SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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)
Registrant's telephone number, including area code: (610) 495-8413
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.001 Par Value)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No __
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [ ].
State isser's revenues for its most recent fiscal year.
None.
As of January 20, 2000, 4,376,930 shares of Common Stock ($.001 par value)
were issued and outstanding. The aggregate market value of the Common Stock held
by non-affiliates was approximately $4,141,043, determined by the closing sale
price on that date based upon 4,020,430 shares owned by non-affiliates.
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TABLE OF CONTENTS
Part I
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
Item 6. Management's Discussion and Analysis or Plan of Operation
Item 7. Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits and Reports on Form 8-K
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PART I
Item 1. Description of Business
Biofarm, Inc., a Nevada corporation (hereinafter referred to as the
"Company"), was organized under the laws of the State of Nevada on September 26,
1990, under the name Global Spill Management, Inc. From inception until June 28,
1996, the Company was engaged in the environmental remediation business with
emphasis upon the elimination of oil spill damages. On October 5, 1998, the
shareholders voted to change the name of the Company to Biofarm, Inc.
A. PLAN OF REORGANIZATION (and Events Prior to September 4, 1998)
In April, 1996, because of a demonstrable inability to meet its debts as
they matured, the Company and its financial advisors determined to undertake a
comprehensive Plan of Reorganization (the "Plan"). Such Plan included the (a)
sale of the four operating subsidiaries for cash consideration only, (b)
liquidation of the debt due to the senior secured creditor (Meridian Bank), and
(c) elimination of debt in its entirety.
Sales of Subsidiaries
On June 28, 1996, the Company sold the capital stock or the net assets of
its then four operating subsidiaries. An aggregate of $1,200,000 was paid to
Meridian Bank in full and complete satisfaction of secured indebtedness to
Meridian Bank in the principal amount of $1,480,000 (plus accrued interest of
$47,000). Meridian Bank satisfied its lien and executed a General Release in
favor of the Company on June 28, 1996.
As a result of the disposition of all of its subsidiaries, the Company
ceased to be an operating company.
Elimination of Debt
In addition to the discharge of all obligations due to Meridian Bank, the
Company also undertook the elimination of all other debt. Employment contracts
(under which the Company was obligated in the amounts of $1,230,600 for 1996 and
$848,000 for 1997, respectively) were terminated, lease obligations were
cancelled and general, unsecured creditors (other than those owed minimal
amounts or those professionals and firms continuing to provide necessary
services for the Company), were resolved with an offer of 37.5 cents on the
dollar.
Giving effect to the (a) satisfaction of the indebtedness due Meridian
Bank, and (b) liabilities assumed by the purchasers of the four operating
subsidiaries being treated herein as having occurred on June 28, 1996, the
Company remained, as of June 30, 1996, with fixed liabilities of $814,000.
Commencing in July, 1996, the Company, as an alternative to creditor proceedings
that would have involved legal and accounting costs disproportionate to the
dollar amount of its remaining liabilities, commenced a voluntary plan of
payment at a discount. Creditors were offered an immediate settlement equal to
37.5% of the amount owed (except for
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claims under $100 which were liquidated in full). Such offer resulted, as of
June 30, 1997, in $691,892 in the aggregate of claims being settled for the sum
of $237,711. As of October 31, 1999, total liabilities of the Company were
approximately $10,000.
The results of the Plan were as follows: approximately $6.9 million of
indebtedness existing at June 30, 1996, has been eliminated in full, $1,515,678
in cash was arranged by management to be contributed to the Company, all
inchoate claims against the Company (beyond the $6,900,000 of fixed obligations)
were resolved, and (except for the one matter described hereinafter under
"Litigation") all litigation has been resolved.
B. ACQUISITIONS EFFECTED SUBSEQUENT TO IMPLEMENTATION OF PLAN OF
REORGANIZATION (and Events Subsequent to September 4, 1998)
(i) ACQUISITION OF BIOFARM, S.A.
Management did not deem it prudent to consider seriously the acquisition of
a going business until the Plan proved feasible. Accordingly, early in 1998,
after a period of eighteen months during which the Plan was activated,
management determined that the Company was then in a position to effect a major
acquisition. Accordingly, negotiations were commenced to acquire approximately
87% of Biofarm, S.A. ("Biofarm") from Litchfield Continental, Ltd.
("Litchfield"). Management's goals during the negotiations were to avoid the use
of cash, minimize the debt to be issued to effect the acquisition, avoid the
immediate issuance of any substantial number of shares of Common Stock, and
defer the conversion of debt into Common Stock as long as was possible in order
to afford time for the anticipated earnings of Biofarm to develop to their full
potential. The acquisition of Biofarm was closed on September 4, 1998.
Biofarm is a Romanian pharmaceutical manufacturer located in Bucharest. It
has been in business since 1921. Biofarm manufactures and sells pharmaceutical
and veterinary products both for domestic and international consumption. Biofarm
was state-owned until June 27, 1997, when control thereof was acquired by
Litchfield. Sales of Biofarm for the ten month fiscal period ended October 31,
1998, were $7,758,000 and operating income was $1,253,000.
The Stock Purchase Agreement provided for the purchase from Litchfield of
approximately 87% of the issued and outstanding shares of Biofarm, representing
all of the issued and outstanding shares of Biofarm owned by Litchfield. In
consideration for the purchase of the shares of Biofarm, the Company issued to
Litchfield a convertible non-negotiable secured debenture (the "Debenture") in
the principal sum of $6,434,681.
The Debenture provided that there was no interest due or payable on the
principal sum and was non-negotiable and non-transferable. The Debenture was
non-redeemable and did not represent a debt obligation of the Company. The
Debenture also provided that, from time-to-time, for a period of five (5) years
from the date of the Debenture, the holder thereof could convert a portion, but
not less than 2.5%, of the original principal sum into shares of the Company's
Common Stock. The Debenture was convertible at the rate of 2% of the then issued
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and outstanding Common Stock of the Company for each 2.5% of the principal sum
of the Debenture that was converted. Therefore, and in accordance with the terms
of the Debenture, if the entire principal sum of the Debenture was converted,
the holder would own eighty (80%) percent of the Company's issued and
outstanding Common Stock based upon the number of shares thereof issued and
outstanding as of the date of conversion. The Company had a sufficient number of
shares of Common Stock authorized to effect the entire conversion. Such
conversion was not permitted prior to January 31, 1999, but was permissible
thereafter and for a period of five years from the closing date. An additional
maximum of five percent (5%) of the Company's then issued and outstanding shares
were set aside for issuance to Litchfield for each of the fiscal periods ended
December 31, 1998, and ending December 31, 1999, dependent upon the realization
by Biofarm of certain earnings increases (measured by the earnings of Biofarm
for the fiscal period ended December 31, 1997). For the ten month fiscal period
ended October 31, 1998, Biofarm (on an annualized basis) did not meet the
required earnings test. If Biofarm had net income of $825,000 for the fiscal
period ending October 31, 1999, Litchfield would have earned an additional
maximum of five (5%) percent of the Company's Common Stock.
Accounting Treatment
Inasmuch as Litchfield obtained voting control, and had Board of Directors
and management control of the Company since the election of the Litchfield
nominees to the Board of Directors was approved by the shareholders of the
Company on October 5, 1998, for financial accounting purposes the acquisition of
Biofarm by the Company was accounted for as a reverse purchase in accordance
with generally acceptable accounting principles. Accordingly, the statement of
financial condition and statements of operations and cash flows at October 31,
1998, the Company's new fiscal year adopted on November 24, 1998, reflected the
historical balance sheet and activities of Biofarm for all of the required
reporting periods as well as the operating results of the Company from the
reverse merger date (October 5, 1998). In addition, for accounting purposes the
shares issuable pursuant to the conversion of the Debenture were deemed to be
issued and outstanding for the periods presented in the financial statements
included with the Form 10-KSB (for the fiscal period ended October 31, 1998)
filed on February 19, 1999.
Form 8-K Filings Relating to Biofarm, S.A.
Reference is made to the Form 8-K filings of the Company, dated March 6 and
November 18, 1998, and January 13, 1999, including the financial information
concerning Biofarm required by Form 8-K, for further information concerning the
Biofarm acquisition. Also, the Company's Proxy Statement, dated September 21,
1998, contains additional information concerning Biofarm. (Reference is also
made to the Form 8-K filing of the Company, dated November 12, 1999, for
information pertinent to the rescission of the Biofarm transaction.)
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(ii) ACQUISITION OF THREE UNITED KINGDOM ENTITIES
On October 13, 1998, the Company's Board of Directors adopted a resolution
to acquire 100% of the issued and outstanding shares of capital stock of three
United Kingdom entities: Britten-Norman Ltd.; Kaster Bioscience Ltd.; and
Burlington, Chamber & James Ltd. (which, in turn, owns 51% of Burlington and
James Ltd.).
Each of such acquisitions was also obtained from Litchfield, from which the
Company acquired Biofarm on September 4, 1998. Because Litchfield held a
convertible non-negotiable secured Debenture issued by the Company as
consideration for the acquisition of Biofarm in the principal amount of
$6,434,681, and because such Debenture converted into eighty (80%) percent of
the then issued and outstanding shares of Common Stock of the Company,
Litchfield contributed the capital stock of the three UK entities to the Company
without additional consideration.
Closing of the three acquisitions was subject to the condition subsequent
of the receipt of audited financial statements of each as of October 31, 1998
(the Company's newly-adopted fiscal period), acceptable to the Company. On
February 18, 1999, such audited statements were delivered to and approved by the
Board of Directors of the Company then controlled by Litchfield. Thereby, the
Company deemed such acquisitions to have been effected prior to October 31,
1998, and included such financial statements in the fully consolidated audited
financial statements of the Company for the latter's new fiscal period ended
October 31, 1998, utilizing Litchfield's historical costs.
(a) Britten-Norman Ltd.
Britten-Norman Ltd. ("BN") was established in 1960 and, as one of three UK
aircraft manufacturers, carries CAA approval. BN designs and manufacturers the
BN2 Islander and Defender series of light STOL (short takeoff and landing)
airplanes. In excess of 1,200 such planes have been delivered to customers in
over 120 nations, ranging from independent air taxi operators and regional
airlines to law enforcement groups and military forces. BN provides technical
support as well as a full overhaul and repair service at its Isle of Wight
facility. BN offers a full maintenance and repair service for smaller aircraft
and is a fully approved British Ministry of Defense contractor and flight trial
provider.
During the period from July 13, 1998 (the date BN was acquired by
Litchfield) until October 31, 1998, BN had sales of $3,663,000 and an operating
loss of $146,000.
(b) Kaster Bioscience Ltd.
Kaster Bioscience Ltd. ("Kaster") was established to supply pre-prepared
microbiological support media to the pharmaceutical industry. The manufacture of
growth media to grow bacteria is widely used to test effectively sterile
production in the pharmaceutical industry. Although the immediate focus is to
meet the demand for pre-prepared nutrient-rich agar (solid
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gel) products, management anticipated that future developments would also
include an integrated microbiological support service. Kaster was also supposed
to provide environmental monitoring services to pharmaceutical manufacturers.
Recent reappraisals by regulatory authorities of the quality standards
necessary to the manufacture of sterile products mandate that materials used in
environmental monitoring be subject to validation and ongoing quality control.
The potential customer base includes pharmaceutical companies, laboratory supply
customers, testing laboratories and hospitals. It was also contemplated that
Kaster would compliment the strategic objectives of Biofarm, S.A., both as to
existing and to new products by providing technical expertise and more exacting
standards. The Kaster facility, located in 9,250 square feet of quality
manufacturing space in Crewe (Chesire) United Kingdom, also includes laboratory
and office space.
(c) Burlington, Chamber & James Ltd.
Burlington, Chamber & James Ltd. ("BCJ") operates as an insurance
intermediary placing insurance for its clients (including the Company) in the
London insurance market. BCJ handles all aspects of insurance, including but not
limited to, UK commercial, aviation, marine and facultative reinsurance on a
worldwide basis.
The acquisition of BCJ was intended to benefit the Company by way of income
received both from placing insurance requirements for its clients and by meeting
the specific requirements of the Company. Further benefits existed in the
in-house advice readily available to the Company on the insurance required to
protect the Company's assets. Burlington & James Ltd. (a 51%-owned subsidiary of
BCJ) was created as a regional company. Its operations through October 31, 1998,
have not been material.
(iii) ACQUISITION OF SC ROMAERO S.A. BUCHAREST
Pursuant to the Romanian privatization program, the Company submitted a bid
to acquire SC Romaero S.A. Bucharest ("Romero"), a state-owned entity engaged in
the manufacture and maintenance of aircraft. The Company, using its wholly-owned
subsidiary Britten-Norman Ltd. as the contracting party, executed the definitive
acquisition agreement with the Romanian Government to acquire Romaero on January
29, 1999. Such contract provided for an initial purchase price (subject to
adjustment) of approximately $21 million as well as a commitment to invest an
additional $60 million into Romaero over a five year period. Predicated upon
information received from the Romanian Government prior to the latter's request
for tenders, Romaero had as of December 31, 1997, a total net asset value of
approximately $90 million. According to Litchfield, such purchase price was
subsequently reduced to approximately $10 million. Notwithstanding such
reduction in purchase price, as of October 31, 1999, Litchfield had not obtained
the financing necessary to consummate the Romaero acquisition.
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(iv) ACQUISITION OF MINORITY INTEREST IN ROCKY MOUNTAIN GINSENG, INC.
On April 7, 1998, Litchfield (prior to its transfer on September 4, 1998,
of approximately 87% of Biofarm to the Company), agreed to acquire an interest
in Rocky Mountain Ginseng, Inc. ("RMG"), a Canadian entity engaged in the
marketing and distribution of raw ginseng root and value-added ginseng products.
RMG was then under contract to acquire 100% of Fuzhou Fujian Drug Co., Ltd.
("FFDC"), a registered Chinese pharmaceutical concern. On September 15, 1998,
RMG received permission from the Chinese Government (Fuzhou Gu Ou District for
Economic and Trade Bureau) to complete the acquisition of FFDC.
Litchfield acquired its initial interest in RMG in an attempt to develop
distribution possibilities for the pharmaceutical products of its then-owned
Biofarm subsidiary by providing the funding for RMG's purchase of FFDC.
Litchfield invested $650,000 in RMG; of which $433,000 was placed in escrow
pending completion of the transaction. Litchfield acquired approximately 17% of
the capital stock of RMG by obtaining ownership of 3,700,000 shares thereof.
FFDC possesses a Chinese Customs Registration Certificate, a license that
permits FFDC to import and export pharmaceutical products into and from China.
FFDC also possesses a Drug Producing Enterprise Certificate, a Drug Producing
Enterprise Quality License and a Legal Business License, all issued to FFDC by
the Chinese Government. Litchfield believed that, by virtue of its own
relationship with RMG, these permits and licenses would enable its Romanian
pharmaceutical subsidiary (Biofarm) to distribute its products in China. Also,
it was believed that these permits and licenses might give its Romanian
pharmaceutical subsidiary the opportunity to negotiate joint venture agreements
with other pharmaceutical companies seeking to distribute their products in the
Chinese market. FFDC has in place its own sales and distribution network now
numbering 131 outlets in mainland China.
On December 12, 1998, the Company obtained ownership of approximately 8% of
the capital stock of RMG by acquiring 1,800,000 shares of capital stock of RMG
in exchange for an aggregate of 165,000 shares of the Company's Common Stock.
(None of such 165,000 shares has been registered for sale under the 1933 Act;
and all such shares bear a restrictive legend.) Such 165,000 shares were issued
to Balmerino Ltd., a Gibraltar entity unaffiliated with the Company but which
may have had a relationship with Litchfield.
C. RESCISSION OF THE TRANSACTIONS BETWEEN THE COMPANY AND LITCHFIELD
(Reference is made to Form 8-K, filed November 12, 1999, for information
concerning the rescission of all transactions between the Company and
Litchfield, to which filing is annexed as an Exhibit thereto the Rescission
Agreement, dated October 31, 1999, between the Company and Litchfield.)
Effective October 31, 1999, the Company entered into a Rescission Agreement
with Litchfield. Pursuant to the terms of a Convertible Debenture in the
principal amount of $6,434,681 issued by the Company to Litchfield on September
4, 1998, such Convertible
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Debenture was convertible at any time thereafter into a maximum of 17,507,720
shares of Company's Common Stock ($.001 par value). In exchange for such
Convertible Debenture, Litchfield transferred to the Company 87% of the capital
stock of Biofarm, S.A., a Romanian pharmaceutical manufacturer. Thereafter,
Litchfield transferred to the Company the capital stock of three United Kingdom
entities, control of which had been assumed by Litchfield in July, 1998. The
Rescission Agreement was approved by a majority of the Company's shareholders
pursuant to Section 78:320 of the Nevada Revised Code.
On October 5, 1998, the nominees of Litchfield were elected to the Board of
the Company and the previous three directors resigned therefrom. Such election
was the subject of the September 21, 1998, Proxy Statement (accompanied by the
change in the name of the Company).
For additional information, reference is made to the following relevant
documents previously filed by the Registrant pursuant to the 1934 Act:
a) Proxy Statement, dated September 21, 1998
b) Form 8-K/A filed November 19, 1998
c) Form 10-KSB filed February 19, 1999
d) Form 8-K filed November 12, 1999
The effect of the Rescission Agreement is to restore the Company to the
situation that existed prior to September 4 and October 5, 1998. Thus:
a) The Company's Convertible Debenture issued to Litchfield was cancelled
and the Company returned to Litchfield the four companies 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 liabilities incurred since
October 5, 1998, except for one such indebtedness in the amount of
$200,000, and Litchfield issued to the registrant a five-year
convertible note of Litchfield in the principal amount of $439,250
(plus interest at 6% per annum).
The rescission of the transaction with Litchfield was motivated by the
fiscal 1998 operating losses and the going concern reservation expressed by BDO
International (the Company's independent auditors) on the financial statements
at and for the year ended October 31, 1998. This going concern reservation was
included in the Form 10-KSB filed on February 19, 1999. Further, doubt about the
viability of the Company was exacerbated by the operating
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loss of approximately $3.6 million for the nine months ended July 31, 1999,
which losses were attributable by Litchfield to the three United Kingdom
entities transferred to the Company by Litchfield after October 5, 1998. In the
opinion of the three directors named to replace the Litchfield nominees on the
Board of the Company, based on the continuing losses from operations it was
probable that the auditors would again issue a going concern opinion on the
financial statements for fiscal 1999, and that due to its persistent
deteriorating financial condition it was possible that the Company would not be
able to remain as a viable entity for a reasonable period of time, and that it
therefore would not be able to stay current in all its required 1934 filings.
Consequently, it was determined to effect the rescission of the transaction with
Litchfield.
Predicated upon legal opinions received by the Company concerning the
effect of rescission under New York law upon existing contractual relationships,
upon the terms of the Rescission Agreement dated October 31, 1999, upon the
retirement by the Company of all of the consideration issued to Litchfield, and
upon the manifest inability of the Company to obtain audits of the
Litchfield-contributed entities at October 31, 1999, the Company deems the
acquisition of the Litchfield-contributed entities to be a nullity and void ab
initio. Accordingly, the accounts and operations of Biofarm, Britten-Norman,
Kaster and Burlington, have been omitted from the Company's financial statements
for the fiscal year ended October 31, 1999. Apart from the legal effect of the
Rescission Agreement upon the form and content of the Company's financial
statements at October 31, 1999, the Company is advised by the
Litchfield-appointed auditors that inclusion of the financial statements of the
four Litchfield-contributed entities in the Company's October 31, 1999, audited
financial statements would be impossible because (a) Biofarm (as a private
entity) needs no October 31, 1999, audit to comply with Romanian regulations,
(b) Kaster has been placed in liquidation by Litchfield, (c) Burlington has
changed its fiscal year to April 30, and (d) Britten-Norman cannot be audited at
October 31, 1999, until and unless Litchfield discharges its prior audit
indebtedness to such audit firm in the amount of approximately $50,000. In
addition, Litchfield has (a) been singularly uncooperative in helping to resolve
the effects of material misstatements and omissions made by Litchfield in the
October 31, 1999, Rescission Agreement, and (b) not been responsive to requests
that it permit audits at October 31, 1999, of its four previously contributed
entities.
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
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by the Escrow Agent 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 transaction 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.
The Escrow Agreement referred to above is either referred to in or
constitutes part of the following documents:
(a) Stock Purchase Agreement of April 1, 1998;
(b) Addendum to Stock Purchase Agreement of September 4, 1998;
(c) Escrow Agreement of September 4, 1998;
(d) Certificate of Reaffirmation of Representations and Warranties of
September 4, 1998;
(e) Post-Closing Agreement effective as of September 4, 1998; and
(f) Opinion of Counsel (Anil Mahan) of September 4, 1998.
The preamble to 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 Seller's Stock [in Biofarm, S.A.]." Further, as stated
in paragraph 8(b) thereof, as modified by the Post-Closing Agreement, Litchfield
was to provide the Transfer Agent (either Capital Securities or other licensed
securities firm, as stated in the Post-Closing Agreement) 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 Buyer's ownership of Seller's Stock, all in order to
perfect Seller's security interest therein..." [quoted from Paragraph 8(b)]. 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
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Company's stock to be transferred to Litchfield. (See, Escrow Agreement,
Paragraph 8(b).) Once the Debenture was completely converted, the Escrow Agent
would then return same (as amended) 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 paragraph 30 of the Addendum to 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, "Seller's Stock and all documents representing Seller's Stock, as
transferred into Buyer's name and ownership, shall thereafter be held by Escrow
Agent pursuant to the Escrow Agreement."
To summarize: 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.
Documentation received by the Company at the time of and subsequent to the
execution of the Rescission Agreement, demonstrates that (a) the Escrow Agent
surrendered the Debenture to Litchfield and (b) the Escrow Agent never had
possession of certificates 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
writing 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 of fact, closed
on October 5, 1998. Therefore, the operations of the Litchfield-contributed
companies never belonged to the Company and should not be included for the
Company's fiscal period October 31, 1998, to October 31, 1999.
(See Item 6 hereinafter for a discussion of management's plan of operation
giving effect to the rescission of the Litchfield transactions.)
Item 2. Description of Property
The principal office of the Company in the United States is located at 1244
Main Street, Linfield, Pennsylvania 19468. Such premises are used solely for
mail and telephone purposes.
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Through a subsidiary, the Company owns a 2,400 square foot office building and
garage (400 square feet) located on approximately 10 acres of land (waterfront
property) in Camden, New Jersey. The Company intends, upon the resolution of
certain environmental issues, to offer such property for sale. The Company
carries such property at zero value on its books.
Item 3. Legal Proceedings
Litigation Instituted by the Company
(Reference is made to the Form 10-KSB filing by the Company, dated February
19, 1999, for the fiscal year ended October 31, 1998, for information concerning
litigation instituted by the Company.)
On October 7, 1998, the Company caused to be organized Hannibal Capital
Corp. a Nevada corporation ("Hannibal"). On December 2, 1999, a Delaware company
with the same name was organized to be the successor entity to the Nevada
corporation by virtue of a tax-free reorganization. Hannibal was organized to
pursue the litigation matters instituted by the Company and to take title to and
receive the proceeds anticipated to be recovered from such litigation for the
benefit of certain shareholders of the Company.
Pursuant to a Stock Purchase Agreement dated April 1, 1998, between the
Company and Litchfield, the Company agreed to acquire approximately 87% of
Biofarm S.A. from Litchfield in exchange for a Debenture of the Company. Such
Debenture assured Litchfield of voting control of the Company. The transaction
with Litchfield was allegedly closed on September 4, 1998; and, on October 5,
1998, the Litchfield nominees assumed control of the Company's Board of
Directors pursuant to a Proxy Statement dated September 21, 1998.
However, the agreement with Litchfield preserved for the benefit of the
shareholders of the Company other than Litchfield the proceeds of any recovery
from litigation instituted by the Company prior to the Litchfield transaction.
Despite the rescission of the Litchfield transaction on October 31, 1999, in
order to insure that the benefits (if any) of the anticipated litigation
proceeds would be available only to its shareholders and would not be shared in
by future owners of the Company's Common Stock as a result of any future
acquisition consummated for the Company's Common Stock, the Company determined
to proceed with the assignment of all of its right, title and interest in the
litigation matters to Hannibal. Therefore, Hannibal will be owned and controlled
by shareholders of the Company only; and any subsequent acquiree of the
Company's shares by virtue of having been acquired by the Company will not share
therein.
The Company has announced its intention to distribute to its shareholders
as a dividend one share of Common Stock of Hannibal for each two shares of
Common Stock of the Company. Such distribution cannot be effected until a
Registration Statement relating thereto is filed under the 1933 Act and is
declared effective by the Securities and Exchange Commission. Such registration
statement was filed on December 17, 1999. Upon the effectiveness of such
registration statement, a record date will be fixed to determine those
shareholders of the Company entitled to receive the Hannibal dividend. No shares
of the Company
12
<PAGE>
need be surrendered to receive such dividend. Each shareholder of the Company
entitled to receive the Hannibal dividend will receive notification of the
record date, a stock certificate representing ownership of Hannibal shares and a
Hannibal Prospectus (which Prospectus will contain relevant information
concerning Hannibal, including a description of the tax consequence of the
receipt of such dividend).
Litigation Instituted Against the Company
From the time the Company became a public company in 1992 until the time
(June 28, 1996) the Company disposed of all of its then operating subsidiaries,
the Company itself never engaged in environmental clean-up activities. All such
work was conducted by the former wholly-owned subsidiaries.
Subsequent to June 28, 1996, various claims have been asserted against the
Company seeking damages for non-performance by certain of the former
subsidiaries. All such matters have been resolved and disposed of conclusively,
except that the Company remains a defendant in two unrelated matters (one of
which has been resolved subject only to court approval).
The Company was named a defendant in a 1995 complaint filed in the Court of
Common Pleas (Philadelphia County). In 1992, Plaintiff hired the co-defendant
(Terminix International) to remedy a termite infestation problem. While doing so
defendant Terminix ruptured an oil line, thereby causing fuel to be deposited in
and around plaintiff's residence. Plaintiff then retained a former subsidiary of
the Company (GSME) to clean-up the resulting oil spill. The gravamen of the
complaint is that the Company conspired with Terminix to cover-up the true
extent of damages to plaintiff's residence. In March, 1998, the matter was
submitted to binding, non-appealable arbitration. Terminix has offered to
purchase plaintiff's residence for $300,000; the purchase price for the
residence was $138,000; and the assessed value is $5,100. The Company's defense
is that it did not cause the damage, the claim of conspiracy is false, Terminix
is solely responsible and, in any event, the Company is not a proper party
defendant because its former subsidiary (GSME) and not the Company itself
performed the services for plaintiff. The case has been dormant since 1997.
In the second matter, the same former subsidiary (GSME) was retained by
Coastal Oil to clean-up an oil spill on the Delaware River. Plaintiff claims it
was retained by GSME to assist in the spill clean-up. Plaintiff is in bankruptcy
in Louisiana and has sued the Company and GSME for its alleged unpaid invoices
in the amount of $78,000. The Company was able to demonstrate to plaintiff that
the Company is not a proper party defendant, that the work was done by GSME,
that plaintiff was retained by GSME, that all payments received from Coastal
(including amounts due plaintiff) were deposited into the GSME bank account, and
that the sole reason the Company has been named a defendant is because GSME, in
1994, filed with the Commonwealth of Pennsylvania a fictitious name certificate
to be able to use the tradename "Global Spill Management". (The latter is not an
actual entity in being.) As a result, the matter was settled by the Company for
the sum of $10,000 to be paid to plaintiff, for which the Company will receive
an assignment of the claim from the plaintiff against GSME. An order to approve
such settlement and to assign the claim is pending before the Bankruptcy Judge
in Louisiana.
13
<PAGE>
The Company knows of no other pending or threatened litigation of any
amount in excess of $5,000.
It is the position of the Company that, should certain former subsidiaries
of the Company receive claims that they are or may be liable for environmental
clean-up costs and related damages, and should the Company also be named a party
defendant, the Company will vigorously defend any such claims based upon the
facts and the current laws and regulations applicable to environmental matters.
On the basis of its experience and the information currently available to it,
the Company believes that the one remaining claim described herein will not have
a material adverse effect on its results of operations, financial position or
liquidity. Buttressing the Company's position (and consistent with the general
rule of corporate law), the United States Supreme Court recently decided in a
"superfund" matter that non-operating parent companies are not responsible for
the environmental problems of wholly-owned subsidiaries. No environmental claim
of any kind whatsoever has been filed against the Company since June 28, 1996.
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were submitted to a vote of the shareholders:
On October 5, 1998, an Annual Meeting of shareholders was held pursuant to
proxies solicited pursuant to Regulation 14A. All of the directors* named in the
Proxy Statement were elected to the Board of Directors (2,351,754 shares for and
382,000 shares against) and there was no solicitation in opposition to
management's nominees listed in the Proxy Statement. In addition, the
shareholders approved the name change from Global Spill Management, Inc. to
Biofarm, Inc. and the selection of BDO International as independent auditors.
The vote in favor of the name change was 2,351,337 shares for and 799 shares
against (801 abstentions); the vote in favor of the selection of auditors was
2,351,871 for and 365 shares against (808 abstentions).
*Keith D. Beekmeyer; Anil K. Mahan; Robert Ferran; Lawrence Baer; Cesare
Brega; Donald M. Coon; Herbert Marcus III; and Carsten Rykov.
All of such directors resigned, effective October 31, 1999, in connection with
the rescission of the transaction with Litchfield. It is the intention of the
Company to file a Proxy Statement and then to distribute the same in order to
call an Annual Meeting of its shareholders.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
On July 29, 1992, the Company's Common Stock commenced quotation on the
NASDAQ Small Cap Market (NASDAQ) under the symbol GSMI. (The symbol was changed
to GEGI coincident with the May 13, 1996, Amendment to the Articles of
Incorporation, and to BIOF on June 18, 1998.) The following table sets forth the
reported high and low bid and high
14
<PAGE>
and low asked quotations for the Company's Common Stock for the period July 1,
1996, to December 31, 1999. Such quotations reflect inter-dealer prices, without
retail mark-up, mark-down, or commissions, and may not represent actual
transactions. No bid or asked quotations are available from November 28, 1996,
through April 17, 1997:
<TABLE>
<CAPTION>
High Bid Low Bid Closing Bid High Ask Low Ask Closing Ask
-------- ------- ----------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
1996
Jul 1 - Sep 30 9 31/32 13/16 9.25 0.75 7/8
Oct 1 - Nov 27 27/32 0.25 N/A 7/8 5/16 N/A
1997
Apr 17 - Jun 30 0.3125 0.1 0.27 0.46875 0.2 0.4375
Jul 1 - Sep 30 0.65625 0.125 0.625 0.78125 0.16 0.6875
Oct 1 - Dec 31 0.8125 0.4375 0.625 0.90625 0.59375 0.71875
1998
Jan 1 - Mar 31 4.75 0.4375 4.34375 5 0.5625 4.5
Apr 1 - Jun 30 7.5 2.625 6.6875 7.75 2.75 6.75
Jul 1 - Sep 30 7.8125 3.9375 5.625 8.0 4.25 6.0
Oct 1 - Dec 31 6.5 3.5625 4.8125 6.75 3.25 5.0
1999
Jan 1 - Mar 31 5.4791 2.9375 3.7916 5.6666 3.1458 3.875
Apr 1 - Jun 30 4.0833 2.6875 3.0833 4.3125 2.8958 3.4166
Jul 1 - Sep 30 2.8333 1.4062 2.1666 3.1458 1.5416 2.3958
Oct 1 - Dec 31 1.7396 .9479 1.3333 1.8125 1.0104 1.4687
</TABLE>
On January 20, 2000, the closing bid and asked prices were $1.03125 and
$1.125, respectively.
(The prices stated for all periods give effect to the 1-30 reverse stock split
that was effective on May 13, 1996.)
On November 27, 1996, the Company's Common Stock was delisted from trading
on NASDAQ. On April 17, 1997, the Company's Common Stock commenced trading on
the OTC Electronic Bulletin Board. Such delisting was prompted by the Company's
inability to file a timely Form 10-K with audited financials for the fiscal year
ended June 30, 1996. Having been delisted, the Company is now required to meet
NASDAQ standards applicable to an initial listing application. Presently, such
criteria include $4 million in total assets, $2 million in capital and surplus,
$1 million market value of the public float and a minimum bid price of $3 per
share. There can be no assurance that the Company's Common Stock will be
included on NASDAQ even if such initial listing requirements are satisfied, or
that thereafter the requirements for continuous listing will continue to be met.
In any such event, the Company's Common Stock
15
<PAGE>
would continue to be traded on the OTC Electronic Bulletin Board, in which event
a shareholder may find it more difficult to dispose of (or to obtain accurate
quotations as to the price of) the Company's Common Stock.
As of the date hereof there were 4,376,930 shares of Common Stock validly
issued and outstanding. The aggregate of 1,085,000 shares of Common Stock issued
pursuant to two improperly filed Form S-8 filings are not deemed to be validly
issued, fully paid and non-assessable because such shares were not registered
for public sale, were issued without consideration and were not authorized for
issuance by the Board of Directors. There were a total of 580 holders of record
as of December 31, 1999. The Company believes, based upon available information,
that there are in excess of 1,000 beneficial owners of the Company's Common
Stock. No shares of the Company's authorized Preferred Stock have ever been
issued.
Dividends
The payment of dividends, if any, by the Company rests within the
discretion of its Board of Directors and depends, among other things, upon the
Company's earnings, its capital requirements, it's financial condition, as well
as other relevant factors. As of the date hereof, the Company has not issued or
declared any dividends. The Company does not anticipate paying any dividends on
its Common Stock in the foreseeable future. (See Item 8 hereinafter.)
Item 6. Management's Discussion and Analysis or Plan of Operation
GENERAL
As a direct consequence of the implementation of the Plan of Reorganization
described in Part I hereinabove, and the rescission of the transactions with
Litchfield, the Company (as of October 31, 1999) disposed of all its operations
and may today be fairly characterized as a non-operating "shell" corporation.
Therefore, there is no need for discussion herein of prior results of
operations, of year-to-date operating results and comparisons, and of liquidity
and capital resources. As of the date hereof, the Company is able to meet its
debts as they mature, which obligations (giving effect to the completion of the
Plan of Reorganization described in Part I hereinabove) consist exclusively of
legal, accounting and miscellaneous expenses endemic to any public company. The
Company has outstanding subscriptions receivable of $750,000 as of October 31,
1999, all of which are due and deemed to be collectible prior to September 30,
2000.
Assuming collection of its notes receivable, the Company will have
approximately $1 million in cash and no liabilities. Current payables will
consist solely of professional fees and office overhead expenses. The Company
believes that such financial condition, its existence as a public entity since
1992 and its current filer status under the 1934 Act, will make the Company an
attractive candidate to businesses desirous of being acquired by a public
company. Since the October 31, 1999, rescission of the Litchfield transactions,
the Company has been presented with in excess of twelve proposed business
combinations from entities engaged in various types of businesses. As of the
date thereof, the Company has made no decision concerning a possible
acquisition, the belief of management being that distribution of this Form
10-KSB (including the
16
<PAGE>
audited financial statements contained herein) will attract an even wider
spectrum of potential business combinations.
Item 7. Financial Statements
Consolidated Financial Statements and supplementary financial information
specified by this Item 7 are presented following Item 13 in Part III of this
report.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
During the four year period ended June 30, 1998, the Company's books and
records were audited by BDO Seidman LLP. Coincident with the acquisition of
Biofarm from Litchfield and the reverse merger effective October 5, 1998,
Litchfield appointed BDO Stoy Hayward (London, England) as independent auditors
for the Company. The financial statements of the Company for the fiscal year
ended October 31, 1998, were audited by BDO Stoy Hayward and the audit report
for that period was signed by BDO International (London, England).
Coincident with the rescission of the transactions with Litchfield
effective October 31, 1999, the Company communicated both with BDO Seidman LLP
(United States) and BDO Stoy Hayward concerning preparation of the Company's
financial statements for the fiscal year ended October 31, 1999. BDO Seidman LLP
advised the Company that its new policy was to undertake no public company
audits that would involve filings with the Securities and Exchange Commission
that did not involve a minimum fee of $50,000; and that, in any event, BDO
Seidman LLP had been replaced by BDO Stoy Hayward effective with the October 31,
1998, audit of the Company. BDO Stoy Hayward advised the Company that
approximately $50,000 of its October 31, 1998, audit expense had not been
discharged by Litchfield and that it could undertake no audit work for the
Company at October 31, 1999, without such amount having been discharged. (The
Rescission Agreement, dated October 31, 1999, provided in unambiguous terms that
the October 31, 1998, amount allegedly due and payable to BDO Stoy Hayward was
the obligation of Litchfield.) In addition, BDO Stoy Hayward advised the
Company, that, of the four entities contributed to the Company by Litchfield
subsequent to October 5, 1998, the following facts applied as of October 31,
1999: (a) Biofarm (Romania), as a private company, was not obligated under
Romanian law to conduct an audit at October 31, 1999; (b) Kaster had previously
been placed in liquidation by Litchfield, (c) BCJ (name changed to McCalls) had
adopted an April 30 fiscal period, and (d) Britten-Norman could be audited at
October 31, 1999, provided the outstanding fee of $50,000 was paid by
Litchfield. (Litchfield contends that such fee was exhorbitant and that it did
not intend to pay the same; and that, in any event, Litchfield would not consent
to an audit of the three remaining entities it now owned (as a result of the
rescission agreement) at October 31, 1999.)
By memorandum dated December 19, 1999, the Company advised BDO Seidman LLP
(copy to BDO International) of the Company's need to comply with Rule 304(a) of
Regulation S-K. The Company requested from BDO Seidman LLP a written response
that would satisfy Rule 304(a)(3). Such response has not been received as of the
date hereof.
17
<PAGE>
Accordingly, the Company has retained Asher & Company, Ltd., Philadelphia,
Pennsylvania, to audit the books and records of the Company for the fiscal year
ended October 31, 1999, and to issue its audit report thereon. Such report and
the opinion thereon is included in Part III hereof.
PART III
Item 9. Directors, Executive Officers, Promotors and Control Persons; Compliance
with Section 16(a) of the Exchange Act
The executive officers, directors and key personnel of the Company are as
follows: (the information set forth hereunder is as of October 31, 1999 (the end
of the fiscal period)), and gives effect to the resignations of the
Litchfield-nominated directors effective October 31, 1999. Each of the four
persons named below occupied the office set forth opposite his/her name until
October 5, 1998 (the date of the reverse merger with Litchfield) and resumed
such office effective October 31, 1999 (the date of the rescission with
Litchfield).
Name Age Positions held with the Company
- ---- --- -------------------------------
David R. Stith 69 President and Director
Herbert S. McDonald 62 Director
Allan Esrine 70 Principal Financial Officer and Director
Desiree L. Pierson 37 Secretary
Biographies of the directors and executive officers of the Company are set
forth below. All directors hold office until the next annual stockholders
meeting and until their successors have been elected and qualified or until
their death, resignation, retirement, removal or disqualification. Vacancies in
the existing Board are filled by majority vote of the remaining directors.
Officers of the Company serve at the will of the Board of Directors.
David R. Stith became Vice Chairman and a Director of Global on November 1,
1991, and of the Company on November 25, 1991. Mr. Stith founded Underwater
Technics in 1967 and has served as its Chairman and President since such date.
Mr. Stith led the crew that cleaned up the major oil spills from the tankers the
"Elias," the "Mellon, and the "Athos." Mr. Stith was also involved in underwater
testing for the National Aeronautics and Space Administration, and led the crew
that dove for sunken treasure on the Spanish Gallon "San Jose" which sank off
Columbia in 1708.
18
<PAGE>
Herbert S. McDonald became a director of the Company on December 27, 1995.
Mr. McDonald has, since January 1993, been the President of The Fulcrum Group, a
management consulting firm specializing in the restructuring and
merger/acquisition of corporate clients. Prior thereto, Mr. McDonald was (since
August 1990) the President (CEO) and principal shareholder of European
Automotive Products, Inc., a major importer of imported cars specializing in
higher end German automotive parts. Prior thereto, Mr. McDonald was the
President (CEO) and principal shareholder of Fulcrum Investments, a firm making
investments in manufacturing, leasing, automobile dealerships and real estate.
Allan Esrine became a director of the Company on November 15, 1997, as well
as Principal Financial Officer. Mr. Esrine has, for the past five years, been
involved in private financial activities in New York City, including the
management of several family businesses.
Desiree L. Pierson became Secretary of the Company in January, 1996. Ms.
Pierson was an employee of the Company from 1991 until June 28, 1996. In her
capacity as Secretary, Ms. Pierson's duties include shareholder relations,
matters involving the Transfer Agent and corporate record keeping, and do not
include corporate decision making or substantive matters involving the Company.
No director, officer or affiliate of the Company is an adverse party to the
Company or any of its subsidiaries in any material proceeding.
The Company and its directors and executive officers are in compliance with
the requirements of Section 16(a) of the Exchange Act.
Item 10. Executive Compensation
None of the present three directors and officers of the Company has
received any remuneration of any kind (including reimbursement of expenses)
during the period June 30, 1996 through October 31, 1999. Desiree L. Pierson,
Secretary, has received the sum of $800 per month (plus accountable expenses)
for services rendered to the Company on a part-time basis. There have been no
employment contracts in effect since all such contracts existing as of June 28,
1996, were cancelled as of that date as part of the Plan of Reorganization.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with regard to the
beneficial ownership of outstanding shares of Common Stock by (i) each person
known by the Company to own beneficially five (5%) percent or more of the
outstanding shares of the Company's Common Stock; (ii) each director and
executive officer individually; and (iii) all executive officers and directors
of the Company as a group:
19
<PAGE>
Number of Shares of
Name and Address Common Stock Percentage (%) of
Of Beneficial Owner Beneficially Owned (1) Class Outstanding (2)
- -------------------- ---------------------- ---------------------
David R. Stith 86,500 1.98%
Herbert S. McDonald 70,000 1.59%
Allan Esrine 200,000 4.57%
Directors and Officers 356,500 8.14%
as a Group (3 persons)
- ----------
(1) Beneficial ownership as reported in the table above has been determined in
accordance with Instruction (4) to Item 403 of Regulation S-B of the
Securities Exchange Act.
(2) Percentage of class based upon 4,376,930 shares of Common Stock outstanding
on October 31, 1999.
Item 12. Certain Relationships and Related Transactions
Inapplicable
Item 13. Exhibits and Reports on Form 8-K
(a) 1. All financial statements - see index to Consolidated Financial
Statements on page F-1.
2. Exhibits - see Exhibits below.
(b) The following Current Report was filed by the Company with the
Securities and Exchange Commission subsequent to the last quarter of
the period covered by this Annual Report on Form 10-K and prior to the
filing date hereof (and is incorporated herein by reference):
November 12, 1999
(c) The following Exhibits (incorporated herein by reference) are
applicable to the period subsequent to the filing of Form 10-KSB for
the fiscal year ended October 31, 1998, and prior to the filing date
hereof:
A. Form 10-KSB, for the fiscal year ended October 31, 1998, filed on
February 19, 1999
20
<PAGE>
B. Form 10-QSB, for the first quarter ended January 31, 1999, filed
on March 22, 1999
C. Form 10-QSB, for the second quarter ended April 30, 1999, filed
on June 18, 1999
D. Form 10-QSB, for the third quarter ended July 31, 1999, filed on
September 17, 1999
E. Form 8-K, filed on November 12, 1999
21
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BIOFARM, INC.
By: /s/ David R. Stith
----------------------
David R. Stith
President and Director
January 26, 2000
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ David R. Stith President and Director January 26, 2000
- ------------------------
David R. Stith
/s/ Allan Esrine Principal Financial and January 26, 2000
- ------------------------ Accounting Officer and
Allan Esrine Director
/s/ Herbert S. McDonald Director January 26, 2000
- ------------------------
Herbert S. McDonald
22
<PAGE>
--------------------------------------------
Biofarm, Inc.
--------------------------------------------
Report on Consolidated Financial Statements
Year Ended October 31, 1999
Four-Month Period Ended October 31, 1998
Years Ended June 30, 1998 and 1997
23
<PAGE>
BIOFARM, INC.
OCTOBER 31, 1999 AND 1998
TABLE OF CONTENTS
Page
----
Independent Auditors' Report......................................... F-2
Consolidated Financial Statements
Balance Sheets.................................................. F-3
Statements of Operations........................................ F-4
Statements of Changes in Stockholders' Equity................... F-5
Statements of Cash Flows........................................ F-6
Notes to Consolidated Financial Statements...................... F-7 - F-13
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
Biofarm, Inc.
Linfield, Pennsylvania
We have audited the accompanying consolidated balance sheets of Biofarm,
Inc. as of October 31, 1999 and 1998 and the related consolidated statements of
operations, changes in Stockholders' equity and cash flows for the year ended
October 31, 1999 and the period from July 1, 1998 to October 31, 1998. The
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Biofarm, Inc. as of October 31, 1999 and 1998 and the consolidated results of
their operations and their cash flows for the year ended October 31, 1999 and
the period from July 1, 1998 to October 31, 1998 in conformity with generally
accepted accounting principles.
ASHER & COMPANY, Ltd.
Philadelphia, Pennsylvania
January 21, 2000
F-2
<PAGE>
BIOFARM, INC.
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 2,882 $ 2,328
Note receivable, Stockholder 40,000 --
Subscriptions receivable 750,000 --
------------ ------------
Total current assets 792,882 2,328
PROPERTY -- --
OTHER ASSETS
Convertible note receivable 439,250 --
------------ ------------
Total Assets $ 1,232,132 $ 2,328
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 48,752 $ 57,002
Third party indebtedness 200,000 --
Payable due to Hannibal Capital Corp. 6,172 --
------------ ------------
Total current liabilities 254,924 57,002
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 and 4,211,390
shares issued and outstanding in 1999 and
1998, respectively 4,377 4,212
Additional paid-in capital 17,323,802 16,334,717
Accumulated deficit (16,350,971) (16,244,353)
Less subscriptions receivable -- (149,250)
------------ ------------
Total Stockholders' equity 977,208 (54,674)
------------ ------------
Total Liabilities and Stockholders' Equity $ 1,232,132 $ 2,328
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
BIOFARM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED OCTOBER 31, 1999 AND PERIOD FROM JULY 1, 1998
TO OCTOBER 31, 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Revenue $ -- $ --
General and administrative expenses 106,618 100,119
----------- -----------
Net loss $ (106,618) $ (100,119)
=========== ===========
Basic loss per common share $ (.02) $ (.02)
=========== ===========
Weighted-average number of common shares outstanding 4,371,417 4,211,930
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
BIOFARM, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEAR ENDED OCTOBER 31, 1999 AND PERIOD FROM JULY 1, 1998
TO OCTOBER 31, 1998
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Accumulated Subscriptions Stockholders'
Stock Capital Deficit Receivable Equity
-------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1998 $ 4,212 $16,334,717 $(16,144,234) $(217,500) $ (22,805)
Payment of subscriptions -- -- -- 68,250 68,250
Net loss -- -- (100,119) -- (100,119)
-------- ----------- ------------ --------- ---------
Balance, October 31, 1998 4,212 16,334,717 (16,244,353) (149,250) (54,674)
Payment of subscriptions -- -- -- 109,250 109,250
Issuance of stock subscriptions 750,000 -- -- 750,000
Reclassification of subscription
receivable to note receivable -- -- -- 40,000 40,000
Issuance of common stock 165 239,085 -- -- 239,250
Net loss -- -- (106,618) -- (106,618)
-------- ----------- ------------ --------- ---------
Balance, October 31, 1999 $ 4,377 $17,323,802 $(16,350,971) $ -- $ 977,208
======== =========== ============ ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
BIOFARM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED OCTOBER 31, 1999 AND PERIOD FROM JULY 1, 1998
TO OCTOBER 31, 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(106,618) $(100,119)
Adjustments to reconcile net loss to net cash utilized
by operating activities:
Changes in:
Accounts payable (8,250) 10,870
Payable due to Hannibal Capital Corp. 6,172 --
--------- ---------
Net cash utilized by operating activities (108,696) (89,249)
FINANCING ACTIVITIES
Payments of subscriptions receivable 109,250 68,250
--------- ---------
Net cash provided by financing activities 109,250 68,250
--------- ---------
INCREASE (DECREASE) IN CASH 554 (20,999)
Cash, beginning of period 2,328 23,327
--------- ---------
Cash, end of period $ 2,882 $ 2,328
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
BIOFARM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
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.
Use of estimates
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 revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Income taxes
Income taxes are calculated using the liability method specified by
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes."
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 two
periods ended October 31, 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.
F-7
<PAGE>
BIOFARM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
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.
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
F-8
<PAGE>
BIOFARM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
NOTE B - FAILED ACQUISTIONS (Continued)
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.
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.
F-9
<PAGE>
BIOFARM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
NOTE B - FAILED ACQUISITONS (Continued)
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.
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 period
ended October 31, 1998, and the year ended October 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,
F-10
<PAGE>
BIOFARM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
NOTE B - FAILED ACQUISITIONS (Continued)
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.
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 June 30, 1998, the Company had outstanding non-negotiable promissory
notes for the purpose of subscribing to purchase a total of 435,000 shares
for a total of $217,500. During the period ended October 31, 1999 and 1998,
$109,250 and $68,250, respectively, 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.
NOTE D - LITIGATION
The Company is a defendant in two lawsuits in which the principal
defendants are its former subsidiaries. The Company is vigorously defending
these suits, on the basis that it is not a proper party defendant because
the parent company has no contractual relationship with the respective
plaintiffs and bears no responsibility to such plaintiffs. Management has
determined that the outcome of these matters will not have a material
adverse effect on the financial statements of the Company.
F-11
<PAGE>
BIOFARM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
NOTE D - LITIGATION (Continued)
On June 28, 1996, the Company agreed to acquire 100% of the issued and
outstanding shares of capital stock of Phoenix Wrecking Corporation
("Phoenix"), a New York corporation which was also engaged in the
remediation business. The proposed acquisition of Phoenix, which was
publicly announced on July 1, 1996, was rescinded nunc pro tunc on November
6, 1996.
It is the position of the Company that: (a) the 1,135,000 shares issued by
Phoenix pursuant to two Form S-8 filings and 1,085,000 shares sold publicly
were not registered under Section 5(a) of the 1933 Act, and that it was
unlawful to sell such shares in interstate commerce; (b) persons who
received and sold the 1,085,000 shares were not persons entitled to receive
the same pursuant to the Instructions to the use of Form S-8; (c) sellers
of the 1,085,000 shares violated the anti-fraud provisions of Section 10(b)
of the 1934 Act and Rule 10b-5 promulgated thereunder; (d) former counsel
violated Section 10(b) and Rule 10b-5 when it filed with the Securities and
Exchange Commission two Form S-8 Registration Statements that were
materially false and misleading; and (e) former counsel violated the
anti-fraud provisions of Section 17(a)(3) in obtaining money by means of an
untrue statement of a material fact.
In January, 1998, the Company's complaint was sustained as to four of the
five causes of action alleged by the Company against the several
defendants. In a Memorandum and Order entered on January 22, 1998, the
Eastern District of New York sustained the complaint filed by the Company
as to the causes of action for malpractice, breach of contract, breach of
fiduciary duty and unjust enrichment, and dismissed the cause of action for
fraud. The Company determined not to appeal the dismissal of the cause of
action for fraud because the relief sought by the Company (return of
1,135,000 shares and of proceeds derived from the sale thereof) is
encompassed by the four causes of action that were sustained.
The recovery by the Company of any portion of the sales proceeds received
by the sellers was, by agreement with Litchfield, to belong exclusively to
the Stockholders of the Company other than Litchfield. Litchfield's
nonparticipation in any such recovery was assured by assigning the proceeds
of any such recovery to Hannibal Capital Corp. which was organized
simultaneously with the Litchfield closing. The sole directors of Hannibal
are the present three directors of Biofarm, Inc. One share of common stock
of Hannibal will be distributed to certain Biofarm, Inc. stockholders for
every two shares of Biofarm, Inc.'s common stock held by them. By virtue of
this offering and distribution, Hannibal will be owned and controlled by
the stockholders of Biofarm, Inc. Hannibal filed a registration statement
with the Securities and Exchange Commission on December 17, 1999.
F-12
<PAGE>
BIOFARM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
NOTE E - 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 June 30, 1998, 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.
NOTE F - PROPERTY
The Company owns a property located in Camden, New Jersey which is carried
at zero value. The Company intends to offer such property for sale upon the
resolution of certain environmental issues.
NOTE G - SUBSEQUENT EVENT
Subsequent to October 31, 1999, accounts payable in the amount of $38,752
were paid.
F-13
<PAGE>
BIOFARM, INC.
Formerly Global Spill Management,
Inc. and Subsidiaries
-----------------------------
June 30, 1998 and 1997
Table of Contents
Independent Auditors' Report F-1
Consolidated financial statements
Balance sheet F-2
Statements of operations F-3
Statements of capital deficit F-4
Statements of cash flows F-5
Summary of significant accounting policies F-6 - F-7
Notes to consolidated financial statements F-8 - F-13
<PAGE>
Independent Auditors' Report
Global Spill Management, Inc.
Linfield, Pennsylvania
We have audited the accompanying consolidated balance sheet of Global Spill
Management, Inc. and subsidiaries as of June 30, 1998, and the related
consolidated statements of operations, capital deficit and cash flows for each
of the two years in the period ended June 30, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 8, on September 4, 1998 the Company acquired 87% of the
issued and outstanding common stock of Biofarm, S.A. in exchange for a
convertible, nonnegotiable, secured debenture in the amount of $6,434,681. Since
the debenture can only be converted into common stock of the Company, Biofarm,
S.A. will be considered the acquiring entity. Therefore, the acquisition will be
accounted for as a reverse purchase and a recapitalization of Biofarm, S.A.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Global Spill
Management, Inc. and subsidiaries as of June 30, 1998, and the results of their
operations and their cash flows for each of the two years in the period ended
June 30, 1998, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Philadelphia, Pennsylvania
September 4, 1998
F-1
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
June 30, 1998
- -------------------------------------------------------------------------------
Assets
Current assets
Cash $ 23,327
Subscriptions receivable (Note 2) 17,000
- --------------------------------------------------------------------------------
Total assets $ 40,327
================================================================================
Liability and Capital Deficit
Current liability
Accounts payable $ 46,132
- --------------------------------------------------------------------------------
Commitments and contingencies (Notes 5 and 6)
Capital deficit (Notes 2, 4 and 5)
Preferred stock, $.001 par value
Authorized 5,000,000 shares, none issued --
Common stock, $.001 par value
Authorized 25,000,000 shares
Issued and outstanding 4,211,930 shares 4,212
Additional paid-in capital 16,334,717
Deficit (16,144,234)
Less subscriptions receivable (200,500)
- --------------------------------------------------------------------------------
Total capital deficit (5,805)
- --------------------------------------------------------------------------------
Total liability and capital deficit $ 40,327
================================================================================
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-2
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended June 30, 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ -- $ --
General and administrative expenses (Notes 4, 5 and 8) 2,976,489 227,136
- ------------------------------------------------------------------------------------
(Loss) before extraordinary item (2,976,489) (227,136)
Extraordinary income - gain on
forgiveness of indebtedness (Note 7) -- 1,740,594
- ------------------------------------------------------------------------------------
Net (loss) income $(2,976,489) $ 1,513,458
====================================================================================
Basic (loss) income per common share
(Loss) before extraordinary item $ (.90) $ (.10)
Extraordinary item -- .73
- ------------------------------------------------------------------------------------
Basic (loss) income per common share $ (.90) $ .63
====================================================================================
Weighted average number of common shares outstanding 3,311,108 2,387,639
====================================================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-3
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Consolidated Statements of Capital Deficit
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Paid-In Subscriptions
Stock Capital Deficit Receivable
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, June 30, 1996 $ 1,466 $ 12,498,463 $ (14,681,203) $ --
Shares issued for cash and
subscriptions 1,550 727,450 -- (250,000)
Shares retired during the year (4) 4 -- --
Payment of subscriptions -- -- -- 30,000
Reclassification of
subscriptions receivable -- -- -- 100,000
Net income for the year -- -- 1,513,458 --
- ----------------------------------------------------------------------------------------------------
Balance, June 30, 1997 3,012 13,225,917 (13,167,745) (120,000)
Shares issued for
subscriptions 600 199,400 -- (200,000)
Payment of subscriptions -- -- -- 202,500
Reclassification of
subscriptions receivable -- -- -- 17,000
Shares issued in litigation
settlement 200 1,349,800 -- --
Shares issued for services
rendered and subscriptions 400 1,559,600 -- (100,000)
Net (loss) for the year -- -- (2,976,489) --
- ----------------------------------------------------------------------------------------------------
Balance, June 30, 1998 $ 4,212 $ 16,334,717 $ (16,144,234) $ (200,500)
====================================================================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-4
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended June 30, 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net (loss) income $(2,976,489) $ 1,513,458
Adjustments to reconcile net (loss) income to net
cash (used in) operating activities
Extraordinary (gain) on forgiveness
of indebtedness -- (1,740,594)
Issuance of common stock for litigation
settlement 1,350,000 --
Issuance of stock for services rendered 1,460,000 --
(Decrease) in liabilities
Accounts payable (102,295) (45,922)
Accrued expenses -- (165,222)
- ------------------------------------------------------------------------------------------------------
Net cash (used in) operating activities (268,784) (438,280)
- ------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Proceeds from sale of assets -- 805,000
- ------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Repayments of stockholder note (12,500) (37,500)
Repayments of note payable, bank -- (855,000)
Repayments of long-term debt -- (43,125)
Issuance of common stock, net of expenses -- 479,000
Payments of common stock receivables 302,500 30,000
- ------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 290,000 (426,625)
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 21,216 (59,905)
Cash, beginning of year 2,111 62,016
- ------------------------------------------------------------------------------------------------------
Cash, end of year $ 23,327 $ 2,111
======================================================================================================
Supplemental disclosures of cash flow information
Noncash financing activities
Common stock issued in exchange for stock
subscriptions receivable of $250,000 less cash
received of $30,000 $ -- $ 220,000
Common stock issued in exchange for stock
subscriptions receivable of $200,000 less cash
received of $82,500 $ 117,500 $ --
======================================================================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-5
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
Organization Global Spill Management, Inc. ("Global") was
and Principles incorporated in June 1991 to acquire, operate and
of Consolidation develop environmental contracting and consulting
companies, and related businesses. All operating
companies were disposed of or sold in prior years
(see Note 1).
The accompanying consolidated financial statements
include the accounts of Global and its wholly owned
subsidiaries (collectively referred to as the
"Company") after elimination of all significant
intercompany balances and transactions.
Use of Estimates 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 revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Income Taxes Income taxes are calculated using the
liability method specified by Statement of
Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes."
(Loss) Income In 1998, the Company adopted SFAS No. 128,
Per Common Share "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 two years ended June 30, 1998
since there are no potentially dilutive securities
outstanding for either period presented. For 1997,
there is no effect on the EPS amounts previously
reported as a result of the adoption of SFAS
No. 128.
F-6
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
Environmental Environmental expenditures that relate to existing
Expenditures conditions caused by past operations and which do
not contribute to current or future revenues are
charged to expense. Liabilities are recorded when
environmental assessments and/or cleanup are
probable and the costs can be reasonably
estimated. Generally, the timing of these accruals
has coincided with the Company's commitment to a
formal plan of action. See Notes 1, 5 and 6 for
additional information.
F-7
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1. Business In fiscal year 1996, the Company
discontinued its operating activities and has
subsequently liquidated all of the debts that
existed as of June 30, 1996 (see Note 7).
2. Subscriptions Subsequent to June 30, 1998, the Company received $17,000 as
Receivable payment on subscriptions receivable. It is intended that the
balance of the subscriptions ($200,500) will be
collected to pay liabilities and expenses of the
Company as they become due.
3. Income Taxes The Company had deferred tax assets of
approximately $4,400,000 as of June 30, 1998,
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
$12,900,000 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 June 30, 1998, 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 2014.
4. Common Stock In June 1998, the Company issued 400,000 shares of
common stock to members of its Board of Directors.
The shares, which were issued at $.25 per share,
had an estimated fair value of $3.90 per share. The
Company recorded a subscription receivable from its
directors for $100,000, as well as a charge to
operations amounting to $1,460,000. The charge to
operations represents a finder's fee earned for
services related to the acquisition of Biofarm,
S.A. ("Biofarm"). The amount has been recorded as a
fourth-quarter adjustment (see Note 8 for
additional information).
</TABLE>
F-8
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<C> <S>
5. Litigation The Company is a defendant in two lawsuits in which
the principal defendants are its former
subsidiaries. The Company is vigorously defending
these suits, on the basis that it is not a proper
party defendant because the parent company has no
contractual relationship with the respective
plaintiffs and bears no responsibility to such
plaintiffs. Management has determined that the
outcome of these matters will not have a material
adverse effect on the financial statements of the
Company.
On June 28, 1996 (the date on which the sales of
the operating subsidiaries was effected), the
Company agreed to acquire 100% of the issued and
outstanding shares of capital stock of Phoenix
Wrecking Corporation ("Phoenix"), a New York
corporation which was also engaged in the
remediation business. The proposed acquisition of
Phoenix, which was publicly announced on July 1,
1996, was rescinded nunc pro tunc on November 6,
1996.
It is the position of the Company that: (a) the
1,135,000 shares issued by Phoenix pursuant to two
Form S-8 filings and 1,085,000 shares sold publicly
have not been registered under Section 5(a) of the
1933 Act, and that it was unlawful to sell such
shares in interstate commerce; (b) persons who
received and sold the 1,085,000 shares were not
persons entitled to receive the same pursuant to
the Instructions to the use of Form S-8; (c)
sellers of the 1,085,000 shares violated the
anti-fraud provisions of Section 10(b) of the 1934
Act and Rule 10b-5 promulgated thereunder; (d)
former counsel violated Section 10(b) and Rule
10b-5 when it filed with the Securities and
Exchange Commission two Form S-8 Registration
Statements that were materially false and
misleading; and (e) former counsel violated the
anti-fraud provisions of Section 17(a)(3) in
obtaining money by means of an untrue statement of
a material fact.
</TABLE>
F-9
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
In January 1998, Global's complaint was sustained
as to four of the five causes of action alleged by
the Company against the several defendants. In a
Memorandum and Order entered on January 22, 1998,
the Eastern District of New York sustained the
complaint filed by the Company as to the causes of
action for malpractice, breach of contract, breach
of fiduciary duty and unjust enrichment, and
dismissed the cause of action for fraud. The
Company determined not to appeal the dismissal of
the cause of action for fraud because the relief
sought by the Company (return of 1,135,000 shares
and of proceeds derived from the sale thereof) is
encompassed by the four causes of action that were
sustained. The Company is currently seeking
recovery of all of the proceeds received by the
sellers of the 1,085,000 shares, as well as the
shares themselves, and has advised the introducing
and clearing broker-dealers of its liability for
the sale of unregistered stock and of their
liability pursuant to the Exchange Act of 1934.
The recovery by the Company of any portion of the
sales proceeds received by the sellers of the
1,085,000 shares will, by agreement with Litchfield
Continental, Ltd. ("Litchfield") (see Note 8),
belong exclusively to the stockholders of the
Company other than Litchfield. Since Litchfield is
able to convert its debenture into common stock in
increments over a five-year period and since the
recovery date (if there be such) is not known,
Litchfield's nonparticipation in any such recovery
will be assured by assigning the proceeds of any
such recovery to a new entity to be organized
simultaneously with the Litchfield closing. The
sole directors of the new entity will be the
present three directors of the Company. The shares
of capital stock of the new subsidiary will be
distributed to the stockholders of the Company
other than Litchfield upon the earlier of: (a) the
recovery of any such proceeds; or (b) date on which
Litchfield commences conversion of its debenture.
Notwithstanding that recovery is mandated by the
Instructions to Form S-8, there can be no assurance
that recovery will be awarded or that, if awarded,
any resulting judgment will be collectible. It is
for this reason that the Company has notified the
introducing and clearing broker-dealers of
potential liability for the recovery of such
proceeds.
F-10
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
In April 1998, a lawsuit brought against the
Company seeking $1,350,000 as a direct result of a
transaction entered into by Phoenix with the
plaintiffs was settled for an aggregate of 200,000
shares of the Company's common stock. The
plaintiffs surrendered to the Company all of their
convertible debentures (amounting to $2,000,000 in
the aggregate). The plaintiffs stipulated that they
may sell the shares only in certain amounts above a
certain price and after a certain date. Should the
plaintiffs not realize at least $1,350,000 from the
sale of the 200,000 shares, any additional shares
required will be delivered by a stockholder of the
Company. All of the debentures will be deemed to
have been canceled, and the judgment held by the
plaintiffs will be assigned to the Company once the
sum of $1,350,000 has been realized by the
plaintiffs. As a result of such settlement, the
Company recorded a charge of $1,350,000 to
operations in the fourth quarter of the year ended
June 30, 1998.
6. Environmental The Superfund Act imposes strict joint and several
Risks liability upon the generators of hazardous
substances and those transporters who have arranged
for disposal of hazardous substances or those who
have selected the disposal site for such
substances. All such persons may be liable for
waste site investigation, waste site cleanup and
natural resource damages, regardless of whether
they exercised due care and complied with all
relevant laws and regulations. Such costs can be
substantial. Certain of the Company's subsidiaries
were transporters of hazardous waste materials, but
should not be liable therefore, unless they are
deemed to have arranged for such disposal or the
selected disposal sites. The Company's policy and
practice was to refrain from arranging for the
disposal of hazardous substances, including waste,
and/or the selection of disposal sites, and to have
the generator do so. However, there can be no
assurance that the Company did not fail to adhere
to such practice and thereby could be potentially
liable for claims in connection with the
transportation and disposal of such materials.
F-11
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
It is the position of the Company that, should
certain former subsidiaries of the Company receive
claims that they are or may be liable for
environmental cleanup costs and related damages,
and should the Company also be named a party
defendant, the Company will vigorously defend any
such claims based upon the facts and the current
laws and regulations applicable to environmental
matters. Buttressing the Company's position (and
consistent with the general rule of corporate law),
the United States Supreme Court recently decided in
a "superfund" matter that nonoperating parent
companies are not responsible for the environmental
problems of wholly owned subsidiaries.
7. Forgiveness In fiscal 1997, the Company concluded settlement
of Debt with its unsecured creditors to retire all
outstanding indebtedness at 37.5 cents on the
dollar, except for amounts under $100 (which were
paid in full). In addition, the Company settled
outstanding secured debt at less than face value.
Finally, debt payable to the former owners of one
of the subsidiaries (which was sold in 1997) was
forgiven. The forgiveness of indebtedness was
recorded as an extraordinary item in 1997 and
consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Unsecured creditors $ 454,181
Former owners of a subsidiary 932,727
Secured debt 353,686
-------------------------------------------------------------------
$ 1,740,594
-------------------------------------------------------------------
</TABLE>
F-12
<PAGE>
- --------------------------------------------------------------------------------
Global Spill Management,
Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
8. Acquisition The Company has entered into a stock purchase
of Biofarm agreement dated April 1, 1998 (the "Stock Purchase
Agreement"), by and among Litchfield, a British
Virgin Island corporation, the parent of Biofarm, a
Romanian corporation, and the Company. Pursuant to
the Stock Purchase Agreement, the Company agreed to
acquire approximately 87% of the issued and
outstanding shares of capital stock of Biofarm, a
Romanian pharmaceutical company located in
Bucharest, Romania. In consideration for the
purchase of the shares of Biofarm, the Company has
agreed to issue to Litchfield a convertible,
nonnegotiable, secured debenture (the "Debenture")
in the principal sum of $6,434,681. The Stock
Purchase Agreement was placed in escrow until
September 4, 1998 when the acquisition was
consummated.
The Debenture provides that there is no interest
due or payable on the principal sum and is
nonnegotiable and nontransferable. The Debenture is
nonredeemable and does not represent a debt
obligation of the Company. The Debenture will
provide that from time to time for a period of five
years from the date of the Debenture, the holder
thereof may convert a portion, but not less than
2%, of the original principal sum into shares of
the then issued and outstanding common stock of the
Company for each 2.5% of the principal sum of the
Debenture that is converted. Therefore, and in
accordance with the terms of the Debenture, if the
entire principal sum of the Debenture is converted,
the holder shall own 80% of the Company's issued
and outstanding stock based upon the number of
shares thereof outstanding as of the date of
conversion.
Since the Debenture can only be converted into the
common stock of the Company, for accounting
purposes, Biofarm will be considered the acquiring
entity. Therefore, the acquisition will be
accounted for as a reverse purchase in accordance
with Generally Accepted Accounting Principles.
F-13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
BIOFARM, INC.
FINANCIAL DATA SCHEDULE
OCTOBER 31, 1999
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BIOFARM, INC. FOR THE YEAR ENDED OCTOBER 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> OCT-31-1999
<CASH> 2,882
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 792,882
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,232,132
<CURRENT-LIABILITIES> 254,924
<BONDS> 0
0
0
<COMMON> 4,377
<OTHER-SE> 972,831
<TOTAL-LIABILITY-AND-EQUITY> 977,208
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (106,618)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (106,618)
<EPS-BASIC> (.02)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BIOFARM, INC. FOR THE PERIOD FROM JULY 1, 1998 TO
OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> OCT-31-1998
<CASH> 2,328
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,328
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,328
<CURRENT-LIABILITIES> 57,002
<BONDS> 0
0
0
<COMMON> 4,212
<OTHER-SE> (58,886)
<TOTAL-LIABILITY-AND-EQUITY> (54,674)
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (100,119)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (110,119)
<EPS-BASIC> (.02)
<EPS-DILUTED> 0
</TABLE>
