
company. The land used by the Company has a total surface area of some 25,212
square meters. Under Romanian law, State owned and formerly State owned
companies are entitled to ownership of land used, subject to the fulfillment of
certain administrative procedures. If the ownership deeds for land are first
requested by the Company, then granted, additional common stock will be issued
to the SOF as consideration. Under the terms of its sales purchase agreement
with the SOF, Shapiro Bancorp LLC appears to have the right/obligation to
purchase from the SOF the resulting new shares, at a price to be established.
Management considers that following the relevant administrative procedures,
approximately 1,050,000 new shares would be issued as consideration for land
title. In the absence of land title, the Company pays a nominal land tax to the
Romanian Government.
BIOFARM S.A. requested a valuation for the land. This valuation was performed
by SC Inter-Ex Consulting S.R.L., an accredited valuation company, member of
the National Association of Romanian Valuators. The value of the land as at 30
June 1997 was assessed at USD 5,666,834.
F-39
<PAGE>
BIOFARM S.A. Notes to the Financial Statements (all figures in USD)
- -------------------------------------------------------------------------------
14. Administration expenses
Administration expenses for 1997 are stated net of USD 308,613 of provisions
for penalties recorded as due to RADET as at December 31, 1996, see notes 8
and 18.
15. Taxation
Income taxes for 1997 represent the tax due on 1997 income, after offset of
ROL 1.9 billion of tax losses brought forward from prior years. The tax charge
is computed at the current statutory rate of 38%. Potential deferred tax
assets on timing differences, including restatements with a potential tax
effect, are not significant.
16. Earnings per share
Earnings per share for 1997, 1996 and 1995 have been computed on the basis of
the 9,015,200 shares authorized and issued as at December 31,1997 following
the 25 for 1 share split made during 1997.
17. Post balance sheet events
On November 19, 1997 the Company made an advance payment of USD 700,000 to a
foreign supplier of raw materials, and on December 2, 1997 made a further
advance payment of USD 12,500 to the same supplier. Under the regulations of
the Romanian National Bank, raw materials that have been paid for in advance
must be received in Romania no later than 75 days from the date of the advance
payment. In the minutes, dated March 6, 1998, of a control carried out by the
Romanian Ministry of Finance, penalties of ROL 862,634,650 (some USD 100,000)
were assessed on the Company, and the Company was given a period of one month
to bring the goods into the country or to receive repayment of the advances.
The Company received a repayment of USD 300,000 on March 13, 1998. Although
the penalties have been paid by the Company, the Company is contesting its
liability.
F-40
<PAGE>
BIOFARM S.A.
Notes to the Financial Statements (all figures in USD)
18. Contingencies
a) RADET, the supplier to the company of steam and hot water, is claiming
penalties as of December 31, 1997 of ROL 3,137 billion (some USD 391,000) for
late payment of amounts due by the Company. At the same time, the Company is
claiming that the amounts invoiced by RADET were calculated incorrectly, and
therefore are excessive. From April 1998, the Company installed its own
thermal station to generate its own steam and hot water, which should be
functional by June 1998. Preliminary negotiations between RADET and the
Company indicate that RADET will drop all claims to penalties provided that
the Company agrees to pay the amounts invoiced, and that payment terms of up
to one year could be agreed. In these circumstances, the Directors of the
Company consider that no provision for penalties is required as of December
31, 1997.
b) On November 19, 1997 the Company made an advance payment of USD 700,000 to
a foreign supplier of raw materials, and on December 2, 1997 made a further
advance payment of USD 12,500 to the same supplier, using part of the funds
received from the SOF In the minutes, dated March 6, 1998, of a control
carried out by the Romanian Ministry of Finance, it is stated that the Company
had obligations of ROL 1,448,981,425 (some USD 180,000), at the date of
receipt of the funds from the SOF, that should have been paid using the funds
received from the SOF In consequence, the Romanian Ministry of Finance has
assessed a fine on the Company of ROL 1,448,981,425. The Company is contesting
this fine, Management considers that the Company's case is very good and
consequently, no provision has been made for this in the accounts.
F-41
<PAGE>
BIOFARM S.A. Balance Sheet
(all figures in USD)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
Note Dec.31,1997 March3l, 1998
<S> <C> <C> <C>
Cash and cash equivalent 2 144 492 399 477
Receivables, net 3 318 396 556 681
Inventories, net 4 1 838 869 1 977 760
Other current assets 5 942 271 831 924
------- --------
Total current assets 3 244 028 3 765 842
Property plant and equipment, at cost or valuation
Buildings and buildings equipment 6 6 685 484 6 685 484
Machinery and equipment 4 419 701 4 420 012
Construction in progress 17 193 44 472
Less accumulated depreciation (3 331 849) (3 461 603)
---------- ----------
7 790 529 7 688 365
---------- ---------
Total assets 11 034 557 11 454 207
========== ==========
Liabilities
Short term borrowings 0 0
Accounts payable 7 1 589 615 1 899 182
Other liabilities 48 358 100 472
Taxes except tax on profit 131 976 23 166
Tax on profit 0 111 931
Dividends payable 0 0
- -
Total current liabilities 1 769 949 2 134 751
Long term debts 0 0
- -
Total liabilities 1 769 949 2 134 751
--------- ---------
Stockholders' Equity
Common stock 8 5 375 790 5 375 790
Additional paid in capital 9 697 482 697 482
Revaluation reserve 5 991 024 5 991 024
Retained losses (2 799 688) (2 744 840)
--------- ---------
Total stockholder's equity 9 264 608 9 319 456
--------- ----------
Total liabilities and stockholders' equity 11 034 557 11 454 207
========== ==========
The accompanying notes form an integral part of these financial statements and
should be read in conjunction therewith.
</TABLE>
F-42
<PAGE>
BIOFARM S.A. Statement of Earnings
(all figures in USD)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended Three months ended
Dec.31,1997 March 31, 1998
<S> <C> <C>
Operating revenues 6 751 699 2 513 380
Cost of sales
Materials and energy (2 788 227) (1 308 572)
Labor (1 311 011) (436 457)
Depreciation (380 992) (129 754)
Others (57 272) (30 114)
------ ------
(4 537 502) (1 904 897)
Gross profit 2 214 197 608 483
Marketing, administration and research costs
Administration expense (note 13) (544 600) (329 377)
Marketing expense (140 783) (67 375)
Transport expense (112 620) (30 531)
Research costs (40 837) (13 500)
------ ------
(838 840) (440 783)
Operating income/(loss) 1 375 357 167 700
Interest and other debt expense, net (50 154) 11 784
Loss from translation and exchange (309 302) 23 727
------- ------
Earnings/(loss) before income taxes 1 015 901 203 211
Provision for income taxes (note 14) (257 436) (148 363)
------- -------
Net earnings/(loss) 758 465 54 848
======= =======
Dividends
Earnings per share (note 15) 0.084 0.006
</TABLE>
The accompanying notes form an integral part of these financial statements and
should be read in conjunction therewith.
F-43
<PAGE>
BIOFARM S.A. Statement of Cash Flows
(all figures in USD)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended Three months
Dec. 31, 1997 ended
March 31, 1998
<S> <C> <C>
Cash flows from operating activities
Net earnings/(loss) 758 465 54 848
Adjustments to reconcile net earnings to net cash
Depreciation 380 992 129 754
Loss/(Gain) from translation and exchange rate 160 147 (23 727)
Changes in assets and liabilities
Receivables (110 792) (238 285)
Inventory (451 367) (138 891)
Other current assets (670 506) 110 347
Accounts payables (97 170) 309 567
Other current liabilities 82 081 55 235
------ ------
Net cash provided by operating activities 51 850 258 848
Cash used in investing activities
Capital expenditure (375 451) (27 590)
Cash used in financing activities
Net (repayment)/increase of short term borrowings (92 709) 0
Additional paid in capital 697 482 0
Dividends paid (65 641) 0
Effect of translation and exchange rate changes (160 147) 23 727
-------- ------
55 384 23 727
Cash and cash equivalents (note 2)
(Decrease)/Increase 55 384 254 985
Balance at beginning of year 89 108 144 492
Balance at end of year 144 492 399 477
</TABLE>
The accompanying notes form an integral part of these financial statements and
should be read in conjunction therewith.
F-44
<PAGE>
BIOFARM S.A. Statement of Stockholders' Equity
(all figures in USD)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Total
Common Retained paid in Revaluation stockholders'
stock losses capital reserve equity
<S> <C> <C> <C> <C> <C>
Balance, 12/31/1996 5 375 790 (3 558 153) - - 1 817 63
Net earnings 758 465 75 848
Dividends declared -
Additional paid in capital 697 482 697 482
Revaluation of buildings 5 991 024 5 991 024
Balance, 12/31/1997 5 375 790 (2 799 688) 697 482 5 991 024 9 264 60
Net earnings 54 848 54 84
Balance, 12/31/1997 5 375 790 (2 744 840) 697 482 5 991 024 9 319 456
</TABLE>
F-45
<PAGE>
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 reporting 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. Revenues 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.
F-46
<PAGE>
BIOFARM S.A.
Notes to the Financial Statements (all figures in USD)
- -------------------------------------------------------------------------------
Trade receivables:
Trade receivables are stated at their estimated realizable 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
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 grounds of prudence and uncertainty of
future tax legislation.
Intangible assets:
Intangible assets such as brands, patents and trademarks have been developed
internally, and are not included in the balance sheet.
F-47
<PAGE>
BIOFARM S.A.
Notes to the Financial Statements (all figures in USD)
- -------------------------------------------------------------------------------
Revenue recognition:
Costs and revenues are included in the income statement at the date at which
legal title to the goods changes hands. The full transaction value is recorded
in the financial statements at the date of transfer of title to the goods
concerned.
Exchange rate information
The principal currency in which the Company does business is the Romanian Lei
("ROL"). The evolution of the ROL/US Dollar exchange rate is summarized below:
Exchange rate ROL/USD
December 31, 1994 1,767
December 31, 1995 2,578
December 31, 1996 4,035
December 31, 1997 8,023
March 31,1998 8,490
May 31, 1998 8,511
ROL/USD
F-48
<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:
Description Dec. 31, 1997 March 31, 1998
Cash in bank, ROL 117 419 59 684
Cash in bank, hard currency 12 020 327 820
Cash in hand, ROL 9 4 688
Other cash equivalents, ROL 15 044 7 285
TOTAL 144 492 399 477
3. Trade receivables
Trade receivables are presented net of provisions:
Description Dec. 31, 1997 March 31, 1998
Domestic customers 237 657 372 832
Foreign customers 98 384 200 523
Less provisions for doubtful debts (17 645) (16 674)
TOTAL 318 396 556 681
Foreign customers are represented by Romanian trading companies which export
BIOFARM's products. Their debt to BIOFARM is denominated in hard currency.
F-49
<PAGE>
BIOFARM S.A.
Notes to the Financial Statements (all figures in USD)
- -------------------------------------------------------------------------------
4. Inventories
Inventories, net of provisions, are made up as follows:
Description Dec. 31, 1997 March 31, 1998
Raw material 692 728 816 887
Packaging 324 279 291 272
Finished goods 634 448 648 535
WIP 140 262 208 488
Other stocks 47 152 12 578
TOTAL 1 838 869 1 977 760
Provisions for inventory are based on an aging analysis of inventory,
comparing usage and use by date by product and by batch, and a comparison of
cost with net realizable value.
5. Other current assets
Other current assets are made up as follows:
Description Dec. 31, 1997 March 31, 1998
Advances to domestic suppliers 129 927 135 454
Advances to foreign suppliers 712 500 412 500
Tax on profits paid in advance 33 301 0
VAT recoverable 0 143 721
Other 33 242 140 249
TOTAL 908 970 831 924
Tax on profits paid in advance can be carried forward indefinitely and offset
against future tax liabilities, or reclaimed from the tax authorities.
F-50
<PAGE>
BIOFARM S.A.
Notes to the Financial Statements (all figures in USD)
- -------------------------------------------------------------------------------
6. Buildings
The Company's buildings were valued as of June 30, 1997 at depreciated
replacement cost. These valuations were performed by SC Inter-Ex Consulting
S.R.L., an accredited valuation company, member of the National Association of
Romanian Evaluators. The revaluation of buildings has been included in the
financial statements at March 31, 1998 and December 31, 1997. This is
permitted by AICPA Accounting Principles Board Opinion no. 6, as the Company
operates under conditions of serious inflation and currency devaluation, and
the historical ROL cost records and USD/ROL exchange rates do not permit the
establishment of a fair USD equivalent cost.
The restated historical cost and revaluation of buildings is disclosed below
(gross book value):
June 30, 1997
Restated historical cost 1 686 496
Accumulated depreciation (1 032 981)
Revaluation write up 5 991 024
Valuation June 30, 1997 6 644 539
Acquisitions July to December 1997 40 945
Depreciation July to December 1997 (94 085)
Revalued net value December 31, 1997 6 591 399
Depreciation 1998 (55 712)
Revalued net value March 31, 1998 6 535 687
F-51
<PAGE>
BIOFARM S.A.
Notes to the Financial Statements (all figures in USD)
- -------------------------------------------------------------------------------
7. Accounts payable
Accounts payable as at 31 December 1996 and 31 December 1997 are split between
domestic and foreign suppliers as follows
Dec.31,1997 March 31, 1998
Domestic suppliers 558 508 550 693
Foreign suppliers 149 057 213 765
RADET (domestic) 882 050 1 134 724
TOTAL 1 589 615 1 899 724
RADET is the supplier to BIOFARM S.A. of steam and hot water. RADET invoices
the services to BIOFARM S.A. on a monthly basis. The contract with the
supplier states precise penalties which are to be charged for any delays in
payment, The contract in force as at 31 December 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. The balance at 31
December 1996, included USD 308,613 representing penalties invoiced by RADET.
As at 31 March 1998 and 31 December 1997 the balance with RADET includes no
penalties, as the Company is negotiating a settlement under which all
penalties will be forgiven, see note 17.
F-52
<PAGE>
BIOFARM S.A.
Notes to the Financial Statements (all figures in USD)
- -------------------------------------------------------------------------------
8. Common stock
Common stock as at March 31, 1998 and December 31, 1997 consists of 9,015,200
authorized and issued shares having a nominal value of ROL 1,000 per share,
following a 25 for 1 share split.
Both at 31 December 1996 and 30 June 1997 the registered 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.
The General Meeting of Shareholders, held on April 14, 1998, approved the
issue of 27,045,600 new shares at their nominal value of ROL 1,000 each with
pre-emptive subscription rights for shareholders registered as of April 3,
1998. 30% of the value of shares subscribed must be paid by June 15, 1998,
while the balance must be paid by December 31, 1998.
9. Additional paid in capital
Under the terms of the sale purchase agreement with the SOF, subsequent to the
purchase by Shapiro Bancorp LLC of 40% of the shares of the Company, the SOF
made a cash capital grant to the Company of ROL 5,595,900,000. These funds are
to be used, in agreement with the SOF, for the repayment of certain
obligations of the Company and for additional investments in the Company's
facilities.
10. Dividends
No dividends are proposed for the year ended December 31, 1997.
F-53
<PAGE>
BIOFARM S.A.
Notes to the Financial Statements (all figures in USD)
- ------------------------------------------------------------------------------
11. 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 program between 1997 and 2001.
Required capital expenditure is as follows:
Capital expenditure
Year Currency required
1 997 USD 665 000
1 998 USD 1 610 000
1 999 USD 14 091 000
2 000 USD 10 695 000
2 001 USD 7 970 000
TOTAL USD 35 031 000
Investments for environment protection USD 1 300 000
GRAND TOTAL USD 36 331 000
Non compliance with this investment program will result in a penalty of 30% of
any required expenditure not made, calculated annually on a cumulative basis,
payable by Shapiro Bancorp LLC to the State Ownership Fund.
The agreement allows Shapiro Bancorp LLC and the SOF to modify the investment
program by mutual consent.
12. Land
BIOFARM S.A. does not yet have ownership deeds for the land occupied by the
company. The land used by the Company has a total surface area of some 25,212
square meters. Under Romanian law, State owned and formerly State owned
companies are entitled to ownership of land used, subject to the fulfillment
of certain administrative procedures. If the ownership deeds for land are
first requested by the Company, then granted, additional common stock will be
issued to the SOF as consideration. Under the terms of its sales purchase
agreement with the SOF, Shapiro Bancorp LLC appears to have the
right/obligation to purchase from the SOF the resulting new shares, at a price
to be established. Management considers that following the relevant
administrative procedures, approximately 1,050,000 new shares would be issued
as consideration for land title. In the absence of land title, the Company
pays a nominal land tax to the Romanian Government.
BIOFARM S.A. requested a valuation for the land. This valuation was performed
by SC Inter-Ex Consulting S.R.L., an accredited valuation company, member of
the National Association of Romanian Valuators. The value of the land as at 30
June 1997 was assessed at USD 5,666,834.
F-54
<PAGE>
BIOFARM S.A.
Notes to the Financial Statements (all figures in USD)
- -------------------------------------------------------------------------------
13. Administration expenses
Administration expenses for 1997 are stated net of USD 308,613 of provisions
for penalties recorded as due to RADET as at December 31, 1996, see notes 7
and 17. Administration expenses for the three months ended March 31, 1998
include a penalty of USD 105,208 paid to the Romanian Ministry of Finance (see
note 1.6).
14. Taxation
Income taxes for 1997 represent the tax due on 1997 income, after offset of
ROL 1.9 billion of tax losses brought forward from prior years. Income tax for
the three months ended March 31, 1998 represent tax due on the statutory
profits for the period. The tax charge is computed at the current statutory
rate of 38%. Potential deferred tax assets on timing differences, including
restatements with a potential tax effect, are not significant.
15. Earnings per share
Earnings per share for the three months ended March 31, 1998 and for 1997 have
been computed on the basis of the 9,015,200 shares authorized and issued as at
March 31, 1998 and December 31,1997.
16. Post balance sheet events
On November 19, 1997 the Company made an advance payment of USD 700,000 to a
foreign supplier of raw materials, and on December 2, 1997 made a further
advance payment of USD 12,500 to the same supplier. Under the regulations of
the Romanian National Bank, raw materials that have been paid for in advance
must be received in Romania no later than 75 days from the date of the advance
payment. In the minutes, dated March 6, 1998, of a control carried out by the
Romanian Ministry of Finance,- penalties of ROL 862,634,650 (USD 105,208) were
assessed on the Company, and the Company was given a period of one month to
bring the goods into the country or to receive repayment of the advances. The
Company received a repayment of USD 300,000 on March 13, 1998. Although the
penalties have been paid by the Company and recorded as an expense for the
three months ended March 31, 1998, the Company is contesting its liability.
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BIOFARM S.A.
Notes to the Financial Statements (all figures in USD)
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17. Contingencies
a) RADET, the supplier to the company of steam and hot water, is claiming
penalties as of December 31, 1997 of ROL 3,137 billion (some USD 391,000) for
late payment of amounts due by the Company. At the same time, the Company is
claiming that the amounts invoiced by RADET were calculated incorrectly, and
therefore are excessive. From April 1998, the Company installed its own
thermal station to generate its own steam and hot water, which should be
functional by June 1998. Preliminary negotiations between RADET and the
Company indicate that RADET will drop all claims to penalties provided that
the Company agrees to pay the amounts invoiced, and that payment terms of up
to one year could be agreed. In these circumstances, the Directors of the
Company consider that no provision for penalties is required as of December
31, 1997.
b) On November 19, 1997 the Company made an advance payment of USD 700,000 to
a foreign supplier of raw materials, and on December 2, 1997 made a further
advance payment of USD 12,500 to the same supplier, using part of the funds
received from the SOF. In the minutes, dated March 6, 1998, of a control
carried out by the Romanian Ministry of Finance, it is stated that the Company
had obligations of ROL 1,448,981,425 (some USD 180,000), at the date of
receipt of the funds from the SOF, that should have been paid using the funds
received from the SOF. In consequence, the Romanian Ministry of Finance has
assessed a fine on the Company of ROL 1,448,981,425. The Company is contesting
this fine. Management considers that the Company's case is very good and
consequently, no provision has been made for this in the accounts.
C) The penalties of ROL 862,634,650 (USD 105,208) paid to the Romanian
Ministry of Finance in March 1998 have been treated as a cost for the three
months ended March 31, 1998 (see notes 13 and 16). Nonetheless, the company is
constesting its liability to this claim.
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