<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 JULY 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)
(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 SEPTEMBER 15, 1999.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES [ ] NO [X]
<PAGE> 2
BIOFARM, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
<S> <C> <C>
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of July 31 1999 (unaudited) 3
Consolidated Statements of Operations (unaudited) for the Three Months
Ended July 31, 1999 and 1998. 4
Consolidated Statements of Operations (unaudited) for the Nine Months
Ended July 31, 1999 and 1998. 5
Consolidated Statements of Cash Flows (unaudited) for the Nine Months
Ended July 31, 1999 and 1998. 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 8
PART II. OTHER INFORMATION
Item 5. Other Information 9
Signatures 10
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 11
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE> 3
BIOFARM, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF JULY 31 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Note JULY 31, 1999
---- -------------
(IN THOUSANDS OF US DOLLARS,
EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents 2 $ 5,104
Accounts receivable 14,886
Inventories 11,549
Other current assets 1,991
-------
Total current assets 33,530
Goodwill 3,4 1,006
Deposits 1,141
Investment 1,464
Property, plant and equipment, net 3,785
-------
Total assets $40,926
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short term borrowings $ 4,975
Current portion of mortgage loan and
finance leases 163
Trade accounts payable 17,162
Advances from customers 2,649
Taxation 227
Payroll and sales tax 204
Other current liabilities 2,623
-------
Total current liabilities 28,003
Mortgage loan and finance leases,
net of current portion 1,007
Deferred credits 5,073
-------
Total liabilities 34,083
-------
Advances under pending equity facility 3,000
Commitments and contingencies --
Stockholders' equity
Preferred stock $ 0.001 par value
Authorized 5,000,000 shares, none issued
Common stock $ 0.001 par value
Authorized 25,000,000 shares
Issued and outstanding 4,376,930 shares 4
Receivable from stockholders from
issuance of common stock (109)
Additional paid in capital 8,614
Accumulated deficit (4,531)
Accumulated other comprehensive income (135)
-------
Total stockholders' equity 3,843
-------
Total liabilities and stockholders' equity $40,926
=======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 4
BIOFARM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THREE MONTHS ENDED JULY 31 1999
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<TABLE>
<CAPTION>
FOR THE THREE MONTH FOR THE THREE MONTH
PERIOD ENDED PERIOD ENDED
JULY 31, 1999 JULY 31, 1998
--------------- ---------------
(IN THOUSANDS OF US DOLLARS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C>
Net sales $ 4,986 $ 2,803
Cost of sales (2,062) (1,306)
------ ------
GROSS PROFIT 2,924 1,497
Selling, general and administrative
expenses (3,004) (1,186)
Amounts written off in respect to
subsidiary in liquidation (342) --
Research and development (257) (16)
Other operating income (expense) (8) 6
------ ------
OPERATING (LOSS) INCOME (687) 301
Net interest expense (93) 1
Net foreign exchange translation loss (173) (159)
------ ------
(Loss) profit before income tax expense (953) 143
Income tax (expense) 7 (182)
------ ------
Net (loss) income (946) (39)
Other comprehensive (loss) income:
Foreign currency translation adjustments 22 --
------ ------
Comprehensive (loss) income $(924) $ (39)
===== =====
BASIC (LOSS) INCOME PER SHARE $ (0.04) $ --
======= =====
Weighted average number of common shares 21,884,650 21,059,650
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 5
BIOFARM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR NINE MONTH PERIOD ENDED JULY 31 1999
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<TABLE>
<CAPTION>
FOR THE NINE MONTH FOR THE NINE MONTH
PERIOD ENDED PERIOD ENDED
JULY 31, 1999 JULY 31, 1998
--------------- ----------------
(IN THOUSANDS OF US DOLLARS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C>
Net sales $13,469 $ 7,048
Cost of sales (6,442) (3,750)
------ ------
GROSS PROFIT 7,027 3,298
Selling, general and administrative
expenses (7,494) (2,758)
Amounts written off in respect to
subsidiary in liquidation (342) --
Research and development (353) (28)
Other operating income (expense) 32 (40)
------ ------
OPERATING (LOSS) INCOME (1,130) 472
Net interest expense (522) 2
Net foreign exchange translation loss (1,162) (82)
------ ------
(Loss) profit before income tax expense (2,814) 392
Income tax (expense) (540) (362)
------ ------
Net (loss) income (3,354) 30
Other comprehensive (loss) income:
Foreign currency translation adjustments (308) --
------ ------
Comprehensive (loss) income $(3,662) $ 30
======= ====
BASIC (LOSS) INCOME PER SHARE $ (0.15) $ --
======= ====
Weighted average number of common shares 21,742,983 21,059,65
========== =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 6
BIOFARM & its Subsidiaries
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
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<TABLE>
<CAPTION>
FOR THE NINE MONTH FOR THE NINE MONTH
PERIOD ENDED PERIOD ENDED
JULY 31, 1999 JULY 31, 1998
------------- ---------------
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net (loss) income $ (3,354) $ 30
Depreciation 475 343
Amortization of deferred credits (960) 54
Amortization of goodwill 43 --
Amounts written off in respect to
subsidiary in liquidation 342 --
Accretion of convertible debenture 60 --
Non-cash litigation 50
Changes in working capital components:
Accounts receivable (4,035) (526)
Inventories 2,057 (352)
Other current assets (1,022) (466)
Accounts payable 3,291 673
Advances from customers 936 --
Other current liabilities (40) 163
---------- --------
Net cash used in operating activities (2,207) (31)
---------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Cash of acquired businesses 3,526 156
Deposits paid (1,141) --
Investment purchased (670) --
Fixed assets purchased (426) (628)
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Net cash provided by investing activities 1,289 (472)
---------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES:
Proceeds from mortgage loan, net 1,003 --
Decrease in short term borrowings, net (523) --
Proceeds from Romanian Government grant -- 697
Proceeds from common stock receivable 40 1,135
Advance under pending equity facility 3,000 --
---------- --------
Net cash provided by financing activities 3,520 1,832
---------- --------
Net change in cash and cash equivalents 2,602 1,329
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,502 162
---------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 5,104 $ 1,491
========== ========
</TABLE>
<PAGE> 7
BIOFARM & its Subsidiaries
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
- --------------------------------------------------------------------------------
1. The accompanying unaudited consolidated financial statements, which are for
an interim period, do not include all disclosures provided in the annual
consolidated financial statements. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and footnotes thereto contained in the Annual Report on Form
10-KSB for the 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 nine months and three months ended July 31, 1999 are
not necessarily indicative of the results to be expected for the full year.
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes $2,710,000 of cash deposits of a
subsidiary company which are subject to a floating charge held on trust by
the Society of Lloyd's for the benefit of its insurance creditors.
3. GOODWILL
On April 30, 1999, Burlington, Chamber & James Limited, a wholly owned
subsidiary of Biofarm effectively acquired 80% of the issued and
outstanding shares of Alterproof Limited ("Alterproof"). The results of
Alterproof's operations have been included in these unaudited consolidated
financial statements from the date of acquisition.
The acquisition has been accounted for as a purchase, with the assets and
liabilities assumed recorded at fair values. The goodwill arising being the
excess of the purchase price over the net assets acquired amounts to
$988,000 and is being amortised on a straight line basis over 10 years.
4. AMOUNTS WRITTEN OFF IN RESPECT TO SUBSIDIARY IN LIQUIDATION
During the period one of the company's subsidiaries, Kaster Bioscience, was
placed into insolvent liquidation. As there is currently no expectation of
any funds being returned to the company a charge of $342,000 has been made
in these financial statements. This charge comprises a write off of the
balance of unamortized goodwill of $237,000 and full provision against
advances made to this subsidiary.
6
<PAGE> 8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FOR THE NINE MONTHS ENDED JULY 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 July 31, 1998, does not correspond to any accounting
period previously reported by the Company. As a result of "reverse merger
accounting," the Company's results for the nine month period ended July 31, 1998
include the results of Biofarm S.A., and Burlington, Chamber & James Ltd., for
the whole of that period and those of Britten-Norman Ltd. from 17th July 1998
when it became a subsidiary of Litchfield Continental Ltd.,
On April 30 1999, the Company's subsidiary Burlington Chamber & James Ltd.
purchased 80% of the share capital of Alterproof Limited, the holding company of
the McCall Group, which includes McCall Holdings Limited, a Lloyds Broker. The
results of Alterproof Limited have been included only since its acquisition.
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 nine month period ended July 31, 1999, 43% of the Company's revenues
from operations were earned by the sale of aircraft and parts by the Company's
Britten Norman Limited ("BN"), subsidiary, 15% by Burlington Chamber & James
Limited and its newly acquired subsidiaries and 42% from pharmaceutical sales in
Romania by the Company's Biofarm, S.A,. subsidiary. During the nine month
period, Biofarm, S.A. reported improvement in gross profit margins, but
operating and net income was significantly adversely affected by foreign
exchange translation losses and depressed sales revenue, resulting from
devaluation of the Romanian Leu. The weakness of the Romanian economy and the
consequent inability of Biofarm S.A. to raise prices due to regulatory
constraints were factors in the company's performance in the third quarter and
there was a decline in income. BN continued to suffer substantial losses during
the period. However, in addition to the sales of aircraft previously reported,
Britten Norman has substantially increased its sales of aircraft parts and its
net sales have increased substantially. Income from the aircraft division now
represents the largest element of the Company's aggregate revenue. The Company
has made significant capital investments on behalf of its business plan for BN,
including a deposit of approximately $1,100,000 towards the acquisition of
Romaero SA, a Romanian aircraft manufacturer whose business the Company believes
will compliment BN. Negotiations with the Romanian State Ownership Fund for
conclusion of the contract have continued.
As a consequence of Kaster Bioscience Limited being placed into liquidation
there is currently no expectation of any funds being returned to the Company
from the liquidator.
The Company believes that the acquisition by its subsidiary Burlington Chamber &
James Limited of Alterproof Limited, the holding company for the McCall Group,
will increase the revenues of the Company's insurance division over the
following year with a resulting increase in profitability.
CONSOLIDATED RESULTS OF OPERATIONS
The Company's revenues for the nine month period ended July 31, 1999 (the "1999
Period") were $13,469,000 compared with $7,048,000 in the same period in 1998
("the 1998 period"), a 91% increase. The increase reflects the acquisition of BN
and the purchase of the McCall Group. Cost of sales for the 1999 period was
$6,442,000.00 compared to $3,750,000 for the 1998 period. Gross profit for the
1999 period was $7,027,000 representing a gross margin of 52% compared with
gross profit of $3,298,000 in the 1998 period, representing a gross margin for
the 1998 period of 47%. The increase in gross profit between the 1998 period and
the 1999 period is 131% .
7
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Company's selling general and administrative expenses increased to
$7,494,000, in the 1999 period, reflecting the increased activities of the
Company, compared with $2,758,000 in the 1998 period. The operating loss was
attributable largely to the necessity of BN to keep minimum levels of staff as
required by its civil aviation authority licenses and in anticipation of the
Romaero acquisition and of its increased costs in purchasing parts and equipment
to carry out its newly acquired orders. The Company recorded a $1,130,000
operating loss in the 1999 period as compared with a profit of $472,000 in the
1998 period.
The Company posted a foreign exchange translation loss of $1,162,000 for the
1999 period compared to a foreign exchange translation loss of $82,000 in 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. However, since March 1999 the value of the Leu has become more
stabilized. The loss in the third quarter was less significant than in the past
and the Company does not expect significant loss in the next quarter.
Management continues to seek to expand Biofarm S.A.'s sales outside of Romania
to lessen the impact of local economic conditions. Marketing efforts continue in
the CIS markets.
As a result of the above factors the Company's net loss was $3,354,000 in the
1999 period and after foreign currency translation adjustments a comprehensive
loss of $3,652,000 as compared with a net profit of $30,000 in the 1998 period.
As stated above the losses in the 1999 period are primarily due to expenses
incurred in the increased activity at BN and the devaluation of the Romanian
Leu. The improvement of both of these factors should assist in improving the
position of the Company in the forthcoming period. The acquisition of the McCall
Group, once fully re-organized, should have a positive effect on the Company's
net income.
LIQUIDITY & CAPITAL RESOURCES
On July 31 1999, the Company had cash and cash equivalents of $5,104,000. 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,
though the Company is actively involved in raising such capital for the
purchase.
The Company believes that its new McCall insurance subsidiary will generate
income and profits to the Company.
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 calendar 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> 10
PART II-OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company's wholly owned subsidiary Kaster Bioscience Limited made small but
significant losses since its acquisition by the Company. Management took the
view that substantial investment was needed over a lengthy period to bring
Kaster Bioscience Limited into profit and even then could not guarantee the
success of the Company. Management decided therefore to appoint a liquidator and
a meeting of creditors was held on the 27th July 1999, and Kaster Bioscience
Limited was placed into liquidation on the 3rd August 1999. The consolidated
statement of income reflects an exceptional charge of $342,000 in respect of
this subsidiary.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) The following exhibits are filed with this Form 10-QSB for the quarter
ended July 31, 1999 except those designated by an asterisk (*) which shall
be filed by amendment hereto:
27.01 Financial Data Schedule
(b) Reports on Form 8K during the quarter ended July 31, 1999, the following
reports on Form 8-K were filed with the Securities and Exchange Commission,
and are incorporated herein by reference:
Form 8K/A July 13th 1999
9
<PAGE> 11
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 14th day of September 1999.
BIOFARM, INC.
BY: /S/ KEITH BEEKMEYER
--------------------------------
Keith Beekmeyer
President, Chairman of the Board
BY: /S/ ANIL K MAHAN
--------------------------------
Anil Mahan
Principal Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Balance
Sheet, Statement of Operations, Statement of Cash Flows and Notes thereto
incorporated in Part I, Item 1 of this Form 10-QSB and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 5,104,000
<SECURITIES> 0
<RECEIVABLES> 14,886,000
<ALLOWANCES> 0
<INVENTORY> 11,549,000
<CURRENT-ASSETS> 33,530,000
<PP&E> 3,785,000
<DEPRECIATION> (168,000)
<TOTAL-ASSETS> 40,926,000
<CURRENT-LIABILITIES> 28,003,000
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 3,839,000
<TOTAL-LIABILITY-AND-EQUITY> 40,926,000
<SALES> 13,469,000
<TOTAL-REVENUES> 13,469,000
<CGS> 6,442,000
<TOTAL-COSTS> 6,442,000
<OTHER-EXPENSES> 7,847,000
<LOSS-PROVISION> 342,000
<INTEREST-EXPENSE> 522,000
<INCOME-PRETAX> (2,814,000)
<INCOME-TAX> (540,000)
<INCOME-CONTINUING> (3,354,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,354,000)
<EPS-BASIC> (.15)
<EPS-DILUTED> (.15)
</TABLE>
