SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended January 31, 2000
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File Number 0-20317
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BIOFARM, INC.
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(Exact name of registrant as specified in its charter)
Nevada 88-0270266
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1244 Main Street, Linfield, Pennsylvania 19468
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(United States address of principal executive offices, including zip code)
(610) 495-8413
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(Issuer's telephone number)
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Check whether the Issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
--- ---
The number of shares outstanding of the Issuer's Common Stock, $.001 Par
Value, as of January 31, 2000, was 4,376,930.
<PAGE>
BIOFARM, INC.
Form 10-QSB
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
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Item 1. Financial Statements
<S> <C> <C>
Balance Sheets -
January 31, 2000 and October 31, 1999 3
Statements of Operations - Three months ended
January 31, 2000 and January 31, 1999 4
Statements of Cash Flows - three months ended
January 31, 2000 and January 31, 1999 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
<PAGE>
PART I
Item 1. Financial Information
BIOFARM, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
January 31, October 31,
2000 1999
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<S> <C> <C>
CURRENT ASSETS
Cash $ 475 $ 2,882
Note receivable, Stockholder 15,000 40,000
Subscriptions receivable and accrued interest 757,500 750,000
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Total current assets 772,975 792,882
OTHER ASSETS
Convertible note receivable 439,250 439,250
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Total Assets $ 1,212,225 $ 1,232,132
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 21,500 $ 48,752
Third party indebtedness 200,000 200,000
Payable due to Hannibal Capital Corp. 5,872 6,172
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Total current liabilities 227,372 254,924
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; 5,000,000
shares authorized, none issued
Common stock, $.001 par value; 25,000,000
shares authorized, 4,376,930 shares issued
and outstanding in 2000 and 1999 4,377 4,377
Additional paid-in capital 17,323,802 17,323,802
Accumulated deficit (16,343,326) (16,350,971)
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Total Stockholders' equity 984,853 977,208
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Total Liabilities and Stockholders' Equity $ 1,212,225 $ 1,232,132
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
BIOFARM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended January 31,
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2000 1999
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Revenue
Settlement of litigation $ 25,000 $ --
Interest 7,500 --
----------- -----------
32,500 --
General and administrative expenses 24,855 34,266
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Net income (loss) $ 7,645 $ (34,266)
=========== ===========
Basic income (loss) per common share $ -- $ (.01)
=========== ===========
Weighted-average number of common shares
outstanding 4,376,930 4,252,979
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
BIOFARM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JANUARY 31, 2000 AND 1999
(Unaudited)
2000 1999
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OPERATING ACTIVITIES
Net income (loss) $ 7,645 $(34,266)
Adjustments to reconcile net income (loss) to
net cash utilized by operating activities:
Changes in:
Accounts payable (27,252) (5,745)
Subscription accrued interest (7,500) --
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(34,752) (5,745)
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Net cash utilized by operating activities (27,107) (40,011)
FINANCING ACTIVITIES
Payments of note receivable, Stockholder 25,000 40,000
Payable due to Hannibal Capital Corp. (300) --
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Net cash provided by financing activities 24,700 40,000
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DECREASE IN CASH (2,407) (11)
Cash, beginning of period 2,882 2,328
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Cash, end of period $ 475 $ 2,317
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
BIOFARM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Biofarm, Inc. (formerly Global Spill Management, Inc.) was incorporated in June,
1991, to acquire, operate and develop environmental contracting and consulting
companies, and related businesses. All operating companies were disposed of or
sold in prior years.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
Biofarm, Inc. and its wholly owned subsidiaries (collectively referred to as the
"Company" or "Biofarm") after elimination of all significant intercompany
balances and transactions.
Income (loss) per common share
In 1998, the Company adopted SFAS No. 128, "Earnings Per Share" ("EPS"), which
provides for the calculation of basic and diluted EPS. Basic EPS includes no
dilution and is computed by dividing the income (loss) available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution of securities that could
share in the income (loss) of the Company. There is no difference in basic and
diluted EPS for the three months ended January 31, 2000 and 1999 since there are
no potentially dilutive securities outstanding for either period presented.
Year end
During November 1998, Biofarm, Inc. changed its year end to October 31.
NOTE B - FAILED ACQUISITIONS
On September 4, 1998, the Company entered into a contract to acquire
approximately 87% of the issued and outstanding shares of capital stock of
Biofarm, S.A., a Romanian pharmaceutical company from Litchfield Continental,
Ltd. ("Litchfield."). In consideration for the purchase of the shares of
Biofarm, S.A., the Company agreed to issue to Litchfield a convertible,
non-negotiable secured Debenture, in the amount of $6,434,681. Such Debenture
provided that, from time to time, for a period of five years the holder thereof
could convert a portion, but not less than 2% of the original principal sum,
into common stock of the Company for each 2.5% of the principal sum of the
Debenture that was converted. Therefore, if the entire principal sum of the
Debenture was converted, the holder would own 80% of the Company's issued and
outstanding common stock as of the date of conversion.
<PAGE>
BIOFARM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - FAILED ACQUISITIONS (Continued)
Since the Debenture could only be converted into the common stock of the
Company, for accounting purposes, Biofarm, S.A. would be considered the
acquiring entity. Therefore, the acquisition was accounted for as a reverse
purchase in accordance with Generally Accepted Accounting Principles and with
Biofarm, S.A. retaining the majority voting interest in the merged entity. Also,
the Directors and Officers of Biofarm, S.A. became the Directors and Officers of
the Company. Prior to the merger, the Company had no operating activities.
Subsequent to the merger between Biofarm, S.A. and the Company, three additional
companies were contributed to the Company: Britten-Norman Ltd; Kaster Bioscience
Ltd; and Burlington Chamber & James Ltd.
Based on legal opinions received by management concerning the issuance of stock
in the failed acquisitions, and the subsequent Rescission Agreement, management
considers the failed acquisitions a nullity and void ab initio. Accordingly, the
accounts and operations of Biofarm, S.A., Britten-Norman Ltd., Kaster Bioscience
Ltd. and Burlington Chamber & James, Ltd. have been omitted from the Company's
consolidated financial statements. All common stock and per-share amounts from
the date of the failed acquisitions to October 31, 1998 have been retroactively
adjusted to reflect the nullification of the issuance of the original
convertible Debenture.
With respect to the accounting issue presented by virtue of the rescission,
effective October 31, 1999, of the transactions with Litchfield, namely, whether
rescission voids the Litchfield transactions nunc pro tunc or whether rescission
requires treatment of the Litchfield transactions as discontinued operations
requiring inclusion of the Litchfield entities in the Company's financial
statements for the fiscal year ended October 31, 1999, the Company believes that
such decision is sui generis and must be decided based upon the facts peculiar
to the Litchfield transactions. In that regard, the Company learned that the
Escrow Agreement entered into between the Company and Litchfield as part of the
September 4, 1998, purported closing with Litchfield of the sale of
approximately 87% of Biofarm, S.A. to the Company by Litchfield in exchange for
the Company's Debenture, may never have been actually consummated. Although the
Company, Litchfield and the Escrow Agent each executed such Escrow Agreement,
the Company has been unable to confirm that the Escrow Agent retained the
original Debenture with the Company's signature affixed thereto. Nor has the
Company been able to confirm receipt by the Escrow Agency of stock certificates
representing the approximately 87% of the capital stock of Biofarm, S.A.
required to be deposited with such Escrow Agent. Assuming failure of Litchfield
ever to deliver the foregoing escrow items to the Escrow Agent, it is the
Company's position that the Company never took possession of the former
Litchfield entities and cannot be deemed ever to have controlled such entities.
Each of the foregoing failures would constitute further evidence of the effect
of the underlying transactions with Litchfield as being void ab initio. The
Company has also solicited and received an opinion from outside counsel that New
York law treats the Rescission Agreement as rendering the Litchfield
transactions void ab initio: that is, as if such transactions never occurred.
<PAGE>
BIOFARM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - FAILED ACQUISTIONS (Continued)
The Escrow Agreement confirms Litchfield's responsibility to transfer or cause
to be transferred to the Company all right, title and interest of the owners of
the Stock of Biofarm, S.A. Further, as stated in the Escrow Agreement and as
modified by the Post-Closing Agreement, Litchfield was to provide the Transfer
Agent with "all documentation necessary or appropriate to effect the transfer of
title to Seller's Stock as required by the Stock Purchase Agreement." The
Company and Litchfield were then to direct the Transfer Agent to deliver the
Seller's Stock to the Escrow Agent and, simultaneously, the Debenture would also
be delivered. The Escrow Agent was thereafter to maintain possession of the
Debenture and "all documentation pertaining to Biofarm, Inc.'s ownership of
Biofarm, S.A. and other Company's stock, all in order to perfect Biofarm S.A.'s
security interest therein." The Company did, in fact, deliver to the Escrow
Agent the original of the Debenture.
If Litchfield were to exercise its conversion rights under the Debenture, any
stock issued by the Company and any amendments to the Debenture required to show
a decrease in its outstanding principal balance, were likewise to be delivered
to and held by the Escrow Agent. The Escrow Agent would then hold same until
receipt of an appropriate amendment, whereupon the Escrow Agent would cause a
certificate representing the appropriate amount of the Company's stock to be
transferred to Litchfield. Once the Debenture was completely converted, the
Escrow Agent would then return the Debenture to the Company marked "canceled",
together with all certificates and other documentation representing the
Company's ownership of the Biofarm, S.A. stock purchased from Litchfield.
Pursuant to the Addendum to the Stock Purchase Agreement, at the time of "Final
Settlement" (originally contemplated to be after Litchfield obtained a
sufficient amount of Biofarm, S.A. capital stock (87%)), after delivery to the
transfer agent of documentation necessary to transfer ownership of the Stock,
"Sellor's Stock and all documents representing Sellor's Stock, as transferred
into Biofarm, Inc.'s name and ownership, shall thereafter be held by Escrow
Agent pursuant to the Escrow Agreement."
In summary, documents transferring title to the Biofarm, S.A. stock held by
Litchfield and its affiliates were to be sent to the transfer agent with
instructions to transfer the record ownership into the Company's name. All such
documents, certificates and otherwise, were then to be delivered to the Escrow
Agent to hold together with the Debenture. Even if Litchfield were to exercise
its conversion rights under the Debenture, the Escrow Agent would continue to
hold the Romanian company stock as collateral, even though Litchfield would be
entitled to receive certificates representing the Company shares issued upon
conversion. When the Debenture was satisfied, the Escrow Agent would then
release the stock certificates and ancillary documents to the Company.
<PAGE>
BIOFARM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - FAILED ACQUISITONS (Continued)
Documentation received by the Company at the time of and subsequent to the
execution of the Rescission Agreement, indicates that (a) the Escrow Agent
surrendered the Debenture to Litchfield and (b) the Escrow Agent never had
possession of the certificate representing 87% of the capital stock of Biofarm,
S.A. In fact, Litchfield attempted to convert all of the Debenture into Common
Stock on or about October 15, 1999, when Litchfield's counsel states, in a
letter dated November 11, 1999, that the Debenture was surrendered for
conversion, and the Escrow Agent has made available copies of blank stock powers
with no Biofarm, S.A. stock certificates affixed thereto.
Predicated upon all of the foregoing, the Company has concluded that the
transaction between the Company and Litchfield never, in point in fact, was
consummated on October 5, 1998. Therefore, the operations of the
Litchfield-contributed companies never belonged to the Company and should not be
included in the Company's financial statements for the fiscal year ended October
31, 1999 or for the quarterly periods ended January 31, 1999, April 30, 1999 and
July 31, 1999.
Under terms of the Rescission Agreement, the following occurred:
a. The Company's Convertible Debenture issued to Litchfield was cancelled
and the Company returned to Litchfield the four companies previously
transferred to the Company by Litchfield;
b. The Litchfield nominees to the Company's Board tendered their
resignations therefrom and the three directors of the Company who
occupied such office prior to October 5, 1998, were restored as the
directors of the Company; and,
c. Litchfield indemnified the Company against all liabilities incurred
since October 5, 1998, except for one such indebtedness in the amount
of $200,000 which is reflected as third party indebtedness under
current liabilities. In addition, the Company (subject to Litchfield's
fulfillment of its obligations under the Rescission Agreement) agreed
to honor Litchfield's issuance to a third party of 165,000 shares
which were issued at current market value, net of a discount due to
the stock being restricted, of $239,250; and Litchfield issued to the
Company a five-year convertible note in the principal amount of
$439,250, plus interest at 6% per annum. This is a non-cash
transaction for purposes of the Statement of Cash Flows. The note is
convertible until January 1, 2003, into shares of unrestricted,
publicly traded common stock of any entity which is acceptable to
Biofarm, Inc. The price of the conversion stock is as defined in the
convertible promissory note.
<PAGE>
BIOFARM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C - SUBSCRIPTIONS RECEIVABLE
In October, 1999, the Company received 14 non-negotiable promissory notes for
the purpose of subscribing to purchase a total of 1,500,000 shares of common
stock for a total of $750,000. The promissory notes are due on September 30,
2000 and bear interest at 4%. The notes, principal and interest, may be paid at
any time before the due date. If the maker of the note is in default of payment,
the note will bear interest at 8% from the date of default. As of October 31,
1998, the Company had outstanding non-negotiable promissory notes for the
purpose of subscribing to purchase a total of 299,000 shares for a total of
$149,500. During the period ended January 31, 1999, $40,000 related to these
promissory notes were paid. The promissory notes were due on June 30, 1999 and
bore interest at 4%. If the maker of the note was in default of payment, the
note would bear interest at 8% from the date of default.
During the year ended October 31, 1999, the Company discovered that $40,000 of
the outstanding subscriptions receivable as of July 1, 1998, were not paid.
Thereupon, the Company received a $40,000 non-convertible promissory note which
is due on September 30, 2000, in order to cover such deficiency. Since no
additional common stock will be issued in conjunction with such $40,000 note,
the common stock account remains unaffected. During the period ended January 31,
2000, $25,000 related to these promissory notes were paid.
NOTE D - INCOME TAXES
The Company had deferred tax assets of approximately $4,000,000 as of October
31, 1999, related to net operating loss carryforwards ("NOL"), which have yet to
be utilized. As a result of the sale of the Company's operating subsidiaries and
the issuance of additional shares of common stock, the amount of the NOL of
approximately $11,600,000 may be limited. Also, the utilization of these losses,
if available, to reduce the future income taxes will depend upon the generation
of sufficient taxable income prior to the expiration of the NOL. Therefore, at
January 31, 2000 and October 31, 1999, the Company established a 100% valuation
allowance against the deferred tax assets as the likelihood of recognizing this
benefit cannot be certain. The net operating losses will expire in various years
through June, 2015.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Reference is made to Form 10-KSB filed by the Registrant on January 28, 2000,
for the fiscal period ended October 31, 1999 (a copy of which (except for the
Exhibit attached thereto) is annexed hereto), which Form 10-KSB is incorporated
herein by reference. The response to Item 6 of such Form 10-KSB satisfies the
response to this Item 2.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) None
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BIOFARM, INC.
(Registrant)
Date: March 9, 2000 By: /s/ David R. Stith
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President
Date: March 9, 2000 By: /s/ Allan Esrine
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Principal Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF BIOFARM,
INC. FOR THE THREE MONTHS ENDED JANUARY 31, 2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
<EXCHANGE-RATE> 1.000
<CASH> 475
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 772,975
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,212,225
<CURRENT-LIABILITIES> 227,372
<BONDS> 0
0
0
<COMMON> 4,377
<OTHER-SE> 980,476
<TOTAL-LIABILITY-AND-EQUITY> 984,853
<SALES> 0
<TOTAL-REVENUES> 32,500
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,645
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,645
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
