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Previous: ILLINOIS SUPERCONDUCTOR CORPORATION, 424B3, 1999-07-13 |
Next: CARBIDE GRAPHITE GROUP INC /DE/, 11-K, 1999-07-13 |
<PAGE> 1
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 Commission Act
of 1934
Date of Report (Date of earliest event reported): July 13 1999
BIOFARM INC
(Exact name of Registrant as specified in its Charter)
Nevada 0-20317 88-00270266
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
Incorporation)
403 Salisbury House, 31 Finsbury Circus, London, EC2M 5QQ
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area Code:
0044 171 5888862
N/A
(Former name or former address, if changed since last report)
1
<PAGE> 2
INTRODUCTORY STATEMENT
This Form 8 K/A filing supplements the Form 8 - K filing relating to the
purchase of 80% of the share capital of Alterproof Ltd. by the Registrant dated
May 13 1999. The purpose of this supplemental Form 8 - K/A filing is to render
current the response herein to Item 7. Alterproof Ltd was incorporated on
December 24, 1998.
Item 7. Financial Statements and Exhibits
a) Financial Statements of Business Acquired There are filed herewith the
audited financial statements of Alterproof Ltd. as of and for the
period from December 24 1998, to April 30 1999 and for Ian McCall
Holdings Limited for the fiscal years ended October 31 1997, October
31, 1998 and the period to January 21 1999.
b) Pro Forma Financial Statements
Pro Forma condensed consolidated financial statements are filed
herewith for the year ended October 31, 1998 and April 30 1999.
c) Exhibits
Previously filed on May 13, 1999.
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: July 13, 1999
Alterproof Limited
Audited Financial Statements As of
December 24 1998, to April
1999 and for Ian McCall Holdings Limited
for the fiscal year ended October 31
1997, October 31, 1998 and
the period to January 21 1999.
2
<PAGE> 3
CONTENTS
ALTERPROOF LIMITED
Page
Report of Independent Auditors 4
Consolidated Profit and Loss account for the period 24 December 1998
to 30 April 1999 5
Consolidated balance sheet at 30 April 1999 6
Consolidated Cash Flow statement for the period 24 December 1998 to
30 April 1999 7
Notes Forming part of the Consolidated financial statements 8-19
IAN MCCALL HOLDINGS LIMITED
Report of Independent Auditors 20-21
Consolidated Profit and Loss accounts 22
Consolidated balance sheet 23
Consolidated Cash Flow statement 24
Notes Forming part of the Consolidated financial statements 25-38
Pro Forma Condensed Consolidated Financial Statements. 39-44
3
<PAGE> 4
ALTERPROOF LIMITED
REPORT OF THE AUDITORS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS OF ALTERPROOF LIMITED
We have audited the consolidated financial statements on pages 2 to 16
which have been prepared under the accounting policies set out on pages
5 to 6.
Respective responsibilities of directors and auditors
The company's directors are responsible for the preparation of these
consolidated financial statements. In preparing these consolidated
financial statements, the directors are required to select suitable
accounting policies and apply them consistently, make judgements and
estimates that are reasonable and prudent and prepare the financial
statements on a going concern basis unless it is inappropriate to
presume that the group will continue in business. In addition the
directors are responsible for keeping proper accounting records and for
taking reasonable steps for the prevention of fraud and other
irregularities. It is our responsibility to form an independent
opinion, based on our audit, on those consolidated financial statements
and to report our opinion to you.
Basis of opinion
We conducted our audit in accordance with Auditing Standards issued by
the Auditing Practices Board. An audit includes examination, on a test
basis, of evidence relevant to the amounts and disclosures in the
consolidated financial statements. It also includes an assessment of
the significant estimates and judgements made by the directors in the
preparation of the consolidated financial statements, and of whether
the accounting policies are appropriate to the group's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information
and explanations which we considered necessary in order to provide us
with sufficient evidence to give reasonable assurance that the
consolidated financial statements are free from material misstatement,
whether caused by fraud or other irregularity or error. In forming our
opinion we also evaluated the overall adequacy of the presentation of
information in the consolidated financial statements.
Opinion
In our opinion the consolidated financial statements give a true and
fair view of the state of the group's affairs as at 30 April 1999 and
of the group's loss for the period 24 December 1998 to 30 April 1999
and have been properly prepared in accordance with the provisions of
the Companies Act 1985, which would have applied had the consolidated
financial statements been prepared for a financial year of the group.
BDO STOY HAYWARD
Chartered Accountants
and Registered Auditors
London
13 July 1999
4
<PAGE> 5
ALTERPROOF LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE PERIOD 24 DECEMBER 1998
TO 30 APRIL 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOTE 1999
L'000
<S> <C> <C>
BROKERAGE 3 378
Other operating income 4 31
Administrative expenses (888)
--------
OPERATING LOSS 5 (479)
Interest payable 8 (8)
--------
LOSS ON ORDINARY ACTIVITIES
BEFORE AND AFTER TAXATION (487)
========
</TABLE>
The whole of the above loss relates to operations acquired during the period
All recognised gains and losses are included in the profit and loss account.
The accompanying notes form an integral part of these financial statements
5
<PAGE> 6
ALTERPROOF LIMITED
CONSOLIDATED BALANCE SHEET AT 30 APRIL 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOTE 1999
L'000 L'000
<S> <C> <C> <C>
FIXED ASSETS
Intangible assets 10 122
Tangible assets 11 172
--------
294
CURRENT ASSETS
Debtors 12 4,027
Cash at bank and in hand 2,690
------
6,717
CREDITORS: AMOUNTS FALLING DUE
WITHIN ONE YEAR 13 6,932
------
NET CURRENT LIABILITIES (215)
--------
TOTAL ASSETS LESS CURRENT LIABILITIES 79
CREDITORS: AMOUNTS FALLING DUE
AFTER MORE THAN ONE YEAR 14 (556)
PROVISION FOR LIABILITIES AND CHARGES
Deferred tax 15 -
--------
(477)
========
CAPITAL AND RESERVES
Called up share capital 16 10
Profit and loss account (487)
--------
SHAREHOLDERS' FUNDS - equity interests 17 (477)
========
</TABLE>
The accompanying notes form an integral part of these financial statements.
6
<PAGE> 7
ALTERPROOF LIMITED
CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD
24 DECEMBER 1998 TO 30 APRIL 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOTE 1999
L'000
<S> <C> <C>
NET CASH (OUTFLOW) FROM OPERATING
ACTIVITIES 20 (283)
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE 21 23
TAXATION 21 -
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT 21 (7)
ACQUISITIONS AND DISPOSALS 21 753
----
CASH (OUTFLOW)/INFLOW BEFORE FINANCING 486
MANAGEMENT OF LIQUID RESOURCES 21 (200)
FINANCING 21 485
----
INCREASE IN CASH IN THE PERIOD 23 771
====
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
ATERPROOF LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 ORGANISATION AND OPERATIONS
Alterproof Limited ("Alterproof" or "the company") was incorporated in
England and Wales on 24 December 1998 with an initial issued share
capital of 2 ordinary shares of pound sterling 1 each. On 19 January
1999 the company acquired the entire issued share capital of Ian McCall
Holdings Limited for a total consideration of pound sterling 1,094,000.
This consideration was in the first instance met by the issue of a
series of unsecured interest free debentures redeemable on or before 30
April 1999 (failing which the debenture holders had reversionary rights
in the share capital of Alterproof). Ian McCall Holdings Limited was a
holding company for a group of companies engaged in insurance broking.
On 27 April 1999 the debentures were redeemed at par utilising the
funds received from a pre-acquisition dividend of pound sterling
594,000 from Ian McCall Holdings Limited and a loan of pound sterling
500,000 from Burlington, Chamber & James Limited, a wholly owned
subsidiary of Biofarm Inc.
2 ACCOUNTING POLICIES
The consolidated financial statements have been prepared under the
historical cost convention in accordance with applicable accounting
standards in the UK. There are no significant differences between the
consolidated financial statements, which have been prepared using
generally accepted accounting principles in the UK ("UK GAAP") and
those that would have been prepared using US GAAP.
The following principal accounting policies have been applied:
Basis of consolidation
The financial statements comprise the consolidated financial
statements of the company and its wholly owned subsidiary
undertakings using the acquisition method of accounting, where the
results of subsidiary undertakings are included from the effective
date of acquisition, 21 January 1999. The subsidiary undertakings,
all of whom are engaged in insurance broking unless otherwise stated,
are set out below:
Ian McCall Holdings Limited
Ian McCall International Limited
Ian McCall Insurance Services Limited
Ian McCall Financial Services Limited
Ian McCall North America Limited
Trifoliate Limited
Ian McCall and Company Limited (dormant)
All of the companies are incorporated in England and Wales except for
Trifoliate Limited, which is incorporated in the Channel Islands.
Brokerage
Credit is taken for brokerage receivable at the time of the placing
or closing of the risk.
8
<PAGE> 9
ATERPROOF LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2 ACCOUNTING POLICIES (CONTINUED)
Goodwill
Goodwill arising on the acquisition of Ian McCall Holdings Limited
is being amortised on a straight line basis over 10 years, being its
estimated useful economic life.
Pensions
The group operated a funded pension scheme providing benefits based
on final pensionable pay. The assets of the scheme are held
separately from those of the group, being invested with insurance
companies. Contributions to the scheme are charged to the profit and
loss account so as to spread the cost of pensions over employees'
working lives with the group. The contributions are determined by a
qualified actuary on the basis of triennial valuations using the
projected unit method. The most recent valuation was at 1 January
1997. The summations which have the most significant effect on the
results of the valuation are those relating to the rate of return on
investments and the rates of increase in salaries.
For the most recent valuation it was assumed that the investment
returns would be 9% per annum, and that salary increases would
average 7% per annum. At 1 January 1999 the market value of scheme
assets was pound sterling 3,084,000. The pension cost for the period
was pound sterling 39,000. Pension prepayments amounted to pound
sterling Nil at the balance sheet date. At the date of the last
valuation, assets amounted to 105% of the scheme's liabilities.
Tangible fixed assets
Depreciation of fixed assets is calculated to write off their cost
over their estimated useful lives at the following annual rates:
Office furniture and equipment - 25% on cost
Computer equipment - 20% on cost
Motor vehicles - 33% on cost less estimated
residual value
Leased motor vehicles - over the life of the lease less
estimated residual value
Computer equipment comprises amounts relating to hardware, software,
development costs and licences.
Finance leases
Assets acquired under finance lease arrangements are capitalised in
the balance sheet and depreciated over their useful lives. The
interest element of the rental obligation is charged to profit and
loss account on a straight line basis over the period of the
contract.
Deferred tax
Deferred tax is provided using the liability method in respect of
timing differences which are expected to reverse in the foreseeable
future without replacement.
9
<PAGE> 10
ALTERPROOF LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2 ACCOUNTING POLICIES (CONTINUED)
Foreign currencies
Assets and liabilities in foreign currencies are translated at
balance sheet date rates of exchange. Transactions during the year
were translated at the approximate rates of exchange prevailing at
the transaction date. There were no material unrealised exchange
gains or losses at 30 April 1999.
Operating leases
Rentals paid under operating leases are charged to the profit and
loss account on an accruals basis.
3 BROKERAGE
<TABLE>
<CAPTION>
1999
L'000
<S> <C>
United Kingdom 361
Overseas 17
----
378
====
</TABLE>
4 OTHER OPERATING INCOME
<TABLE>
<S> <C>
Bank interest receivable 31
====
</TABLE>
5 OPERATING LOSS
This has been arrived at after charging:
<TABLE>
<S> <C>
Depreciation of owned assets 46
Depreciation of leased assets 11
Amortisation of goodwill 3
Auditors' remuneration 20
Operating leases - land and buildings 32
- other assets 4
====
</TABLE>
10
<PAGE> 11
ALTERPROOF LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6 DIRECTORS' EMOLUMENTS
<TABLE>
<CAPTION>
1999
L'000
<S> <C>
Directors' emoluments 46
====
</TABLE>
<TABLE>
<CAPTION>
NUMBER
<S> <C>
The number of directors to whom pension benefits
are accruing under a defined benefit scheme 2
====
</TABLE>
<TABLE>
<CAPTION>
L'000
<S> <C>
Highest paid director 25
====
Accrued annual pension of highest paid director
at the end of the financial period 36
====
</TABLE>
7 EMPLOYEES
Staff costs consist of:
<TABLE>
<S> <C>
Salaries 282
Social security costs 27
Other pension costs 39
----
348
====
</TABLE>
The average number of group employees during the period was:
<TABLE>
<CAPTION>
NUMBER
<S> <C>
Brokers 18
Office and management 22
----
40
====
</TABLE>
11
<PAGE> 12
ALTERPROOF LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8 INTEREST PAYABLE
<TABLE>
<CAPTION>
1999
L'000
<S> <C>
On other loans 4
On finance leases 4
----
8
====
</TABLE>
9 TAXATION
No corporation charge arises on the loss for the period.
12
<PAGE> 13
ALTERPROOF LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10 INTANGIBLE ASSETS
<TABLE>
<CAPTION>
GOODWILL
L'000
<S> <C>
Cost
Additions 125
-----
Amortisation
Charge for period 3
-----
Net book value
At 30 April 1999 122
=====
</TABLE>
Goodwill on consolidation arose on the acquisition of Ian McCall
Holdings Limited as set out below:
<TABLE>
<CAPTION>
ASSETS ACQUIRED: L'000
<S> <C>
Fixed assets 222
Debtors 3,941
Cash at bank 1,890
7 day treasury deposit 1,100
Creditors (5,807)
Loans and finance leases (334)
------
1,012
Goodwill 125
------
1,137
------
SATISFIED BY:
Debentures 1,094
Cash paid in respect of expenses of acquisition 43
------
1,137
</TABLE>
The debentures were redeemed on 27 April 1999 as explained in note 1.
13
<PAGE> 14
ALTERPROOF LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11 TANGIBLE ASSETS
<TABLE>
<CAPTION>
COMPUTER
AND OFFICE
GROUP VEHICLES EQUIPMENT TOTAL
L'000 L'000 L'000
<S> <C> <C> <C>
Cost
Acquisition of subsidiary 113 109 222
Additions - 7 7
------- ------- -------
At 30 April 1999 113 116 229
------- ------- -------
Depreciation
Charge for the period 11 46 57
------- ------- -------
At 30 April 1999 11 46 57
------- ------- -------
Net book value
At 30 April 1999 102 70 172
======= ======= =======
Net book value of motor vehicles acquired
under finance lease agreements 102
=======
</TABLE>
12 DEBTORS
<TABLE>
<CAPTION>
1999
L'000
<S> <C>
Insurance broking debtors 3,871
Other debtors 46
Prepayments 105
Corporation tax 5
-------
4,027
=======
</TABLE>
14
<PAGE> 15
ALTERPROOF LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1999
L'000
<S> <C>
Bank overdraft 619
Finance leases 39
Other loans 214
Insurance broking creditors 5,637
Other creditors and accruals 382
Social security and other taxes 38
Corporation tax 3
-------
6,932
=======
</TABLE>
The bank overdraft is unsecured and bears interest at 2% over bank base
rate.
14 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1999
L'000
<S> <C>
Finance leases 65
Loan from Burlington, Chamber & James Limited 491
------
556
======
</TABLE>
Finance leases represents obligations under various financing
arrangements in respect of the group's fleet of motor vehicles.
The loan from Burlington, Chamber & James Limited is unsecured,
interest free and repayable after 31 October 2000, except if the
directors of Alterproof resolve to repay it earlier.
15
<PAGE> 16
ALTERPROOF LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
15 DEFERRED TAX
<TABLE>
<CAPTION>
1999
---------------------------
TOTAL
POTENTIAL
(LIABILITY)/ AMOUNTS
ASSET PROVIDED
L'000 L'000
------------ -----------
<S> <C> <C>
On accelerated capital allowances 18 -
Trading losses 195 -
------- -------
213 -
======= =======
</TABLE>
16 SHARE CAPITAL
<TABLE>
<CAPTION>
1999
L'000
-------
<S> <C>
Authorised, allotted, issued and fully paid
10,000 ordinary shares of pound sterling 1 each 10
=======
</TABLE>
17 RECONCILIATION OF MOVEMENT IN SHAREHOLDER'S FUNDS
<TABLE>
<CAPTION>
1999
L'000
-------
<S> <C>
(Loss)/profit for year (487)
Issue of share capital 10
-------
Balance at 30 April 1999 (477)
=======
</TABLE>
16
<PAGE> 17
ALTERPROOF LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
18 FLOATING CHARGE
As required by Lloyd's Brokers Byelaw (No 5 of 1998) a subsidiary
company has entered into a trust deed under which all of its insurance
broking account assets are subject to a floating charge held on trust
by the Society of Lloyd's for the benefit of the insurance creditors,
which at 30 April 1999 amounted to pound sterling 5,140,000. The charge
only becomes enforceable under certain circumstances as set out in the
trust deed. The assets subject to this charge were:
<TABLE>
<CAPTION>
1999
L'000
--------
<S> <C>
Bank balances 2,077
Insurance broking debtors 3,413
--------
5,490
--------
</TABLE>
19 COMMITMENTS UNDER OPERATING LEASES
As at 30 April 1999 the company had annual commitments under
non-cancellable operating leases as set out below:
<TABLE>
<CAPTION>
LAND AND
BUILDINGS OTHER
1999 1999
L'000 L'000
------- -------
<S> <C> <C>
Operating leases which expire:
Within one year - 17
Over five years 130 -
------- -------
130 17
======= =======
</TABLE>
20 RECONCILIATION OF OPERATING (LOSS)/ TO OPERATING CASH FLOWS
<TABLE>
<CAPTION>
1999
L'000
--------
<S> <C>
Operating (loss)/profit (479)
Depreciation charges 57
Amortisation of goodwill 3
Decrease/(increase) in debtors (86)
(Decrease)/increase in creditors 253
Interest receivable (31)
--------
Net cash (outflow) from operating activities (283)
========
</TABLE>
17
<PAGE> 18
ALTERPROOF LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
21 ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT
<TABLE>
<S> <C>
Returns on investments and servicing of finance
Interest received 31
Interest element of finance lease rental payments (4)
Interest paid (4)
-------
Net cash inflow for returns on investments and
servicing of finance 23
=======
Capital expenditure and financial investments
Purchase of tangible fixed assets (7)
-------
Net cash outflow for capital expenditure and
financial investment (7)
=======
Acquisitions of subsidiary undertaking:
Cash paid (43)
Debentures redeemed (1,094)
Bank balances acquired 1,890
-------
Net cash inflow for acquisitions 753
=======
Financing
Issue of shares 10
Finance leases repaid (16)
Other loans raised 491
-------
Net cash outflow from financing 485
=======
Management of liquid resources
Cash withdrawn from/(deposited in) 7 day deposit (200)
-------
Net cash inflow/(outflow) from management of liquid resources (200)
=======
</TABLE>
18
<PAGE> 19
ALTERPROOF LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
22 RECONCILIATION OF MOVEMENTS IN NET DEBT
<TABLE>
<CAPTION>
1999
L'000
-------
<S> <C>
Increase in cash in the period 771
Cash (inflow)/outflow from increase in debt and leasing financing (475)
Cash (inflow)/outflow from increase in liquid resources 200
-------
Change in net funds resulting from cash flows 496
7 day treasury deposit acquired on acquisition of subsidiary 1,100
Loans and finance leases acquired on acquisition of subsidiary (334)
-------
Movement in net funds in the year 1,262
Net funds at beginning of period -
-------
Net funds at 30 April 1999 1,262
=======
</TABLE>
23 ANALYSIS OF NET FUNDS
<TABLE>
<CAPTION>
AT
CASH ON 30 APRIL
FLOW ACQUISITION 1999
L'000 L'000 L'000
-------- -------- --------
<S> <C> <C> <C>
Cash in hand and at bank 1,390 - 1,390
Overdrafts (619) - (619)
7 day treasury deposit 200 1,100 1,300
-------- -------- --------
971 1,100 2,071
Debt due within one year - (214) (214)
Debt due after one year (491) - (491)
Finance leases 16 (120) (104)
-------- -------- --------
496 766 1,262
======== ======== ========
</TABLE>
24 RELATED PARTY TRANSACTIONS
T R Hewett and E M Rennick, who are directors of the company, owned
12.2% and 5.7% respectively of the issued share capital of Ian McCall
Holdings Limited at the date of acquisition by Alterproof. At the date
of the acquisition they owned the whole of the issued share capital of
Alterproof.
19
<PAGE> 20
IAN McCALL HOLDINGS LIMITED
REPORT OF THE AUDITORS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS OF IAN MCCALL HOLDINGS LIMITED
The consolidated financial statements on pages 3 to 19 contain the
consolidated profit and loss account and consolidated cash flows for
the year ended 31 October 1997, which have been extracted from the
consolidated financial statements of Ian McCall Holdings Limited for
the year ended 31 October 1997 which were audited and reported upon by
Beavis Walker, Chartered Accountants and Registered Auditors. Their
complete report, dated 28 February 1998, is set out below.
"We have audited the accounts on pages 4 to 20 which have been
prepared on the historical cost basis and in accordance with the
accounting policies set out on pages 10 and 11.
Respective responsibilities of directors and auditors
As described on page 1 the Company's directors are responsible for
the preparation of the accounts. It is our responsibility to form
an independent opinion, based on our audit, on those accounts and
to report our opinion to you.
Basis of opinion
We conducted our audit in accordance with Auditing Standards issued
by the Auditing Practices Board. An audit includes examination, on
a test basis, of evidence relevant to the amounts and disclosures
in the accounts. It also includes an assessment of the significant
estimates and judgements made by the Directors in the preparation
of the accounts, and of whether the accounting policies are
appropriate to the Company's circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the
information and explanations which we considered necessary in order
to provide us with sufficient evidence to give reasonable assurance
that the accounts are free from material misstatement, whether
caused by fraud or other irregularity or error. In forming our
opinion we also evaluated the overall adequacy of the presentation
of information in the accounts.
Opinion
In our opinion the accounts give a true and fair view of the state
of the Company's and Group's affairs as at 31st October 1997 and of
the Group's loss for the year then ended and have been properly
prepared in accordance with the Companies Act 1985."
We have audited the consolidated balance sheets as at 21 January 1999
and 31 October 1998 and the consolidated profit and loss accounts and
consolidated cash flow statements for the period 1 November 1998 to 21
January 1999 and the year ended 31 October 1998.The above consolidated
balance sheets, consolidated profit and loss accounts and consolidated
cash flow statements are included within the consolidated financial
statements on pages 3 to 19 which have been prepared under the
accounting policies set out on pages 6 and 7.
20
<PAGE> 21
IAN McCALL HOLDINGS LIMITED
REPORTS OF THE AUDITORS (CONTINUED)
- --------------------------------------------------------------------------------
Respective responsibilities of directors and auditors
The company's directors are responsible for the preparation of these
consolidated financial statements. In preparing these consolidated
financial statements, the directors are required to select suitable
accounting policies and apply them consistently, make judgements and
estimates that are reasonable and prudent and prepare the financial
statements on a going concern basis unless it is inappropriate to
presume that the group will continue in business. In addition the
directors are responsible for keeping proper accounting records and for
taking reasonable steps for the prevention of fraud and other
irregularities. It is our responsibility to form an independent
opinion, based on our audit, on the consolidated balance sheets as at
21 January 1999 and 31 October 1998 and the consolidated profit and
loss accounts and consolidated cash flow statements for the period 1
November 1998 to 21 January 1999 and the year ended 31 October 1998
included within those consolidated financial statements and to report
our opinion to you.
Basis of opinion
We conducted our audit in accordance with Auditing Standards issued by
the Auditing Practices Board. An audit includes examination, on a test
basis, of evidence relevant to the amounts and disclosures in the
financial statements. It also includes an assessment of the significant
estimates and judgements made by the directors in the preparation of
the consolidated financial statements, and of whether the accounting
policies are appropriate to the group's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information
and explanations which we considered necessary in order to provide us
with sufficient evidence to give reasonable assurance that the
consolidated financial statements are free from material misstatement,
whether caused by fraud or other irregularity or error. In forming our
opinion we also evaluated the overall adequacy of the presentation of
information in the consolidated financial statements.
Opinion
In our opinion the consolidated financial statements give a true and
fair view of the state of the group's affairs as at 21 January 1999 and
as at 31 October 1998 and of the group's results and cash flows for the
period 1 November 1998 to 21 January 1999 and the year ended 31 October
1998 and have been properly prepared in accordance with the provisions
of the Companies Act 1985, which would have applied had the
consolidated financial statements been prepared for a financial year of
the group.
BDO STOY HAYWARD
Chartered Accountants and Registered Auditors
London
13 July 1999
21
<PAGE> 22
IAN McCALL HOLDINGS LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 NOVEMBER 1998 TO YEAR ENDED YEAR ENDED
21 JANUARY 31 OCTOBER 31 OCTOBER
NOTE 1999 1998 1997
---- ------------------ ---------- ----------
L'000 L'000 L'000
<S> <C> <C> <C> <C>
BROKERAGE
Continuing operations 2 279 1,529 1,604
Discontinued operations 220 2,154 3,128
------ ------ ------
499 3,683 4,732
OTHER OPERATING INCOME 3 59 140 197
Administrative expenses (833) (4,142) (5,076)
------ ------ ------
OPERATION (LOSS)/PROFIT 4
Continuing operations (24) (139) (126)
Discontinued operations (251) (181) (21)
------ ------ ------
(275) (320) (147)
Profit/(Loss) on sale of subsidiary undertakings 1,040 (59) --
------ ------ ------
Interest payable 7 (49) (100) (84)
------ ------ ------
PROFIT/(LOSS) ON ORDINARY ACTIVITIES
BEFORE TAXATION 716 (479) (231)
Tax credit 8 -- 33 28
------ ------ ------
PROFIT/(LOSS) ON ORDINARY ACTIVITIES
AFTER TAXATION 716 (446) (203)
Retained profit brought forward 154 600 803
------ ------ ------
RETAINED PROFIT CARRIED FORWARD 870 154 600
====== ====== ======
</TABLE>
All recognised gains and losses are included in the profit and loss account.
The accompanying notes form an integral part of these financial statements
22
<PAGE> 23
IAN MCCALL HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
21 JANUARY 31 OCTOBER
NOTE 1999 1998
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Intangible assets 9 - 510
Tangible assets 10 222 264
Investments - 6
-------- --------
222 780
CURRENT ASSETS
Debtors 11 3,941 5,012
Cash at bank and in hand 2,990 3,968
--------- ---------
6,931 8,980
CREDITORS: AMOUNTS FALLING DUE
WITHIN ONE YEAR 12 6,041 9,394
--------- ---------
NET CURRENT ASSETS/LIABILITIES 890 (414)
-------- --------
TOTAL ASSETS LESS CURRENT LIABILITIES 1,112 366
CREDITORS: AMOUNTS FALLING DUE
AFTER MORE THAN ONE YEAR 13 (100) (105)
PROVISION FOR LIABILITIES AND CHARGES
Deferred tax 14 - -
-------- --------
1,012 261
======== ========
CAPITAL AND RESERVES
Called up share capital 15 42 38
Share premium account 16 100 69
Profit and loss account 870 154
-------- --------
SHAREHOLDERS' FUNDS - equity interests 17 1,012 261
======== ========
</TABLE>
The accompanying notes form an integral part of these financial statements.
23
<PAGE> 24
IAN MCCALL HOLDINGS LIMITED
CONSOLIDATED CASH FLOW STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 NOVEMBER 1998 TO YEAR ENDED YEAR ENDED
19 JANUARY 31 OCTOBER 31 OCTOBER
NOTE 1999 1998 1997
L'000 L'000 L'000
<S> <C> <C> <C> <C>
NET CASH (OUTFLOW)/INFLOW FROM OPERATING
ACTIVITIES 20 (2,342) (798) (1,250)
RETURNS ON INVESTMENTS AND SERVICING
OF FINANCE 21 (9) 40 112
TAXATION - 92 (165)
CAPITAL EXPENDITURE AND FINANCIAL
INVESTMENT 21 35 70 61
ACQUISITIONS AND DISPOSALS 21 1,557 - (55)
EQUITY DIVIDENDS PAID - - (18)
-------- -------- --------
CASH (OUTFLOW)/INFLOW BEFORE FINANCING (759) (596) (1,315)
MANAGEMENT OF LIQUID RESOURCES 21 650 (226) 2,990
FINANCING 21 (219) 90 (281)
-------- -------- --------
INCREASE/(DECREASE) IN CASH 23 (328) (732) 1,394
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 25
IAN MCCALL HOLDINGS LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 ACCOUNTING POLICIES
The consolidated financial statements have been prepared under the
historical cost convention in accordance with applicable accounting
standards in the UK. There are no significant differences between the
consolidated financial statements, which have been prepared using
generally accepted accounting principles in the UK ("UK GAAP") and
those that would have been prepared using US GAAP.
The financial statements comprise the consolidated financial statements
of Ian McCall Holdings Limited ("the company") and its wholly owned
subsidiary undertakings, up to the date of disposal, all of whom were
engaged in insurance broking unless otherwise stated, as set out below:
Ian McCall International Limited
Ian McCall Insurance Services Limited
St Margarets Insurance Limited (disposed of during the period ended
21 January 1999) Ian McCall Financial Services Limited (pensions
advisory services)
Ian McCall North America Limited
M D M Aviation Limited (disposed of during the year ended 31 October
1998) Trifoliate Limited (insurance management services) Ian McCall
and Company Limited (dormant)
All of the companies are incorporated in England and Wales except
for Trifoliate Limited, which is incorporated in the Channel
Islands.
The following principal accounting policies have been applied:
Discontinued operations
These consolidated financial statements treat the operations of St
Margarets Insurance Limited, the international business of Ian
McCall International Limited and the operations of Ian McCall
Insurance Services Limited as discontinued operations. The
discontinued operations generated an operating loss as disclosed in
the consolidated profit and loss accounts. This was also the loss
before and after taxation of the discontinued operations.
Brokerage
Credit is taken for brokerage receivable at the time of the placing
or closing of the risk.
Pensions
The group operated a funded pension scheme providing benefits based
on final pensionable pay. The assets of the scheme are held
separately from those of the group, being invested with an insurance
company. Contributions to the scheme are charged to the profit and
loss account so as to spread the cost of pensions over employees'
working lives with the group. The contributions are determined by a
qualified actuary on the basis of triennial valuations using the
projected unit method. The most recent valuation was at 1 January
1997. The summations which have the most significant effect on the
results of the valuation are those relating to the rate of return on
investments and the rates of increase in salaries.
25
<PAGE> 26
IAN MCCALL HOLDINGS LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Pensions (continued)
For the most recent valuation it was assumed that the investment
returns would be 9% per annum, and that salary increases would
average 7% per annum. At 1 January 1999 the market value of scheme
assets was pound sterling 3,084,000. The pension cost for the period
ended 19 January 1999 was pound sterling 40,000, for the year ended
31 October 1998 was pound sterling 237,000 and, for the year ended
31 October 1997 was pound sterling 267,000. Pension prepayments
amounted to pound sterling Nil at 19 January 1999 and 31 October
1998. At the date of the last valuation, assets amounted to 105% of
the scheme's liabilities.
Goodwill
Goodwill arising on an acquisition of subsidiary undertakings is
amortised over 20 years, being its estimated useful economic life.
Tangible fixed assets
Depreciation of fixed assets is calculated to write off their cost
over their estimated useful lives at the following annual rates:
<TABLE>
<CAPTION>
<S> <C> <C>
Office furniture and equipment - 25% on cost
Computer equipment - 20% on cost
Motor vehicles - 33% on cost less estimated residual value
Leased motor vehicles - over the life of the lease less estimated residual value
</TABLE>
Computer equipment comprises amounts relating to hardware, software,
development costs and licences.
Fixed asset investments
Fixed asset investments comprising quoted investments and the
company's investments in subsidiary undertakings are stated at cost
less any provision for permanent diminution in value.
Finance leases
Assets acquired under finance lease arrangements are capitalised in
the balance sheet and depreciated over their useful lives. The
interest element of the rental obligation is charged to profit and
loss account on a straight line basis over the period of the
contract.
Deferred tax
Deferred tax is provided using the liability method in respect of
timing differences which are expected to reverse in the foreseeable
future without replacement.
Foreign currencies
Assets and liabilities in foreign currencies are translated at
balance sheet date rates of exchange. Transactions during the year
were translated at the approximate rates of exchange prevailing at
the transaction date. There were no material unrealised exchange
gains or losses at 19 January 1999
Operating leases
Rentals paid under operating leases are charged to the profit and
loss account on an accruals basis.
26
<PAGE> 27
IAN MCCALL HOLDINGS LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 NOVEMBER 1998 TO YEAR ENDED YEAR ENDED
21 JANUARY 31 OCTOBER 31 OCTOBER
1999 1998 1997
L'000 L'000 L'000
<S> <C> <C> <C>
2 BROKERAGE
United Kingdom 490 3,172 2,549
Overseas 9 511 2,183
-------- -------- --------
499 3,683 4,732
======== ======== ========
3 OTHER OPERATING INCOME
Bank interest receivable 40 140 196
Income from listed investments 19 - 1
-------- -------- --------
59 140 197
======== ======== ========
4 OPERATING PROFIT/(LOSS)
This has been arrived at after charging:
Exceptional items:
- Costs of replacement insurance cover
arising from the potential failure of an
underwriter - - 226
- Uninsured losses 92 - -
Depreciation of owned assets 10 78 79
Depreciation of leased assets 8 45 57
Amortisation of goodwill 20 42 43
Auditors' remuneration 5 20 42
Operating leases - land and buildings 32 130 148
- other assets 4 18 18
Loss/(profit) on disposal of fixed assets 34 (2) 1
======== ======== ========
Included within operating profit/(loss) are the following amounts
that relate to discontinued operations:
Other operating income 22 76 111
Administrative expenses 493 2,411 3,260
======== ======== ========
</TABLE>
27
<PAGE> 28
IAN MCCALL HOLDINGS LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 NOVEMBER 1998 TO YEAR ENDED YEAR ENDED
21 JANUARY 31 OCTOBER 31 OCTOBER
1999 1998 1997
L'000 L'000 L'000
<S> <C> <C> <C>
5 DIRECTORS' EMOLUMENTS
Directors' emoluments 46 218 385
======= ======= =======
NUMBER NUMBER NUMBER
The number of directors to whom pension benefits
are accruing under a defined benefit scheme 2 3 5
======= ======= =======
L'000 L'000 L'000
Highest paid director 25 98 91
======= ======= =======
Accrued annual pension of highest paid director
at the end of the financial year or period 36 35 33
======= ======= =======
6 EMPLOYEES
Staff costs consist of:
Salaries 347 1,699 2,158
Social security costs 35 165 214
Other pension costs 40 236 331
-------- -------- --------
422 2,100 2,703
======= ======= =======
The average number of group employees during the year or period was:
NUMBER NUMBER NUMBER
Brokers 19 25 29
Office and management 36 42 56
------- ------- -------
55 67 85
======= ======= =======
</TABLE>
28
<PAGE> 29
IAN MCCALL HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER
1998 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 NOVEMBER 1998 TO YEAR ENDED YEAR ENDED
21 JANUARY 31 OCTOBER 31 OCTOBER
1999 1998 1997
L'000 L'000 L'000
<S> <C> <C> <C>
7 INTEREST PAYABLE
On bank overdrafts wholly repayable within five years - 6 7
On bank loans wholly repayable within five years - 5 21
On other loans 42 58 24
On finance leases 7 31 32
------- ------- -------
49 100 84
======= ======= =======
8 TAXATION
The tax credit/(charge) comprises:-
UK corporation tax credit based on the adjusted year's results - - 34
Prior year's adjustment 1 29 (5)
Overseas tax - - (3)
Deferred tax (1) 4 2
------- ------- -------
- 33 28
======= ======= =======
</TABLE>
29
<PAGE> 30
IAN MCCALL HOLDINGS LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9 INTANGIBLE ASSETS
<TABLE>
<CAPTION>
GOODWILL
L'000
<S> <C>
Cost
At 1 November 1998 800
Disposal (800)
-------
At 21 January 1999 -
-------
Amortisation
At 1 November 1998 290
Charge for period 20
Eliminated on disposal (310)
-------
At 21 January 1999 -
-------
Net book value
At 21 January 1999 -
=======
At 31 October 1998 510
=======
</TABLE>
Goodwill on consolidation arose on the acquisition of St Margarets
Insurance Limited.
30
<PAGE> 31
IAN MCCALL HOLDINGS LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10 TANGIBLE ASSETS
<TABLE>
<CAPTION>
COMPUTER
AND OFFICE
VEHICLES EQUIPMENT TOTAL
L'000 L'000 L'000
<S> <C> <C> <C>
Cost
At 1 November 1998 216 532 748
Disposals (21) (170) (191)
------- ------- -------
At 21 January 1999 195 362 557
------- ------- -------
Depreciation
At 1 November 1998 84 400 484
Charge for the year 8 10 18
On disposals (10) (157) (167)
------- ------- -------
At 21 January 1999 82 253 335
------- ------- -------
Net book value
At 21 January 1999 113 109 222
======= ======= =======
At 31 October 1998 132 132 264
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
19 JANUARY 31 OCTOBER
1999 1998
L'000 L'000
<S> <C> <C>
Net book value of motor vehicles acquired
under finance lease agreements 113 132
======= =======
</TABLE>
31
<PAGE> 32
IAN MCCALL HOLDINGS LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11 DEBTORS
<TABLE>
<CAPTION>
21 JANUARY 31 OCTOBER
1999 1998
L'000 L'000
<S> <C> <C>
Insurance broking debtors 3,596 4,842
Other debtors 146 37
Prepayments 194 133
Corporation tax 5 -
-------- --------
3,941 5,012
======== ========
</TABLE>
12 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
21 JANUARY 31 OCTOBER
1999 1998
L'000 L'000
<S> <C> <C>
Finance leases 41 45
Other loans 193 437
Insurance broking creditors 5,681 8,728
Other creditors and accruals 77 157
Social security and other taxes 46 27
Corporation tax 3 -
--------- ---------
6,041 9,394
========= =========
</TABLE>
32
<PAGE> 33
IAN MCCALL HOLDINGS LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
21 JANUARY 31 OCTOBER
1999 1998
L'000 L'000
<S> <C> <C>
Finance leases 80 85
Other loans 20 20
------- -------
100 105
======= =======
</TABLE>
Finance leases represents obligations under various financing
arrangements in respect of the group's fleet of motor vehicles.
Other loans are secured by a fixed charge over certain computer
software licences and contracts owned by the company. The loans bear
interest at 12.5% and are repayable by way of quarterly instalments. Of
the repayments due after one year (pound)10,000(1998 -(pound)20,000) is
due between one and two years.
14 DEFERRED TAX
<TABLE>
<CAPTION>
21 JANUARY 31 OCTOBER
1999 1998
TOTAL TOTAL
POTENTIAL POTENTIAL
(LIABILITY)/ AMOUNTS (LIABILITY)/ AMOUNTS
GROUP ASSET PROVIDED ASSET PROVIDED
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
On accelerated capital allowances (1) - (1) -
Trading losses 49 - 103 -
------- ------- ------- -------
48 - 102 -
======= ======= ======= =======
</TABLE>
33
<PAGE> 34
IAN McCALL HOLDINGS LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
15 SHARE CAPITAL
<TABLE>
<CAPTION>
21 JANUARY 31 OCTOBER
1999 1998
L'000 L'000
---------- ----------
<S> <C> <C>
Authorised
30,000 ordinary shares of(pound)1 each 30 30
20,000 ordinary non-voting 'A' shares of pound sterling 1 each 20 20
---- ----
50 50
==== ====
Allotted, issued and fully paid
24,390 (31 October 1998 -20,720) ordinary shares of pound sterling 1 each 24 20
17,500 ordinary non-voting 'A' shares of pound sterling 1 each 18 18
---- ----
42 38
==== ====
</TABLE>
In May 1998 2,034 ordinary shares of pound sterling 1 each were issued
at pounds sterling 12 per share upon the exercise of certain share
options.
In January 1999 3,670 ordinary shares of pound sterling 1 each,
representing the balance of the outstanding options under the company's
approved share option scheme, were issued at pounds sterling 9.50 per
share upon the exercise of those options.
The ordinary shares of pound sterling 1 each and the ordinary
non-voting 'A' shares of pound sterling 1 each rank pari passu except
that the non-voting 'A' shares confer no rights to the holders thereof
to receive notice of, or to attend or to vote at any Annual General
Meeting or Extraordinary General Meeting of the company.
16 SHARE PREMIUM ACCOUNT
<TABLE>
<CAPTION>
21 JANUARY
1999
L'000
----------
<S> <C>
At 1 November 1998 69
Issue of share capital on exercise of options 31
-------
At 21 January 1999 100
=======
</TABLE>
34
<PAGE> 35
IAN McCALL HOLDINGS LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
17 RECONCILIATION OF MOVEMENT IN SHAREHOLDER'S FUNDS
<TABLE>
<CAPTION>
1 NOVEMBER 1998 YEAR ENDED YEAR ENDED
TO 21 JANUARY 31 OCTOBER 31 OCTOBER
1999 1998 1997
L'000 L'000 L'000
------------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of period 261 683 886
(Loss)/profit for year 716 (446) (203)
Issue of share capital on exercise of
share options 35 24 -
------- ------- -------
Balance at 31 October 1998 1,012 261 683
======= ======= =======
</TABLE>
18 FLOATING CHARGE
As required by Lloyd's Brokers Byelaw (No 5 of 1998) a subsidiary
company has entered into a trust deed under which all of its insurance
broking account assets are subject to a floating charge held on trust
by the Society of Lloyd's for the benefit of the insurance creditors,
which at 21 January 1999 amounted to pound sterling 5,383,000 (31
October 1998 - pound sterling 8,614,000). The charge only becomes
enforceable under certain circumstances as set out in the trust deed.
The assets subject to this charge were:
<TABLE>
<CAPTION>
21 JANUARY 31 OCTOBER
1999 1998
L'000 L'000
-------- --------
<S> <C> <C>
Bank balances 2,010 3,924
Insurance broking debtors 3,557 4,857
-------- --------
5,567 8,781
-------- --------
</TABLE>
35
<PAGE> 36
IAN McCALL HOLDINGS LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
19 COMMITMENTS UNDER OPERATING LEASES
As at 21 January 1999, the company had annual commitments under
non-cancellable operating leases as set out below:
<TABLE>
<CAPTION>
LAND AND BUILDINGS OTHER
---------------------------- -------------------------
21 JANUARY 31 OCTOBER 21 JANUARY 31 OCTOBER
1999 1998 1999 1998
L'000 L'000 L'000 L'000
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Operating leases which expire:
Within one year - - 17 17
Over five years 130 130 - -
------- ------- ------- -------
130 130 17 17
------- ------- ------- -------
</TABLE>
20 RECONCILIATION OF OPERATING (LOSS)/PROFIT TO OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1 NOVEMBER 1998 TO YEAR ENDED YEAR ENDED
21 JANUARY 31 OCTOBER 31 OCTOBER
1999 1998 1997
L'000 L'000 L'000
------------------ ------------ ----------
<S> <C> <C> <C>
Operating (loss)/profit (275) (320) (147)
Depreciation charges 18 123 136
Loss/(profit) on disposal of tangible fixed assets 34 (2) 1
Amortisation of goodwill 20 42 43
Settlement of provision - (226) -
Decrease/(increase) in debtors 1,076 2,143 1,528
(Decrease)/increase in creditors (3,156) (2,418) (2,614)
Interest receivable (40) (140) (197)
Investment income (19) - -
------- ----- ------
Net cash (outflow)/inflow from operating activities (2,342) (798) (1,250)
======= ===== ======
</TABLE>
36
<PAGE> 37
IAN McCALL HOLDINGS LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
21 ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE
CASH FLOW STATEMENT
<TABLE>
<CAPTION>
1 NOVEMBER 1998 TO YEAR ENDED YEAR ENDED
21 JANUARY 31 OCTOBER 31 OCTOBER
1999 1998 1997
L'000 L'000 L'000
------------------ ------------ -----------
<S> <C> <C> <C>
Returns on investments and servicing of finance
Interest received 40 140 197
Interest element of finance lease rental payments (7) (31) (33)
Interest paid (42) (69) (52)
Dividends received - - -
-------- ------- -------
Net cash inflow for returns on investments and
servicing of finance (9) 40 112
======== ======= =======
Capital expenditure and financial investments
Purchase of tangible fixed assets - (12) (11)
Sale of tangible fixed assets 10 82 72
Sale of investments 25 - -
-------- ------- -------
Net cash outflow for capital expenditure and
financial investment 35 70 61
======== ======= =======
Acquisition of subsidiary undertaking - - (55)
Disposal of subsidiary undertaking 1,557 - -
-------- ------- -------
Net cash (outflow)/inflow for acquisitions and disposals 1,557 - (55)
-------- ------- -------
Financing
Bank loan repaid - (178) (113)
Finance leases repaid (10) (118) (136)
Other loans (repaid)/raised (244) 362 (32)
Issue of shares 35 24 -
-------- ------- -------
Net cash outflow from financing (219) 90 (281)
======== ======= =======
Management of liquid resources
Cash withdrawn/(deposited) from 7 day deposit 650 (226) 2,990
-------- ------- -------
Net cash inflow/(outflow) from management of liquid
resources 650 (226) 2,990
======== ======= =======
</TABLE>
37
<PAGE> 38
IAN McCALL HOLDINGS LIMITED
NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
22 RECONCILIATION OF MOVEMENTS IN NET FUNDS
<TABLE>
<CAPTION>
1 NOVEMBER 1998 YEAR ENDED YEAR ENDED
TO 21 JANUARY 31 OCTOBER 31 OCTOBER
1999 1998 1997
L'000 L'000 L'000
--------------- ---------- ----------
<S> <C> <C> <C>
Increase in cash in the year (328) (732) 1,394
Cash (inflow)/outflow from decrease in debt and leasing finance 254 (66) 281
Cash (inflow)/outflow from decrease in liquid resources (650) 226 (2,990)
------ ------ ------
Change in net funds resulting from cash flows (724) (572) (1,315)
New finance leases -- (24) (72)
------ ------ ------
Movement in net funds in the year (724) (596) (1,387)
Net funds at beginning of period 3,381 3,977 5,364
------ ------ ------
Net funds at end of period 2,657 3,381 3,977
====== ====== ======
</TABLE>
23 ANALYSIS OF NET FUNDS
<TABLE>
<CAPTION>
AT OTHER AT
1 NOVEMBER CASH NON-CASH 21 JANUARY
1998 FLOW CHANGES 1999
L L L L
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash in hand and at bank 2,218 (328) -- 1,890
7 day treasury deposit 1,750 (650) -- 1,100
------ ---- ------ ------
3,968 (978) -- 2,990
Debt due within one year (437) 244 (20) (213)
Debt due after one year (20) -- 20 --
Finance leases (130) 10 -- (120)
------ ---- ------ ------
3,381 (724) -- 2,657
====== ==== ====== ======
</TABLE>
24 POST BALANCE SHEET EVENT
On 21 January 1999, Alterproof Limited acquired the whole of the company's
issued share capital. Alterproof Limited was under the control of T R
Hewett and E M Rennick, who are directors of the company.
38
<PAGE> 39
BIOFARM, INC AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On April 30, 1999, Burlington, Chamber & James Limited ("BCJ"), a wholly
owned subsidiary of Biofarm Inc.("the Company"), acquired 85% of the issued and
outstanding shares of Alterproof Limited ("Alterproof") for a cash purchase
price of pounds sterling 8,500 which the Company obtained from its existing
resources. In addition BCJ lent Alterproof the sum of (pound)491,500 by way of
an unsecured loan note repayable after October 31, 2000. On the same date BCJ
exchanged 500 shares in Alterproof by way of a share exchange agreement for a
49% holding of Mr Anil Kumar Mahan in Burlington & James Limited ("B&J"), a
subsidiary of BCJ, of which BCJ holds the remaining 51%. As a result of the
transactions Biofarm Inc., through its subsidiary BCJ now controls 80% of the
issued and outstanding shares of Alterproof.
The acquisition will be accounted for as a purchase, with the assets
acquired and liabilities assumed recorded at fair values, and the results of
Alterproof's operations included in the Company's consolidated financial
statements from the date of acquisition.
The accompanying condensed consolidated financial statements illustrate the
effect of the acquisition ("Pro Forma") on the Company's financial position and
results of operations. The condensed consolidated balance sheet as of April 30,
1999 is based on the historical balance sheets of the Company and Alterproof as
of that date and assumes the acquisition took place on that date. The condensed
consolidated statements of income for the year ended October 31, 1998 and the
six months ended June 30, 1999 are based on the historical statements of income
of the Company and Alterproof for those periods. The pro forma condensed
consolidated statements of income assume the acquisition took place on November
1, 1997.
The pro forma condensed consolidated financial statements may not be
indicative of the actual results of the acquisition. In particular, the pro
forma condensed consolidated financial statements are based on management's
current estimate of the allocation of the purchase price, the actual allocation
of which may differ.
The accompanying condensed consolidated pro forma financial statements
should be read in connection with the historical financial statements of the
Company and Alterproof.
39
<PAGE> 40
BIOFARM, INC AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
April 30, 1999
(in thousands)
<TABLE>
<CAPTION>
ASSETS Biofarm Alterproof Adjustments Pro Forma
------ -------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Cash $ 2,166 $ 4,331 $ 6,497
Accounts receivable 4,191 6,233 10,424
Inventories 12,023 - 12,023
Prepaid expenses and other current assets 1,463 251 1,714
------- ------- -------
Total current assets 19,843 10,815 30,658
Property and equipment, net 3,693 277 3,970
Deposits 1,946 - (805)(1)(2) 1,141
Goodwill 284 196 783(1) 1,263
Other 1,464 - 1,464
------- ------- -------
$27,230 $11,288 $38,496
======= ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
Short term borrowings $ 4,536 $ 1,340 $ 5,876
Accounts Payable 4,263 9,464 13,727
Advances from customers 1,119 - 1,119
Payrolls and related taxes 242 61 303
Accrued expenses 2,612 227 2,839
Income taxes 257 5 262
Current installments of long-term debt
and capitalized lease 100 64 164
------- ------- -------
Total current liabilities 13,129 11,661 24,290
Deferred credits 5,400 2 5,402
Capitalized lease - 103 103
Long-term debt 934 791 (791)(2) 934
------- ------- -------
Total liabilities 19,463 12,057 30,729
Advances under pending equity facility 3,000 - 3,000
Shareholders' equity 4,767 (769) 769(1) 4,767
------- ------- -------
$27,230 $11,288 $38,496
======= ======= =======
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)
40
<PAGE> 41
BIOFARM, INC AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Year Ended October 31, 1998
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Biofarm Alterproof Adjustments Pro Forma
------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues....................................... $13,010 $2,543 $15,553
Cost of products sold.......................... 7,234 - 7,234
------- ------ -------
Gross Profit................................... 5,776 2,543 8,319
Operating costs and expenses
Research and development................... 253 - 253
Merger and acquisition related expenses.... 217 - 217
Other operating income..................... (9) (106) (115)
Selling and administrative................. 4,801 2,830 (78)(3) 7,709
------- ------ -------
Operating income............................... 514 (181) 255
Other net expenses............................. (63) - (63)
Interest expense............................... (95) (166) (261)
Net foreign exchange translation gain ......... 13 - 13
------- ------ -------
Income (loss) before income taxes.............. 369 (347) (56)
Income taxes (expense)......................... (675) 55 (620)
Net (deficit)/income........................... $ (306) $ (292) $ (676)
======= ======= =======
Loss per share................................. $(0.01) $(0.03)
======= =======
Weighted average number of
shares outstanding........................21,059,650 21,059,650
========== ==========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)
41
<PAGE> 42
BIOFARM, INC AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Six Months Ended April 30, 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Biofarm Alterproof Adjustments Pro Forma
------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues....................................... $8,483 $1,075 $ 9,558
Cost of products sold.......................... 4,380 - 4,380
------- ------ -------
Gross profit................................... 4,103 1,075 5,178
Operating costs and expenses
Research and development................... (96) - (96)
Other operating income..................... (40) (118) (158)
Selling and administrative................. 4,490 2,010 (39)(3) 6,539
------- ------ -------
Operating deficit.............................. (443) (817) (1,299)
Interest expense............................... (429) (94) (523)
Net foreign exchange translation loss.......... (989) - (989)
------- ------ -------
Deficit before taxes........................... (1,861) (911) (2,811)
Income taxes expense........................... (547) (547)
------- ------ -------
Net loss....................................... $(2,408) $ (911) $(3,358)
======== ====== =======
Loss per common share.......................... $(0.11) $(0.15)
======== =======
Weighted average number of
shares outstanding......................... 21,670,974 21,670,974
========== ==========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)
42
<PAGE> 43
BIOFARM, INC AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--The pro forma adjustments to the condensed consolidated balance sheet
are as follows:
(1) To reflect the acquisition of Alterproof and the allocation of the
purchase price on the basis of the fair values of the assets acquired and
liabilities assumed. The components of the purchase price and its
allocation to the assets and liabilities of Alterproof are as follows (in
thousands):
<TABLE>
<S> <C>
Components of purchase price:
Cash from existing resources included in deposits at 30 April 1999..... $ 14
Allocation of purchase price:
Fair value of assets acquired less liabilities assumed ................ 769
Cost in excess of net assets acquired - goodwill............................ $783
====
</TABLE>
(2) To eliminate the loan from BCJ
NOTE B -- The pro forma adjustments to the condensed consolidated statements of
income are as follows:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
October 31, 1998 April 30, 1999
<S> <C> <C>
(3) Adjustments to selling and administrative expenses:
Amortization of excess cost over fair value of net assets
acquired over 10 years...................................... $ 78 $ 39
</TABLE>
43
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