<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1999
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
-------
BIOFARM, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
NEVADA 88-0270266
------------------------------- ---------------------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
403 SALISBURY HOUSE, 31 FINSBURY CIRCUS, LONDON EC2M 5QQ U.K.
- -------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
+44 171 588 8862
------------------------------------------------
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
1244 MAIN STREET, LINFIELD, PENNSYLVANIA 19468
-----------------------------------------------
(FORMER NAME, FORMER ADDRESS, AND FORMER
FISCAL YEAR, IF CHANGED SINCE LAST REPORT)
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PAST 12
MONTHS (OR FOR SUCH SHORTER PERIOD THAT REGISTRANT WAS REQUIRED TO FILE SUCH
REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90
DAYS. YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
STATE THE NUMBER OF SHARES OF EACH OF THE ISSUER'S CLASSES OF COMMON
EQUITY OUTSTANDING AS OF THE LATEST PRACTICABLE DATE: COMMON STOCK, PAR VALUE
$.001 PER SHARE: 4,376,930 SHARES OUTSTANDING AS OF MARCH 22, 1999.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES [ ] NO [X]
<PAGE> 2
BIOFARM, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE NUMBER
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of January 31, 1999 (unaudited) 3
Consolidated Statements of Operations (unaudited) for the
Three Months Ended January 31, 1999 and 1998. 4
Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended January 31, 1999 and 1998. 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 9
Signatures 10
<PAGE> 3
BIOFARM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1998 and March 31, 1998
<TABLE>
<CAPTION>
JANUARY 31,
1998
-----------------------
(Unaudited)
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
AMOUNTS
ASSETS NOTE
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,003
Accounts receivables-net of allowance for 4,089
Doubtful accounts amounting to $122
Inventories 12,607
Other current assets 995
--------
Total current assets 21,694
--------
Goodwill 292
Deposit 2 1,141
Investment 3 794
Property, plant and equipment, net 3,796
--------
Total assets $ 27,717
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short term borrowings $ 3,932
Current portion of mortgage loan 4 96
Trade accounts payable 4,193
Advances from customers 1,542
Taxation 125
Payroll and sales tax 239
Other current liabilities 2,013
--------
Total current liabilities 12,140
--------
Mortgage loan, net of current portion 4 998
Deferred credits 5,678
--------
Total liabilities 18,816
--------
Advances under pending equity facility 5 3,000
--------
Commitments and contingencies --
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value; 25,000,000 shares authorized,
4,376,930 shares issued and outstanding 4
Receivable from stockholders from issuance of common stock (109)
Additional paid-in capital 8,614
Accumulated deficit (2,674)
Accumulated other comprehensive income 66
--------
Total stockholders' equity 5,901
--------
Total liabilities and stockholders' equity $ 27,717
========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
3
<PAGE> 4
BIOFARM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
------------------------------
January 31, January 31,
1999 1998
------------ ------------
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
<S> <C> <C>
------------ ------------
REVENUES, net sales $ 4,158 $ 1,797
------------ ------------
COSTS AND EXPENSES:
Cost of sales (2,303) (1,250)
------------ ------------
Gross Profit 1,855 547
Selling, general and administrative expenses (2,128) (781)
Research and development (46) --
Other operating income 37 53
------------ ------------
Operating (loss) (282) (181)
Net interest expense (318) (1)
Net foreign exchange translation loss (653) 102
------------ ------------
Loss before income tax expense (1,253) (80)
Income tax expense (244) 33
NET (LOSS) (1,497) (47)
Other comprehensive (loss):
Foreign currency translation adjustments (107) --
Comprehensive (loss) $ (1,604) $ (47)
============ ============
Basic earnings and diluted income (loss) per
common share $ (0.07) $ --
============ ============
Weighted average number of common shares
outstanding 21,464,269 21,464,269
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
4
<PAGE> 5
BIOFARM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
Three Months Ended
----------------------
Jan. 31, Jan. 31,
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,497) $ (47)
------- -------
Depreciation 134 113
Amortization of deferred credits (320) --
Amortization of goodwill 8 --
Accretion of convertible debenture 60 --
Non-cash litigation -- 50
Changes in working capital components:
Accounts receivable 553 (35)
Inventories 1,001 (131)
Other current assets (274) (787)
Accounts payable (621) 373
Advances from customers (171) --
Other current liabilities 141 1
------- -------
Net cash used in operating activities (986) (463)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposit paid (1,141) --
Fixed assets purchased (281) (243)
------- -------
Net cash used in investing activities (1,422) (243)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage loan, net 1,094 --
Repayments of short term borrowings, net (225) --
Proceeds from Romanian government grant -- (697)
Proceeds from common stock receivable 40 28
Advance under pending equity facility 3,000 --
------- -------
Net cash provided by financing activities 3,909 725
------- -------
Net increase in cash and cash equivalents 1,501 19
Cash and cash equivalents at beginning of period 2,502 162
======= =======
Cash and cash equivalents at end of period $ 4,003 $ 181
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
5
<PAGE> 6
BIOFARM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1999
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements, which
are for an interim period, do not include all disclosures provided
in the annual consolidated financial statements. These unaudited
consolidated financial statements should be read in conjunction
with the consolidated financial statements and footnotes thereto
contained in the Annual Report on Form 10-KSB for the period
January 1, 1998 to October 31, 1998 of Biofarm Inc. (" Biofarm"),
as filed with the Securities and Exchange Commission.In the opinion
of Biofarm, the accompanying unaudited consolidated financial
statements contain all adjustments (which are of a normal recurring
nature) necessary for a fair presentation of the financial
statements. The results of operations for the three months ended
January 31, 1999 are not necessarily indicative of the results to
be expected for the full year.
NOTE 2 - DEPOSIT
The deposit of $1,141,000 relates to funds lodged at a bank as
security for a guarantee given by the bank in respect of the
pending acquisition of Romaero, S.A..
NOTE 3 - INVESTMENT
The investment of $794,000 represents an 8% interest in Rocky
Mountain Ginseng, Inc. ("RMG") which was acquired on December 18,
1998 when the Company exchanged 165,000 shares of its common stock
for 1,800,000 shares of common stock of RMG. The investment has
been accounted for in accordance with APB 16 at cost , being the
fair value of the Company's common stock at the date of effective
acquisition. A corresponding credit entry has been made to
additional paid in capital.
NOTE 4 - MORTGAGE LOAN
Britten-Norman Limited has taken out a mortgage loan which is
secured upon one of its aircraft. The loan is repayable over three
years to December, 2001 in 35 equal instalments, including interest
and capital, of $19,300 and a final payment of $624,000. Interest
is fixed over the period of the loan at a rate of 9.5%.
NOTE 5 - ADVANCES UNDER PENDING EQUITY FACILITY
The Company is currently finalizing the terms of an equity facility
with Suisse Capital Complex, Inc of which $3,000,000 was advanced
in December 1998. Of the funds received $1,141,000 were used to
fund the costs of the pending acquisition of Romaero (see note 2).
6
<PAGE> 7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSYS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the three months ended January 31, 1999 and 1998.
As a result of the Company's change of its fiscal year end to October 31, the
three month period ended January 31, 1998, does not correspond to any accounting
period previously reported by the Company. In addition, as a result of "reverse
merger accounting," the Company's results for the three month period ended
January 31, 1998 include the results of Biofarm S.A., and Burlington, Chamber &
James Ltd., which were subsidiaries of Litchfield Continental Inc., prior to the
reverse merger which took place on September 4, 1998, but not the Company's
other subsidiaries.
Statements contained in this report which are not historical facts may be
considered forward looking information with respect to plans, projections, or
future performance of the Company as defined under the Private Securities
Litigation Act of 1995. These forward looking statements are subject to risks
and uncertainties which could cause actual results to differ materially from
those projected.
OVERVIEW
During the three months ended January 31 1999, 54% of the Company's revenues
from operations were earned from pharmaceutical sales in Romania by the
Company's Biofarm, S.A,. subsidiary and 37% were from sales of aircraft and
parts by the Company's Britten-Norman Ltd. subsidiary ("BN"). During the period,
Biofarm, S.A. reported a substantial improvement in both profit margins and
operating income, but net income was significantly adversely affected by foreign
exchange translation losses resulting from continued devaluation of the Romanian
Leu. BN suffered substantial losses during the period, however the Company also
made significant capital investments on behalf of its business plan for BN,
including a $1.1 million deposit towards the acquisition of Romaero, S.A., a
Romanian aircraft manufacturer, whose business the Company believes will
compliment BN. In addition BN has also signed an agreement with the Chinese
Government for the purchase of three aircraft for a total price of $4.5 million.
The effect of the Company's Burlington, Chamber & James, Ltd. and Kaster
Bioscience Ltd. subsidiaries on the Company's consolidated results of operations
was negligible.
CONSOLIDATED RESULTS OF OPERATIONS
The Company's revenues for the first quarter ended January 31, 1999 (the "1999
Period") were $4,158,000, compared to $1,797,000 for the three month period
ended January 31, 1998 (the "1998 Period"), an increase of 136%. Approximately
64% of this increase is due to the acquisition of BN, although most of the
remainder is a result of sales growth at Biofarm, S.A. Cost of sales for the
1999 Period were $2,303,000 compared with $1,250,000 for the 1998 Period. Gross
profit increased from $547,000, representing a gross margin of 30.4%, during the
1998 Period to $1,855,000, representing a gross margin of 44.6%%, during the
1999 Period. The increase in gross margins was primarily attributable to
improvements in management at Biofarm, S.A., as a result of Biofarm Inc.'s
takeover from the previous state-ownership.
The Company's selling, general, and administrative expenses increased to
$2,128,000 in the 1999 Period compared to $781,000 in the 1998 Period.
Reductions in expenses at Biofarm, S.A. were offset by the increase in the
Company's corporate overhead as a result of the Company's expansion into its
London headquarters and the hiring of staff necessary to oversee the Company's
expansion and acquisitions. Most of the increase in consolidated expenses was
attributable to BN and the necessity of keeping BN staffed to minimum levels as
required by its Civil Aviation Authority licence and in anticipation of the
Romaero acquisition and the Chinese government contract. Therefore, although
Biofarm, S.A., reported an operating profit during the 1999 Period of $687,000,
compared to an operating loss of $178,000 for the 1998 Period, BN's losses have
offset this income and the group has a whole has reported an operating loss for
the 1999 Period of $282,000 compared to $181,000 for the 1998 Period.
The Company posted a foreign exchange translation loss of $653,000 for the 1999
Period compared to a foreign exchange translation gain of $102,000 for the 1998
Period. This loss was a result of macroeconomic conditions in Romania, which
were reflected in a significant devaluation of the leu during the 1999 Period.
The Company expects that the leu will continue to devalue against the US dollar,
although the rate of devaluation is expected to slow.
7
<PAGE> 8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSYS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management is also actively expanding Biofarm S.A.'s sales outside of Romania to
lessen the impact of local economic conditions.
As a result of the above factors, the Company's net loss, after tax and foreign
currency translation adjustments was $1,604,000 for the 1999 Period compared
with $47,000 for the 1998 Period. As stated above, the losses in the 1999 Period
were primarily due to the requirement of minimum staffing at BN and the
devaluation of the Romanian leu.
LIQUIDITY & CAPITAL RESOURCES
At January 31, 1999, the Company had cash and cash equivalents of $4,003,000 as
compared with $2,502,000 at October 31, 1998. This increase in cash is as a
result of a $3,000,000 financing, for which the Company has already received
funds, but the terms of which have not yet been finalized. The Company believes
that it has sufficient capital to cover losses generated by BN until production
starts on the Chinese government contract and until the acquisition of Romaero,
both of which the Company believes will result in BN becoming profitable.
However, the Company currently does not have sufficient capital to complete the
Romaero acquisition and there can be no guarantee that it will raise sufficient
capital. As a result, BN may continue to sustain significant losses which will
require the Company to significantly curtail BN's operations.
The Company believes that it has sufficient capital to continue to operate in
its existing form, with the exception of the BN contingencies as described
above. However, the Company is currently expending significant sums on potential
acquisitions and the failure to complete such acquisitions could place
significant demands on the Company's capital and could adversely affect the
Company's operations.
YEAR 2000
The "Year 2000 Issue" is the result of computer programs written in the past
that used two digits rather than four to denote the applicable year. As a
result, these computer programs may not properly recognize acalendar dates
beginning in the year 2000. The problem may cause systems to fail or
miscalculate, thereby causing disruptions in operations, including a temporary
inability to process transactions or engage in similar normal business
opportunities.
The Company believes that the impact of the Year 2000 Issue on its operations
will not be material and expects to be fully Year 2000 compliant by the end of
its 1999 fiscal year. However, the Company is vulnerable to its supplier's and
third parties (such as banks) failures to remediate their own Year 2000
problems.
8
<PAGE> 9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) The following exhibits are filed with this Form 10-QSB for the
quarter ended January 31, 1999 except those designated by an
asterisk (*) which shall be filed by amendment hereto:
-------------- ---------------------------------------------------------
27.01 Financial Data Schedule
-------------- ---------------------------------------------------------
(b) During the quarter ended January 31, 1999, the following
reports on Form 8-K were filed with the Securities and
Exchange Commission, and are incorporated herein by reference:
November 18, 1998
January 13, 1999
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on this 22nd day of March 1999.
BIOFARM, INC.
By: /s/ Keith Beekmeyer
-----------------------------------
Keith Beekmeyer
President, Chairman of the Board
By: /s/ Karyn Hunter
-----------------------------------
Karyn Hunter
Principal Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 4,003,000
<SECURITIES> 0
<RECEIVABLES> 4,089,000
<ALLOWANCES> 122,000
<INVENTORY> 12,607,000
<CURRENT-ASSETS> 21,694,000
<PP&E> 3,796,000
<DEPRECIATION> (134,000)
<TOTAL-ASSETS> 27,717,000
<CURRENT-LIABILITIES> 3,932,000
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 5,901,000
<TOTAL-LIABILITY-AND-EQUITY> 27,717,000
<SALES> 4,158,000
<TOTAL-REVENUES> 4,158,000
<CGS> 2,303,000
<TOTAL-COSTS> 2,303,000
<OTHER-EXPENSES> 2,174,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 318,000
<INCOME-PRETAX> (1,253,000)
<INCOME-TAX> (244,000)
<INCOME-CONTINUING> (1,497,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,497,000)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
