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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:
[ ] Preliminary Proxy Statement
[X] 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
4) Date Filed:
N/A
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GLOBAL SPILL MANAGEMENT, INC.
1244 MAIN STREET
LINFIELD, PENNSYLVANIA 19468
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
BE HELD ON OCTOBER 5, 1998
------------------------
To the Stockholders of Global Spill Management, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Global Spill Management, Inc., a Nevada corporation (the
"Company"), will be held on October 5, 1998, at the Marriott Hotel, 1201 Market
Street, Philadelphia, PA, 19107, at 11:00 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 ratify the appointment of BDO International as the Company's
independent certified public accountants; and
4. To transact such other business as may properly come before the
Annual Meeting or any adjournments thereof.
All Stockholders are cordially invited to attend the Annual Meeting. Only
those Stockholders of record at the close of business on September 1, 1998 are
entitled to notice of and to vote at the Annual Meeting and any adjournments
thereof. The stock transfer books will not be closed. A complete list of
stockholders entitled to vote at the Annual Meeting will be available at the
Meeting.
By Order of the Board of Directors
of Global Spill Management, Inc.
September 21, 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.
1244 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 Annual Meeting of the Company's
stockholders to be held at the Marriott Hotel, 1201 Market Street, Philadelphia,
PA 19107 on October 5, 1998, at 11:00 A.M., local time, and at any adjournments
thereof (the "Annual Meeting").
The Annual 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 ratify the appointment of BDO International as the Company's
independent certified public accountants; and
4. To transact such other business as may properly come before the Annual
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 September 1, 1998 (the "Record Date") will be entitled to vote at
the Annual Meeting.
The principal executive offices of the Company are located at 1244 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
September 21, 1998. The Company's Annual Report on Form 10-KSB for the fiscal
year ended June 30, 1998, including audited financial statements, is being sent
to stockholders together with this Proxy Statement.
VOTING AT THE ANNUAL MEETING
The Board of Directors of the Company has fixed the close of business on
September 1, 1998, as the record date (the "Record Date") for the determination
of stockholders entitled to notice of and to vote at the Annual 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 Annual Meeting.
The Company has approximately 2,000 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 Annual Meeting. If a quorum
should not be present, the Annual 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 Annual 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 Name Change and (ii) the appointment of BDO
International 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 and 3. BROKERS WHO HOLD SHARES IN
STREET NAME, MAY VOTE ON BEHALF OF BENEFICIAL OWNERS WITH RESPECT TO PROPOSALS 1
AND 3. THE BOARD
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OF DIRECTORS RECOMMENDS VOTING FOR PROPOSALS 1, 2 AND 3. 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 Annual
Meeting, stockholders may attend the Annual 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 Annual 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
Annual 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 Annual 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 Annual Meeting, or any adjournment thereof, at which the proxy is to be
used, or with the chairman of such Annual Meeting on the day of the Annual
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 ANNUAL MEETING.
None of the matters to be acted on at the Annual 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
On April 1, 1998, the Company entered into a Stock Purchase Agreement, as
amended, (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. On September 4, 1998, the
Stock Purchase Agreement was amended to waive the requirement that the Company
obtain Shareholder approval of the transaction. As a result of the amendment, on
September 4, 1998, the Company completed the acquisitions of approximately 87%
of the issued and outstanding shares of Biofarm.
In consideration for the purchase of the shares of Biofarm, the Company
issued 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). Therefore, Biofarm is now
a majority owned subsidiary of the Company.
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.
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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 2.5%, of the original principal sum into shares of the
Company's Common Stock. The Debenture is convertible at the rate of 2% of the
then issued and outstanding Common Stock of the Company for each 2.5% 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 will own eighty percent (80%) of the Company's issued and
outstanding Common Stock based upon the number of shares thereof outstanding as
of the date of conversion. The Company has a sufficient number of shares of
Common Stock authorized to effectuate the entire conversion. Such conversion is
not permitted prior to January 31, 1999, is permissible thereafter and for a
period of five years from September 4, 1998, and is convertible only in
increments of 2.5% of the principal amount of the Debenture. An additional
maximum of 10% of the Company's then issued and outstanding shares will be
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 Frenchman, 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 the 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 shares), 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 shares.
As a result of the share issuances, the total number of Biofarm shares
presently issued and outstanding is 35,967,878, of which 31,353,840 shares or
approximately 87% of the total number of Biofarm shares now issued and
outstanding, are owned by the Company.
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
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(2) Romazulan--an anti-inflammatory chamomile extract syrup
(3) Silimarina--a heptoprotective compressed tablet for liver treatment
(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.
Most of Biofarm's 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 that
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 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 in manufacturers'
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 advise on the upgrading of 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 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 is 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
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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.
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 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) and,
(c) elimination of debt in its entirety.
SALES OF SUBSIDIARIES
On June 28, 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 all of its subsidiaries, the Company
ceased to be an operating company.
ELIMINATION OF DEBT
In addition to the discharge of all obligations due to Meridian 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 Meridian
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 June 30, 1998, total
liabilities of the Company were $46,132.
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 then 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.
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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 Acquisition Of Biofarm"), the Company has
itself been a non-operating entity since June 30, 1996.)
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 Acquisition of Biofarm"), 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 $46,132 at June 30, 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 maximum wholesale and
retail prices. However, since early 1997, the Ministry of Finance is no longer
involved.
Given the problems of a devaluating 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
until 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 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,
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implementation of western management practices, improved information systems,
significantly reduced reliance on Radet as a supplier of steam and other factors
discussed hereinafter.
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 the 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 produces 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 compliant 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 Biofarm 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 the acquisition 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 the 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 Biofarm on how best to
upgrade production facilities and operations to conform to GMP standards.
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
pharmaceutical firms.
7
<PAGE>
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. More details will be made available as soon as a 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 foregoing reorganization should 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 August Biofarm submitted a proposal to Radet to settle the legal dispute
concerning calculation of steam usage and reschedule $1.1 million in debt for
repayment over two years. Certain of 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 of
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.
Suppliers:
Historically, Biofarm has purchased materials from numerous suppliers on a
short term basis without effective purchase planning. Purchase decisions were
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 is expected that the marketing department will complete
its comprehensive survey and analysis of the market in order to consolidate
8
<PAGE>
the current product range, recommend new products to introduce, and propose
those that can benefit from promotion.
Production:
Beginning in October, production will be increased by approximately 60% in
wholesale value over its 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
October, sales and operating income should begin to show the benefits of
production planning.
Capital Requirements:
Investment needs until the end of 1998 are approximately US$2 million,
which will be needed primarily to purchase a granulator and a tablet compressor
(to 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.
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 1966, 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
9
<PAGE>
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 a 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 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 1933 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
Instructions 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 Instructions to
Form S-8, there can be no assurance that recovery will be awarded or that, if
awarded, 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.
LITIGATION INSTITUTED AGAINST THE COMPANY
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. 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
10
<PAGE>
to cover-up the true extent of damages to the residence. In March, 1998, the
matter was submitted to binding, non-appealable arbitration. 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.
LITIGATION TERMINATED
In April 1998, a lawsuit brought against the Company seeking $1,350,000 as
a direct result of a transaction entered into by Phoenix with the plaintiffs was
settled for an aggregate of 200,000 shares of the Company's Common Stock.
Plaintiff's surrendered to the Company all of their Convertible Debentures
(amounting to $2,000,000 in the aggregate.) Plaintiff's stipulated that they may
sell the shares only in certain amounts, above a certain price and after a
certain date. Should plaintiffs not realize at least $1,350,000 from the sale of
the 200,000 shares, any additional shares required will also be delivered. All
of the Debentures will be deemed to have been canceled and the judgment held by
plaintiffs will be assigned to the Company once the sum of $1,350,000 has been
realized by the plaintiffs. As a result of such settlement, the Company recorded
a charge of $1,350,000 to operations for the year ended June 30, 1998.
The Company has had dismissed conclusively the litigation previously
instituted against the Comapny by Alpine Petroleum Company (Raymond Kerwood)
pursuant to a consulting agreement dated December 1, 1994. Plaintiff claimed the
entire amount due under such consulting agreement and sued for the sum of
$151,000. On June 1, 1998, the matter was settled for the sum of $40,000 to be
paid by the Company. Payment was completed in July, 1998.
CERTAIN TRANSACTIONS
On June 7, 1998, the Company issued an aggregate of 400,000 shares to its
Board of Directors. The shares, which were issued at $.25 per share, had a fair
value of $3 per share. The resulting subscription receivable, in the aggregate
amount of $100,000, was intended to insure that the extraordinary costs of
preparing and mailing this Proxy Statement and the Form 10-KSB would be
discharged. The shares have not been registered for sale, are legended, and are
the subject of appropriate stop transfer instructions with the Company's
Transfer Agent. The Company recorded a subscription receivable of $100,000 as
well as a charge to operations of $1,460,000. Prior to September 4, 1998, the
Company had received an aggregate of $28,500 in payment of such subscriptions.
11
<PAGE>
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 annual stockholders meeting. The
Company's Board presently consists of three (3) directors whose terms expire at
the Annual 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 Annual Meeting have been provided below for your information.
The Board of Directors has proposed that these persons be elected at the Annual
Meeting to serve until the next Annual 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 Annual Meeting,
will be necessary to elect the directors listed below. If, for any reason, 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
Annual 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 nominated by the Board of Directors
for election to the Board of Directors:
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, 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
12
<PAGE>
(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.
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>
LONG-TERM COMPENSATION
-------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION --------------------- ------------
--------------------- UNDERLYING SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS OPTIONS/SARS(#) COMPENSATION
(A) (B) (C) (D) (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 1997 $ -- -- -- --
Officer, Director 1996 $ -- -- -- --
All Executive Officers --
as a Group (3 persons) .................... 1998 $ -- -- --
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 Acquisition of Biofarm" hereinabove). See "Certain
Information Concerning the Company" hereinabove for information concerning
capital contributions to the Company by the three officers and directors.
13
<PAGE>
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 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.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE(%)
NAME AND ADDRESS OF COMMON STOCK OF CLASS
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OUTSTANDING(2)
- ---------------------------------------------------------------------------- --------------------- --------------
<S> <C> <C>
David R. Stith.............................................................. 100,000 2.4%
Herbert S. McDonald......................................................... 100,000 2.4%
Allan Esrine................................................................ 200,000 4.7%
Directors and Officers as a Group (3 persons)............................... 400,000 9.5%
</TABLE>
- ------------------
(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.
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 Annual 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
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.
14
<PAGE>
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 Annual 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 ANNUAL MEETING, PLEASE SIGN
AND RETURN THE ENCLOSED PROXY PROMPTLY. YOUR VOTE IS IMPORTANT. IF YOU ARE A
STOCKHOLDER OF RECORD AND ATTEND THE ANNUAL MEETING AND WISH TO VOTE IN PERSON,
YOU MAY WITHDRAW YOUR PROXY AT ANY TIME PRIOR TO THE VOTE.
GLOBAL SPILL MANAGEMENT, INC.
By: /s/ DAVID R. STITH
-----------------------------
David R. Stith
President
September 21, 1998
15
<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 AND
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
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.)
1244 Main Street, Linfield, Pennsylvania 19468
(Address of principal executive officers, including zip code)
Registrant's telephone number, including area code: (610) 495-8413
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 incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ ].
As of August 31, 1998, 4,211,930 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 $24,301,053, determined by the closing sale price on that same day
based upon 3,811,930 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
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 the Company), 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, the Company and 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) and,
(c) elimination of debt in its entirety.
Sales of Subsidiaries
On June 28, 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 all of its subsidiaries, the Company
ceased to be an operating company.
Elimination of Debt
In addition to the discharge of all obligations due to Meridian 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 cancelled 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 Meridian
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
2
<PAGE>
under $100 (which were liquidated in full)). Such offer resulted, as of June 30,
1997, in $691,892 in the aggregate of claims being settled for the sum of
$237,711. As of June 30, 1998, total liabilities of the Company were $46,132.
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 then in a position to
effect a major acquisition. Accordingly, negotiations were commenced with Suisse
Capital Complex ("SCC"), to acquire approximately 87% of 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. The acquisition of Biofarm was closed (i.e., previous escrow
terminated) on September 4, 1998.
Biofarm is a Romanian pharmaceutical manufacturer located in Bucharest.
It has been in business since 1921. Biofarm manufactures and sells a line of
pharmaceutical and veterinary products both for domestic and international
consumption. Biofarm was state-owned until June 27, 1997, when it was acquired
by Litchfield. Sales of Biofarm for the six months ended June 30, 1998, were
$4,928,868 and operating income was $881,956.
The Stock Purchase Agreement provides for the purchase from Litchfield
of 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
issued 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 2.5% of the original principal sum into shares of the Company's
Common Stock. The Debenture is convertible at the rate of 2% of the then issued
and outstanding Common Stock of the Company for each 2.5% of the principal sum
of the Debenture
3
<PAGE>
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 will 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 on September 4, 1998. The Company has a sufficient number
of shares of Common Stock authorized to effect the entire conversion. Such
conversion is not permitted prior to January 31, 1999, is permissible thereafter
and for a period of five years from the closing date, and is convertible only in
increments of 2.5% 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 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).
Accounting Treatment
Inasmuch as the shareholders of Litchfield will have voting, Board and
management control of the Company once the election of the Litchfield 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.
FORM 8-K FILING
Reference is made to the Form 8-K filing of the Company, dated March 6,
1998, for further information concerning the Biofarm acquisition. Also, the
Company's Proxy Statement, to be dated and mailed to shareholders in September,
1998, will contain additional information concerning Biofarm. The Company will
also file a supplemental Form 8-K within 75 days of the definitive closing of
the Biofarm acquisition.
Item 2. Properties
The principal office of the company is located at 1244 Main Street,
Linfield, Pennsylvania 19468. Such premises are used solely for mail and
telephone purposes. Through a subsidiary, the Company owns a 2,400 square foot
office building and garage (400 square feet) located on approximately 10 acres
of land (waterfront property) in Camden, New Jersey. The Company intends, upon
the resolution of certain environmental issues, to offer such property for sale.
The Company carries such property at zero value on its books.
4
<PAGE>
Item 3. Legal Proceedings
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 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, Winthrop; 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
5
<PAGE>
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 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 1933 Act and that it was unlawful to
sell such shares in interstate commerce; (b) persons who received and sold the
1,085,000 shares were not persons entitled to receive the same pursuant to the
Instructions 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) (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 Litchfield 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 Instructions to Form
S-8, there can be no assurance that recovery will be awarded or that, if
awarded, 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.
Litigation Instituted Against the Company
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.
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
6
<PAGE>
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. Terminix
has offered to purchase plaintiff's residence for $300,000; the purchase price
for the residence was $138,000 and the assessed value is $5,100. The Company's
defense is that it 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.
7
<PAGE>
Litigation Terminated
In April, 1998, a lawsuit brought against the Company seeking
$1,350,000 as a direct result of a transaction entered into by Phoenix with the
plaintiffs was settled for an aggregate of 200,000 shares of the Company's
Common Stock. Plaintiff's surrendered to the Company all of their Convertible
Debentures (amounting to $2 million in the aggregate.) Plaintiff's stipulated
that they may sell the shares only in certain amounts, above a certain price and
after a certain date. Should plaintiffs not realize at least $1,350,000 from the
sale of the 200,000 shares, any additional shares required will also be
delivered. All of the Debentures will be deemed to have been canceled and the
judgment held by plaintiffs will be assigned to the Company once the sum of
$1,350,000 has been realized by the plaintiffs. As a result of such settlement,
the Company recorded a charge of $1,350,000 to operations for the year ended
June 30, 1998.
The Company has had dismissed conclusively the litigation previously
instituted against the Company by Alpine Petroleum Company (Raymond Kerwood)
pursuant to a consulting agreement dated December 1, 1994. Plaintiff claimed the
entire amount due under such consulting agreement and sued for the sum of
$151,000. On June 1, 1998, the matter was settled for the sum of $40,000 to be
paid by the Company. Payment was completed in July, 1998.
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, the Company'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, and to BIOF on June 18, 1998). The following table sets forth the
reported high and low bid and high and low asked quotations for the Company's
Common Stock on NASDAQ for the period July 1, 1996, to June 30, 1998. (The
quarters set forth below are based on the Company'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:
8
<PAGE>
<TABLE>
<CAPTION>
Closing Closing
High Bid Low Bid Bid High Ask Low Ask Ask
<S> <C> <C> <C> <C> <C> <C>
1996
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
Jul 1 - Sep 30 0.65625 0.125 0.625 0.78125 0.16 0.6875
Oct 1 - Dec 31 0.8125 0.4375 0.625 0.90625 0.59375 0.71875
1998
Jan 1 - Mar 31 4.75 0.4375 4.34375 5 0.5625 4.5
Apr 1 - Jun 30 7.5 2.625 6.6875 7.75 2.75 6.75
</TABLE>
On August 31, 1998, the closing bid and asked prices were $5.937 and
$6.375, respectively.
(The prices stated for all periods give effect to the 1-30 reverse stock split
that was effective on May 13, 1996).
On November 27, 1996, the Company's Common Stock was delisted from
trading on NASDAQ. On April 17, 1997, the Company's Common Stock commenced
listing on the OTC Electronic Bulletin Board. Such delisting was prompted by the
Company's inability to file a timely Form 10-K with audited financials for the
fiscal year ended June 30, 1996. Having been delisted, the Company 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 the Company will be
able to meet such initial listing requirements, that the Company'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, the Company'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)
the Company's Common Stock.
As of the date hereof there were 4,211,930 shares of Common Stock
validly issued and outstanding, fully paid and non-assessable. There were a
total of 512 holders of record as of August 31, 1998. The Company believes,
based upon available information, that there are in excess of 1,000 beneficial
owners of the Company's Common Stock. No shares of the Company's authorized
Preferred Stock have ever been issued.
9
<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 the Company's
earnings, its capital requirements, its financial condition, as well as other
relevant factors. As of the date hereof, the Company has not issued or declared
any dividends. The Company 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, the Company 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-date operating results and
comparisons, and of liquidity and capital resources. As of the date hereof, the
Company 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. The Company has outstanding subscriptions
receivable of $217,500 as of June 30, 1998, all of which are deemed to be
collectible prior to September 30, 1998.
Giving effect to the acquisition of Biofarm on September 4, 1998 (see
"Acquisition of Biofarm" on page three hereinabove), management's principal
focus will be the realization of the maximum earnings potential of Biofarm.
Item 7. Financial Statements
Consolidated Financial Statements and supplementary financial
information specified by this Item 7 are presented following Item 13 in Part III
of this report.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
10
<PAGE>
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 the Company are
as follows: (the information set forth hereunder is as of June 30, 1998 (the end
of the fiscal period), and gives effect to the resignations of directors whose
services were terminated by the Company 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
Allan Esrine 69 Acting Principal Financial Officer and Director
Desiree L. Pierson 35 Secretary
</TABLE>
Biographies of the directors and executive officers of the Company 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 the
Company 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 Gallon "San Jose"
which sank off Columbia in 1708.
Herbert S. McDonald became a director of the Company 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.
11
<PAGE>
Allan Esrine became a director of the Company on November 15, 1997, as
well as Principal Financial Officer. Mr. Esrine has, for the past five years,
been involved in private financial activities in New York City, including the
management of several family businesses.
Desiree L. Pierson became Secretary of the Company in January, 1996.
Ms. Pierson was an employee of the Company 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 the Company.
No director, officer or affiliate of the Company is an adverse party to
the Company 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
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
cancelled as of that date as part of the Plan of Reorganization. (See Item 12
("Certain Transactions") on page 13 hereof.)
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with regard to the
beneficial ownership of outstanding shares of the Common Stock by (i) each
person known by the 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.
<TABLE>
<CAPTION>
Number of Shares of
Name and Address Common Stock Percentage (%) of
of Beneficial Owner Beneficially Owned (1) Class Outstanding (2)
- ------------------- ---------------------- ---------------------
<S> <C> <C>
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)
</TABLE>
12
<PAGE>
- --------------
(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 August 31, 1998.
Item 12. Certain Relationships and Related Transactions
Certain Transactions
On June 7, 1998, the Company issued an aggregate of 400,000 shares to
its Board of Directors. The shares, which were issued at $.25 per share, had an
estimated fair value of $3.90 per share. The resulting subscription receivable,
in the aggregate amount of $100,000, was intended to insure that the
extraordinary costs of preparing and mailing this Form 10-KSB and Proxy
Statement would be discharged. The shares have not been registered for sale, are
legended, and are the subject of appropriate stop transfer instructions with the
Company's Transfer Agent. The Company recorded a subscription receivable of
$100,000 as well as a charge to operations of $1,460,000. Prior to September 4,
1998, the Company had received an aggregate of $28,500 in payment of such
subscriptions.
Item 13. Exhibits and Reports on Form 8-K
(a) 1. All financial statements - see index to Consolidated Financial
Statements
2. Exhibits - see Exhibits below.
(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:
None.
(c ) 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, 1997, and prior to the filing date hereof:
A. Form 10-KSB, for the fiscal year ended June 30, 1997, filed
on September 29, 1997
B. Form 10-QSB, for the quarter ended September 30, 1997, filed
on November 14, 1997
13
<PAGE>
C. Form 10-QSB, for the quarter ended December 31, 1997, filed
on January 27, 1998
D. Form 10-QSB, for the quarter ended March 31, 1998, filed on
May 13, 1998
E. Form 8-K, filed on March 6, 1998.
14
<PAGE>
Global Spill Management,Inc.
and Subsidiaries
Report on Consolidated Financial Statements
Years Ended June 30, 1998 and 1997
<PAGE>
Global Spill Management,
Inc. and Subsidiaries
Contents
Independent Auditors' Report 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
Summary of significant accounting policies F-6 - F-7
Notes to consolidated financial statements F-8 - F-13
<PAGE>
Independent Auditors' Report
Global Spill Management, Inc.
Linfield, Pennsylvania
We have audited the accompanying consolidated balance sheet of Global Spill
Management, Inc. and subsidiaries as of June 30, 1998, and the related
consolidated statements of operations, capital deficit and cash flows for each
of the two years in the period ended June 30, 1998. 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 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.
As described in Note 8, on September 4, 1998 the Company acquired 87% of the
issued and outstanding common stock of Biofarm, S.A. in exchange for a
convertible, nonnegotiable, secured debenture in the amount of $6,434,681. Since
the debenture can only be converted into common stock of the Company, Biofarm,
S.A. will be considered the acquiring entity. Therefore, the acquisition will be
accounted for as a reverse purchase and a recapitalization of Biofarm, S.A.
In our opinion, the consolidated 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, 1998, and the results of their
operations and their cash flows for each of the two years in the period ended
June 30, 1998, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Philadelphia, Pennsylvania
September 4, 1998
F-1
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
June 30, 1998
- -------------------------------------------------------------------------------
Assets
Current assets
Cash $ 23,327
Subscriptions receivable (Note 2) 17,000
- --------------------------------------------------------------------------------
Total assets $ 40,327
================================================================================
Liability and Capital Deficit
Current liability
Accounts payable $ 46,132
- --------------------------------------------------------------------------------
Commitments and contingencies (Notes 5 and 6)
Capital deficit (Notes 2, 4 and 5)
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 4,211,930 shares 4,212
Additional paid-in capital 16,334,717
Deficit (16,144,234
Less subscriptions receivable (200,500
- --------------------------------------------------------------------------------
Total capital deficit (5,805
- --------------------------------------------------------------------------------
Total liability and capital deficit $ 40,327
================================================================================
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-2
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended June 30, 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ -- $ --
General and administrative expenses (Notes 4, 5 and 8) 2,976,489 227,136
- ------------------------------------------------------------------------------------
(Loss) before extraordinary item (2,976,489) (227,136)
Extraordinary income - gain on
forgiveness of indebtedness (Note 7) -- 1,740,594
- ------------------------------------------------------------------------------------
Net (loss) income $(2,976,489) $ 1,513,458
====================================================================================
Basic (loss) income per common share
(Loss) before extraordinary item $ (.90) $ (.10)
Extraordinary item -- .73
- ------------------------------------------------------------------------------------
Basic (loss) income per common share $ (.90) $ .63
====================================================================================
Weighted average number of common shares outstanding 3,311,108 2,387,639
====================================================================================
</TABLE>
See accompanying summary of significant accounting policies and 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, 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)
Shares issued for
subscriptions 600 199,400 -- (200,000)
Payment of subscriptions -- -- -- 202,500
Reclassification of
subscriptions receivable -- -- -- 17,000
Shares issued in litigation
settlement 200 1,349,800 -- --
Shares issued for services
rendered and subscriptions 400 1,559,600 -- (100,000)
Net (loss) for the year -- -- (2,976,489) --
- ----------------------------------------------------------------------------------------------------
Balance, June 30, 1998 $ 4,212 $ 16,334,717 $ (16,144,234) $ (200,500)
====================================================================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-4
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended June 30, 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net (loss) income $(2,976,489) $ 1,513,458
Adjustments to reconcile net (loss) income to net
cash (used in) operating activities
Extraordinary (gain) on forgiveness
of indebtedness -- (1,740,594)
Issuance of common stock for litigation
settlement 1,350,000 --
Issuance of stock for services rendered 1,460,000 --
(Decrease) in liabilities
Accounts payable (102,295) (45,922)
Accrued expenses -- (165,222)
- ------------------------------------------------------------------------------------------------------
Net cash (used in) operating activities (268,784) (438,280)
- ------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Proceeds from sale of assets -- 805,000
- ------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Repayments of stockholder note (12,500) (37,500)
Repayments of note payable, bank -- (855,000)
Repayments of long-term debt -- (43,125)
Issuance of common stock, net of expenses -- 479,000
Payments of common stock receivables 302,500 30,000
- ------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 290,000 (426,625)
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 21,216 (59,905)
Cash, beginning of year 2,111 62,016
- ------------------------------------------------------------------------------------------------------
Cash, end of year $ 23,327 $ 2,111
======================================================================================================
Supplemental disclosures of cash flow information
Noncash financing activities
Common stock issued in exchange for stock
subscriptions receivable of $250,000 less cash
received of $30,000 $ -- $ 220,000
Common stock issued in exchange for stock
subscriptions receivable of $200,000 less cash
received of $82,500 $ 117,500 $ --
======================================================================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-5
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Summary of Significant 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. All operating
companies were disposed of or sold in prior years
(see Note 1).
The accompanying consolidated financial statements
include the accounts of Global and its wholly owned
subsidiaries (collectively referred to as 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
Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes."
(Loss) Income In 1998, the Company adopted SFAS No. 128,
Per Common Share "Earnings Per Share ("EPS")," which provides
for the calculation of basic and diluted EPS.
Basic EPS includes no dilution and is computed by
dividing the income (loss) available to common
stockholders by the weighted-average number of
common shares outstanding for the period. Diluted
EPS reflects the potential dilution of securities
that could share in the income (loss) of the
Company. There is no difference in basic and
diluted EPS for the two years ended June 30, 1998
since there are no potentially dilutive securities
outstanding for either period presented. For 1997,
there is no effect on the EPS amounts previously
reported as a result of the adoption of SFAS
No. 128.
F-6
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
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 cleanup are
probable and the costs can be reasonably
estimated. Generally, the timing of these accruals
has coincided with the Company's commitment to a
formal plan of action. See Notes 1, 5 and 6 for
additional information.
F-7
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1. Business In fiscal year 1996, the Company
discontinued its operating activities and has
subsequently liquidated all of the debts that
existed as of June 30, 1996 (see Note 7).
2. Subscriptions Subsequent to June 30, 1998, the Company received $17,000 as
Receivable payment on subscriptions receivable. It is intended that the
balance of the subscriptions ($200,500) will be
collected to pay liabilities and expenses of the
Company as they become due.
3. Income Taxes The Company had deferred tax assets of
approximately $4,400,000 as of June 30, 1998,
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
$12,900,000 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 NOL. Therefore, at June 30, 1998, 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 2014.
4. Common Stock In June 1998, the Company issued 400,000 shares of
common stock to members of its Board of Directors.
The shares, which were issued at $.25 per share,
had an estimated fair value of $3.90 per share. The
Company recorded a subscription receivable from its
directors for $100,000, as well as a charge to
operations amounting to $1,460,000. The charge to
operations represents a finder's fee earned for
services related to the acquisition of Biofarm,
S.A. ("Biofarm"). The amount has been recorded as a
fourth-quarter adjustment (see Note 8 for
additional information).
</TABLE>
F-8
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<C> <S>
5. Litigation The Company is a defendant in two lawsuits in which
the principal defendants are its former
subsidiaries. The Company is vigorously defending
these 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
adverse effect on the financial statements of the
Company.
On June 28, 1996 (the date on which the sales of
the operating subsidiaries was effected), the
Company 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.
It is the position of the Company that: (a) the
1,135,000 shares issued by Phoenix pursuant to two
Form S-8 filings and 1,085,000 shares sold publicly
have not been registered under Section 5(a) of the
1933 Act, and that it was unlawful to sell such
shares in interstate commerce; (b) persons who
received and sold the 1,085,000 shares were not
persons entitled to receive the same pursuant to
the Instructions 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 Securities and
Exchange 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)(3) in
obtaining money by means of an untrue statement of
a material fact.
</TABLE>
F-9
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
In January 1998, Global'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,
the 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 1,135,000 shares
and of proceeds derived from the sale thereof) is
encompassed by the four causes of action that were
sustained. The Company is currently seeking
recovery of all of the proceeds received by the
sellers of the 1,085,000 shares, as well as the
shares themselves, and has advised the introducing
and clearing broker-dealers of its liability for
the sale of unregistered stock and of their
liability pursuant to the Exchange Act of 1934.
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
Continental, Ltd. ("Litchfield") (see Note 8),
belong exclusively to the stockholders of the
Company other than Litchfield. Since Litchfield 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 nonparticipation 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 stockholders of the Company
other than Litchfield upon the earlier of: (a) the
recovery of any such proceeds; or (b) date on which
Litchfield commences conversion of its debenture.
Notwithstanding that recovery is mandated by the
Instructions to Form S-8, there can be no assurance
that recovery will be awarded or that, if awarded,
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.
F-10
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
In April 1998, a lawsuit brought against the
Company seeking $1,350,000 as a direct result of a
transaction entered into by Phoenix with the
plaintiffs was settled for an aggregate of 200,000
shares of the Company's common stock. The
plaintiffs surrendered to the Company all of their
convertible debentures (amounting to $2,000,000 in
the aggregate). The plaintiffs stipulated that they
may sell the shares only in certain amounts above a
certain price and after a certain date. Should the
plaintiffs not realize at least $1,350,000 from the
sale of the 200,000 shares, any additional shares
required will be delivered by a stockholder of the
Company. All of the debentures will be deemed to
have been canceled, and the judgment held by the
plaintiffs will be assigned to the Company once the
sum of $1,350,000 has been realized by the
plaintiffs. As a result of such settlement, the
Company recorded a charge of $1,350,000 to
operations in the fourth quarter of the year ended
June 30, 1998.
6. 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-11
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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 cleanup 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. 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 nonoperating parent
companies are not responsible for the environmental
problems of wholly owned subsidiaries.
7. 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.
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:
<TABLE>
<CAPTION>
<S> <C>
Unsecured creditors $ 454,181
Former owners of a subsidiary 932,727
Secured debt 353,686
-------------------------------------------------------------------
$ 1,740,594
-------------------------------------------------------------------
</TABLE>
F-12
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
8. Acquisition The Company has entered into a stock purchase
of Biofarm agreement dated April 1, 1998 (the "Stock Purchase
Agreement"), by and among Litchfield, a British
Virgin Island corporation, the parent of Biofarm, a
Romanian corporation, 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. In consideration for the
purchase of the shares of Biofarm, the Company has
agreed to issue to Litchfield a convertible,
nonnegotiable, secured debenture (the "Debenture")
in the principal sum of $6,434,681. The Stock
Purchase Agreement was placed in escrow until
September 4, 1998 when the acquisition was
consummated.
The Debenture provides that there is no interest
due or payable on the principal sum and is
nonnegotiable and nontransferable. The Debenture is
nonredeemable and does not represent a debt
obligation of the Company. The Debenture will
provide that from time to time for a period of five
years from the date of the Debenture, the holder
thereof may convert a portion, but not less than
2%, of the original principal sum into shares of
the then issued and outstanding common stock of the
Company for each 2.5% 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 80% of the Company's issued
and outstanding stock based upon the number of
shares thereof outstanding as of the date of
conversion.
Since the Debenture can only be converted into the
common stock of the Company, for accounting
purposes, Biofarm will be considered the acquiring
entity. Therefore, the acquisition will be
accounted for as a reverse purchase in accordance
with Generally Accepted Accounting Principles.
F-13
<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 10, 1998.
GLOBAL SPILL MANAGEMENT, INC.
By: /s/ David R. Stith
---------------------
David R. Stith
Acting President & Director
September 10, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities indicated, on September 10, 1998.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ David R. Stith Acting President and Director September 10, 1998
- ------------------
David R. Stith
/s/ Allan Esrine Acting Principal Financial and September 10, 1998
- ------------------ Accounting Officer and Director
Allan Esrine
/s/ Herbert S. McDonald Director September 10 ,1998
- ------------------------
Herbert S. McDonald
</TABLE>
