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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): September 4, 1998
BIOFARM, INC.***
--------------------------------------------------
(Exact name of registrant as specified in charter)
Nevada 0-20317 88-0270266
- --------------- ------------------------ -------------------
(State or other (Commission File Number) (IRS Employer
Jurisdiction of Identification No.)
Incorporation)
1244 Main Street, Linfield, Pennsylvania 19468
------------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (610) 495-8413
***Name changed from Global Spill Management, Inc. on October 7, 1998
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<PAGE>
INTRODUCTORY STATEMENT
This Form 8K/A filing supplements the Form 8-K and Form 8-K/A filings by the
Registrant dated March 6 and November 19, 1998, respectively. The purpose of
this supplemental Form 8-K/A filing is to render current the response herein to
Item 7, as well as to manifest compliance with certain accounting matters set
forth in accounting memoranda sent to the Registrant by the Commission and dated
July 28 and December 16, 1998. Additionally, this Form 8-K/A filing also
includes the Registrant's amended response to Item 8 of Form 8-K and includes a
response to Item 5 of Form 8-K.
Item 5. Other Events
On October 13, 1998, the Registrant's Board of Directors adopted a resolution to
acquire 100% of the capital stock of four United Kingdom entities:
Britten Normal Ltd.
Kaster Bioscience Ltd.
Burlington Chamber & James Ltd.
(which, in turn, owns 51% of Burlington & James Ltd.)
Each of such acquisitions is being obtained from Litchfield Continental Ltd.
("Litchfield"), from which the Registrant acquired Biofarm, S.A. on September 4,
1998. Because Litchfield holds a convertible non-negotiable secured debenture
issued by the Registrant in the principal amount of $6,434,681 and because such
debenture converts into 80% of the then issued and outstanding shares of Common
Stock of the Registrant, Litchfield has agreed to contribute the capital stock
of the four United Kingdom entities to the Registrant without additional
consideration.
Closing of the four purchases is contingent upon the receipt of audited
financial statements of each as of October 31, 1998. BDO International is
currently performing such four audits. Upon delivery thereof, the four
acquisitions will be deemed to have been consummated as of October 31, 1998, and
will, therefore, be included in the fully consolidated audited financial
statements of the Registrant for the latter's new fiscal period ended October
31, 1998.
The Registrant's Form 10-K, to be filed on or before January 29, 1999, will
contain all of the information required by Form 8-K with respect to such four
acquisitions, including the necessary financial statements called for by Item 7
of Form 8-K.
Item 7. Financial Statements and Exhibits
a) Financial Statements of Business Acquired
There are filed herewith the audited financial statements of
Biofarm, S.A. as of and for the ten-month fiscal year ended
October 31, 1998, and as of and for the year ended December 31,
1997.
b) Pro Forma Financial Statements
Inapplicable as being neither meaningful nor material
c) Exhibits
Previously filed on November 19, 1998
<PAGE>
Item 8. Changes in Fiscal Year
On October 5, 1998, the Registrant's Board of Directors adopted a resolution to
change the fiscal year from June 30 to December 31, effective December 31, 1998.
Subsequent to November 19, 1998, the Board of Directors approved a new fiscal
period of October 31, 1998, in order to be able to expedite the filing of this
amended Form 8-K/A and to avoid having to defer such filing until the receipt of
audited financial statements using a December 31 fiscal period. The Form 10-K
filing for the fiscal year ended October 31, 1998, will contain fully
consolidated audited financial statements of the Registrant and of its various
subsidiaries.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BIOFARM, INC.
By: /s/ Keith D. Beekmeyer
-------------------------------------
Keith D. Beekmeyer
Chairman
Dated: January 13, 1999
12
<PAGE>
BIOFARM SA
AUDITED FINANCIAL STATEMENTS
AS OF OCTOBER 31, 1998 AND
DECEMBER 31, 1997
AND FOR THE TEN MONTH PERIOD
ENDED OCTOBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
<PAGE>
CONTENTS Page
Report of Independent Accountants --
Balance sheets 1
Statements of income 2
Statements of cash flows 3
Statements of changes in stockholders' equity 4
Notes to the financial statements 5-12
General Conditions of Assignment --
<PAGE>
Independent Auditor's Report
To the Board of Directors
S.C. BIOFARM S.A.
99 Logofat Tautu Street,
Bucharest 3, Romania
We have audited the accompanying balance sheets of S.C. BIOFARM S.A. as of
October 31, 1998 and December 31, 1997 and the related statements of incomes,
stockholders' equity and cash flows. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audit.
We conducted our audit in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence that supports the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by the management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of S.C. BIOFARM S.A. at October 31,
1998 and December 31, 1997, and the results of its operations and its cash flows
for the ten months and the year ended in conformity with United States generally
accepted accounting principles.
Munich BDO Deutsche Warentreuhand
December 22, 1998 Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
[SEAL]
<PAGE>
BIOFARM SA
BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 31, December 31,
Note 1998 1997
----------- ------------
(In thousands of US Dollars)
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents 4 894 145
Accounts receivable, net 5 1,548 302
Advance payments 6 100 837
Inventories 7 2,019 1,861
Other current assets 8 421 53
Prepaid income tax -- 33
------- -------
Total current assets 4,982 3,231
Property, plant and equipment, net 9 3,548 3,662
------- -------
Total assets 8,530 6,893
======= =======
Liabilities
Current liabilities
Short term borrowings 4 --
Trade accounts payable 10 1,623 1,588
Amounts due to employees 42 41
Tax on profit 11 274 --
Other taxes payable 101 132
Other current liabilities 8 7
------- -------
Total current liabilities 2,053 1,768
------- -------
Commitments and contingencies 12
Stockholders' equity
Common stock US$ 0.12 and US$ 0.59 13 8,558 5,376
nominal value per share, respectively;
Authorised, issued and outstanding
26,952,678 and 9,015,200 shares
Receivable from stockholders from
issuance of common stock 13 (2,215) --
Other additional capital 14 697 697
Accumulated deficit (563) (948)
------- -------
Total stockholders' equity 6,477 5,125
------- -------
Total liabilities and stockholders' equity 8,530 6,893
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
1
<PAGE>
BIOFARM SA
STATEMENTS OF INCOME
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the ten month period ended For the year ended
Note October 31, 1998 December 31, 1997
---------------- ------------------
(In thousands of US Dollars except
for share and per-share amounts)
<S> <C> <C> <C>
Net sales 7,758 6,887
Cost of sales (4,344) (4,534)
---------- ---------
Gross profit 3,414 2,353
Selling, general and administrative
expenses (2,086) (1,671)
Research and development 15 (75) --
---------- ---------
Operating income 1,253 682
Non-operating expense 16 (115) (38)
Net interest income 21 (28)
Net foreign exchange transaction loss (144) (292)
----------- ----------
Income before income tax expense 1,015 324
Income tax expense (630) (261)
---------- ----------
Net income 385 63
========== =========
Weighted average number of common shares 17,101,003 9,015,200
Basic earnings per share 0.02 0.01
===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements
2
<PAGE>
BIOFARM SA
STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the ten month
period ended For the year ended
October 31, 1998 December 31, 1997
---------------- ------------------
(In thousands of US Dollars)
<S> <C> <C>
Cash flows provided by operating activities:
Net income 385 63
Depreciation and amortization 394 539
Changes in working capital components:
Accounts receivable (1,245) (91)
Advance payments 737 (337)
Inventories (157) (593)
Other current assets (335) 12
Accounts payable 35 210
Other current liabilities 244 17
------ ------
Net cash provided by operating activities 58 (180)
Cash flows used in investing activities:
Fixed assets purchased (284) (393)
------ ------
Net cash used in investing activity (284) (393)
Net cash provided by financing activities:
Issuance of common stock net 967 --
Repayment of short-term debt 8 (69)
Receipt of other additional capital -- 697
------ ------
Net cash provided by financing activities 975 628
Net change in cash and cash equivalents 649 56
------ ------
Cash and cash equivalents at
beginning of period 145 89
------ ------
Cash and cash equivalents at
end of period 894 145
====== ======
Supplemental disclosures of cash flow information
Non-cash financing activities
Common stock issued in exchange for stock
Subscriptions receivable of 3,182 thousands
US Dollars less cash received of
967 thousands US Dollars 2,215 --
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
BIOFARM SA
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Receivable Other
Common Stock from Stock- Additional Accumulated
Note Shares Value holders Capital Deficit Total
---- ------ ----- ------- ------- ------- -----
(In thousands of US Dollars except for share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 9,015,200 5,376 -- -- (1,011) 4,365
Net income -- -- -- -- 63 63
Receipt of government grant 14 -- -- -- 697 -- 697
---------- ----- ------ ---- ------ -------
Balance at December 31, 1997 9,015,200 5,376 -- 697 (948) 5,125
Net income -- -- -- 385 385
Issuance of common stock 13 26,952,678 3,182 -- -- -- 3,182
Receivable from stockholders
from issuance of common
Stock 13 -- -- (2,215) -- -- (2,215)
---------- ----- ------ ---- ------ -------
Balance at October 31, 1998 35,967,878 8,558 (2,215) 697 (563) 6,477
========== ===== ====== ==== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
BIOFARM SA
NOTES TO THE FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1 DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
1. Organization and Operations
Biofarm S.A. (the "Company" or "Biofarm") is a pharmaceutical manufacturer
located in Bucharest, Romania. The Company's main business activity is the
production and sale of natural medicinal products, for both pharmaceutical
and veterinary use. These products are based on extracts from animal and
plant raw materials, and are created for domestic and international
consumption.
The company was established in 1924 when twelve French Companies joined and
gave the right of representation to Rene Dunod, whose company was a
medicine manufacturer of solutions and tablets, using plant and animal
extracts as raw materials. During the communist regime the company was
nationalized but it retained its production profile.
In 1991 based on Law no.58/1991, the State Ownership Fund ("SOF") and the
Private Ownership Fund were established, and all Companies established
under Law no.15/1990 were transformed into Trade Companies with Shareholder
structure 70% of the social capital was automatically issued to the State
Ownership Fund and 30% to the Private Ownership Fund. In 1991 SC BIOFARM SA
was registered with the Bucharest Office of the Trade Register under number
J 40/199/1991.
In 1996 when Law no.55/1995 came into force, the 30% of BIOFARM's social
capital owned by the State Ownership Fund and another 30% owned by the
Private Ownership Fund were issued grates to Romanian citizens, as
specified in the Mass Privatisation Programme, directed by Government
Emergency Decision no.5/1997.
In June 1997, Shapiro BANCORP LLC acquired the shares owned by the SOF and
in July 1998 the company issued 26.952.678 new shares, over 99% of them
subscribed by Shapiro BANCORP LLC. On September 4, 1998, Shapiro Bancorp
LLC, 99% owned by Litchfield Continental Ltd. ("Litchfield"), sold its
interest in BIOFARM S.A. to Global Spill Management, Inc., a US corporation
listed on NASDAQ.
On October 5, 1998, the shareholders of Global Spill Management, Inc.
change the company's name and elected a new board of Directors that gave
control of Biofarm, Inc. to Litchfield.
2. Basis of Preparation
The Company maintains its accounting records in Romanian Lei and prepares
its statutory financial statements in accordance with the Regulations on
Accounting and Reporting issued by the Ministry of Finance of Romania. The
accompanying financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America
("US GAAP").
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of operating revenues and
expenses during the reporting periods. Actual results could differ from
those estimates.
5
<PAGE>
BIOFARM SA
NOTES TO THE FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
3. Summary of Significant Accounting Policies:
a) Reporting Currency The financial statements are prepared and presented
in United States Dollars (USD).
b) Currency Translation:
The Company operates in a hyper-inflationary economy. In accordance
with Statement of Financial Accounting Standards ("SFAS") No. 52, the
financial statements have been re-measured into the reporting
currency, namely USD. Monetary assets and liabilities are translated
into USD at a current exchange rate. Non monetary assets and
liabilities are translated into USD at appropriate historical rates of
exchange. Revenues and expenses are translated at their date of
recognition; in practice using an average monthly exchange rate. The
gain or loss from the net monetary position is accounted for in the
statement of earnings.
c) Cash and Cash equivalents:
Cash equivalents include demand deposits with banks and all highly
liquid investments with original maturity of three months or less.
d) Inventories
Inventories are stated at cost. The weighted average method is used to
cost substantially all inventories. Where necessary provision is made
for obsolete, slow moving and defective stocks.
e) Trade Receivable
Trade receivables are stated at their estimated realizable value,
after provision for doubtful accounts.
f) Fixed Assets Cost and Depreciation
Property, plant and equipment are stated at cost. Depreciation and
amortization are provided using straight-line method over the
estimated useful lives of the assets that range from five to forty
years. Upon sale or retirement of assets, the cost and accumulated
depreciation and amortization are eliminated from the accounts, and
the related gain or loss is included in income. Expenditures for
repairs and maintenance are charged to income as incurred.
g) Pensions and other post retirement Benefits
The Company does not sponsor any pension or other post-retirement
benefit plans for its employees.
All employees of the Company are members of pension plans sponsored by
the Romanian government. In the normal course of business, the Company
makes payments to the Romanian government for pensions on behalf of
its employees. The social security and pension charges recorded by the
Company were $425,000 and $363,000 for the period ended October 31,
1998 and the year ended December 31, 1997, respectively. The Company
has no further obligations with respect to pension plans.
h) Revenue recognition:
Revenues and related costs are included in the income statement at the
date at which legal title to the goods changes hands.
i) Taxation
Income taxes are calculated using the liability method specified by
Statement of Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes".
j) Earnings per share and dividends
Basic earnings per share are calculated by dividing income
attributable to stockholders by the weighted average number of common
stock outstanding for the period. There was no potential common stock
outstanding as of October 31, 1998 and December 31, 1997. On April 14,
1997, a twenty-five-for-one stock split of the Company's common stock
was effected in the form of a stock dividend, to shareholders on
record as of that
6
<PAGE>
BIOFARM SA
NOTES TO THE FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
date. Accordingly, all historical weighted average share and per share
amounts have been restated to reflect the stock split.
Under Romanian law, the Company may not pay dividends until it has
positive retained earnings, based upon accounting records maintained
in accordance with Romanian Accounting Regulations. Any dividends paid
by the Company will be denominated in Romanian Lei but the new Law of
Direct Investments grants the right to transfer the dividends abroad
after exchange in foreign currency.
k) Fair Value of Financial Instruments
The Company follows SFAS No. 107, "Disclosures About Fair Value of
Financial Instruments," which requires disclosures of fair value
information about certain financial instruments. The carrying amounts
of the Company's financial instruments, consisting of cash and cash
equivalents, advanced payments, short term borrowings, accrued
expenses and other current liabilities, approximate their fair value
because of the immediate or short-term maturity of these financial
instruments
l) Exchange rate information
The principal currency in which the Company does business is the
Romanian Lei ("ROL"). The evolution of the ROL/US Dollar exchange rate
is summarized below:
Exchange rate ROL/USD
December 31, 1996 4,035
December 31, 1997 8,023
October 31, 1998 9,592
4. Cash
Cash and cash equivalents consist of the following:
Description October 31, 1998 December 31, 1997
- ----------- ---------------- -----------------
thousands USD
Bank deposit, hard currencies 656 --
Cash in bank, Rol 190 118
Cash in bank, hard currencies 39 12
Petty cash, Rol 1 --
Other cash equivalent 8 15
---- ----
TOTAL 894 145
The bank deposit in USD consists from a part of money resulted after the equity
increase.
5. Accounts receivable
The accounts receivable comprises of:
Description October 31, 1998 December 31, 1997
- ----------- ---------------- -----------------
thousands USD
Domestic customers 1.356 237
Foreign customers 212 98
Less provisions for doubtful debts (20) (33)
------ ------
TOTAL 1.548 302
7
<PAGE>
BIOFARM SA
NOTES TO THE FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
6. Advance payment
The advance payments are related either to acquisition of materials or services:
Description October 31, 1998 December 31, 1997
- ----------- ---------------- -----------------
thousands USD
Advances to domestic suppliers 100 125
Advances to foreign suppliers -- 712
---- ----
TOTAL 100 837
7. Inventories
Inventories comprise of the following:
Description October 31, 1998 December 31, 1997
- ----------- ---------------- -----------------
thousands USD
Raw material 909 1.069
Finish goods & goods for resale 1.002 752
Work in progress 108 40
----- -----
TOTAL 2.019 1.861
8. Other current assets
Description October 31, 1998 December 31, 1997
- ----------- ---------------- -----------------
thousands USD
Claims from State Budget 395 --
Other assets 26 53
---- ----
TOTAL 421 53
The claims from State Budget are related to excises overpaid by the Company.
The amount will be compensated by the due tax on profit.
8
<PAGE>
BIOFARM SA
NOTES TO THE FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
9. Property, Plant and Equipment
Major classes of property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
October 31, Estimated 1998 1997
Useful
Lives
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Building 30-40 yrs. 9,882 9,854
Machinery and equipment 8-10 yrs. 2,585 2,402
IT Equipment 8-10 yrs. 555 504
Cars & Elevators 5 yrs. 178 159
Furniture 8-10 yrs. 91 88
Other 3 yrs. 22 26
- -------------------------------------------------------------------------------------
13,313 13,033
Less accumulated depreciation and amortization 9,765 9,371
- -------------------------------------------------------------------------------------
3,548 3,662
- -------------------------------------------------------------------------------------
</TABLE>
10. Trade accounts payable
Description October 31, 1998 December 31, 1997
- ----------- ---------------- -----------------
thousands USD
Domestic suppliers 450 570
Foreign suppliers 267 108
RADET (domestic) 906 910
------ -----
TOTAL 1.623 1.588
The RADET is supplying heat and technological steam to the Company. In this
moment there is an agreement regarding the payments schedule between BIOFARM and
RADET stating that the amount will be paid quarterly up to the end of August
2000.
11. Tax on profit
Income tax expense for the period ended October 31, 1998 and the year ended
December 31, 1997 relates to income taxes paid in Romania.
The amount of losses to be carried forward for tax purposes are determined on
the basis of the profit calculated in accordance with regulations issued by the
Romanian Ministry of Finance. There were no losses brought forward and available
to offset future taxable income as of October 31, 1998 and December 31, 1997.
Deferred income tax assets and liabilities as of September 30, 1998 and
December 31, 1997 consist of the tax effects of temporary differences related to
the following:
9
<PAGE>
BIOFARM SA
NOTES TO THE FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
October 31, December 31,
1998 1997
----------- ------------
(In thousands of US Dollars)
Deferred tax assets:
Current:
Inventory 3 5
Accounts payable 26 --
Non-current:
Property, plant and equipment 258 409
---- ----
Total deferred tax assets 287 414
Deferred tax liabilities
Current:
Accounts receivable (5) (33)
Prepaid expenses and other current assets -- (13)
Total deferred tax liabilities (5) (46)
Valuation allowance (282) (368)
---- ----
Net deferred tax assets -- --
==== ====
The net deferred tax asset for each period is fully offset by a valuation
allowance, due to inflation and the continuing depreciation of the Romanian Lei
(ROL). The ROL depreciated 50% during the year ended December 31, 1997, and
depreciated a further 25% during the ten-month period ended October 31, 1998.
This depreciation reflects the high rate of inflation present in the Romanian
economy. Both inflation and currency depreciation are expected to continue in
the foreseeable future, which may reduce the value of deferred tax assets.
Accordingly, the Company has recorded a full valuation allowance against
deferred tax assets for each period.
12. Commitments and contingencies
Taxation
The taxation system in Romania is at an early stage of development and is
subject to varying interpretations and changes, which may be retroactive.
Although the actual tax due on a transaction may be minimal, penalties can be
significant as they may be calculated based on the value of the transaction, and
can be as high as 0.25% per day plus other penalties. In Romania, tax periods
remain open for tax audits for 3 years.
Authorizations
The Company's operations require authorizations to both produce and sell
products and annual production authorizations from the Romanian Government.
Recently, certain expired authorizations were renewed so no significant
operational risk can occur for the company in this respect.
10
<PAGE>
BIOFARM SA
NOTES TO THE FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Assets under Operational Lease
Future minimum lease payments as of October 31, 1998 for assets under capital
lease are as follows:
Year ended (In thousands
October 31 of US Dollars)
- ---------- --------------
1999 60
2000 60
13. Common stock
Subsequent to the General Meeting of Shareholders, held on April 14, 1998,
approving the issue of 27,045,600 new shares at their nominal value of ROL 1,000
each with pre-emptive subscription rights for shareholders registered as of
April 3, 1998, 26,952,678 new shares have been subscribed, with 30% of the value
of shares subscribed paid by June 15, 1998. According to the Romanian Law the
balance must be paid within twelve months from the subscription date.
The actual structure of shares is as follows:
Number %
---------- -------
Total number of shares 35,967,878 100,00%
Shapiro Bancorp LLC 30,343,877 84.36%
Individuals 5,624,001 15.64%
14. Other additional capital
In November 1997, the Company received a grant of ROL 5.6 billion from the State
Ownership Fund ("SOF") as a part of the acquisition deal concluded with Shapiro
Bancorp and according to the Romanian Laws. The Company has recorded this grant
as an increase in capital, as such proceeds represent a financial incentive
received from the government. Emergency Ordinance 37/1997 required the grant to
be spent in the following priority:
i) payment of overdue debts and related interest or penalties which were
recorded in the Company's books at June 18, 1995
ii) financing of investments in progress which originated prior to June
18, 1995
iii) working capital.
15. Research and development
The Company retained Linde A.G. to conduct an engineering study to advise
on GMP implementation for its production lines. US$ 75,000 has been paid to them
for this study.
16. Non-operating expense
Non-operating expense of $106,000 represents penalties paid to the Romanian
government in connection with a past violation of foreign exchange regulations.
11
<PAGE>
BIOFARM SA
NOTES TO THE FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
17. FINANCIAL RISK
Market Risk
The Romanian economy is in an early stage of market development, and there is a
considerable degree of uncertainty surrounding the economy's future direction.
The majority of the Company's customers, suppliers and operations are conducted
in Romania, such that market risk exists with respect to the Company's
activities in this country.
Currency Risk
The Company operates in a highly inflationary economy with significant currency
depreciation. Accordingly, currency risk exists in respect to net monetary
assets held in Romanian Lei. Material exchange restrictions and controls exist
relating to converting Romanian Lei into other currencies. At present, there is
no market for conversion of Romanian Lei into foreign currencies outside of
Romania.
Credit Risk
The Company offers credit terms to its customers and is therefore exposed
to risk of bad debt. The Company does not have any significant exposure to any
single individual customer.
18. Subsequent events
Subsequent to period end, the National Bank of Romania rate of exchange
depreciated from USD 1 = ROL 9,592 at October 31, 1998 to USD1 = ROL 10600 as of
December 21, 1998. The main effect of currency depreciation consists on increase
of inflation impact over the financial performances (financial losses).
