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UNITED STATES
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 EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 0-28144
TRIMOL GROUP, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C>
DELAWARE 13-385706
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
1285 AVENUE OF THE AMERICAS, 35TH FLOOR, NEW
YORK, NY 10019
(Address of principal executive offices) (Zip Code)
</TABLE>
Issuer's telephone no.: (212) 554-4394
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
Stock
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the 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. [X]
State the issuer's revenues for its most recent fiscal year. Was $0.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as of a specified date within 60 days.
$9,312,500 (based upon the average of the closing bid ($8.625) and closing asked
($10.00) prices on March 31, 1998).
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AS OF FEBRUARY 28, 1998
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<S> <C>
Common Stock, par value $.01 per share 11,000,000 shares of Common Stock
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Transitional Small Business Disclosure Format. Yes [ ] No [X]
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TRIMOL GROUP, INC.
TABLE OF CONTENTS
<TABLE>
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PAGE
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PART I
Item 1. Description of Business..................................... 3
Item 2. Description of Property..................................... 12
Item 3. Legal Proceedings........................................... 12
Item 4. Submission of Matters to a Vote of Security Holders......... 12
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.... 12
Item 6. Management's Discussion and Analysis or Plan of Operation... 14
Item 7. Financial Statements........................................ 14
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 14
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act......................................................... 14
Item 10. Executive Compensation...................................... 16
Item 11. Security Ownership of Certain Beneficial Owners and
Management.................................................. 17
Item 12. Certain Relationships and Related Transactions.............. 17
Item 13. Exhibits, List and Reports on Form 8-K...................... 19
FINANCIAL STATEMENTS.................................................. F-1
SIGNATURES
APPENDIX A -- REPUBLIC OF MOLDOVA
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EXPLANATORY NOTES
I. THE REGISTRANT EFFECTED A CORPORATE REORGANIZATION (THE "REORGANIZATION")
ON JANUARY 6, 1998. PRIOR TO THAT DATE THE REGISTRANT HAD NO OPERATIONS.
PORTIONS OF THIS REPORT (ITEMS 1, 3, 4, 5, AND 7) DISCLOSE INFORMATION
RELATING TO THE REGISTRANT'S PRIOR (BEFORE THE REORGANIZATION) HISTORY AND
ALSO RELATE INFORMATION CONCERNING THE REGISTRANT'S PRESENT ACTIVITIES.
II. BECAUSE THE REORGANIZATION OCCURRED SUBSEQUENT TO DECEMBER 31, 1997, UNDER
FORM 10-KSB, THE REGISTRANT IS NOT REQUIRED TO DISCLOSE INFORMATION
(FINANCIAL AND/OR OTHERWISE) REGARDING THE REGISTRANT FOLLOWING THE
REORGANIZATION. THE REGISTRANT, HOWEVER, HAS ELECTED TO VOLUNTARILY
DISCLOSE CERTAIN INFORMATION IN THIS FORM 10-KSB REGARDING ITS OPERATIONS
FOLLOWING THE REORGANIZATION.
III. REFERENCES HEREIN TO $ OR U.S. $ ARE TO UNITED STATES DOLLARS. REFERENCES
HEREIN TO MDL ARE TO THE MOLDOVAN LEU. AT FEBRUARY 1, 1998, THE EXCHANGE
RATE OF THE U.S. DOLLAR TO THE MOLDOVAN LEU WAS 4.695 MDL TO ONE UNITED
STATES DOLLAR.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Trimol Group, Inc. (the "Company"), was organized on May 6, 1953 under the
laws of the State of Delaware. Although since its incorporation the Company has
engaged in several different businesses and has effected several name changes,
for at least three years prior to January 6, 1998, the Company has not engaged
in any material operations. In May 1995, the Company determined that it should
become active in seeking potential operating businesses and business
opportunities with the intent to acquire or merge with such businesses and
thereafter began to consider and investigate potential business opportunities.
THE REORGANIZATION
Pursuant to an Agreement and Plan of Reorganization effective on January 6,
1998, (the "Reorganization Agreement"), by and among the Company, Edward F.
Cowle, H. DeWorth Williams, then officers, directors and principal stockholders
of the Company, and Gold Hill Mines, Inc., an Idaho corporation, then a
principal stockholder of the Company (that was majority owned by Mr. Cowle), and
Magnum Associates Ltd. ("Magnum"), a corporation organized under the laws of
Ireland, and Starbeam, Ltd. ("Starbeam"), a corporation organized under the laws
of Ireland (Magnum and Starbeam shall hereinafter sometimes be collectively
referred to as the "Target Stockholders"), the Company acquired (the
"Acquisition"), all of the issued and outstanding capital stock of the Targets
(as defined below), from the Target Shareholders in exchange for an aggregate of
10,000,000 shares of common stock, par value $.01 per share (the "Common Stock")
of the Company.
Pursuant to the terms of the Reorganization Agreement, effective as of
January 6, 1998, Ed Cowle, Joseph Mancini and Robyn Mancini resigned as officers
and directors of the Company and certain of the beneficial owners of the
10,000,000 shares of Common Stock issued in the Acquisition set forth elsewhere
herein became officers and directors of the Company.
Prior to the Acquisition, the Target Stockholders owned all of the issued
and outstanding capital stock of the following four holding corporations:
Maximilia, Ltd., a corporation organized under the laws of Ireland
("Maximilia"); Sturge Ltd., a corporation organized under the laws of Ireland
("Sturge"); Jolly LLC, a limited liability corporation organized under the laws
of Wyoming ("Jolly LLC"); and Paul Garnier Ltd., a corporation organized under
the laws of Ireland ("Garnier"). Garnier together with Maximilia, Sturge and
Jolly LLC shall sometimes hereinafter be referred to collectively, as the
"Targets."
Jolly LLC owns sixty-five (65%) percent of the issued and outstanding
capital stock of Jolly Alon Limited, a Moldovan corporation ("Jolly Alon" or the
"Hotel"), that operates and manages the Jolly Alon Hotel in Kishinev, Moldova
and rents stores and offices located on the hotel property, with the remaining
thirty-five (35%) percent of the issued and outstanding capital stock of Jolly
Alon being owned by the Government of the Republic of Moldova; Sturge and
Maximilia each own fifty (50%) percent (one hundred (100%) percent in the
aggregate) of the issued and outstanding capital stock of Banca Commerciala pe
Actiuni "Export-Import," a Moldovan corporation ("Bank"), which owns a
commercial bank in Moldova; and Maximilia owns fifty-five (55%) percent and
Garnier owns fifteen (15%) percent (seventy (70%) percent in the aggregate) of
the issued and outstanding capital stock of Exim Asint S.A., a Moldovan
corporation which owns a property and casualty insurance business in Moldovia
("Insurance Company"), with the remaining thirty (30%) percent being owned as
follows: fifteen (15%) percent by Bank and the remaining fifteen (15%) percent
owned by a non-affiliated third party. Jolly Alon, Bank and the Insurance
Company shall sometimes hereinafter be collectively referred to as the "Asset
Entities."
As a result of the Acquisition of the Targets by the Company, the Targets
became wholly-owned subsidiaries of the Company, which, in turn, and as
described above, own capital stock of the Asset Entities which now constitute
the Company's business operations.
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For information concerning Moldova, see "Appendix A -- Republic of Moldova"
at the conclusion of this Report.
THE BUSINESS OPERATIONS OF THE ASSET ENTITIES
The following discusses the business operations of Banca Commerciala pe
Actiuni "Export-Import" (the "Bank"), Jolly Alon Limited (the "Hotel") and Exim
Asint S.A. (the "Insurance Company"), in that order.
BANCA COMMERCIALA PE ACTIUNI "EXPORT-IMPORT"
Background. Banca Commerciala pe Actiuni "Export-Import" (the "Bank"),
which before June 1996 was named "Banca de Export-Import a Moldovei S.R.L.," was
established in April 1994 and, in accordance with a resolution of the Republic
of Moldova ("Moldova"), was to be owned sixty-five (65%) percent by foreign
investors and thirty-five (35%) percent by the Government of Moldova. The Bank
has its main branch located in Kishinev, with two branches located in Ungeni and
Komrat.
The Bank received its General Banking License from the National Bank of
Moldova in April 1994 and began activity as a new commercial bank in June 1994.
The Bank was previously a Moldovan extension of the Vnesh-Econom Bank of
the Soviet Union (now a Russian bank), which then became an international
division of the National Bank of Moldova.
In September 1996, the Government of Moldova's ownership interest was
repurchased by the Bank for approximately $700,000. As a result of the
Reorganization Agreement, it is a second-tier wholly-owned subsidiary of the
Company.
The Bank conducts a variety of commercial banking activities in Moldova.
These activities include, among other things, receipt of monetary deposits,
granting credit, transactions in foreign currency, financing international
transactions, and investing in government securities. The Bank is, under
Moldovan law, an authorized dealer permitted to engage in foreign currency
transactions and is licensed to buy and sell Moldovan Government securities.
Although the Bank's license permits it to engage in most of the services
that a commercial bank in the United States or Western Europe would engage in,
its actual activities vary in respect of those of United States or Western
European banks.
Services Provided by the Bank. The Bank accepts funds from depositors on a
demand or time deposit basis. Currently, generally, no interest is paid on
demand deposits but only on time deposits. Additionally, those persons and
entities who deposit funds on demand are charged a fee for withdrawing their
funds. Additional services provided include, but are not limited to, the
following:
(a) picking up and delivering of cash;
(b) providing short term interest bearing loans that in most instances
are collateralized with assets in excess of the amount of the loan;
(c) arranging foreign currency transactions;
(d) transfers of client funds within Moldova and internationally
through wire (or cross) transfers of funds;
(e) issuing traveller's checks;
(f) rental of safety deposit boxes;
(g) acceptance of utility (telephone, electric) or rental (on
government owned properties) payments from customers and non-customers; and
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(h) bidding on Moldovan government securities at auctions and
purchasing same.(1)
Fees are charged for the above services, with borrowers being charged
interest.
In Moldova, the concept of a "check," either personal or commercial has not
yet been accepted. Transactions are completed in cash or by transfer of funds.
Credit cards are not generally accepted nor are long term loans, mortgages and
equipment financing currently used. Loans are secured with collateral. Personal
non-collateralized loans are not accepted. The Bank's loans are made on a short
term (three to six months) basis and occasionally yearly.
The above transactions can be engaged in with either persons or legal
entities.
Funds on Deposit. During the last three fiscal years funds deposited by
the Bank's customers had, as a percentage of deposits, the following sources.
<TABLE>
<CAPTION>
1995 1996 1997
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<S> <C> <C> <C>
Interest Bearing Accounts................................... 42% 32% 27%
Demand (Non-Interest Bearing) Accounts...................... 58% 67% 72%
Interbank Credits........................................... * 1% 1%
</TABLE>
Specific Agreements. In April 1996, a trilateral agreement was signed
between Dresdner Bank AG, Triex-Petrol S.A. (a company 80% owned by the
Government of Moldova) and the Bank concerning the financing of imports of oil
products into Moldova.
An oil dealer nominated by Dresdner Bank imports oil products into Moldova
and the Dresdner Bank finances the transactions under letters of credit issued
by the Bank. The oil products are later sold on the local market by the Moldovan
Government which collects payment in local currency. The funds are then
converted into U.S. dollars by the Bank and used for repayment to Dresdner Bank.
The Government of Moldova issued a standby guarantee signed by the Minister
of Finance of Moldova which states that it will repay the indebtedness to
Dresdner Bank if the other parties do not fulfill their obligations. This
agreement expires in 2001. The maximum line of credit authorized is $50,000,000,
while the largest amount outstanding to date has been $8,000,000.
In 1995, an agreement was signed between the Government of Moldova and the
United States for financing imports into Moldova of grain products from the
United States. Under this agreement the Bank issues letters of credit for its
clients in favor of the grain supplier in the United States. The letters of
credit provide for a corresponding agency of the United States to guarantee the
payment to the supplier upon receipt of the documents confirming delivery of the
goods.
In both instances the Bank charges a fee for the issuance of its letters of
credit.
Investments. In addition to charging fees and interest for the services
indicated above, the Bank also obtains revenues by participating in auctions for
and purchasing interest bearing treasury bills issued by the Moldovan Government
and interest earned on funds deposited in correspondent foreign banks.
The Bank has also made investments in other enterprises, including the
Insurance Company.
Loans to affiliated parties are made on the same basis as to
non-affiliates.
Borrowers. The Bank attempts to diversify its portfolio of loaned funds to
avoid a concentration of risk.
- ---------------
(1) The Bank also participates in such auctions on its own behalf as principal.
See "-- Investments."
* Less than 1%.
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During the Bank's fiscal year ended December 31, 1997, the Bank issued an
aggregate of approximately $24,580,000 in loans. The Bank's largest borrowers
identified by business categories and their approximate borrowings are as
follows:
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<S> <C>
Supermarket................................................. $242,000
Gasoline Brokers............................................ $220,000
Government-Owned Winery..................................... $210,000
Food Distributors........................................... $200,000
Road Construction Contractor................................ $190,000
Transport Forwarding Agency................................. $175,000
</TABLE>
Competition. The Bank considers its potential competitors to fall into
several categories. The first are government owned banks. The second group
consists of newer banks that have yet to establish themselves. The Company
believes that its principal competitors are three to four other banks, only one
of which has a liquid asset/to total asset ratio which is approximately the same
as the Bank (approximately 50%) while the other principal competitors have such
ratios ranging from approximately 30% to 40%. The Company believes that it
competes on the basis of overall customer service, interest rates and other
terms and conditions of loans, the professionalism of its staff, service
offerings (especially in the areas of cash transport and foreign exchange),
community reputation and the fact of its foreign ownership, which the Bank
believes enhances its attractiveness to depositors and other customers.
Government Regulation. The license granted to the Bank by the National
Bank of Moldova authorizes the Bank to do the following, among other things:
(1) accept deposits (demand and time) which may or may not bear
interest;
(2) grant credits (consumer or factoring) and financing of commercial
transactions;
(3) loan funds for its or its clients' accounts;
(4) provide cash services;
(5) issue payment documents (credit cards, debit cards, travellers
checks and bank promissory notes);
(6) engage in foreign currency exchange; and
(7) act as a financial consultant.
The Company believes it is in compliance with the banking laws, rules and
regulations of banks in Moldova.
Sales and Marketing. The Bank advertises its service in local newspapers
and on local radio stations and also offers "promotional" items to its customers
such as pens and calendars.
Administration. Non-policy management of the Bank is conducted by the
following departments:
FUNDS MANAGEMENT (six persons) -- having responsibilities over
lending, depositor relations and investments.
ANALYSIS (three persons) -- having responsibility over financial
analysis, reporting, development and planning.
INTERNATIONAL (twelve persons) -- having responsibility over
international transfers, export-import controls, dealing with foreign
correspondent banks, foreign currency dealings including conversions and
rendering foreign currency exchange services to clients.
SERVICE (five persons) -- provides overall customer relation services.
EXCHANGE (six persons) -- provides cash currency exchange services.
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COMPUTER OPERATIONS (six persons) -- development of software,
maintenance, selecting software and hardware supplies and overseeing
installation.
ACCOUNTING (nine persons) -- Accounting and customers service.
INTERNAL AUDITING (two persons) -- internal auditing, monitoring
accounting and operations.
SECURITY (eighteen persons) -- internal security and cash
transportation.
LEGAL (two persons) -- legal representation.
MAINTENANCE (twelve persons) -- provides maintenance, support and
miscellaneous auxiliary services.
TWO BRANCHES (thirty one persons)
The Bank's operations are augmented by a computer system with terminals
available to all necessary persons with security access, as appropriate,
installed. Bank personnel developed the Bank's computer system which covers
virtually all aspects of the Bank's operations (cash deposits, payments,
crediting, account controls, currency exchange transactions, traveller's check
transactions, past due obligations of Bank customers, client indexes, internal
reporting, interfacing with the National Bank of Moldova, account maintenance,
analyses of Bank activity and record-keeping of assets, salary, materials, etc.)
The Bank's computer is connected to various outside services, including the
Internet for information gathering and Reuters for foreign exchange rates and
other similar services.
Personnel. At January 1, 1998, the Bank employed approximately 117
persons, 86 in its main office and 31 in its two branches. All employees have
one year employment agreements which are renewable for one year terms by mutual
agreement and subject to compliance with the Bank's annual employee testing
requirements. Notwithstanding such employment agreements, discharge is permitted
for incompetence and other similar situations. As all employers in Moldova, the
Bank is required to contribute an amount equal to 30% of an employee's salary to
a government mandated pension system.
Jolly Alon Limited
In October of 1991, the Government of Moldova established Seabeco Moldova,
SA ("SEMSA") to be 65% owned by a private investor with the remaining 35% to be
owned by the Government of Moldova. At that time, the Government of Moldova
transferred the hotel in Kishinev that it owned to SEMSA. The hotel was known as
the Seabeco Moldova Hotel. Thereafter, the Hotel and SEMSA changed their names
to Jolly Alon Limited and Jolly Alon Hotel, respectively.
Originally opened approximately 30 years ago, the Jolly Alon Hotel (the
"Hotel") is primarily used by visiting foreign diplomats, other foreign embassy
employees, dignitaries and businessmen. The private investor began a program of
reconstruction and refurbishment with its own funds which program currently
continues, including the construction of a "wing" currently occupied by the
German Embassy and the addition of a sixth floor to the then five story hotel.
Other improvements include the installation of fuel storage tanks and the
construction of the Hotel's HVAC facilities. The Hotel is situated on government
owned land located at M. Chibortero Street, Kishinev, Moldova.
Kishinev is the capital of Moldova located approximately 1400 miles from
Moscow, 900 miles from Budapest, 500 miles from Bucharest and 450 miles from
Kiev. The Hotel is located approximately twenty minutes from Kishinev's airport
which is serviced by flights from such cities as Athens, Budapest, Frankfurt,
Moscow, Tel Aviv and Vienna by Air Moldova, Transiero and Air Moldova
International.
The Hotel is centrally located, near Moldova's Parliament, its President's
residence, and adjoins a substantial public park.
Operations. The Hotel's revenues are primarily derived from the rental of
its modern well appointed guest accommodations and from restaurant and bar
operations, leasing of space to the German Embassy and leasing of private
business offices (to business tenants, including Coopers and Lybrand). The
Company
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considers the Hotel to be the only "first class" hotel in Kishinev carrying
Moldova's designation as a four star hotel with accommodations for up to 120
guests in 80 hotel rooms. Hotel rooms range from single occupancy rooms to
suites as follows: single (forty rooms), double (twenty nine rooms), luxe (three
rooms), deluxe (six rooms) and suites (two). Hotel rooms range in price from
$95.00 for a single room to $295.00 for a suite with discounts offered for
extended residence. Reduced rates are offered during the fall and winter
"off-season". All rooms have bath and shower facilities, are air-conditioned,
have satellite delivered color TV and direct dial telephones for local and
international calls.
Additional services owned and operated by the Hotel are a full service
restaurant opened for guest buffet breakfast (complimentary) and lunch and
dinner with a full range of food and beverage offerings, saunas, an indoor
swimming pool, beauty salon, barbershop, room service and a small casino, all
serviced by a multi-lingual courteous staff. The Hotel leases retail office
space to a clothing boutique, fragrance, jewelry and publications concession and
a seller of local artifacts. A small foreign currency exchange office is
provided by the Bank.
In addition to revenues from room rentals to business/diplomatic
travellers, the Hotel also provides business services, meeting/conference rooms,
interpretation to and from major European languages and limousine services.
Clientele. Hotel guests are primarily business men, both foreign and from
the republics which had comprised the USSR, diplomats and other embassy
personnel. The area in which the Hotel is located does not have any significant
tourism and such travellers comprise only a small number of the Hotel's guests.
An unscientific and informal guest survey encompassing the last three years
indicates Hotel usage from personnel from the embassies of over twenty countries
(including the United States, Great Britain, Israel and Pakistan),
multi-national corporations and international agencies.
Average unaudited monthly occupancy rates for the years ended December 31,
1996 and 1997 ranged between the high 30%s and the low 40%s, and for the three
months ended March 31, 1998 was approximately 45%.
Competition. In its locale the Hotel's competition consists of two other
hotels only one of which the Company considers to be of a similar class but
lacking the range of services that the Hotel offers. The Company believes that
it competes with the other hotels in its locale on the basis of its physical
appearance, the range and quality of services and other amenities offered.
Insurance. Through the Insurance Company, the Hotel maintains insurance to
cover comprehensive casualty losses from occurrences such as flood, fire and
other natural disasters generally in the amount of $6,800,000 (with the Hotel
being a 20% coinsurer for earthquakes) and $200,000 of general accident
liability insurance.
Sales and Marketing. The Hotel's sales and marketing activities to date
have included joining an Internet system advertising its services, advertising
in local newspapers and on local radio; the distribution of brochures to
airlines servicing Moldova, diplomatic embassies and other foreign missions; and
providing discounts to tour operators and their clients.
Administration and Personnel. The non-policy day-to-day operations of the
Hotel are managed by an in-house management staff of 14. Overall operations are
overseen by a General Director whose responsibilities include day-to-day
budgeting and finance, oversight of employee hiring and assignments and the
maintenance of good relations with vendors and Hotel clientele. Among the
General Director's staff are several other directors who assist in the overall
Hotel operations, including a financial and technical director, a deputy and a
hotel manager. The financial director assigns duties to the administrative staff
involved in the Hotel's financial organization (accounting and record-keeping)
and their hiring and firing. The financial director is also responsible for
Hotel leases (with and to third parties) and contracting for supplies and
arranging for their distribution. The Hotel manager is responsible for the
oversight of service personnel, their adherence to the Hotel's policies
regarding client contact and a dress code, "plant" maintenance (including the
Hotel's physical appearance, computers and other equipment), reservation
control, upkeep of the Hotel's services to its clientele, with personal
attention to government representatives, and the determination of those
situations
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appropriate for discounted rentals. The technical director is responsible for
the maintenance of technical and electro-technical equipment, exterior
maintenance and the maintenance of the HVAC, telephone, fire alarm and security
systems and business equipment (telecopiers, etc.). The Hotel's administrative
staff consists of accountants, cashiers, and other clerical personnel.
The Hotel's remaining staff may be categorized as Hotel service staff
including a staff manager, porters, maids and laundress (42 persons), security
(15 persons), technicians, such as engineers, carpenters, drivers and mechanics
(25 persons), food service staff such as restaurant and bar persons, cooks and a
confectioner (60 persons), casino staff (12 persons) and miscellaneous staff (5
persons).
Exim Asint SA (the "Insurance Company")
The Insurance Company has engaged in the insurance business since it began
operations in 1995. The Insurance Company's business consists of issuing and
underwriting policies principally for property and casualty liability insurance,
exclusively to policyholders in Moldova. The Insurance Company also derives a
portion of its revenues from investments made with policy reserves.
The Insurance Company has received government licenses to issue, and
offers, the following types of insurance coverage: comprehensive liability
property; travellers' medical and domestic premium medical insurance;
third-party automobile; government mandated third-party automobile liability;
cargo; and accident.
Comprehensive Liability Property Insurance. The Insurance Company offers a
comprehensive liability/multi-peril liability insurance providing coverage of
100% of the actual cost of property losses resulting from fire, robbery,
larceny, or certain other natural disasters. Damage from earthquakes is covered
at 80% of the actual cost.
Travellers' Medical Insurance. The Insurance Company offers three
travellers' medical insurance plans for Moldovan permanent residents travelling
abroad. The plans are distinguished by the United States dollar amount of
coverage afforded by each plan, which is $15,000, $30,000 or $50,000,
respectively. It is customary for certain countries to disallow entry to
visitors who do not possess medical insurance covering accidents or illnesses
suffered while travelling, as opposed to pre-existing conditions and illnesses.
Domestic Medical Insurance. The Moldovan Government provides free basic
medical care to its residents, but "better" or premium care is available to
those with private policies. The Insurance Company offers such policies.
Automobile Insurance. The Insurance Company offers third-party liability
insurance coverage for automobile accidents, which coverage is mandated for all
drivers by the Moldovan government. Under this coverage, a policyholder whose
automobile is damaged is covered for up to 280,000 MDL in damage, and the victim
can receive up to $70 monthly for up to 18 months in disability payments (the
average approximate Moldovan monthly salary). This automobile insurance
customarily excludes from coverage certain hazardous activities, including
off-road use, riots, labor actions or other civil disobedience, transportation
of explosives, hazardous or flammable content, and accidents sustained while the
vehicle was used for commercial purposes. The Insurance Company does not offer
insurance which covers injuries to passengers due to the driver's negligence,
nor is the concept of such liability currently recognized under Moldovan law.
Personal Accident Insurance. Personal accident insurance is offered and
can cover an insured for up to a specified amount, for death or disability.
Cargo Insurance. The Insurance Company offers insurance which covers
damage sustained to commercial goods while in transit.
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The number of insurance policies issued by the Insurance Company, by
industry segment in the last two calendar years, are as follows:
<TABLE>
<CAPTION>
1996 1997
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<S> <C> <C>
Comprehensive............................................... 36 242
Travellers' Medical......................................... 581 2,757
Third-Party Automobile...................................... 9 1,035
Personal Accident........................................... -- 19
Other (Cargo, etc.)......................................... 14 14
--- ----
Total:............................................ 640 4,067
=== ====
</TABLE>
Use of Reinsurance. The Insurance Company has entered into agreements with
certain other insurance companies whereby such companies provide reinsurance to
the Insurance Company. Reinsurance is an insurance industry practice of
alleviating the primary insurer's risk by means of the assumption by an
insurance company, acting as a reinsurer, of a portion of the underlying
policy's risk in return for a portion of the premiums generated from such
policy. Such reinsurers are typically larger and better capitalized insurance
companies. The Insurance Company utilizes reinsurance in order to limit its
maximum exposure to significant losses from several policies at or about the
same time, or very large losses from any one policy, resulting from events
including but not limited to, natural disasters. Reinsurance is customarily
renegotiated on a year-to-year basis.
Under a reinsurance agreement, the primary insurer ordinarily assumes the
first portion of a claim ("FIRST TIER") and then it and the reinsurer share the
risk of coverage thereafter with the reinsurer assuming more of the claims, and
risk, for coverage above the FIRST TIER, while sharing, proportionately the
amount of the premium for the coverage in excess of the FIRST TIER. However, the
primary insurer is allowed to take a "commission" (or retain an amount of the
premium not proportionate to the risks retained by the primary insurer or
assumed by the reinsurer). Although the Insurance Company cedes insurance to the
reinsurer pursuant to such agreements, it is not relieved from its obligations
to policyholders. The failure of reinsurers to honor their obligations could
result in significant losses to the Insurance Company.
The Insurance Company's principal reinsurer is Munchener
Ruckversicherungs-Gesellschaft ("Munchener"), and it has other reinsurers to
cover its comprehensive liability insurance policies. Under its agreement with
Munchener (the "Munchener Agreement"), the Insurance Company grants to Munchener
15% of gross premium income, and settles the reinsurance account with Munchener
in either United States dollars or Deutsche Marks ("DM"), with Munchener not to
reinsure accounts once the combined ratio of incurred losses and fixed
commissions exceeds 140% of the premium income.
The Insurance Company has entered into a Fire Quota Share and First Surplus
Reinsurance Agreement with Munchener (the "Munchener Fire Agreement"), pursuant
to which Munchener acts as a reinsurer with regards to private and commercial
policyholders in Moldova, or for policyholders which represent or possess
Moldovan interests abroad, and for which the Insurance Company insures as
primary insurer. Pursuant to the Munchener Fire Agreement, certain risks are
divided into classifications such that natural disasters and "malicious damage"
to buildings and their contents, are insured for up to $75,000 damage, and other
lines of coverage are offered for an aggregate of up to $900,000 of coverage.
The second classification is limited to burglary, hail, and glass breakage with
regards to buildings and their contents only, with any one casualty insured up
to $20,000 and up to an aggregate of $240,000.
The Insurance Company is heavily dependent upon Munchen for reinsurance.
Reinsurance is a product used by primary insurers to alleviate risks undertaken
when underwriting insurance policies, and borne when substantial claims and
losses result from multiple policyholders, or from very large claims and losses
of holders in the event of major catastrophes (such as natural disasters).
Munchen is the Insurance Company's primary reinsurer. The loss of Munchen as a
reinsurer, or the reduced capacity or inclination of Munchen to act as a
reinsurer for policies underwritten by the Insurance Company, could materially
adversely affect the ability of the Insurance Company to absorb a significant
number of large claims and losses, or any one significant claim and loss,
suffered as a result of underwriting policies.
10
<PAGE> 12
Mandatory Insurance Claims Reserves. The Moldova Ministry of Finance
requires that insurance companies maintain reserves in an amount at least 50% to
60% of its current premiums to cover losses and claims. The Insurance Company
also maintains a reserve at specific rates of net earned premiums, which reserve
is set according to market experience as a whole and is not necessarily intended
to cover future claims lodged with the Insurance Company.
Investments. The Insurance Company receives additional revenues from the
investment of premium fund reserves which are controlled by the Moldova Ministry
of Finance. Such reserves are required to be invested, as follows: at least 60%
in government securities issued by Moldova, and no more than the 40% balance in
real estate or equity securities of other corporations or governments. The
Insurance Company's reserves, as of February 28, 1998, were allocated as follows
(all amounts in MDL):
<TABLE>
<S> <C>
5,500.......................................... in cash
15,386......................................... working capital
256,500........................................ bank deposits, and
1,244,000...................................... government securities
</TABLE>
Sales and Marketing. The Insurance Company is heavily dependent on
personal contacts and visits to potential clients, as well as attendance at
trade conferences, newspaper and yellow page advertisements and the efforts of
commission agents who are not employees of the Insurance Company or other
subsidiaries/ affiliates of the Company for the marketing of its insurance
products. The Insurance Company employs both full-time and part-time sales
agents who work strictly on a commission basis.
The Insurance Company sells insurance policies from its main office in
Kishinev and a small marketing extension office located at the Bureau of
Registration (automobile) in Kishinev. The Insurance Company also has a sales
representative in the German Embassy located in a wing of the Hotel, who sells
premium medical insurance to persons applying for visas to travel to countries
within the European Union ("EU").
CUSTOMERS
In 1996 the Insurance Company issued a total of 640 policies, and in 1997
it issued 4067 policies. The Insurance Company has two customers which
constitute more than 5% of its total premium income: the Hotel and one other
party (which account for 15% and 13% of the Insurance Company's premium income,
respectively). The Insurance Company also receives client referrals from the
Bank of persons/entities seeking insurance upon collateral used to obtain Bank
loans and provides insurance to the Hotel. See "-- Hotel."
COMPETITION
According to the Insurance Company management, there are 37 other insurance
companies currently operating in Moldova. Five other companies issue policies
together with automobile registration. Approximately one-half of such companies
are government-owned. The Insurance Company faces fierce competition.
Competition is primarily based on the rating of premiums, as well as name
recognition and quality of customer service. The Insurance Company's management
believes that other insurance companies in Moldova are applying premium rates
higher than those for comparable policies for western Europe policyholders.
Management believes that the prevalence of local insurance companies which are
not reinsured gives the Insurance Company a competitive edge as such competitors
are and have disregarded their assumed effective risk and endangered their
capital in the process. Management believes that its underwriting policy is more
prudent than its competitors and its pricing system is based on consideration of
the attendant risks and collaboration with reinsurers. The Insurance Company
endeavors to compete with such companies on the basis of offering superior
service and prompt payment of claims.
CURRENCIES
Business is conducted in MDL. However, reinsurance business is conducted in
United States dollars (US$). In 1993, Moldova had encountered hyperinflation.
However, in 1996, the rate of inflation in Moldova was 15.1%. See Appendix A.
11
<PAGE> 13
YEAR 2000 PROBLEM
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (Year 2000) approaches. The "Year
2000" problem is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the latter two digit year value
to 00. The issue is whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. Management of the Company, however, has assessed the "Year 2000"
compliance expense and related potential effect on the Company's earnings and
does not believe compliance will have a material adverse affect on the Company's
earnings.
ITEM 2. PROPERTIES
The Bank's main branch is located at bd. Stefan cel/Mare, 6, MD-2001,
Kishinev, Moldova occupying approximately 1300 square meters of space in a Bank
owned building. The Bank's two branches are leased from non-affiliated third
parties and located in the Moldovan cities of Ungeni (approximately 110 square
meters) and Komrat (approximately 214 square meters) at an aggregate annual
rental cost of $9,000 for such two branches.
Until September of 1997, private land ownership was not permitted in
Moldova. The Company utilizes the land on which the Hotel is located pursuant to
a grant from the Government of Moldova. Based upon the Company's interpretation
of current Moldovan law, the Company believes that the owner of a building has
the primary right to purchase the land on which it is situated once the building
is wholly privately owned. The Company has not yet submitted a request for the
acquisition of the land.
The Insurance Company leases approximately 100 square meters of office
space from the Bank pursuant to a 27-year operating lease with the Bank, under
which the Bank received payment in the form of equity shares in the Insurance
Company, such shares in the aggregate having been valued at $24,840. The
Insurance Company also maintains desk space, along with other insurance
companies, at automobile registration offices in Moldova. The Insurance Company
believes its present leased office space will be suitable to meet its needs for
the next several years.
The office premises are insured against fire, burglary, earthquake and
water (flood) risks by a policy issued by the Insurance Company.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries were, to its knowledge, a
party to or otherwise involved in any material legal proceedings as of December
31, 1997. On August 10, 1984, the Company filed a Debtor's Petition for Relief
under Chapter 11 of the United States Bankruptcy Code. An Order to Proceed under
Chapter 7 of the Bankruptcy Code, reporting $1,390,000 of unsecured claims, was
subsequently filed on November 7, 1984. The Company was inactive from 1984 to
1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
As of the date of this filing, no matters were submitted to a vote of the
Company's securityholders during the last quarter.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
No shares of the Company's common stock have been registered with the
Securities and Exchange Commission (the "Commission") or any state securities
agency or authority, pursuant to the registration requirements of the Securities
Act of 1933, as amended (the "Act") and similar state securities laws. During
its fiscal years ended December 31, 1996 and 1997, it is believed that there was
no active market for the
12
<PAGE> 14
Company's Common Stock. Since January 30, 1998, the Company's Common Stock has
been traded on the OTC Bulletin Board under the trading symbol "TMOL". The
Company believes that the current trading market for the shares of its Common
Stock may be limited. Because no active trading market existed during 1996 and
1997, no historical price information for the Company's shares is included for
such years.
The ability of an individual stockholder to trade his/her shares in a
particular state may be subject to various rules and regulations of that state.
A number of states require that an issuer's securities be registered in their
state or appropriately exempted from registration before the securities are
permitted to trade in that state.
The Company's shares may be subject to the provisions of the Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), known as the
"penny stock" rules.
The "penny stock" rules generally define penny stocks to be any equity
security that has a price of less than $5.00 per share, subject to certain
exceptions, and provide that any equity security is considered to be a penny
stock unless that security is: registered and traded on a national securities
exchange meeting specified criteria set by the Commission; authorized for
quotation on the Nasdaq Stock Market; issued by a registered investment company;
or excluded from the definition on the basis of price (at least $5.00 per share)
or the issuer's net tangible assets. If the Company's shares are deemed to be a
penny stock, trading in the shares will be subject to additional sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors, generally persons with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse.
For transactions covered by the "penny stock" rules, broker-dealers must
make a special suitability determination for the purchase of such securities and
must have received the purchaser's written consent to the transaction prior to
the purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker-dealers to
trade and/or maintain a market in the Company's common stock and may affect the
ability of shareholders to sell their shares.
As of April 13, 1998, there were 255 holders of record of the Company's
common stock. The following table sets forth the range of the high and low
closing bid prices for shares of the Company's Common Stock for the period from
January 30, 1998 through March 31, 1998 on the Over-The-Counter Bulletin Board:
<TABLE>
<CAPTION>
CLOSING BID PRICE
-----------------
HIGH LOW
------- ------
<S> <C> <C>
For period between January 30, 1998 through March 31,
1998...................................................... $8.625 $1.25
</TABLE>
As of the date hereof, the Company has issued and outstanding 11,000,000
shares of common stock. Of this total, 1,000,000 shares may be deemed to have
been issued in transactions more than two years ago and may be sold or otherwise
transferred without restriction pursuant to the terms of Rule 144 ("Rule 144")
of the Act, without the volume limitations of said rule unless held by an
affiliate or controlling shareholder of the Company. Of the 11,000,000 shares,
the Company has identified 10,000,000 shares as being held by affiliates of the
Company. The remaining 1,000,000 shares may be deemed to be free from
restrictions and, if so, may be sold and/or transferred without further
registration under the Act.
The 10,000,000 shares presently held by affiliates or controlling
shareholders of the Company may be sold pursuant to Rule 144, subject to the
volume and other limitations set forth under Rule 144. In general, under Rule
144 as currently in effect, a person (or persons whose shares are aggregated)
who has beneficially owed restricted shares of the Company for at least one
year, including any person who may be deemed to be an "affiliate" of the Company
(as the term "affiliate" is defined under the Act), is entitled to sell, within
any three-month period, an amount of shares that does not exceed the greater of
(i) the average weekly trading volume in the Company's common stock during the
four calendar weeks preceding such sale or (ii) 1% of the shares then
outstanding. A person who is not deemed to be an "affiliate" of the Company and
who has held
13
<PAGE> 15
restricted shares for at least two years would be entitled to sell such shares
without regard to the resale limitations of Rule 144.
Dividend Policy. The Company has not declared or paid cash dividends or
made distributions in the past, and the Company does not anticipate that it will
pay cash dividends or make distributions in the foreseeable future. The Company
currently intends to retain and reinvest future earnings, if any, to finance its
operations.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
As a result of the Reorganization, the operations of the Company prior to
the Reorganization are without value of discussion.
ITEM 7. FINANCIAL STATEMENTS
The Company's financial statements as of and for the fiscal years ended
December 31, 1997 and 1996 have all been examined, to the extent indicated in
their report, by Jones, Jensen & Company, independent certified accountants, and
have been prepared in accordance with generally accepted accounting principles
and pursuant to Regulation S-B as promulgated by the Securities and Exchange
Commission. The aforementioned financial statements are included herein in
response to Item 7 of this Form 10-KSB.
The financial statements for the nine month periods ended September 30,
1997 and 1996 and fiscal years ended December 31, 1996 and 1995 of (a) Jolly
Alon Limited; (b) Banca Commerciala pe Actiuni "Export-Import"; and (c) Exim
Asint, S.A., all have been examined to the extent indicated in their reports by
KPMG Braude Bavly, an affiliate of KPMG International, independent certified
public accountants, and have been prepared in accordance with generally accepted
accounting principles and pursuant to Regulation S-B, as promulgated by the
Securities and Exchange Commission. The aforementioned financial statements are
included herein in response to Item 7 of this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
This item is not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Boris Birshtein........................ 50 Chairman of the Board
Ted Shapiro............................ 62 Chief Executive Officer, President and
Director
Shmuel Gurfinkel....................... 51 Chief Financial Officer and Director
Robert L. Blessey...................... 52 Secretary and Director
Abelis Raskas.......................... 56 Vice President
Eugene Kogan........................... 29 Vice President
Leonid Tsiller......................... 52 Vice President
</TABLE>
The biographical information concerning the directors and executive
officers of the Company, as supplied to the Company by them, is as follows:
MR. BIRSHTEIN has been the Chairman of the Board of Directors of the
Company since January 1998, and since 1994 Mr. Birshtein has also been the
Chairman of the Board of Directors of the Bank. Since 1997, Mr. Birshtein has
also been the Chairman of the Board of Directors and principal shareholder of
Global Telcomm Group, Ltd. ("Global Telcomm"), a privately held, development
stage international telecommuni-
14
<PAGE> 16
cations firm. From 1994 to the present, Mr. Birshtein has also been a principal
shareholder of various corporations conducting business in Moldova, including a
television station, a publishing house, a document production company and a
chain of duty free stores in Moldova. From 1981 to 1996, Mr. Birshtein was the
Chairman of the Board of Directors of Seabeco Group, a Swiss corporation which
he founded in 1981 ("Seabeco"). Seabeco specialized in trading fertilizers and
metals in Eastern Europe. In 1992, Mr. Birshtein became a full member of the
International Information Academy, which has a general consultive status with
the Economic and Social Counsel of the United Nations. Mr. Birshtein previously
served as the Chairman of the Supreme Economic Council under the President of
the Republic of Moldova. In 1997, Mr. Birshtein received his Ph.D. in Philosophy
and was confirmed as a full Professor at the International Information Academy.
Mr. Birshtein is the author of Reform -- Problems of Market Economy Regulations
in the CIS Countries, which was published in 1997.
MR. SHAPIRO has been the Chief Executive Officer, President and Director of
the Company since January 1998, and from 1997 to the present has been the Chief
Executive Officer and Director of Global Telcomm. From 1992 to 1997, Mr. Shapiro
was the Chairman of the Board of Directors of EMX Corporation ("EMX"), a
research and development technology firm, which is the exclusive worldwide
licensee of numerous patents relating to international technology. From 1981 to
1992, Mr. Shapiro was the Chairman of the Board of Directors of the Patrician
Group, Inc. and certain of its affiliated entities ("Patrician"). Patrician was
a national privately held real estate firm engaged in acquiring, selling and
managing shopping centers. Patrician owned 71 shopping centers in 38 states with
a gross leasable area in excess of 12 million square feet.
MR. GURFINKEL has been the Chief Financial Officer and Director of the
Company since January 1998. Since 1996, Mr. Gurfinkel also has been a Director
of the Bank. For at least the last five years, Mr. Gurfinkel has been the owner
of the Shmuel Gurfinkel accounting firm in Ramat-Gan, Israel which has 12
employees. He has been a member of the Board of Directors of Beken Metals, Ltd.,
a subsidiary of Africa Israel Investments Ltd., since 1997.
MR. BLESSEY has been a Director and Secretary of the Company since January
1998. Since 1997, Mr. Blessey has been Co-Counsel to the law firm of Gusrae,
Kaplan & Bruno. From 1990 to 1996, he was Of-Counsel to the law firm of Gold &
Wachtel and from 1974 to 1989, Mr. Blessey was the President and principal
shareholder of the law firm of Doros & Blessey, P.C. From 1994 to the present,
Mr. Blessey has been General Counsel to International Magnetic Imaging, Inc., a
medical diagnostic imaging provider with medical diagnostic imaging facilities
in Florida, Kansas, Virginia and Puerto Rico; from 1990 to the present, Mr.
Blessey has been General Counsel and a member of the Board of Directors of EMX;
from 1997 to the present, Mr. Blessey has been General Counsel and Vice Chairman
of the Board of Directors of Global Telcomm; from 1991 to the present, Mr.
Blessey has been General Counsel, Secretary and member of the Board of Directors
of Aldine Metal Products Corp., a privately held, family owned steel
manufacturing company; and from 1964 to the present, Mr. Blessey has been a
Partner in Forar Realty Co., a family owned real estate partnership.
MR. RASKAS has been the Vice President of the Company since January 1998.
Since 1990, Mr. Raskas has also been the Director of Ocean Bridge International,
Inc. ("Ocean Bridge"). Ocean Bridge is a commercial financier and international
exporter primarily to Russia, Lithuania and other territories of the former
Soviet Union. From 1986 to 1990, Mr. Raskas was the Director of Marketing for
Sandata Corp., a privately held computer service bureau in Port Washington, New
York.
MR. TSILLER has been Vice President of the Company since January 1998. From
1980 to 1997, he was the founder and owner of Luxan Shoes MFG Co. Ltd., a
privately held corporation located in Toronto. Prior to such time he was
employed in a variety of different capacities in the manufacturing and
electrical industries.
MR. KOGAN has been a Vice President of the Company since January 1998.
Since 1988, Mr. Kogan has been the President of Remko Export Import Company, a
privately held corporation in Canada in the furniture business. From 1994 to
1995, Mr. Kogan was employed by the law firm of Fireman Regan. Mr. Kogan
received his LL.B. from Osgoode Hall Law School in Toronto, Canada in 1993.
15
<PAGE> 17
ITEM 10. EXECUTIVE COMPENSATION
The Company believes that it is in its best interests to secure the
services of Boris Birshtein and Ted Shapiro, its Chairman of the Board and Chief
Executive Officer and President, respectively. Consequently, pursuant to a
recent resolution of the Company's Board of Directors, the Company intends to
enter into employment agreements with Messrs. Birshtein and Shapiro. The Company
contemplates that each of such agreements will have a term of three (3) years
and will provide for annual salaries and/or other compensation in amounts to be
agreed upon. In addition, it is contemplated that such agreements will provide
for performance bonuses, retirement and disability payments, compensation in the
event of changes of control in the Company and other fringe benefits on terms
that have not yet been agreed upon but will be negotiated in the future with
such individuals.
The actual terms of such employment agreements may, when consummated, vary
significantly from the terms currently contemplated by the Company. There can be
no assurance whether or when such agreements will be consummated or, if so, on
what terms. To date, neither of Messrs. Birshtein or Shapiro has received any
compensation from the Company for the performance of their services on behalf of
the Company.
No officer or director of the Company received compensation in excess of
$60,000 in 1997.
All employees of the Bank, the Hotel and the Insurance Company in Moldova
are subject to government-mandated one-year employment agreements. Employers may
terminate employees only for good cause, such as incompetence. Employees may be
required to remain at their employment for several weeks after expressing a
desire to resign, if needed by a firm.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, to the best knowledge of the
Company as of February 28, 1998, with respect to each person known by the
Company to own beneficially more than 5% of the Company's outstanding Common
Stock, each director and all directors and officers as a group.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP OF COMMON STOCK
---------------------------------
APPROXIMATE
PERCENTAGE OF
NAME OF BENEFICIAL OWNERS NUMBER OF SHARES OWNERSHIP
------------------------- ---------------- -------------
<S> <C> <C>
Boris Birshtein(1).......................................... 7,820,000 71.1
Ted Shapiro(2).............................................. 1,390,000 12.6
Shmuel Gurfinkel(3)......................................... -- --
Robert L. Blessey(4)........................................ -- --
Leonid Tsiller(5)........................................... 340,000 3.1
Abelis Raskas(6)............................................ 340,000 3.1
Eugene Kogan(7)............................................. 110,000 1.0
All executive officers and directors as a group (7
persons)(8)............................................... 10,000,000 90.9
</TABLE>
- ---------------
(1) Mr. Birshtein is the Chairman of the Board of Directors of the Company. Such
shares are owned of record by Magnum and Starbeam. Magnum and Starbeam are
corporations organized under the laws of Ireland. The capital stock of such
entities is owned by Mr. Birshtein.
(2) Mr. Shapiro is the Chief Executive Officer, President and a Director of the
Company.
(3) Mr. Gurfinkel is the Chief Financial Officer and a Director of the Company.
(4) Mr. Blessey is a Director and Secretary of the Company.
(5) Mr. Tsiller is a Vice President of the Company. Such shares were received by
such person in connection with services provided previously to Starbeam and
Magnum and future services to be provided by such person to the Company.
(6) Mr. Raskas is a Vice President of the Company. Such shares were received by
such person in connection with services provided previously to Starbeam and
Magnum and future services to be provided by such person to the Company.
(7) Mr. Kogan is a Vice President of the Company.
(8) See Footnotes (1)-(7).
16
<PAGE> 18
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1997, Mr. Birshtein contributed $215,000 to the Bank.
In September 1996, the Bank repurchased from the Government of Moldova the
thirty-five (35%) percent of its outstanding capital stock (the "35% Interest")
not owned by Mr. Birshtein for approximately $700,000.
In 1996, 1995 and 1994, the Company declared dividends on its outstanding
capital stock. The aggregate dollar amount of such dividends that Mr. Birshtein,
as a stockholder of the Bank, was entitled to receive was approximately
$2,250,000. Mr. Birshtein, however, elected not to receive such dividend payment
so that the Bank could use such funds to repurchase the 35% Interest and
increase its capitalization.
In 1995, Mr. Birshtein contributed approximately $300,000 to the Insurance
Company for start-up and working capital costs.
In 1994, Mr. Birshtein purchased sixty-five (65%) percent of the issued and
outstanding capital stock of the Bank for $650,000. Such funds were used for
start-up costs and working capital.
Several other entities in Moldova, which are affiliates of Mr. Birshtein,
are customers of the Bank and borrow funds from the Bank on an arm's length
basis.
The Insurance Company has issued to the Hotel a $6,800,000 comprehensive
liability policy (including $5,500,000 for earthquake damage) and received
premiums of approximately $65,000 from the Hotel in 1997.
The Insurance Company has signed agreements with two of its directors
according to which the Insurance Company shall pay each director 7.5% of the
accumulated net profit (after deduction of accumulated losses); to date, no such
payment has been made since the Insurance Company has an accumulated loss.
The Insurance Company maintains a current account and deposit accounts with
the Bank.
The Insurance Company insures the property of the Bank.
The Company believes all transactions with affiliates are on terms
comparable to the standard terms and rates offered to regular commercial
insureds.
17
<PAGE> 19
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
a. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
2 Agreement and Plan of Reorganization, effective January 6,
1998, by and among the Company, Edward F. Cowle, H. DeWorth
Williams, Gold Hill Mines, Inc., Magnum Associates Ltd. and
Starbeam, Ltd.(1)
3 By-Laws(2)
4 Specimen of Certificate of Common Stock(2)
21 List of Subsidiaries
23.1 Consent of Jones, Jensen & Company, LLC
23.2 Consent of KPMG Braude Bavly, an affiliate of KPMG
International
</TABLE>
b. Reports on Form 8-K
1. Current Report on Form 8-K filed January 6, 1998.
2. Current Report on Form 8-K/A filed March 5, 1998.
3. Current Report on Form 8-K/A-2 filed as of March 27, 1998.
- ---------------
(1) Incorporated by reference to the Company's Report on Form 8-K, filed on
January 6, 1998 and as amended on March 5, 1998, and as amended as of March
27, 1998.
(2) Incorporated by reference to the Company's Registration Statement on Form
10-SB.
18
<PAGE> 20
INDEX TO FINANCIAL STATEMENTS
Page No.
NUTRONICS INTERNATIONAL, INC.
Independent Auditors' Report......................................F-1
Balance Sheets....................................................F-2
Statements of Operations..........................................F-3
Statements of Stockholders' Equity................................F-4
Statements of Cash Flows..........................................F-6
Notes to the Financial Statements.................................F-7
JOLLY ALON LIMITED
Report of Independent Auditors....................................F-10
Balance Sheets as at September 30, 1997 and 1996..................F-11
Statements of Income for the Nine Months Ended
September 30, 1997 and 1996.....................................F-12
Statements of Changes in Shareholders' Equity
for the Nine Months Ended September 30, 1997 and 1996...........F-13
Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996.....................................F-14
Notes to Financial Statements.....................................F-16
Report of Independent Auditors....................................F-27
Balance Sheets as at December 31, 1996 and 1995...................F-28
Statements of Income for the Years Ended
December 31, 1996 and 1995......................................F-29
Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1996 and 1995..................F-30
Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995......................................F-31
Notes to Financial Statements......................................F-33
BANCA COMMERCIALA PE ACTIUNI "EXPORT-IMPORT"
Report of Independent Auditors....................................F-45
Balance Sheets as at September 30, 1997 and 1996..................F-46
Statements of Income for the Nine Months Ended
September 30, 1997 and 1996.....................................F-47
Statements of Changes in Shareholders' Equity
for the Nine Months Ended September 30, 1997 and 1996...........F-48
Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996.....................................F-49
Notes to Financial Statements.....................................F-50
Report of Independent Auditors....................................F-69
Balance Sheets as at December 31, 1996 and 1995...................F-70
Statements of Income for the Years Ended
December 31, 1996 and 1995......................................F-71
Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1996 and 1995..................F-72
Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995......................................F-73
Notes to Financial Statements.....................................F-74
EXIM ASINT S.A.
Report of Independent Auditors....................................F-94
Balance Sheets as at September 30, 1997 and 1996..................F-95
Statements of Income for the Nine Months Ended
September 30, 1997 and 1996.....................................F-96
Statements of Changes in Shareholders' Equity
for the Nine Months Ended September 30, 1997 and 1996...........F-97
Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996.....................................F-98
Notes to Financial Statements.....................................F-99
Report of Independent Auditors....................................F-113
Balance Sheets as at December 31, 1996 and 1995...................F-114
Statements of Income for the Years Ended
December 31, 1996 and 1995......................................F-115
Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1996 and 1995..................F-116
Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995......................................F-117
Notes to Financial Statements.....................................F-118
<PAGE> 21
[JONES, JENSEN & COMPANY LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nutronics International, Inc.
(A Development Stage Company)
New York, New York
We have audited the accompanying balance sheets of Nutronics International, Inc.
(a development stage company) as of December 31, 1997 and 1996, and the related
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 1997, 1996 and 1995 and from inception on May 6, 1953 through
December 31, 1997. 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.
In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Nutronics International, Inc. (a
development stage company) as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for the years ended December 31, 1997, 1996
and 1995 and from inception on May 6, 1953 through December 31, 1997 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company is a development stage company with no
significant operating results to date. Unless the Company is able to obtain
significant outside financing, there is substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
March 12, 1998
F-1
<PAGE> 22
NUTRONICS INTERNATIONAL, INC.
(A Development Stage Company)
Balance Sheets
ASSETS
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash $ -- $ --
-------- --------
Total Current Assets -- --
-------- --------
TOTAL ASSETS $ -- $ --
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ -- $ --
-------- --------
Total Current Liabilities -- --
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock: 10,000 shares authorized of $100.00
par value, -0- and -0- shares issued and
outstanding, respectively -- --
Common stock: 30,000,000 shares authorized of $0.01
par value, 1,000,000 and 1,000,000 shares issued and
outstanding, respectively 10,000 10,000
Additional paid-in capital 5,410 1,241
Deficit accumulated during the development stage
from May 22, 1995 (15,410) (11,241)
-------- --------
Total Stockholders' Equity -- --
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ -- $ --
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-2
<PAGE> 23
NUTRONICS INTERNATIONAL, INC.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
From Inception
on May 6,
For the Years Ended December 31, 1953 Through
------------------------------------- December 31,
1997 1996 1995 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES $ -- $ -- $ -- $ --
--------- --------- --------- ---------
EXPENSES -- -- -- --
LOSS FROM
DISCONTINUED
OPERATIONS 4,169 8,537 2,704 103,002
--------- --------- --------- ---------
NET INCOME (LOSS) $ (4,169) $ (8,537) $ (2,704) $(103,002)
========= ========= ========= =========
NET INCOME (LOSS)
PER SHARE OF
COMMON STOCK $ (0.00) $ (0.01) $ (0.00)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE> 24
NUTRONICS INTERNATIONAL, INC.
(A Development Stage Company)
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Deficit
Additional Accumulated
Preferred Stock Common Stock Paid-in During the
---------------------- ----------------------- Capital Development
Shares Amount Shares Amount (Deficit) Stage
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Inception, May 6, 1953 -- $ -- -- $ -- $ -- $ --
Preferred stock issued
at $1.00 per share 10,000 1,000,000 -- -- (990,000) --
Common stock issued
at $0.01 per share -- -- 870,993 8,710 67,582 --
Prior period adjustment
(Note 8) -- -- 14,841 148 1,152 (1,300)
Net loss from inception
on May 6, 1953 through
December 31, 1993 -- -- -- -- -- (86,292)
---------- ---------- ---------- ---------- ---------- ----------
Balance,
December 31, 1993 10,000 1,000,000 885,834 8,858 (921,266) (87,592)
Net loss for
the year ended
December 31, 1994 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance,
December 31, 1994 10,000 $1,000,000 885,834 $ 8,858 $ (921,266) $ (87,592)
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE> 25
NUTRONICS INTERNATIONAL, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Deficit
Additional Accumulated
Preferred Stock Common Stock Paid-in During the
-------------------------- ------------------------- Capital Development
Shares Amount Shares Amount (Deficit) Stage
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1994 10,000 $ 1,000,000 885,834 $ 8,858 $ (921,266) $ (87,592)
Preferred stock converted
to common stock at
$0.01 per share (Note 4) (10,000) (1,000,000) 114,166 1,142 998,858 --
Quasi-reorganization
(Note 6) -- -- -- -- (87,592) 87,592
Expenses paid on the
Company's behalf
by a shareholder (Note 7) -- -- -- -- 2,704 --
Net loss for
the year ended
December 31, 1995 -- -- -- -- -- (2,704)
----------- ----------- ----------- ----------- ----------- -----------
Balance,
December 31, 1995 -- -- 1,000,000 10,000 (7,296) (2,704)
Expenses paid on the
Company's behalf by
a shareholder -- -- -- -- 8,537 --
Net loss for
the year ended
December 31, 1996 -- -- -- -- -- (8,537)
----------- ----------- ----------- ----------- ----------- -----------
Balance,
December 31, 1996 -- -- 1,000,000 10,000 1,241 (11,241)
Expenses paid on the
Company's behalf by a
shareholder -- -- -- -- 4,169 --
Net loss for
the year ended
December 31, 1997 -- -- -- -- -- (4,169)
----------- ----------- ----------- ----------- ----------- -----------
Balance,
December 31, 1997 -- $ -- 1,000,000 $ 10,000 $ 5,410 $ (15,410)
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE> 26
NUTRONICS INTERNATIONAL, INC.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
From Inception
on May 6,
For the Years Ended December 31, 1953 Through
----------------------------------- December 31,
1997 1996 1995 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities
Loss from operations $ (4,169) $ (8,537) $ (2,704) $(103,002)
Loss on discontinued operations 4,169 8,537 2,704 103,002
--------- --------- --------- ---------
Net Cash Used by
Operating Activities -- -- -- --
--------- --------- --------- ---------
Cash Flows From Investing Activities -- -- -- --
--------- --------- --------- ---------
Cash Flows From Financing Activities -- -- -- --
--------- --------- --------- ---------
Net Increase (Decrease) in
Cash and Cash Equivalents -- -- -- --
Cash and Cash Equivalents at
Beginning of Period -- -- -- --
--------- --------- --------- ---------
Cash and Cash Equivalents at
End of Period $ -- $ -- $ -- $ --
========= ========= ========= =========
Cash Paid For:
Interest $ -- $ -- $ -- $ --
Income taxes $ -- $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE> 27
NUTRONICS INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1997 and 1996
NOTE 1 - ORGANIZATION AND HISTORY
Nutronics International, Inc. (the Company) was incorporated under the
laws of the State of Delaware on May 6, 1953. The Company was organized
to engage in various oil and mining activities. The Company conducted
limited oil and mining activities until its operations ceased.
Over the course of years, the Company changed its name to attract new
ownership. Following a name change from Extra Production Co., Inc. to
SDE Robotics and Automation Corp. on August 19, 1983, the Company
entered into an Agreement and Plan of Reorganization with Alpha
Electronics Corp. The Company exchanged 125,000 shares of its
authorized, but unissued common stock for all of the issued and
outstanding stock of Alpha Electronics Corp.
On August 10, 1984, the Company filed a Debtor's Petition for Relief
under Chapter 11. An Order to Proceed under Chapter 7, reporting
$1,390,000 of unsecured claims, was subsequently filed on November 7,
1984.
On October 20, 1980, prior to entering into the Agreement and Plan of
Reorganization with the Company, Alpha Electronics Corp. filed
bankruptcy.
The Company is presently seeking new business opportunities that hold a
potential profit and is classified as a development stage Company as
defined in SFAS No. 7.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting.
b. Loss Per Share
The computation of loss per share of common stock is based on the
weighted average number of shares outstanding during the period of the
financial statements.
c. Provision for Taxes
At December 31, 1997, the Company has net operating loss carryforwards
of approximately $15,410 may be offset against future taxable income
through 2012. No tax benefit has been reported in the financial
statements, because the Company believes there is a 50% or greater
chance that the carryforwards will expire unused. Accordingly, the
potential tax benefits of the loss carryforward are offset by a
valuation account of the same account.
d. Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
F-7
<PAGE> 28
NUTRONICS INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Financial Statements (Continued)
December 31, 1997 and 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
e. 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.
f. Additional Accounting Policies
Additional accounting policies will be determined when principal
operations begin.
NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities
in the normal course of business. However, the Company does not have
significant cash or other material assets, nor does it have an
established source of revenues sufficient to cover its operating costs
and to allow it to continue as a going concern. It is the intent of the
Company to seek a merger with an existing, operating company. Until
that time, shareholders of the Company have committed to meeting the
Company's operating expenses.
NOTE 4 - STOCK CONVERSION
At a special meeting of the board of directors of the Company on May
22, 1995, it was resolved to convert 10,000 shares of the Company's
issued and outstanding $100.00 par value preferred stock to 1,000,000
shares of the Company's $0.01 par value common stock.
NOTE 5 - REVERSE STOCK SPLIT
At a special meeting of the Board of Directors on December 26, 1997, it
was resolved to issue 1 share for 8.759170 share basis on the company's
common stock. These financial statements reflect the reverse stock
split on a retro-active basis.
NOTE 6 - QUASI - REORGANIZATION
On May 22, 1995, shareholders of the Company voted to effect a
quasi-reorganization, whereby, the accumulated deficit of the Company
was eliminated against the paid-in capital of the Company.
F-8
<PAGE> 29
NUTRONICS INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Financial Statements (Continued)
December 31, 1997 and 1996
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company has received advances from a certain shareholder in order
to pay minimal operating expenses of the Company. As of December 31,
1997 and 1996, $15,410 and $11,241, respectively, had been contributed
to capital as a result of these advances.
NOTE 8 - PRIOR PERIOD ADJUSTMENT
The statements of stockholders' equity have been restated to reflect an
additional 130,000 shares of common stock. The shares have been
recorded at a value of $0.01 per share and reflected as an increase in
the common stock amount and the deficit accumulated during the
development stage of $1,300. (The $1,300 is reflected as an increase in
the additional paid-in capital pursuant to the quasi reorganization in
1995.) The Company's transfer agent discovered an error in the shares
outstanding subsequent to the audit of the Company's December 31, 1995
financial statements.
F-9
<PAGE> 30
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
JOLLY ALON LIMITED
(MOLDOVAN COMPANY)
We have audited the accompanying balance sheets of Jolly Alon Limited (Moldovan
Company) ("the Company") as of September 30, 1997 and 1996, and the related
statements of income, changes in shareholders' equity and cash flows for each of
the respective nine month periods. 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
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of September 30,
1997 and 1996 and the related results of its operations and its cash flows for
each of the nine months in the period ended September 30, 1997, in conformity
with generally accepted accounting principles in the United States.
Braude Bavly
Certified Public Accountants (Israel)
A Member of KPMG International
Tel Aviv, Israel
December 18, 1997
F-10
<PAGE> 31
JOLLY ALON LIMITED
(MOLDOVAN COMPANY)
BALANCE SHEETS
U.S. DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1 9 9 7 1 9 9 6
------- -------
NOTE
----
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents 3 30 19
Trade accounts receivable 4 63 135
Other accounts receivable and debit balances 5 153 28
Inventories 6 210 337
------- -------
Total current assets 456 519
------- -------
Investments and long term debit balances 7 100 121
------- -------
Property, plant and equipment, net 8 6,507 6,267
------- -------
Total assets 7,063 6,907
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Related parties 9 97 153
Trade accounts payable 10 183 183
Other accounts payable and credit balances 11 55 38
------- -------
Total current liabilities 335 374
------- -------
Long term liabilities
Deferred taxes 15(d) 17 19
------- -------
Shareholders' equity
Ordinary shares - $10,000 par value: 532 authorized, issued
and outstanding as of September 30, 1997 and 1996 5,320 5,320
Retained earnings 1,391 1,194
------- -------
6,711 6,514
------- -------
Total liabilities and shareholders' equity 7,063 6,907
======= ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-11
<PAGE> 32
JOLLY ALON LIMITED
(MOLDOVAN COMPANY)
STATEMENTS OF INCOME
U.S. DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1 9 9 7 1 9 9 6
------- -------
NOTE
----
<S> <C> <C> <C>
Revenue 14(a) 2,120 2,614
Cost of revenue 14(b) 1,466 1,988
------- -------
Gross profit 654 626
Selling, administrative and general expenses 14(c) 405 482
------- -------
Income from regular operations 249 144
Financing income 14(d) - 169
Other income 14(e) - 16
Financing expenses 14(d) 105 92
Other expenses 14(e) 5 -
------- -------
Income before income taxes 139 237
Income taxes 15(b) 17 20
------- -------
Net income for the period 122 217
======= =======
Net income per share 16 0.23 0.41
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE> 33
JOLLY ALON LIMITED
(MOLDOVAN COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
U.S. DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
TOTAL
SHARE-
SHARE RETAINED HOLDERS'
CAPITAL * EARNINGS EQUITY
--------- -------- --------
<S> <C> <C> <C>
Balance as of January 1, 1996 5,320 977 6,297
Net income for nine months - 217 217
--------- -------- --------
Balance as of September 30, 1996 5,320 1,194 6,514
Net income for three months - 75 75
--------- -------- --------
Balance as of December 31, 1996 5,320 1,269 6,589
Net income for nine months - 122 122
--------- -------- --------
Balance as of September 30, 1997 5,320 1,391 6,711
========= ========= =========
* US$ 10,000 par value.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE> 34
JOLLY ALON LIMITED
(MOLDOVAN COMPANY)
STATEMENTS OF CASH FLOWS
U.S. DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the period 122 217
Adjustments to reconcile net income to net cash
provided by operating activities - Schedule 471 718
------- -------
Net cash provided by operating activities 593 935
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (323) (271)
Repayment of advance on account of acquisition of shares - 79
Proceeds from realization of property, plant and equipment 5 104
------- -------
Net cash used by investing activities (318) (88)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in credit from banking institutions (153) (118)
Decrease in balance of related parties (126) (786)
------- -------
Net cash used by financing activities (279) (904)
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS (4) (57)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 34 76
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 30 19
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements
F-14
<PAGE> 35
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
SCHEDULE - ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES - SCHEDULE
Expenses (income) not involving cash flows
Depreciation 255 198
Increase (decrease) in deferred taxes (1) 20
Loss (gain) from realization of property, plant and equipment 5 (16)
Inflationary erosion of long term debt - 2
Changes in assets and liabilities
Increase in trade accounts receivable (18) (34)
Decrease in long term debt 21 -
Decrease (increase) in other accounts receivable and
debit balances (57) 259
Decrease in inventories 91 207
Increase in trade accounts payable 152 104
Increase (Decrease) in other accounts payable and
credit balances 23 (22)
------- -------
471 718
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-15
<PAGE> 36
JOLLY ALON LIMITED
(MOLDOVAN COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
U.S. DOLLARS IN THOUSANDS
NOTE 1 - GENERAL
(a) Establishment of the Company
(1) On October 15, 1991 Seabeco Moldova S.A. was established in
accordance with resolution 565 of the Government of the
Republic of Moldova ("Moldova"), which decided on the
establishment of the said company, to be owned by a foreign
investor (65%) and the Government of Moldova (35%).
In accordance with the above decision, the Government of
Moldova transferred to the company a hotel which it owned,
located on Government-owned land at M. Chibortero Street 37
in Kishnev, the capital of Moldova, in consideration for
payment equivalent to the proportionate share of the
investor in the property (approximately US$ 3,458
thousand).
(2) On February 4, 1997 the company changed its name to Jolly
Alon Limited ("the Company").
(3) Following enactment of legislation which enables private
ownership of property, the Government granted to the
Company the primary right to acquire ownership (see Note
12).
(b) Activity of the Company
The Company operates and manages the Jolly Alon Hotel and rents
stores and offices located on hotel property.
The principal guests of the hotel are business persons from all
over the world and diplomats. The tourism sector with respect
to hotel guests is marginal and accordingly seasonability is
not a factor.
(c) Use of estimates
In accordance with generally accepted accounting principles,
management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to
prepare these financial statements. Actual results could differ
from those estimates.
F-16
<PAGE> 37
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The financial statements were prepared in accordance with generally
accepted accounting principles ("GAAP") in the United States.
(a) Financial statements in U.S. Dollars
(1) General
The Company operates in Moldova, and its currency of
operation is the Moldovan leu ("MDL"). Moldova is still
considered a country with hyper-inflation as the rate of
inflation in the three years preceding 1997 reached more
than 100%.
Accordingly, pursuant to Statements of Financial Accounting
Standards (SFAS) No. 52, "Foreign Currency Translation", of
the Financial Accounting Standards Board ("FASB") of the
United States, the financial statements were remeasured in
United States dollars ("the dollar"). In light of the rate
of inflation as from 1995, it appears that the financial
statements for the periods as from January 1, 1998 will be
measured in local currency, ie the MDL
(2) Principles of remeasurement
(a) Balance sheets
Monetary assets and liabilities were translated
according to the exchange rate of the dollar as of
September 30, 1997 and 1996, as applicable.
Non-monetary items were translated according to the
exchange rate of the dollar as of the date of the
related transactions.
(b) Statements of income
Items expressing transactions in the reporting period
are included according to the average exchange rate of
the dollar in the month of the transaction. Components
related to non-monetary items were adjusted on the same
basis as the related balance sheet items.
The financing item is derived from other items in the
financial statements and expresses financing income and
expenses in real terms and erosion of monetary balances
during the year.
(b) Exchange rate of the dollar
Following is information on the exchange rate of the dollar:
<TABLE>
<CAPTION>
EXCHANGE RATE
OF THE DOLLAR
ACCORDING TO
MOLDOVAN LEU
------------
<S> <C>
SEPTEMBER 30,
1997 4.618
1996 4.621
</TABLE>
<TABLE>
<CAPTION>
PERCENT
-------
<S> <C>
RATE OF INCREASE (DECREASE) IN THE
NINE MONTHS ENDED SEPTEMBER 30,
1997 (0.7)
1996 0.9
</TABLE>
F-17
<PAGE> 38
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
(c) Cash and cash equivalents
The Company regards all its liquid investment, whose maturity
as of the date of the investment is less than three months, as
cash equivalents.
(d) Provision for doubtful accounts
Provision for doubtful accounts is made on the basis of
identification of specific accounts whose collection is in
doubt.
(e) Inventories
Inventories are included according to the lower of cost or
market value. Cost of inventories (other than inventories of
milk products) is determined by the first in first out
method. Cost of inventories of milk products is determined by
the moving average method.
(f) Property, plant and equipment
Fixed assets are included at cost less accumulated
depreciation. Depreciation is calculated by the straight line
method over the estimated useful lives of the assets as
accepted in Moldova.
(g) Net income per share
Information regarding net income per share is computed on the
basis of the weighted average of the number of ordinary shares
outstanding in the period.
(h) Income recognition
Income from services and rental is included in the income
statement when the service is performed.
(i) Income taxes
Pursuant to SFAS 109, "Accounting for Income Taxes", deferred
income taxes are provided to reflect the net tax effects of
temporary differences between the carrying amount of assets
and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Valuation allowances are
provided against net deferred tax asset when the realization
of such assets is not more likely than not.
F-18
<PAGE> 39
NOTE 3 - CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1997 1996
---- ----
US$ THOUSANDS
-------------
<S> <C> <C>
In local currency 13 7
In foreign currency 17 12
---- ----
30 19
==== ====
NOTE 4 - TRADE ACCOUNTS RECEIVABLE
Open accounts 28 18
Credit companies 35 117
---- ----
63 135
==== ====
NOTE 5 - OTHER ACCOUNTS RECEIVABLE AND DEBIT BALANCES
Advances to suppliers 113 12
Prepaid expenses 8 13
Institutions 31 --
Employees 1 2
Other accounts receivable and debit balances -- 1
---- ----
153 28
==== ====
NOTE 6 - INVENTORIES
Maintenance materials 112 108
Products 98 229
---- ----
210 337
==== ====
NOTE 7 - INVESTMENTS AND LONG TERM DEBIT BALANCES
Government of Moldova (1) 100 121
==== ====
</TABLE>
(1) Debt of the Government of Moldova, unlinked and without repayment date.
F-19
<PAGE> 40
NOTE 8 - PROPERTY, PLANT AND EQUIPMENT, NET
(a) Composition
<TABLE>
<CAPTION>
MACHINERY
BUILDINGS AND
(b) EQUIPMENT VEHICLES FURNITURE TOTAL
--------- --------- -------- --------- -------
US$ THOUSANDS
<S> <C> <C> <C> <C> <C>
Cost
As of December 31,1996 4,931 848 470 1,072 7,321
Additions - 89 180 54 323
Disposals - - (22) - (22)
------ ---------- --------- ---------- -----
As of September 30,1997 4,931 937 628 1,126 7,622
------ ---------- --------- ---------- -----
Accumulated
depreciation
As of December 31,1996 238 266 123 245 872
Additions 37 84 64 70 255
Disposals - - (12) - (12)
------ ---------- --------- ---------- -----
As of September 30,1997 275 350 175 315 1,115
------ ---------- --------- ---------- -----
Depreciated balance
As of September 30,1997 4,656 587 453 811 6,507
====== ========== ========= ========== =====
As of September 30,1996 4,705 595 364 603 6,267
====== ========== ========= ========== =====
Annual depreciation
rates 1% 7.5% - 16% 14% - 18% 5.5% - 25%
====== ========== ========= ==========
</TABLE>
(b) Ownership of buildings
As stated in Note 1(a) the Government transferred to the
Company the Jolly Alon Hotel under Government resolution
565 of October 15, 1991.
On the date of the transfer of the hotel, the legislation
in respect of private ownership of land was not yet enacted
and therefore the Government granted to the Company the
right to use the land including the land on which the hotel
is located and its immediate surroundings.
On September 4, 1997 legislation was enacted in Moldova
enabling private ownership of land. Regarding the Company's
request for ownership of the property see Note 12.
F-20
<PAGE> 41
NOTE 9 - RELATED PARTIES
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1997 1996
---- ----
US$ THOUSANDS
-------------
<S> <C> <C>
Seabeco International Ltd. - 153
ANB International Antverpen Belgium Ltd. 97 -
--- ---
97 153
=== ===
</TABLE>
Regarding transactions and balances with related parties see Note
13.
NOTE 10- TRADE ACCOUNTS PAYABLE
<TABLE>
<S> <C> <C>
Open accounts 183 183
Checks payable - -
--- ---
183 183
=== ===
</TABLE>
NOTE 11- OTHER ACCOUNTS PAYABLE AND CREDIT BALANCES
<TABLE>
<S> <C> <C>
Employees and institutions in
respect of salaries 33 37
Advances from customers 18 -
Deferred taxes 2 1
Other accounts payable and credit balances 2 -
--- ---
55 38
=== ===
</TABLE>
NOTE 12- COMMITMENTS
(a) As stated in Note 8(b) on September 4, 1997 legislation was
published permitting private ownership of land in Moldova. In
accordance with the law, the owner of the building has the
primary right to purchase the land. The Company has not yet
submitted a request for acquisition of the ownership of the
land and in the opinion of management, the cost of the land
cannot be estimated.
(b) The Company signed a contract for rental of offices to the
Embassy of Germany. The contract is for one year and may be
renewed at year end. Rental fees for the first nine months of
1997 and 1996 totalled US$ 115 thousand and US$ 147 thousand,
respectively.
F-21
<PAGE> 42
NOTE 13- TRANSACTIONS AND BALANCES WITH RELATED PARTIES
(a) Transactions
(1) The Company acquires most of its fixed assets through
related parties (see Note 13(d)) and pays consultancy fees
and agents' fees to related parties (see Note 13(c)).
(2) The Company manages its business on a current basis and
during the regular course of business with Exim Bank S.A.
which is controlled by a related party.
(3) The Company insures its property, plant and equipment with
Exim Asint S.A., an insurance company which is controlled
by a related party.
The insurance is at regular commercial conditions.
(b) Balances with related parties
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1997 1996
---- ----
US$ THOUSANDS
-------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (1) 30 19
=== ===
CURRENT LIABILITIES
Credit from banking institutions (1) - -
Related parties (2) - 153
=== ===
- 153
=== ===
HIGHEST BALANCE DURING THE YEAR
Credit from banking institutions 176 266
=== ===
Related parties 223 939
=== ===
</TABLE>
(1) Exim Bank S.A. (The Company has a credit framework of
US$ 185 thousand (as of September 30, 1997).
(2) Regarding details of related parties see Note 9.
(c) Transactions with related parties (1)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1997 1996
---- ----
US$ THOUSANDS
-------------
<S> <C> <C>
Income from hotel services 137 119
Expenses in respect of consultancy
fees and agents' fees - 118
Expenses in respect of acquisition
of inventories - 62
</TABLE>
(1) Not including financing income and expenses from Exim
Bank S.A. derived in the regular course of business and
insurance expenses paid to Exim Asint S.A. also derived
in the regular course of business.
(d) Acquisition of property, plant and equipment
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1997 1996
---- ----
US$ THOUSANDS
-------------
<S> <C> <C>
Acquisition of hotel furniture and
equipment (mainly by Seabeco
International ltd. and ANB
International Antverpen Belgium Ltd.) 72 176
</TABLE>
F-22
<PAGE> 43
NOTE 14- SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1997 1996
---- ----
US$ THOUSANDS
-------------
<S> <C> <C>
(a) Revenue
(1) Services
Room rental 1,295 1,409
Restaurant 583 894
Supplementary installations
and services 45 68
----- -----
1,923 2,371
----- -----
(2) Rental
Stores and offices 197 243
----- -----
2,120 2,614
===== =====
(b) Cost of revenue
Labor and related expenses 269 312
Food, beverages 374 582
Operating equipment 453 762
Depreciation 255 198
Maintenance 115 134
----- -----
1,466 1,988
===== =====
(c) Selling, administrative and general expenses
(1) Selling expenses
Credit card commissions 32 59
----- -----
(2) Administrative and general expenses
Labor 74 109
Business and organizational
consultancy 244 214
Donations 55 100
----- -----
373 423
----- -----
405 482
===== =====
(d) Financing income (expenses), net
Interest and commissions (47) (92)
Translation differences (58) 169
----- -----
(105) 77
===== =====
(e) Other income (expenses)
Capital gain (loss) (5) 16
===== =====
</TABLE>
F-23
<PAGE> 44
NOTE 15- INCOME TAXES
(a) Company's tax liability
(1) Benefits under resolutions 565 and 789 of the Government of
Moldova
(a) On October 15, 1991 the Company was established in
accordance with resolution 565 of the Government of
Moldova which fixed, inter alia, that the Company will
be exempt from any tax, levy or assessment until the
repayment of the additional investments of the
shareholder in excess of the primary investment in the
share capital. The resolution also fixed that after the
end of the said exemption period, the Company will pay
taxes at an annual rate of 25% for an additional
fifteen years after the exemption period.
(b) On December 17, 1993 resolution 789 of the Government
of Moldova was published which fixed, inter alia, that
the shareholder will pay to the Government the
additional amount of US$ 1.2 million for acquisition of
equipment for the Ministry of the Interior. In
consideration, the shareholder will be entitled to
withdraw the said amount from the Company's profits and
the amount will be considered to be an additional
investment, entitled to the exemption detailed in
sub-paragraph [a] above. The said amount was withdrawn
by the shareholder in the years 1993 - 1995 and
included in the financial statements as a dividend.
(c) On August 14, 1997 the Company received a letter from
the tax authorities in Kishnev stated that following
their examination it appears that the Company has
complied with resolutions 565 and 789 and is exempt
from tax payments through 1996.
(2) Benefits under the Foreign Investments Law
The investment of the shareholder in the Company was
granted the status of a foreign investment in accordance
with the Foreign Investments Law of the Government of
Moldova. Accordingly, income accruing to the Company during
its first five years of operation are taxable at a reduced
tax rate of 16% (regular tax rate in Moldova is 32%).
The period of tax benefits under the Foreign Investments
Law will end in 1997. Thereafter the Company tax rate as
from 1998 will be 25% for the next fourteen years as stated
in paragraph 1(a) above.
(b) Composition of taxes
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1997 1996
---- ----
US$ THOUSANDS
-------------
<S> <C> <C>
Current taxes 18 -
Deferred taxes (1) 20
--- ---
17 20
=== ===
</TABLE>
(c) Composition of deferred taxes
Deferred taxes were derived in respect of timing differences
in respect of recognition of expenses.
<TABLE>
<CAPTION>
<S> <C> <C>
Balance as of January 1 20 -
Changes in the period (1) 20
--- ---
Balance as of September 30 19 20
=== ===
</TABLE>
F-24
<PAGE> 45
NOTE 15- INCOME TAXES (continued)
(d) Deferred taxes are included in the balance sheet as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1997 1996
---- ----
US$ THOUSANDS
-------------
<S> <C> <C>
Current liabilities 2 1
Long term liabilities 17 19
--- ---
19 20
=== ===
</TABLE>
NOTE 16- NET INCOME PER SHARE
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1997 1996
---- ----
US$ THOUSANDS
-------------
<S> <C> <C>
Net income for the period 122 217
==== ====
Number of shares of US$ 10,000 par value 532 532
==== ====
Net income per share 0.23 0.41
==== ====
</TABLE>
NOTE 17- SUPPLEMENTARY INFORMATION REGARDING FINANCIAL INSTRUMENTS
(a) The Company has the following financial instruments:
Non-derived financial assets including cash and cash
equivalents, trade accounts receivable and other accounts
receivable and debit balances; and non-derived financial
liabilities including credit from banking institutions, related
parties, trade accounts payable and other accounts payable and
credit balances.
Due to the nature of most of the financial instruments, their
fair value is similar or identical to their carrying value.
(Regarding differences between the financial instruments whose
carrying value is materially different from their fair value
see paragraph (d) following).
(b) Supplementary credit risk information:
Credit risk represents the accounting loss which may result to
the Company as of the date of the financial statements as a
result of debtors not meeting their liabilities.
Regarding trade accounts receivable and other accounts
receivable and debit balances see Notes 4 and 5.
F-25
<PAGE> 46
NOTE 17- SUPPLEMENTARY INFORMATION REGARDING FINANCIAL INSTRUMENTS
(continued)
(c) Supplementary interest risk information:
Interest risk is the risk inherent in changes in interest rates
and the influence on the financial instruments of the Company.
The Company has financial instruments bearing fixed interest
only.
(d) Supplementary information regarding fair value of financial
instruments:
The following estimated fair values have been determined by the
Company using available market information and appropriate
valuation methodologies.
Cash and cash equivalents - The carrying amounts of these items
are their fair values.
Short term debt - The carrying amount of the
Company's borrowings arrangements
approximate their fair value.
Following are details of the financial instruments whose book
value is materially different from their fair value:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------------------- ADDITIONAL
1997 1996 INFORMATION
------------------------ ------------------------ -------------------------
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
---------- ---------- ---------- ----------
US$ THOUSANDS
<S> <C> <C> <C> <C> <C>
Long term debt 121 (1) 124 (1) Commercial balance - debt
of Government of Moldova
</TABLE>
(1) The long term debit is included in the framework of
investments and long term debit balances, without repayment
date Therefore the fair value cannot be estimated.
F-26
<PAGE> 47
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
JOLLY ALON LIMITED
(MOLDOVAN COMPANY)
We have audited the accompanying balance sheets of Jolly Alon Limited (Moldovan
Company) ("the Company") as of December 31, 1996 and 1995, and the related
statements of income, changes in shareholders' equity and cash flows for each of
the two years in the period ended December 31, 1996. 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
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1996 and 1995 and the related results of its operations and its cash flows for
the years then ended December 31, 1996, in conformity with generally accepted
accounting principles in the United States.
Braude Bavly
Certified Public Accountants (Israel)
A Member of KPMG International
Tel Aviv, Israel
December 18, 1997
F-27
<PAGE> 48
JOLLY ALON LIMITED
(MOLDOVAN COMPANY)
BALANCE SHEETS
U.S. DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1 9 9 6 1 9 9 5
------- -------
NOTE
----
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents 3 34 76
Trade accounts receivable 4 45 101
Other accounts receivable and debit balances 5 96 286
Inventories 6 301 544
----- -----
Total current assets 476 1,007
----- -----
Investments and long term debit balances 7 121 203
----- -----
Property, plant and equipment, net 8 6,449 6,281
----- -----
Total assets 7,046 7,491
===== =====
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short term credit from banking institutions 9 153 119
Related parties 10 223 939
Trade accounts payable 11 32 78
Other accounts payable and credit balances 12 30 58
----- -----
Total current liabilities 438 1,194
----- -----
Long term liabilities
Deferred taxes 16(d) 19 --
----- -----
Shareholders' equity
Ordinary shares - $10,000 par value: 532 authorized, issued
and outstanding as of December 31, 1996 and 1995 5,320 5,320
Retained earnings 1,269 977
----- -----
6,589 6,297
----- -----
Total liabilities and shareholders' equity 7,046 7,491
===== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-28
<PAGE> 49
JOLLY ALON LIMITED
(MOLDOVAN COMPANY)
STATEMENTS OF INCOME
U.S. DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1 9 9 6 1 9 9 5
------- -------
NOTE
----
<S> <C> <C> <C>
Revenue 15(a) 3,427 4,105
Cost of revenue 15(b) 2,620 2,496
----- -----
Gross profit 807 1,609
Selling, administrative and general expenses 15(c) 588 862
----- -----
Income from regular operations 219 747
Financing income 15(d) 168 --
Other income 15(e) 17 --
Financing expenses 15(d) (92) (288)
Other expenses 15(e) -- (122)
----- -----
Income before income taxes 312 337
Income taxes 16(b) 20 --
----- -----
Net income for the year 292 337
===== =====
Net income per share 17 0.55 0.63
===== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-29
<PAGE> 50
JOLLY ALON LIMITED
(MOLDOVAN COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
U.S. DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
TOTAL
SHARE-
SHARE RETAINED HOLDERS'
CAPITAL * EARNINGS EQUITY
--------- -------- ------
<S> <C> <C> <C>
Balance as of January 1, 1995 5,320 872 6,192
Net income for the year -- 337 337
Dividend ** -- (232) (232)
----- ----- -----
Balance as of December 31, 1995 5,320 977 6,297
Net income for the year -- 292 292
----- ----- -----
Balance as of December 31, 1996 5,320 1,269 6,589
===== ===== =====
</TABLE>
* US$ 10,000 par value.
** See Note 16(a)(1)[b]
The accompanying notes are an integral part of the financial statements.
F-30
<PAGE> 51
JOLLY ALON LIMITED
(MOLDOVAN COMPANY)
STATEMENTS OF CASH FLOWS
U.S. DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the year 292 337
Adjustments to reconcile net income to net cash
provided by operating activities - Schedule 693 434
--- ---
Net cash provided by operating activities 985 771
--- ---
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (527) (637)
Repayment of advance on account of acquisition of shares 79 --
Proceeds from realization of property, plant and equipment 103 39
--- ---
Net cash used by investing activities (345) (598)
--- ---
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in credit from banking institutions 34 119
Distribution of dividend -- (232)
Decrease in balance of related parties (716) (39)
--- ---
Net cash used by financing activities (682) (152)
--- ---
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (42) 21
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 76 55
--- ---
CASH AND CASH EQUIVALENTS AT END OF YEAR 34 76
=== ===
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-31
<PAGE> 52
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C>
SCHEDULE - ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES - SCHEDULE
Expenses (income) not involving cash flows
Depreciation 272 226
Increase in deferred taxes 20 --
Loss (gain) from realization of property, plant and equipment (16) 122
Inflationary erosion of investment in shares -- 4
Inflationary erosion of long term debt 3 --
Changes in assets and liabilities
Decrease in trade accounts receivable 56 394
Increase in long term debt -- (53)
Decrease (increase) in other accounts receivable and
debit balances 190 (278)
Decrease in inventories 243 118
Decrease in trade accounts payable (29) (104)
Increase (decrease) in other accounts payable and
credit balances (46) 5
--- ---
693 434
=== ===
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-32
<PAGE> 53
JOLLY ALON LIMITED
(MOLDOVAN COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
U.S. DOLLARS IN THOUSANDS
NOTE 1 - GENERAL
(a) Establishment of the Company
(1) On October 15, 1991 Seabeco Moldova S.A. was
established in accordance with resolution 565 of the
Government of the Republic of Moldova ("Moldova"),
which decided on the establishment of the said
company, to be owned by a foreign investor (65%) and
the Government of Moldova (35%).
In accordance with the above decision, the Government
of Moldova transferred to the company a hotel which
it owned, located on Government-owned land at M.
Chibortero Street 37 in Kishnev, the capital of
Moldova, in consideration for payment equivalent to
the proportionate share of the investor in the
property (approximately US$ 3,458 thousand).
(2) On February 4, 1997 the company changed its name to
Jolly Alon Limited ("the Company").
(3) Following enactment of legislation which enables
private ownership of property, the Government granted
to the Company the primary right to acquire ownership
(see Note 13).
(b) Activity of the Company
The Company operates and manages the Jolly Alon Hotel and
rents stores and offices located on hotel property.
The principal guests of the hotel are business persons from
all over the world and diplomats. The tourism sector with
respect to hotel guests is marginal and accordingly
seasonability is not a factor.
(c) Use of estimates
In accordance with generally accepted accounting principles,
management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements. Actual
results could differ from those estimates.
F-33
<PAGE> 54
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The financial statements were prepared in accordance with generally
accepted accounting principles ("GAAP") in the United States.
(a) Financial statements in U.S. Dollars
(1) General
The Company operates in Moldova, and its currency of
operation is the Moldovan leu ("MDL"). Moldova is
still considered a country with hyper-inflation as
the rate of inflation in the three years preceding
1996 reached more than 100%.
Accordingly, pursuant to Statements of Financial
Accounting Standards (SFAS) No. 52, "Foreign Currency
Translation", of the Financial Accounting Standards
Board ("FASB") of the United States, the financial
statements were remeasured in United States dollars
("the dollar"). In light of the rate of inflation as
from 1995, it appears that the financial statements
for the periods as from January 1, 1998 will be
measured in local currency, ie the MDL.
(2) Principles of remeasurement
(a) Balance sheets
Monetary assets and liabilities were
translated according to the exchange rate of
the dollar as of December 31, 1996 and 1995,
as applicable. Non-monetary items were
translated according to the exchange rate of
the dollar as of the date of the related
transactions.
(b) Statements of Income
Items expressing transactions in the
reporting period are included according to
the average exchange rate of the dollar in
the month of the transaction. Components
related to non-monetary items were adjusted
on the same basis as the related balance
sheet items.
The financing item is derived from other
items in the financial statements and
expresses financing income and expenses in
real terms and erosion of monetary balances
during the year.
(b) Exchange rate of the dollar
Following is information on the exchange rate of the dollar:
EXCHANGE RATE
OF THE DOLLAR
ACCORDING TO
MOLDOVAN LEU
------------
DECEMBER 31,
1996 4.650
1995 4.522
PERCENT
-------
RATE OF INCREASE IN YEAR ENDED DECEMBER 31,
1996 2.83
1995 5.85
F-34
<PAGE> 55
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
(c) Cash equivalents
The Company regards all its liquid investment, whose maturity
as of the date of the investment is less than three months, as
cash equivalents.
(d) Provision for doubtful accounts
Provision for doubtful accounts is made on the basis of
identification of specific accounts whose collection is in
doubt.
(e) Inventories
Inventories are included according to the lower of cost or
market value. Cost of inventories (other than inventories of
milk products) is determined by the first in first out
method. Cost of inventories of milk products is determined by
the moving average method.
(f) Property, plant and equipment
Fixed assets are included at cost less accumulated
depreciation. Depreciation is calculated by the straight line
method over the estimated useful lives of the assets as
accepted in Moldova.
(g) Net income per share
Information regarding net income per share is computed on the
basis of the weighted average of the number of ordinary shares
outstanding in the period.
(h) Income recognition
Income from services and rental is included in the income
statement when the service is performed.
(i) Income taxes
Pursuant to SFAS 109, "Accounting for Income Taxes", deferred
income taxes are provided to reflect the net tax effects of
temporary differences between the carrying amount of assets
and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Valuation allowances are
provided against net deferred tax asset when the realization
of such assets is not more likely than not.
F-35
<PAGE> 56
NOTE 3 - CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1995
---- ----
US$ THOUSANDS
-------------
<S> <C> <C>
In local currency 20 55
In foreign currency 14 21
--- ---
34 76
=== ===
NOTE 4 - TRADE ACCOUNTS RECEIVABLE
Open accounts 13 68
Credit companies 32 33
--- ---
45 101
=== ===
NOTE 5 - OTHER ACCOUNTS RECEIVABLE AND DEBIT BALANCES
Advances to suppliers 89 283
Prepaid expenses 2 --
Institutions 2 3
Employees 1 --
Other accounts receivable and debit balances 2 --
--- ---
96 286
=== ===
NOTE 6 - INVENTORIES
Maintenance materials 105 160
Products 196 384
--- ---
301 544
=== ===
NOTE 7 - INVESTMENTS AND LONG TERM DEBIT BALANCES
Government of Moldova (1) 121 124
Advance on account of acquisition of shares (2) -- 79
--- ---
121 203
=== ===
</TABLE>
(1) Debt of the Government of Moldova, unlinked and without
repayment date.
(2) In 1994 the Company paid the amount of US$ 83 thousand as an
advance on account of acquisition of shares in Polen.
At the beginning of 1996 the transaction was cancelled and the
amount of the investment was refunded to the Company in full.
F-36
<PAGE> 57
NOTE 8 - PROPERTY, PLANT AND EQUIPMENT, NET
(a) Composition
<TABLE>
<CAPTION>
MACHINERY
BUILDINGS AND
(b) EQUIPMENT VEHICLES FURNITURE TOTAL
--------- --------- -------- --------- -----
US$ THOUSANDS
-------------
<S> <C> <C> <C> <C> <C>
Cost
As of January 1, 1996 4,931 828 390 753 6,902
Additions -- 20 183 324 527
Disposals -- -- (103) (5) (108)
----- --------- -------- --------- -----
As of December 31, 1996 4,931 848 470 1,072 7,321
----- --------- -------- --------- -----
Accumulated
depreciation
As of January 1, 1996 189 168 87 177 621
Additions 49 98 55 70 272
Disposals -- -- (19) (2) (21)
----- --------- -------- --------- -----
As of December 31, 1996 238 266 123 245 872
----- --------- -------- --------- -----
Depreciated balance
As of December 31, 1996 4,693 582 347 827 6,449
===== ========= ======== ========= =====
As of December 31, 1995 4,742 660 303 576 6,281
===== ========= ======== ========= =====
Annual depreciation
rates 1% 7.5% - 16% 14% - 18% 5.5% - 25%
===== ========= ======== =========
</TABLE>
(b) Ownership of buildings
As stated in Note 1(a) the Government transferred to the
Company the Jolly Alon Hotel under Government resolution 565
of October 15, 1991.
On the date of the transfer of the hotel, the legislation in
respect of private ownership of land was not yet enacted and
therefore the Government granted to the Company the right to
use the land including the land on which the hotel is located
and its immediate surroundings.
On September 4, 1997 legislation was enacted in Moldova
enabling private ownership of land. Regarding the Company's
request for ownership of the property see Note 13.
F-37
<PAGE> 58
NOTE 9 - SHORT TERM CREDIT FROM BANKING INSTITUTIONS
(a) Composition
<TABLE>
<CAPTION>
ANNUAL
INTEREST
RATE AS OF DECEMBER 31,
DECEMBER 31, ------------
1996 1996 1995
---- ---- ----
PERCENT US$ THOUSANDS
------- -------------
<S> <C> <C> <C>
Short term credit from company
controlled by an related party 50 153 119
=== ===
</TABLE>
(b) The Company has a credit line of approximately US$ 185
thousand (as of December 31, 1996).
(c) Regarding transactions and balances with related parties see
Note 14.
NOTE 10- RELATED PARTIES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1995
---- ----
US$ THOUSANDS
-------------
<S> <C> <C>
Seabeco International Ltd. 12 853
Bolid Ltd. -- 86
ANB International Antverpen Belgium Ltd. 211 --
--- ---
223 939
=== ===
Regarding transactions and balances with related parties see Note 14
NOTE 11- TRADE ACCOUNTS PAYABLE
Open accounts 32 78
Checks payable -- --
--- ---
32 78
=== ===
NOTE 12- OTHER ACCOUNTS PAYABLE AND CREDIT BALANCES
Employees and institutions in
respect of salaries 4 30
Advances from customers 24 27
Deferred taxes 1 --
Other accounts payable and credit balances 1 1
--- ---
30 58
=== ===
</TABLE>
F-38
<PAGE> 59
NOTE 13- COMMITMENTS
(a) As stated in Note 8(b) on September 4, 1997 legislation was
published permitting private ownership of land in Moldova. In
accordance with the law, the owner of the building has the
primary right to purchase the land. The Company has not yet
submitted a request for acquisition of the ownership of the
land and in the opinion of management, the cost of the land
cannot be estimated.
(b) The Company signed a contract for rental of offices to the
Embassy of Germany. The contract is for one year and may be
renewed at year end. Annual rental fees for 1996 and 1995
totalled US$ 161.5 thousand and US$ 117.7 thousand,
respectively.
NOTE 14- TRANSACTIONS AND BALANCES WITH RELATED PARTIES
(a) Transactions
(1) The Company acquires most of its fixed assets through
related parties (see Note 14(d)) and pays consultancy
fees and agents' fees to related parties (see Note
14(c)).
(2) The Company manages its business on a current basis
and during the regular course of business with Exim
Bank S.A. which is controlled by a related party.
(3) The Company insures its property, plant and equipment
with Exim Asint S.A., an insurance company which is
controlled by a related party.
The insurance is at regular commercial conditions.
(b) Balances with related parties
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
---- ----
US$ THOUSANDS
-------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (1) 34 76
===== =====
CURRENT LIABILITIES
Credit from banking institutions (1) 153 119
Related parties (2) 223 939
----- -----
376 1,058
===== =====
HIGHEST BALANCE DURING THE YEAR
Credit from banking institutions 266 221
===== =====
Related parties 1,030 1,045
===== =====
</TABLE>
(1) Exim Bank S.A. (Regarding credit conditions
see Note 9).
(2) Regarding details of related parties see
Note 10.
F-39
<PAGE> 60
NOTE 14- TRANSACTIONS AND BALANCES WITH RELATED PARTIES (continued)
(c) Transactions with related parties (1)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1996 1995
---- ----
US$ THOUSANDS
-------------
<S> <C> <C>
Income from hotel services 159 109
Expenses in respect of consultancy fees
and agents' fees (131) (248)
Expenses in respect of acquisition
of inventories (62) (759)
</TABLE>
(1) Not including financing income and expenses from Exim
Bank S.A. derived in the regular course of business
and insurance expenses paid to Exim Asint S.A. also
derived in the regular course of business.
(d) Acquisition of property, plant and equipment
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1996 1995
---- ----
US$ THOUSANDS
-------------
<S> <C> <C>
Acquisition of hotel furniture and equipment
(mainly by Seabeco International Ltd.
and ANB International Antverpen Belgium Ltd.) 387 96
</TABLE>
NOTE 15- SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1996 1995
---- ----
US$ THOUSANDS
-------------
<S> <C> <C>
(a) Revenue
(1) Services
Room rental 1,895 1,941
Restaurant 1,121 1,553
Supplementary installations
and services 101 317
----- -----
3,117 3,811
(2) Rental
Stores and offices 310 294
----- -----
3,427 4,105
===== =====
(b) Cost of revenue
Labor and related expenses 420 373
Food and beverages 720 858
Operating equipment 1,018 742
Depreciation 271 226
Maintenance 191 297
----- -----
2,620 2,496
===== =====
</TABLE>
F-40
<PAGE> 61
NOTE 15- SUPPLEMENTARY INCOME STATEMENT INFORMATION (continued)
<TABLE>
<S> <C> <C>
(c) Selling, administrative and general expenses
(1) Selling expenses
Credit card commissions 77 113
--- ---
(2) Administrative and general expense
Labor 145 122
Business and organizational consultancy 237 436
Donations 129 191
--- ---
511 749
--- ---
588 862
=== ===
(d) Financing income (expenses), net
Interest and commissions (92) (99)
Translation differences 168 (189)
--- ---
76 (288)
=== ===
(e) Other income (expenses)
Capital gain (loss) (122) 17
=== ===
</TABLE>
NOTE 16- INCOME TAXES
(a) Company's tax liability
(1) Benefits under resolutions 565 and 789 of the
Government of Moldova
(a) On October 15, 1991 the Company was
established in accordance with resolution
565 of the Government of Moldova which
fixed, inter alia, that the Company will be
exempt from any tax, levy or assessment
until the repayment of the additional
investments of the shareholder in excess of
the primary investment in the share capital.
The resolution also fixed that after the end
of the said exemption period, the Company
will pay taxes at an annual rate of 25% for
an additional fifteen years after the
exemption period.
(b) On December 17, 1993 resolution 789 of the
Government of Moldova was published which
fixed, inter alia, that the shareholder will
pay to the Government the additional amount
of US$ 1.2 million for acquisition of
equipment for the Ministry of the Interior.
In consideration, the shareholder will be
entitled to withdraw the said amount from
the Company's profits and the amount will be
considered to be an additional investment,
entitled to the exemption detailed in
sub-paragraph [a] above. The said amount was
withdrawn by the shareholder in the years
1993 - 1995 and included in the financial
statements as a dividend.
(c) On August 14, 1997 the Company received a
letter from the tax authorities in Kishnev
stated that following their examination it
appears that the Company has complied with
resolutions 565 and 789 and is exempt from
tax payments through 1996.
F-41
<PAGE> 62
NOTE 16- INCOME TAXES (continued)
(2) Benefits under the Foreign Investments Law
The investment of the shareholder in the Company was
granted the status of a foreign investment in
accordance with the Foreign Investments Law of the
Government of Moldova. Accordingly, income accruing
to the Company during its first five years of
operation are taxable at a reduced tax rate of 16%
(regular tax rate in Moldova is 32%).
The period of tax benefits under the Foreign
Investments Law will end in 1997. Thereafter the
Company tax rate as from 1998 will be 25% for the
next fourteen years as stated in paragraph 1(a)
above.
(b) Composition of taxes
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1996 1995
---- ----
US$ THOUSANDS
-------------
<S> <C> <C>
Current taxes -- --
Deferred taxes 20 --
---- ----
20 --
==== ====
(c) Composition of deferred taxes
Deferred taxes were derived in respect of
timing differences in respect of
recognition of expenses
Balance as of January 1, 1996 -- --
Changes in the year 20 --
---- ----
Balance as of December 31, 1996 20 --
==== ====
</TABLE>
(d) Deferred taxes are included in the balance sheet as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
---- ----
US$ THOUSANDS
-------------
<S> <C> <C>
Current liabilities 1 --
Long term liabilities 19 --
---- ----
20 --
==== ====
</TABLE>
F-42
<PAGE> 63
NOTE 17- NET INCOME PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1996 1995
---- ----
US$ THOUSANDS
-------------
<S> <C> <C>
Net income for the year 292 337
==== ====
Number of shares of US$ 10,000 par value 532 532
==== ====
Net income per share 0.55 0.63
==== ====
</TABLE>
NOTE 18- SUPPLEMENTARY INFORMATION REGARDING FINANCIAL INSTRUMENTS
(a) The Company has the following financial instruments:
Non-derived financial assets including cash and cash equivalents,
trade accounts receivable and other accounts receivable and debit
balances; and non-derived financial liabilities including credit
from banking institutions, related parties, trade accounts payable
and other accounts payable and credit balances.
Due to the nature of most of the financial instruments, their fair
value is similar or identical to their carrying value. (Regarding
differences between the financial instruments whose carrying value
is materially different from their fair value see paragraph (d)
following).
(b) Supplementary credit risk information:
Credit risk represents the accounting loss which may result to the
Company as of the date of the financial statements as a result of
debtors not meeting their liabilities.
Regarding trade accounts receivable and other accounts receivable
and debit balances see Notes 4 and 5.
(c) Supplementary interest risk information:
Interest risk is the risk inherent in changes in interest rates and
the influence on the financial instruments of the Company.
The Company has financial instruments bearing fixed interest only.
Regarding instruments bearing interest risks see Note 9.
(d) Supplementary information regarding fair value of financial
instruments:
The following estimated fair values have been determined by the
Company using available market information and appropriate valuation
methodologies.
Cash and cash equivalents - The carrying amounts of these items are
their fair values.
Short term debt - The carrying amount of the Company's
borrowings arrangements approximate
their fair value.
F-43
<PAGE> 64
NOTE 18- SUPPLEMENTARY INFORMATION REGARDING FINANCIAL INSTRUMENTS
(continued)
Following are details of the financial instruments whose book value
is materially different from their fair value:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------ ADDITIONAL
1996 1995 INFORMATION
---------------- ---------------- ------------------
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
----- ----- ----- -----
US$ THOUSANDS
-------------
<S> <C> <C> <C> <C> <C>
Long term debt 121 (1) 124 (1) Commercial balance -
debt of Government of
Moldova
</TABLE>
(1) The long term debit is included in the framework of investments
and long term debit balances, without repayment date Therefore
the fair value cannot be estimated.
F-44
<PAGE> 65
REPORT OF THE INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
BANCA COMERCIALA PE ACTIUNI "EXPORT-IMPORT"
(MOLDOVAN COMPANY)
We have audited the accompanying balance sheets of Banca Comerciala pe Actiuni
"Export-Import" (Moldovan Company) ("the Company") as of September 30, 1997 and
1996, and the related statements of income, changes in shareholders' equity and
cash flows for the nine months then ended. 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
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of September 30,
1997 and 1996 and the results of its operations and cash flows for the nine
months then ended, in conformity with generally accepted accounting principles
in the United States.
Braude Bavly
Certified Public Accountants (Israel)
A Member of KPMG International
Tel Aviv, December 18, 1997
F-45
<PAGE> 66
BANCA COMERCIALA PE ACTIUNI "EXPORT-IMPORT"
(MOLDOVAN COMPANY)
BALANCE SHEETS
IN U.S. DOLLARS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------
Notes 1 9 9 7 1 9 9 6
----- ---------- -----------
<S> <C> <C> <C>
ASSETS
Cash and due from banks (net of allowance for doubtful
accounts of U.S.$ 17,946 at September 30, 1997) 3 6,666,599 3,552,127
Time deposits with banks (net of allowance for doubtful
accounts of U.S.$129,836 and U.S.$55,161 at September 30,
1997 and 1996, respectively) 4 931,162 520,000
Held to maturity securities 5 2,885,456 1,663,537
Loans 6 3,633,127 3,745,566
Less: allowance for possible loan losses 6 (207,536) (303,350)
Investments in investee 7 60,599 47,987
Bank premises and equipment 8 990,063 878,154
Other assets 9 127,005 228,618
---------- ----------
Total assets 15,086,475 10,332,639
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non interest bearing deposits 10(a) 2,458,576 1,784,807
Interest bearing deposits 10(b) 9,440,851 5,263,969
Deposits of the National Bank 10(c) -- 998,009
---------- ----------
Total deposits 11,899,427 8,046,785
Other liabilities 11 969,078 99,869
---------- ----------
Total liabilities 12,868,505 8,146,654
---------- ----------
Shareholders' equity: 12
Share capital - 1,000 Leu par value; authorized and
outstanding 9,160 shares 2,118,541 2,118,541
Retained earnings 99,429 67,444
---------- ----------
Total shareholders' equity 2,217,970 2,185,985
---------- ----------
Total liabilities and shareholders' equity 15,086,475 10,332,639
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-46
<PAGE> 67
BANCA COMERCIALA PE ACTIUNI "EXPORT-IMPORT"
(MOLDOVAN COMPANY)
STATEMENTS OF INCOME
IN U.S. DOLLARS
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------------------------
1 9 9 7 1 9 9 6
---------- ----------
<S> <C> <C>
INTEREST INCOME
Interest on due from banks and time deposits
with banks 237,119 187,389
Interest on securities 518,803 252,182
Interest on loans 951,391 978,048
---------- ----------
Total interest income 1,707,313 1,417,619
---------- ----------
INTEREST EXPENSE
Interest on demand deposits 59,323 48,907
Interest on time deposits 353,291 312,085
Interest on deposits from National Bank 186,174 70,632
---------- ----------
Total interest expense 598,788 431,624
---------- ----------
NET INTEREST INCOME 1,108,525 985,995
Less: Allowance for possible loan losses (293,692) (183,662)
---------- ----------
Net interest income after provision for credit losses 814,833 802,333
---------- ----------
NON INTEREST INCOME
Financial service fees 529,128 404,878
Foreign exchange trading profits and commissions 811,026 572,913
Other 65,714 64,520
---------- ----------
Total non interest income 1,405,868 1,042,311
---------- ----------
NON INTEREST EXPENSE
Salaries and related costs 473,664 290,007
Equipment and depreciation 95,008 68,513
Maintenance 50,653 81,490
Communication and transportation 163,854 243,277
Taxes other than income 23,872 31,689
Outside services and processing 134,824 89,828
Marketing and development 19,834 16,810
Fees paid 71,374 37,055
Other 52,957 57,538
---------- ----------
Total non interest expense 1,086,040 916,207
---------- ----------
INCOME BEFORE INCOME TAXES 1,134,661 928,437
INCOME TAX PROVISION 185,888 136,361
---------- ----------
NET INCOME 948,773 792,076
========== ==========
NET INCOME PER SHARE 103.58 95.37
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARE
USED IN THE ABOVE COMPUTATION 9160 8306
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-47
<PAGE> 68
BANCA COMERCIALA PE ACTIUNI "EXPORT-IMPORT"
(MOLDOVAN COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
IN U.S. DOLLARS
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------------
1 9 9 7 1 9 9 6
---------- ----------
<S> <C> <C>
RETAINED EARNINGS
Balance, January 1 (837,336) (748,195)
Net income 948,773 792,076
Adjustment of dividend proposed in prior year and paid during 1997 (12,008) 23,563
---------- ----------
Balance, September 30 99,429 67,444
---------- ----------
SHARE CAPITAL
Balance, January 1 2,118,541 995,338
Issue of share capital (Note 12) -- 1,123,203
---------- ----------
Balance, September 30 2,118,541 2,118,541
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 2,217,970 2,185,985
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-48
<PAGE> 69
BANCA COMERCIALA PE ACTIUNI "EXPORT-IMPORT"
(MOLDOVAN COMPANY)
STATEMENTS OF CASH FLOWS
IN U.S. DOLLARS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1 9 9 7 1 9 9 6
----------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 948,773 792,076
Adjustments to reconcile net income to net cash
provided by operating activities:
Allowance for possible loan losses and doubtful accounts 293,692 183,662
Provision for O.R.E. valuation adjustments 949 11,211
Depreciation and amortization 95,008 41,941
Deferred taxes on operating profit 134 16,728
Decrease (increase) in interest receivable 30,170 (120,947)
Decrease in other receivable 312 106,735
(Decrease) increase in interest payable (5,308) 7,077
Increase in accrued expenses 138,835 28,643
---------- ----------
Net cash provided by operating activities 1,502,565 1,067,126
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from redemptions of held to maturity securities 9,386,867 4,404,707
Purchases of held to maturity securities (9,383,621) (6,005,123)
Net increase in time deposits with banks (376,323) (520,000)
Net increase in loans (101,208) (1,492,386)
Purchases of premises and equipment (183,362) (352,222)
Investment in investees (12,612) (15,350)
---------- ----------
Net cash used in investing activities (670,259) (3,980,374)
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Net decrease in non interest bearing deposits (86,069) (1,083,080)
Net increase in interest bearing deposits 3,683,389 178,726
Net decrease (increase) in deposits of the National Bank (2,580,645) 887,438
Proceeds from issue of share capital -- 727,497
Cash dividend paid (278,886) (1,793,494)
---------- ----------
Net cash provided by (used in) financing activities 737,789 (1,082,913)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,570,095 (3,996,161)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 5,096,504 7,548,288
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD 6,666,599 3,552,127
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid 609,973 573,237
Income taxes paid 68,763 85,645
TRANSACTIONS NOT INVOLVING CASH FLOWS
Share capital issued against buildings -- 395,706
Investment against waiver of rental fees -- 25,461
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-49
<PAGE> 70
BANCA COMERCIALA PE ACTIUNI "EXPORT-IMPORT"
(MOLDOVAN COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
NOTE 1 - GENERAL
(a) Establishment of the Bank
Banca Comerciala pe Actiuni "Export-Import" ("Exim Bank" or
"the Bank") which till June 1996 was reffered to as "Banca de
Export-Import a Moldovei S.R.L.", was established on April 26,
1994 in accordance with a resolution of the Republic of
Moldova ("Moldova") to be owned by foreign investors (65%) and
the Government of Moldova (35%).
The Bank received its General Banking License from the
National Bank of Moldova on April 29, 1994 and began activity
as a new bank on June 1, 1994.
The Bank was previously a Moldovan extension of the
Vnesh-Econom Bank of the Soviet Union (now a Russian bank),
then became an international division of the National Bank of
Moldova.
On September 12, 1996 the foreign investor together with a
related party bought the Government of Moldova's share in the
Bank. As a result of that transaction, the current holdings in
the Bank are as follows: the foreign investor 50% and the
foreign investor (related party) 50%.
(b) Activity of the Bank
Exim Bank carries on a variety of banking activities in
Moldova. These activities include, inter alia, receipt of
monetary deposits, granting credit, transacting in foreign
currency, financing international trade, issuing credit cards,
investment in securities, retaining and managing marketable
documents and other assets for other parties, and managing
payments.
The Bank is an authorized dealer permitted, under the Law of
Financial Institutions, to transact in foreign currency. As
from October 1995 the Bank is licensed to sell and buy State
securities in the first and secondary markets.
The Bank participates in auctions, arranged by the National
Bank of Moldova, in its own name and on its own account or on
behalf of its clients.
The Bank is also a member of the stock exchange in Moldova.
F-50
<PAGE> 71
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The financial statements were prepared in accordance with generally
accepted accounting principles ("GAAP") in the United States.
(a)Financial statements in U.S. dollars
(1)General
The Bank operates in Moldova, and its currency of operation is
the Moldovan leu ("MDL"). Moldova is still considered a
country with hyper-inflation as the rate of inflation in the
three years preceding 1997 reached more than 100%.
Accordingly, pursuant to Statements of Financial Accounting
Standards (SFAS) No. 52, "Foreign Currency Translation", of
the Financial Accounting Standards Board ("FASB") of the
United States, the financial statements were remeasured in
United States dollars ("the dollar"). In light of the rate of
inflation as from 1995, it appears that the financial
statements for the periods as from January 1, 1998 will be
measured in local currency, ie the MDL.
(2)Principles of remeasurement
(a)Balance sheets
Monetary assets and liabilities were translated
according to the exchange rate of the dollar as of
the date of the financial statements. Non-monetary
items are included at their historical cost in
dollars. See also Note 2(m).
(b)Statements of income
Items expressing transactions in the reporting period
are included according to the average exchange rate
of the dollar in the month of the transaction.
Components related to non-monetary items were
adjusted on the same basis as the related balance
sheet items.
The financing item expresses financing income and
expenses in dollar values as well as the erosion of
monetary balances during the year.
(b)Exchange rate of the dollar
Following is information on the exchange rate of the dollar:
<TABLE>
<CAPTION>
EXCHANGE RATE
OF THE DOLLAR
ACCORDING TO
THE MDL
--------------
<S> <C>
December 31,
1996 4.650
1995 4.522
</TABLE>
<TABLE>
<CAPTION>
PERCENT
--------------
<S> <C>
Rate of increase in year ended December 31,
1996 2.83
1995 5.85
</TABLE>
F-51
<PAGE> 72
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
(c)Use of Estimates
In accordance with generally accepted accounting principles,
management of the Bank has made a number of estimates and
assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements. Actual
results could differ from those estimates.
(d)Cash and cash equivalents
Cash and cash equivalents are defined as cash on hand, cash
items in the process of collection and amounts due from
correspondent banks and the National Bank of Moldova.
(e)Securities
Securities which the Bank has the positive intent and ability
to hold to maturity are included in held to maturity
securities and are stated at cost, adjusted for accretion of
discount based upon the maturity value.
(f)Loans
Loans are stated at the principal amount outstanding, net of
any unearned income. Interest on loans is recognized on the
accrual basis and is credited to interest income based upon
the principal amount outstanding.
Loans are considered impaired and are placed on nonaccrual
status when collection of all or a portion of principal or
interest in accordance with contractual terms, is in doubt.
Interest on nonaccrual loans is credited to principal or
recognized as income on a cash basis.
(g)Allowance for possible loan losses
The allowance for possible loan losses is established through
provisions for possible loan losses charged against income.
Loans deemed to be uncollectible are charged against the
allowance for possible loan losses, and subsequent recoveries,
if any, are credited to the allowance.
The allowance for possible loan losses is based upon
management's estimation of the amount necessary to maintain
the allowance at a level adequate to absorb estimated
potential loan losses. The determination of the adequacy of
the allowance for possible loan losses hinges upon various
judgments and assumptions, including but not necessarily
limited to, management's assessment of potential losses on
individual loans, domestic and international economic
conditions, loan portfolio composition, transfer risks, and
prior loan loss experience.
(h)Investments in investee
The investments are included at cost.
F-52
<PAGE> 73
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
(i)Premises and equipment
Bank buildings, equipment, improvements and leasehold
improvements are stated at cost less accumulated depreciation
computed on a straight-line basis. The useful life of the
premises and equipment is determined by the application of
Moldovan regulations.
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of", the Bank
examines the possibility of decrease in value of fixed assets
when events or changes in circumstances reflect the fact that
their recorded value may not be recoverable.
(j)Other real estate
Other real estate is carried at the lower of the recorded
investment in the property or fair value less estimated
selling expenses.
(k)Deferred income taxes
Deferred tax assets or liabilities are recognized for the
estimated future tax effects attributable to temporary
differences and carryforwards. A temporary difference is the
difference between the tax basis of an asset or liability and
its reported amount in the financial statements. Deferred tax
assets and liabilities are determined at currently enacted
income tax rates applicable to the period in which the
deferred tax assets and liabilities are expected to be
realized or settled. As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes, in the reported
periods, the company does not have any tax assets.
(l)Financial instruments
In the ordinary course of business the Bank has entered into
off-balance sheet financial instruments consisting of
commitments to extend credit, commercial letters of credit,
and guarantees. Such financial instruments are recorded in the
financial statements when they are funded or related fees are
incurred or received.
(m)Foreign currency translation
Foreign currency assets and liabilities are translated at
prevailing rates. Gains or losses resulting from translation
are credited or charged to the relevant statement of income
items.
(n)Net income per share
Net income per share of share capital has been computed on the
basis of the weighted average number of shares of share
capital outstanding.
F-53
<PAGE> 74
NOTE 3 - CASH AND DUE FROM BANKS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------
1997 1996
---------- ---------
U.S. DOLLARS
<S> <C> <C>
Cash 922,921 1,118,897
Current account with National Bank of Moldova (a) 548,971 1,173,094
Current accounts with foreign banks (b) 5,212,653 1,260,136
---------- ---------
6,684,545 3,552,127
Less allowance for doubtful accounts (17,946) --
---------- ---------
6,666,599 3,552,127
========== =========
</TABLE>
(a) The Bank maintains on a daily basis the level of the reserves
in MDL equal to 8% of the amount of the total attracted funds
in MDL and hard currency. At least 6% of the total amount must
be kept in MDL at the correspondent account with the National
Bank of Moldova.
The Bank may conduct operations that will reduce its balance
in the account below the level of the required reserves. In
such cash until the end of the report period the Bank must
increase the amount of the obligatory reserves so that the
average amount of MDL for the report period meets the required
level.
The National Bank may change if necessary the norm of the
level of the obligatory reserves in conformity with the
monetary and currency policy of the Republic of Moldova.
(b) The maximum foreign currency exchange exposure (the difference
in MDL between the total assets and the total liabilities for
each currency divided by the total normative capital) that is
authorized by the National Bank of Moldova is 10% for each
currency or 25% for all the foreign currencies taken together.
In order to retain the foreign currency exposure limitations
fixed by the National Bank of Moldova and because of the
excess of sources of foreign currency, the Bank was required
to balance the exposure by deposits in current accounts with
foreign banks.
(c) Regarding limitations on cash see Note 17(e).
NOTE 4 - TIME DEPOSITS WITH BANKS
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1997 1996
----------- -----------
U.S. DOLLARS
<S> <C> <C>
Gross balance 986,323 649,836
Allowance for doubtful accounts (55,161) (129,836)
-------- --------
Net balance 931,162 520,000
======== ========
</TABLE>
The interest on time deposits with banks in the first nine months of
1997 was between 20% and 30% (corresponding period of 1996 - 20%).
F-54
<PAGE> 75
NOTE 5 - SECURITIES
All securities in the portfolio as of September 30, 1997 are State
securities issued for between 28 and 273 days (September 30, 1996 -
between 28 and 91 days) and are held to maturity.
The State securities are issued into circulation by the Ministry of
Finance of the Republic of Moldova in the form of electronic records.
The securities are issued for any period not exceeding 364 days.
The State securities are sold at discount and repurchased at par value.
The State securities are sold at auctions arranged by the National Bank
of Moldova following the instructions of the Ministry of Finance of
Moldova. The auctions are attended by the commercial banks dealers that
have correspondent accounts with the clearing center of the National
Bank. Exim Bank is a licensed professional participant in the
securities market and has an agreement with the National Bank to
service transactions in respect of State securities. The redemption of
the State securities is effected by the Ministry of Finance from the
republican budget funds.
The yield of the State securities as of September 30, 1997 was between
17% and 22% (September 30, 1996 - between 26% and 36%).
Regarding liens registered on securities see Note 17(d).
NOTE 6 - LOANS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1997 1996
---------- ----------
U.S. DOLLARS
<S> <C> <C>
(a) Composition of loan
Construction 74,708 37,353
Agriculture 198,265 769,231
Manufacturing 255,435 896,552
Commercial 1,153,842 1,204,872
Finance 68,567 100,211
Services 1,021,315 414,658
Consumers 860,995 322,689
---------- ----------
3,633,127 3,745,566
Allowance for possible loan losses (207,536) (303,350)
---------- ----------
3,425,591 3,442,216
========== ==========
</TABLE>
The interest on loans in MDL in the first nine months of 1997 was
between 10% and 50% (between 20% and 70%).
The interest on loans in other currencies in the first nine months of
1997 was approximately 30% (corresponding period of 1996 - between 20% and 40%).
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1997 1996
--------- ----------
U.S. DOLLARS
<S> <C> <C>
(b) Impaired loan information
Impaired loans 26,315 67,547
Allowance for impaired loans 23,707 49,582
------ -------
2,608 17,965
====== =======
Average impaired loans 50,552 129,615
====== =======
</TABLE>
No interest was recognized on impaired loans on the cash basis for the above
periods.
F-55
<PAGE> 76
NOTE 6 - LOANS (continued)
(c) Analysis of the change in the allowance for possible loan losses:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1997 1996
-------- --------
U.S. DOLLARS
<S> <C> <C>
Balance as of January 1 274,665 265,257
Provisions during the period 229,244 183,662
Write-offs (295,799) (140,347)
Inflationary erosion and adjustments (574) (5,222)
-------- --------
Balance as of September 30 207,536 303,350
======== ========
</TABLE>
The Bank must classify all loans on a quarterly basis in accordance
with the regulations of the National Bank of Moldova. On the basis of
the classification the minimum amount of the allowance for possible
loan losses should be determined.
Each of the Bank's loans must be ascribed to one of the following
categories. If a loan can be classified differently according to the
given criteria it should be ascribed to the stricter category.
The allowance for possible loan losses was calculated by applying the
following percentages to each category:
<TABLE>
<CAPTION>
Allowance (%)
---------------------
September 30,
---------------------
Credit category 1997 1996
- --------------- ---- ----
<S> <C> <C>
Standard 2% --
Watch 3% 2%
Substandard 5% 5%
Doubtful 75% 30%
Loss 100% 100%
</TABLE>
Write-offs are made in the quarter when the loans are classified as
loan losses.
The minimum required allowance for loan losses according to the
regulations of the National Bank of Moldova as of September 30, 1997 is
U.S.$ 203.3 thousand (September 30, 1996 - U.S.$ 271.3 thousand).
F-56
<PAGE> 77
NOTE 7 - INVESTMENTS IN INVESTEES
Composition of balance of investment:
<TABLE>
<CAPTION>
INVESTEE PERCENTAGE OF HOLDING COST
- ------------ --------------------- ------------
% U.S. Dollars
------- ------------
<S> <C> <C>
SEPTEMBER 30, 1997
Bursa de Valori (a) 1.79 2,274
Exim Asint (b)(c) 15.00 45,713
Cartea de Credit Moldova 5.00 12,565
Salvo - Chentru 4.00 47
------
60,599
======
SEPTEMBER 30, 1996
Bursa de Valori (a) 1.79 2,274
Exim Asint (b)(c) 15.00 45,713
------
47,987
======
</TABLE>
(a) A legally-established enterprise which serves as the stock exchange of
Moldova.
(b) U.S.$ 25,461 of the amount of the authorized investment is against the
Bank's waiver of rental fees for a period of 27 years. See also Note 8.
(c) A related party.
NOTE 8 - BANK PREMISES AND EQUIPMENT
Bank premises and equipment as of September 30 include the following:
<TABLE>
<CAPTION>
DEPRECIABLE SEPTEMBER 30,
-------------------------------
LIVES 1997 1996
----------- ------------ ------------
YEARS U.S. Dollars
<S> <C> <C> <C>
Buildings (a)(b) 100 456,957 456,957
Improvements 10 337,440 244,546
Furniture and equipment 4 - 15 372,863 296,056
--------- --------
1,167,260 997,559
Less accumulated depreciation and amortization (177,197) (119,405)
--------- --------
Balance at end of the year 990,063 878,154
========= ========
</TABLE>
(a) Including:
(1) Building at a cost of U.S.$ 342,994 in which the Bank
is located.
(2) Building at a cost of U.S.$ 113,966 in which Exim
Asint is located.
The buildings were transferred from ownership by a Government
company to the Bank on February 12, 1996 as the Government's
share in increasing the Bank's capital. The buildings were
recorded in the books of the Bank at their depreciated cost as
it appears in the books of the Government company on the date
of the transfer (see also Note 12).
Preceding the transfer, the Bank building was rented from the
Government company.
(b) On April 23, 1996 the right to use the building was
transferred to Exim Asint for 27 years in consideration for
receipt of 1,161 shares of the company.
F-57
<PAGE> 78
NOTE 9 - OTHER ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1997 1996
------- -------
U.S. DOLLARS
<S> <C> <C>
Accrued interest receivable 93,396 88,222
Prepaid expenses 33,609 48,867
Dividend paid in advance* -- 85,247
Other real estate -- 6,282
------- -------
127,005 228,618
======= =======
</TABLE>
* Dividend that was paid in advance to the foreign investors.
NOTE 10- DEPOSITS
(a) Non interest deposits are mainly demand deposits in MDL.
(b)(1) Demand deposits in foreign currency of foreign residents
bear interest of 4% on amounts above U.S.$ 500.
Demand deposits in foreign currency of enterprises bear
interest of 2% on amounts above U.S.$ 50,000.
Interest on time deposits in MDL in the first nine months of
1997 was between 20% and 30% (corresponding period of 1996 -
between 20% and 50%). Interest on time deposits in U.S.$ in
the first nine months of 1997 was between 8% and 12%
(corresponding period of 1996 - same rates).
(2) Interest bearing deposits according to linkage basis:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------------------------------------------------------
DEUTSCHE
MDL U.S.$ MARK OTHER TOTAL
--------- --------- ------- --------- ---------
U.S. DOLLARS
<S> <C> <C> <C> <C> <C>
Demand deposits -- 6,100,893 418,722 42,380 6,561,995
Time deposits 1,947,763 931,093 -- -- 2,878,856
--------- --------- ------- --------- ---------
1,947,763 7,031,986 418,722 42,380 9,440,851
========= ========= ======= ========= =========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------------------------------------------------------------
DEUTSCHE
MDL U.S.$ MARK OTHER TOTAL
--------- --------- ------- --------- ---------
U.S. DOLLARS
<S> <C> <C> <C> <C> <C>
Demand deposits -- 2,540,119 255,914 49,539 2,845,572
Time deposits 1,572,669 845,728 -- -- 2,418,397
--------- --------- ------- --------- ---------
1,572,669 3,385,847 255,914 49,539 5,263,969
========= ========= ======= ========= =========
</TABLE>
(c) Deposits of the National Bank of Moldova are time deposits
bearing interest of 20% - 22% as of September 30, 1996
(September 30, 1997 - none).
F-58
<PAGE> 79
NOTE 11- OTHER LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1997 1996
------- --------
U.S. DOLLARS
<S> <C> <C>
Dividend payable * 786,252 --
Taxes payable 131,032 49,337
Accrued interest payable 7,744 10,440
Deferred tax 22,138 19,895
Other 21,912 20,197
------- ------
969,078 99,869
======= ======
</TABLE>
* The balance is the share of the foreign investors in the dividend declared but
which was not paid in cash (see also Note 12(b)).
NOTE 12- SHAREHOLDERS' EQUITY
(a) Shareholders' equity
Following a change in the minimum required capital of banks in
Moldova by the National Bank of Moldova, on February 12, 1996
additional shares were allotted to the Bank's shareholders in
proportion to their part in the share capital of the Bank as
of that date.
The consideration to the Government company for the allotment
was redeemed by transfer of two buildings to the ownership of
the Bank (see Note 8). The investment of the foreign investors
was financed from the dividends to which they are entitled.
(b) Dividend
In accordance with the law on the State budget, a
Government-owned company is required to transfer the
Government's share in its revenues (calculated in accordance
with Moldovian accounting standards) as a dividend to the
State budget.
The Bank paid the dividend accruing to the Government until
purchase of the Government's share by the foreign investors.
According to a decision of the counsel of the Bank, the share
of the foreign investors in the dividend will remain in the
Bank and will be used to increase its authorized share capital
and to purchase the Government's share in the capital.
NOTE 13- INCOME TAXES
(a) Benefits under the Foreign Investments Law
The investment of the shareholders in the Bank was granted the
status of a foreign investment in accordance with the Foreign
Investments Law of the Government of Moldova. Accordingly, the
income that was derived by the Bank during its first five
years of operation is taxable at a reduced tax rate of 16%
(regular tax rate in Moldova is 32%).
The period of tax benefits under the Foreign Investments Law
will end in 1998.
F-59
<PAGE> 80
NOTE 13- INCOME TAXES (continued)
(b) Deferred tax liability
The liability for deferred taxes is the liability provided in
respect of fixed assets deductible for tax purposes in the
year of their purchase. The balance for deferred tax liability
is presented in other liabilities. See also Note 11.
(c) Composition of taxes
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
------- --------
U.S. DOLLARS
<S> <C> <C>
Current taxes 185,754 119,633
Deferred taxes 134 16,728
------- -------
185,888 136,361
======= =======
</TABLE>
NOTE 14- RELATED PARTY TRANSACTIONS
Exim Bank transacts business with related parties while conducting its
commercial banking activities. The transactions are on substantially
the same terms as those prevailing at the time for comparable
transactions with others.
F-60
<PAGE> 81
NOTE 15- ASSETS AND LIABILITIES CLASSIFIED ACCORDING TO LINKAGE BASES
<TABLE>
<CAPTION>
September 30, 1997
--------------------------------------------------------------------------------------
Deutsche Soft Non-monetary
MDL U.S.$ Mark currency* Other items Total
-------- ------- -------- --------- ------ ------------ ------
U.S.
Dollars
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from Bank 806,850 5,342,790 345,561 71,276 100,122 -- 6,666,599
Time deposits with banks 551,162 380,000 -- -- -- -- 931,162
Held to maturity security 2,885,456 -- -- -- -- -- 2,885,456
Loans 2,296,639 1,336,488 -- -- -- -- 3,633,127
Less allowance for possible loan losses (166,875) (40,661) -- -- -- -- (207,536)
Investments in investee -- -- -- -- -- 60,599 60,599
Bank premises and equipment -- -- -- -- -- 990,063 990,063
Other assets 61,392 31,311 693 -- -- 33,609 127,005
---------- ---------- -------- ------ ------- --------- -----------
Total assets 6,434,624 7,049,928 346,254 71,276 100,122 1,084,271 15,086,475
========== ========== ======== ====== ======= ========= ===========
LIABILITIES
Non-interest bearing deposits 2,182,945 167,833 38,199 69,599 -- -- 2,458,576
Interest bearing deposits 1,947,763 7,031,986 418,722 178 42,202 -- 9,440,851
---------- ---------- -------- ------ ------- --------- -----------
Total deposits 4,130,708 7,199,819 456,921 69,777 42,202 -- 11,899,427
Other liabilities 962,753 6,325 -- -- -- -- 969,078
---------- ---------- -------- ------ ------- --------- -----------
Total liabilities 5,093,461 7,206,144 456,921 69,777 42,202 -- 12,868,505
========== ========== ======== ====== ======= ========= ===========
Difference 1,341,163 (156,216) (110,667) 1,499 57,920 1,084,271 2,217,970
========== ========== ======== ====== ======= ========= ===========
</TABLE>
* Including Rumanian Leu and currencies of the former Soviet Union
F-61
<PAGE> 82
NOTE 15- ASSETS AND LIABILITIES CLASSIFIED ACCORDING TO LINKAGE BASES
(continued)
<TABLE>
<CAPTION>
September 30, 1996
--------------------------------------------------------------------------------------
Deutsche Soft Non-monetary
MDL U.S.$ Mark currency* Other items Total
-------- ------- -------- --------- ------ ------------ ------
U.S.
Dollars
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from Bank 1,391,374 1,866,165 151,746 54,044 88,798 -- 3,552,127
Time deposits with banks -- 520,000 -- -- -- -- 520,000
Held to maturity security 1,663,537 -- -- -- -- -- 1,663,537
Loans 2,278,833 1,359,423 107,310 -- -- -- 3,745,566
Less allowance for possible loan losses (247,327) (54,720) (1,303) -- -- -- (303,350)
Investments in investee -- -- -- -- -- 47,987 47,987
Bank premises and equipment -- -- -- -- -- 878,154 878,154
Other assets 29,270 64,429 805 -- -- 134,114 228,618
---------- ---------- -------- ------ ------ --------- -----------
TOTAL ASSETS 5,115,687 3,755,297 258,558 54,044 88,798 1,060,255 10,332,639
========== ========== ======== ====== ====== ========= ===========
LIABILITIES
Non-interest bearing deposits 1,516,769 208,864 10,713 47,824 637 -- 1,784,807
Interest bearing deposits 1,572,669 3,385,847 255,914 -- 49,539 -- 5,263,969
Deposits of the National Bank of
Moldova 998,009 -- -- -- -- -- 998,009
---------- ---------- -------- ------ ------ --------- -----------
TOTAL DEPOSITS 4,087,447 3,594,711 266,627 47,824 50,176 -- 8,046,785
Other liabilities 98,627 1,242 -- -- -- -- 99,869
---------- ---------- -------- ------ ------ --------- -----------
TOTAL LIABILITIES 4,186,074 3,595,953 266,627 47,824 50,176 -- 8,146,654
========== ========== ======== ====== ====== ========= ===========
DIFFERENCE 929,613 159,344 (8,069) 6,220 38,622 1,060,255 2,185,985
========== ========== ======== ====== ====== ========= ===========
</TABLE>
* Including Rumanian Leu and currencies of the former Soviet Union
F-62
<PAGE> 83
NOTE 16- ASSETS AND LIABILITIES CLASSIFIED ACCORDING TO MATURITY DATES
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------------------------------------------------------
Without
From 1 month From 3 months From 1 year to fixed
Up to 1 month to 3 months to 1 year 3 years maturity Total
---------- ---------- ---------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
U.S.$ DOLLARS
ASSETS
Cash and due from Bank 6,666,599 -- -- -- -- 6,666,599
Time deposits with banks 9,802 250,000 671,360 -- -- 931,162
Held to maturity security 1,576,007 1,309,449 -- -- -- 2,885,456
Loans 930,139 490,782 2,105,615 106,591 -- 3,633,127
Less allowance for possible
loan losses (97,467) (24,223) (83,714) (2,132) -- (207,536)
Investments in investee -- -- -- -- 60,599 60,599
Bank premises and equipment -- -- -- -- 990,063 990,063
Other assets 102,764 12,364 7,579 4,298 -- 127,005
---------- ---------- ---------- -------- --------- -----------
TOTAL ASSETS 9,187,844 2,038,372 2,700,840 108,757 1,050,662 15,086,475
========== ========== ========== ======== ========= ===========
LIABILITIES
Non-interest bearing deposits 2,458,576 -- -- -- -- 2,458,576
Interest bearing deposits 7,131,368 535,826 1,773,657 -- -- 9,440,851
---------- ---------- ---------- -------- --------- -----------
Total deposits 9,589,944 535,826 1,773,657 -- -- 11,899,427
Other liabilities 29,656 87,354 43,678 22,138 786,252 969,078
---------- ---------- ---------- -------- --------- -----------
TOTAL LIABILITIES 9,619,600 623,180 1,817,335 22,138 786,252 12,868,505
========== ========== ========== ======== ========= ===========
DIFFERENCE (431,756) 1,415,192 883,505 86,619 264,410 2,217,970
========== ========== ========== ======== ========= ===========
</TABLE>
F-63
<PAGE> 84
NOTE 16- ASSETS AND LIABILITIES CLASSIFIED ACCORDING TO MATURITY DATES
(continued)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------------------------------------------------------
Without
From 1 month From 3 months From 1 year to fixed
Up to 1 month to 3 months to 1 year 3 years maturity Total
---------- ---------- ---------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
U.S.$ DOLLARS
ASSETS
Cash and due from Bank 3,552,127 -- -- -- -- 3,552,127
Time deposits with banks -- 160,000 360,000 -- -- 520,000
Held to maturity security 869,652 793,885 -- -- -- 1,663,537
Loans 834,151 1,098,063 1,784,673 28,679 -- 3,745,566
Less allowance for possible
loan losses (126,214) (76,590) (100,044) (502) -- (303,350)
Investments in investee -- -- -- -- 47,987 47,987
Bank premises and equipment -- -- -- -- 878,154 878,154
Other assets 103,912 31,233 8,226 -- 85,247 228,618
---------- ---------- ---------- -------- --------- -----------
TOTAL ASSETS 5,233,628 2,006,591 2,052,855 28,177 1,011,388 10,332,639
========== ========== ========== ======== ========= ===========
LIABILITIES
Non-interest bearing deposits 1,784,807 -- -- -- -- 1,784,807
Interest bearing deposits 3,281,837 871,228 1,110,904 -- -- 5,263,969
Deposits of the National
Bank of Moldova 218,991 779,018 -- -- -- 998,009
---------- ---------- ---------- -------- --------- -----------
Total deposits 5,285,635 1,650,246 1,110,904 -- -- 8,046,785
Other liabilities 30,637 49,337 -- 19,895 -- 99,869
---------- ---------- ---------- -------- --------- -----------
TOTAL LIABILITIES 5,316,272 1,699,583 1,110,904 19,895 -- 8,146,654
========== ========== ========== ======== ========= ===========
DIFFERENCE (82,644) 307,008 941,951 8,282 1,011,388 2,185,985
========== ========== ========== ======== ========= ===========
</TABLE>
F-64
<PAGE> 85
NOTE 17- COMMITMENTS AND CONTINGENT LIABILITIES
(a) In April 1996 a trilateral agreement was signed between
Dresdner Bank AG, Tirex-Petrol S.A. (an 80% State-run company)
and the Exim Bank concerning financing import of oil products
into Moldova.
According to the agreement, the oil dealer nominated by
Dresdner Bank imports oil products into Moldova on the
conditions agreed upon with Tirex-Petrol. Dresdner Bank
finances the transaction under the letters of credit opened by
Exim Bank and confirmed by Dresdner Bank. The oil products are
later sold on the local market for MDL, which are then
converted into U.S. dollars by Exim Bank and used for the
repayment to Dresdner Bank. The maximum period for actual
financing by Dresdner Bank is three months.
The Government of Moldova issued the standby guarantee signed
by the Minister of Finance of Moldova which states that it
will repay the indebtedness to Dresdner Bank if the other two
parties do not fulfill their obligations.
The agreement expires in 2001.
(b) In 1995 an agreement was signed between Moldova and the United
States for financing imports into Moldova of grain products
from the United States. Under this agreement Exim Bank opens
letters of credit by order of its client in favor of the grain
supplier in the United States. The correspondent bank in the
United States then confirms the letter of credit. The letter
of credit stipulates that a corresponding United States
Government agency in conformity with the agreement guarantees
the payment upon receipt of the documents confirming delivery
of the goods.
(c) Off-balance sheet financial instruments
Notional amounts of the Bank's financial instruments with
off-balance sheet risk:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1997 1996
----------- ----------
U.S. DOLLARS
<S> <C> <C>
Guarantees 269,710 73,905
Letters of credit 7,831,322 438,920
Unutilized credit lines 385,001 165,087
--------- -------
8,486,033 677,912
========= =======
</TABLE>
(d) The total amount of securities on which liens were registered
in favor of the National Bank of Moldova in respect of the
obligatory reserves as of September 30, 1996 is U.S.$ 609
thousand (September 30, 1997 - 0).
(e) A lien is registered on cash in the amount of U.S.$ 170
thousand against guarantees given by Commerzbank in Exim Bank
name (September 30, 1996 - 0).
F-65
<PAGE> 86
NOTE 18 - REGULATORY MATTERS
(a) The reserve requirements are considered fulfilled if for the
reported period the Bank maintained on the daily average 8% of
the amount of the total attracted funds in MDL and hard
currency, not less than 6% of which in MDL at the
correspondent account with the National Bank of Moldova and
not more than 2% in MDL cash in the Bank.
(b) Starting from January 1, 1998 the Bank must have and maintain
a total normative capital of not less than U.S.$ 3.44 million
(MDL 16 million).
(c) Tax related issues which could affect the banking sector in
Moldova, in accordance with the Tax Code and the 1998 State
budget adopted by the Parliament of Moldova in the first
reading, including:
(1) Income from Moldovian Treasury Bills will not be
taxable as in the current year.
(2) Interest paid by banks on deposits of private clients
will not be taxed until 1999.
(d) Starting from January 1, 2000 all the banks must have and
maintain a ratio of total normative capital to risk weighted
assets equal to at least 12%.
NOTE 19- FINANCIAL INSTRUMENTS
(a) Balance sheet financial instruments
In the normal course of business, the Bank provides to its
customers a wide variety of financial instruments. These
financial instruments involve various degrees of risk, as
follows:
(1) Credit risk - in conducting business activities, the
Bank is exposed to the possibility that borrowers may
default on their obligations to the Bank. To minimize
this risk -
the Bank evaluates each customers' credit worthiness
on a case by case basis. The amount of collateral
obtained, if it is deemed necessary by the Bank upon
extension of credit, is based on management's credit
evaluation of the counterparty. Collateral held
varies but may include accounts receivable,
inventory, property, plant and equipment.
the Bank strives to maintain a credit risk profile
that is diverse in terms of industry and borrower
concentration.
For significant group concentration of credit risk
see Note 6(a).
(2) Market risk - in the normal course of business, the
Bank is exposed to market risks which include both
price and liquidity risks.
Price risk arises from fluctuation in interest rates,
foreign exchange rates and commodity and equity
prices that may result in changes in the value of
financial instruments.
Liquidity risk arises from the possibility that the
Bank may be unable to satisfy current and future
financial commitments.
F-66
<PAGE> 87
NOTE 19- FINANCIAL INSTRUMENTS (continued)
(a) Balance sheet financial instruments (continued)
In order to reduce the above risk, the Bank acts to
balance its assets and liabilities from the
standpoint of repayment dates and linkage basis, in
light of the fact that interest rates related to the
Bank's financial instruments are fixed.
(b) Off-balance sheet financial instruments
The Bank is a party to financial instruments with
off-balance sheet risk in the normal course of
business to meet the financing needs of its
customers. These financial instruments include
commitments to extend credit, letters of credit and
financial guarantees. Those instruments involve, to
varying degrees, elements of credit in excess of the
amount recognized in the statements of financial
condition. The contract or notional amounts of those
instruments reflect the extent of the Bank's
involvement in particular classes of financial
instruments.
The Bank's exposure to credit loss in the event of
non-performance by the other party to the financial
instrument for commitments to extend credit, letters
of credit, and financial guarantees written is
represented by the contractual notional amount of
those instruments. The Bank uses the same credit
policies in making commitments and conditional
obligations as it does for on-balance sheet
instruments.
Unless noted otherwise, the Bank requires collateral
or other security to support financial instruments
with credit risk.
Commitments to extend credit are agreements to lend
to a customer as long as there is no violation of any
condition established in the contract. Commitments
generally have fixed expiration dates or other
termination clauses and may require payment of a fee.
The Bank acts to limit these credit risks in the same
way as for balance sheet credit risk.
Financial guarantees written are conditional
commitments issued by the Bank to guarantee the
performance of a customer to a third party. Those
guarantees are primarily issued to support public and
private borrowing arrangements, including commercial
paper and similar transactions. The credit risk
involved in issuing letters of credit is essentially
the same as that involved in extending loan
facilities to customers. The Bank holds deposits as
collateral supporting those commitments for which
collateral is deemed necessary.
Regarding off-balance sheet financial instruments see
Note 17(c).
(c) Fair value of financial instruments
The fair value of cash and cash equivalents is equal
to their carrying amounts in the financial
statements.
The fair value of other financial instruments,
including time deposits with banks, securities, loans
and deposits is not included herein, although their
fair value may differ substantially from their
carrying amount, since it is not practicable for Bank
management to estimate the fair value of those
financial instruments for the following reasons:
(1) A quoted market price is not available for
any of those financial instruments.
(2) Management of the Bank has not yet developed
a valuation model necessary to make an
estimate, due mainly to the instability of
the local markets and the fluctuation in
interest rates.
F-67
<PAGE> 88
NOTE 19- FINANCIAL INSTRUMENTS (continued)
(c) Fair value of financial instruments (continued)
Information pertinent to the estimation of fair value of those
financial instruments is included in:
(1) Carrying amounts in the balance sheets.
(2) Effective interest rates, as follows:
Time deposits with banks - Note 4.
Securities - Note 5.
Loans - Note 6.
Deposits - Note 10.
(3) Linkage bases - Note 15.
(4) Maturity dates - Note 16.
F-68
<PAGE> 89
REPORT OF THE INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
BANCA COMERCIALA PE ACTIUNI "EXPORT-IMPORT"
(MOLDOVAN COMPANY)
We have audited the accompanying balance sheets of Banca Comerciala pe Actiuni
"Export-Import" (Moldovan Company) ("the Company") as of December 31, 1996 and
1995, and the related statements of income, changes in shareholders' equity and
cash flows for the years then ended. 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
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1996 and 1995 and the related results of its operations and cash flows for each
of the years then ended, in conformity with generally accepted accounting
principles in the United States.
Braude Bavly
Certified Public Accountants (Israel)
A Member of KPMG International
Tel Aviv, December 18, 1997
F-69
<PAGE> 90
BANCA COMERCIALA PE ACTIUNI "EXPORT-IMPORT"
(MOLDOVAN COMPANY)
BALANCE SHEETS
IN U.S. DOLLARS
<TABLE>
<CAPTION>
DECEMBER 31,
------------
NOTE 1 9 9 6 1 9 9 5
---- ------- -------
<S> <C> <C> <C>
ASSETS
Cash and due from banks (net of allowance for doubtful
accounts of U.S.$ 18,882 at December 31, 1996) 3 5,096,504 7,548,288
Time deposits with banks (net of allowance for doubtful
accounts of U.S.$ 129,032 and U.S.$ 132,685 at
December 31, 1996 and 1995, respectively) 4 610,000 -
Held to maturity securities 5 2,911,475 -
Loans 6 3,837,579 2,398,749
Less: allowance for possible loan losses 6 (274,665) (265,257)
Investments in investee 7 47,987 7,176
Bank premises and equipment 8 901,709 172,167
Other assets 9 135,663 203,491
---------- ----------
Total assets 13,266,252 10,064,614
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non interest bearing deposits 10(a) 2,544,645 2,867,887
Interest bearing deposits 10(b) 5,757,462 5,085,243
Deposits of the National Bank 10(c) 2,580,645 110,571
---------- ----------
Total deposits 10,882,752 8,063,701
---------- ----------
Other liabilities 11 1,102,295 1,753,770
---------- ----------
Total liabilities 11,985,047 9,817,471
---------- ----------
Shareholders' equity: 12
Share capital - 1,000 Leu par value; authorized and
outstanding 9,160 shares and 4,034 shares, at
December 31, 1996 and 1995, respectively 2,118,541 995,338
Accumulated deficit (837,336) (748,195)
---------- ----------
Total shareholders' equity 1,281,205 247,143
---------- ----------
Total liabilities and shareholders' equity 13,266,252 10,064,614
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-70
<PAGE> 91
BANCA COMERCIALA PE ACTIUNI "EXPORT-IMPORT"
(MOLDOVAN COMPANY)
STATEMENTS OF INCOME
IN U.S. DOLLARS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C>
INTEREST INCOME
Interest on due from banks and time deposits with banks 234,859 253,650
Interest on securities 401,931 -
Interest on loans 1,292,798 856,729
--------- ---------
Total interest income 1,929,588 1,110,379
--------- ---------
INTEREST EXPENSE
Interest on demand deposits 61,948 64,697
Interest on time deposits 454,087 278,579
Interest on deposits from National Bank 154,574 179,651
--------- ---------
Total interest expense 670,609 522,927
--------- ---------
NET INTEREST INCOME 1,258,979 587,452
Less: Allowance for possible loan losses (202,119) (356,133)
--------- ---------
Net interest income after allowance for possible loan losses 1,056,860 231,319
--------- ---------
NON INTEREST INCOME
Financial service fees 552,316 650,845
Foreign exchange trading profits and commissions 801,662 766,118
Other 77,422 25,777
--------- ---------
Total non interest income 1,431,400 1,442,740
--------- ---------
NON INTEREST EXPENSE
Salaries and related costs 475,822 248,362
Occupancy 9,908 33,256
Equipment and depreciation 101,543 24,037
Maintenance 108,383 117,936
Communication and transportation 287,617 86,115
Taxes other than income 70,923 52,406
Outside services and processing 108,544 120,456
Marketing and development 19,789 19,235
Fees paid 60,516 80,729
Other 58,405 65,300
--------- ---------
Total non interest expense 1,301,450 847,832
--------- ---------
INCOME BEFORE INCOME TAXES 1,186,810 826,227
INCOME TAX PROVISION 161,137 202,351
--------- ---------
NET INCOME 1,025,673 623,876
========= =========
NET INCOME PER SHARE 120.39 154.65
========= =========
WEIGHTED AVERAGE NUMBER OF SHARE
USED IN THE ABOVE COMPUTATION 8519 4039
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-71
<PAGE> 92
BANCA COMERCIALA PE ACTIUNI "EXPORT-IMPORT"
(MOLDOVAN COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
IN U.S. DOLLARS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C>
ACCUMULATED DEFICIT
Balance, January 1 (748,195) (345,890)
Net income 1,025,673 623,876
Proposed dividend (Note 11, Note 12) (1,137,849) (1,073,411)
Adjustment of dividend proposed in prior year and paid during 1997 23,035 47,230
---------- ----------
Balance, December 31 (837,336) (748,195)
---------- ----------
SHARE CAPITAL
Balance, January 1 995,338 995,338
Issue of share capital (Note 12) 1,123,203 -
---------- ----------
Balance, December 31 2,118,541 995,338
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 1,281,205 247,143
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-72
<PAGE> 93
BANCA COMERCIALA PE ACTIUNI "EXPORT-IMPORT"
(MOLDOVAN COMPANY)
STATEMENTS OF CASH FLOWS
IN U.S. DOLLARS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1 9 9 6 1 9 9 5
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income 1,025,673 623,876
Adjustments to reconcile net income to net cash
provided by operating activities
Allowance for possible loan losses and doubtful accounts 202,119 356,133
Provision for O.R.E. valuation adjustments 16,544 -
Depreciation 71,309 24,037
Deferred taxes on operating profit 18,837 3,167
Increase in interest receivable (156,255) (1,463)
Decrease (increase) in other receivable 121,681 (61,370)
Increase in interest payable 9,689 3,363
Decrease in accrued expenses (26,782) (148,880)
---------- ---------
Net cash provided by operating activities 1,282,815 798,863
---------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from redemptions of held to maturity securities 6,756,851 -
Purchases of held to maturity securities (9,582,468) -
Net (increase) decrease in deposits with banks (610,000) 31,173
Net increase in loans (1,631,541) (143,981)
Purchases of premises and equipment (405,145) (60,096)
Investment in investees (15,350) ( 2,274)
---------- ---------
Net cash used in investing activities (5,487,653) (175,178)
---------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Net (decrease) increase in non-interest bearing deposits (323,242) 1,943,572
Net increase (decrease) in interest bearing deposits 672,219 (277,967)
Net increase (decrease) in deposits of the National Bank 2,470,074 (498,043)
Proceeds from issue of share capital 727,497 -
Cash dividend paid (1,793,494) (235,225)
---------- ---------
Net cash provided by financing activities 1,753,054 932,337
---------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,451,784) 1,556,022
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 7,548,288 5,992,266
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE YEAR 5,096,504 7,548,288
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid 821,584 600,831
Income taxes paid 143,639 343,281
TRANSACTIONS NOT INVOLVING CASH FLOWS
Proposed dividend 1,137,849 1,073,411
Share capital issued against buildings 395,706 -
Investment against waiver of rental fees 25,461 -
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-73
<PAGE> 94
BANCA COMERCIALA PE ACTIUNI "EXPORT-IMPORT"
(MOLDOVAN COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
NOTE 1 - GENERAL
(a) Establishment of the Bank
Banca Comerciala pe Actiuni "Export-Import" ("Exim Bank" or "the Bank")
which till June 1996 was reffered to as "Banca de Export-Import a
Moldovei S.R.L.", was established on April 26, 1994 in accordance with
a resolution of the Republic of Moldova ("Moldova") to be owned by
foreign investors (65%) and the Government of Moldova (35%).
The Bank received its General Banking License from the National Bank of
Moldova on April 29, 1994 and began activity as a new bank on June 1,
1994.
The Bank was previously a Moldovan extension of the Vnesh-Econom Bank
of the Soviet Union (now a Russian bank), then became an international
division of the National Bank of Moldova.
On September 12, 1996 the foreign investor together with a related
party bought the Government of Moldova's share in the Bank. As a result
of that transaction, the current holdings in the Bank are as follows:
the foreign investor 50% and the foreign investor (related party) 50%.
(b) Activity of the Bank
Exim Bank carries on a variety of banking activities in Moldova. These
activities include, inter alia, receipt of monetary deposits, granting
credit, transacting in foreign currency, financing international trade,
issuing credit cards, investment in securities, retaining and managing
marketable documents and other assets for other parties, and managing
payments.
The Bank is an authorized dealer permitted, under the Law of Financial
Institutions, to transact in foreign currency. As from October 1995 the
Bank is licensed to sell and buy State securities in the first and
secondary markets.
The Bank participates in auctions, arranged by the National Bank of
Moldova, in its own name and on its own account or on behalf of its
clients.
The Bank is also a member of the stock exchange in Moldova.
F-74
<PAGE> 95
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The financial statements were prepared in accordance with generally accepted
accounting principles ("GAAP") in the United States.
(a) Financial statements in U.S. dollars
(1) General
The Bank operates in Moldova, and the currency of operation is
the Moldovan leu ("MDL"). Moldova is still considered a
country with hyper-inflation as the accrued rate of inflation
in the three years preceding 1996 reached more than 100%.
Accordingly, pursuant to Statements of Financial Accounting
Standards ("SFAS") No. 52, "Foreign Currency Translation" and
its financial statements were remeasured in United States
dollars ("the dollar"). In light of the rate of inflation as
from 1995, it appears that the financial statements for the
periods as from January 1, 1998 will be measured in local
currency, ie the MDL.
(2) Principles of remeasurement
(a) Balance sheets
Monetary assets and liabilities were translated
according to the exchange rate of the dollar as of the
date of the financial statements. Non-monetary items are
included at their historical cost in dollars.See also
Note 2 (m).
(b) Statements of income
Items expressing transactions in the reporting period
are included according to the average exchange rate of
the dollar in the month of the transaction. Components
related to non-monetary items were adjusted on the same
basis as the related balance sheet items.
The financing item expresses financing income and
expenses in dollar values as well as the erosion of
monetary balances during the year.
(b) Exchange rate of the dollar
Following is information on the exchange rate of the dollar:
EXCHANGE RATE
OF THE DOLLAR
ACCORDING TO
THE MDL
-------------
December 31,
1996 4.650
1995 4.522
PERCENT
-------------
Rate of increase in year ended December 31,
1996 2.83
1995 5.85
F-75
<PAGE> 96
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
(c) Use of Estimates
In accordance with generally accepted accounting principles,
management of the Bank has made a number of estimates and
assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements. Actual
results could differ from those estimates.
(d) Cash and cash equivalents
Cash and cash equivalents are defined as cash on hand, cash
items in the process of collection and amounts due from
correspondent banks and the National Bank of Moldova.
(e) Securities
Securities which the Bank has the positive intent and ability
to hold to maturity are included in held to maturity
securities and are stated at cost, adjusted for accretion of
discount based upon the maturity value.
(f) Loans
Loans are stated at the principal amount outstanding, net of
any unearned income. Interest on loans is recognized on the
accrual basis and is credited to interest income based upon
the principal amount outstanding.
portion of principal or interest in accordance with
contractual terms, is in doubt. Interest on Loans are
considered impaired and are placed on nonaccrual status when
collection of all or a nonaccrual loans is credited to
principal or recognized as income on a cash basis.
(g) Allowance for possible loan losses
The allowance for possible loan losses is established through
provisions for possible loan losses charged against income.
Loans deemed to be uncollectible are charged against the
allowance for possible loan losses, and subsequent recoveries,
if any, are credited to the allowance.
The allowance for possible loan losses is based upon
management's estimation of the amount necessary to maintain
the allowance at a level adequate to absorb estimated
potential loan losses. The determination of the adequacy of
the allowance for possible loan losses hinges upon various
judgments and assumptions, including but not necessarily
limited to, management's assessment of potential losses on
individual loans, domestic and international economic
conditions, loan portfolio composition, transfer risks, and
prior loan loss experience.
(h) Investments in investee
The investments are included at cost.
F-76
<PAGE> 97
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
(i) Premises and equipment
Bank buildings, equipment, improvements and leasehold
improvements are stated at cost less accumulated depreciation
computed on a straight-line basis. The useful life of the
premises and equipment is determined by the application of
Moldovan regulations.
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of", the Bank
examines the possibility of decrease in value of fixed assets
when events or changes in circumstances reflect the fact that
their recorded value may not be recoverable.
(j) Other real estate
Other real estate is carried at the lower of the recorded
investment in the property or fair value less estimated
selling expenses.
(k) Deferred income taxes
Deferred tax assets or liabilities are recognized for the
estimated future tax effects attributable to temporary
differences and carryforwards. A temporary difference is the
difference between the tax basis of an asset or liability and
its reported amount in the financial statements. Deferred tax
assets and liabilities are determined at currently enacted
income tax rates applicable to the period in which the
deferred tax assets and liabilities are expected to be
realized or settled. As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes, in the reported
periods, the company does not have any tax assets.
(l) Financial instruments
In the ordinary course of business the Bank has entered into
off-balance sheet financial instruments consisting of
commitments to extend credit, commercial letters of credit,
and guarantees. Such financial instruments are recorded in the
financial statements when they are funded or related fees are
incurred or received.
(m) Foreign currency translation
Foreign currency assets and liabilities are translated at
prevailing rates. Gains or losses resulting from translation
are credited or charged to the relevant statement of income
items.
(n) Net income per share
Net income per share of share capital has been computed on the
basis of the weighted average number of shares of share
capital outstanding.
F-77
<PAGE> 98
NOTE 3 - CASH AND DUE FROM BANKS
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1995
---- ----
U.S. DOLLARS
------------
<S> <C> <C>
Cash 1,435,550 1,956,329
Current account with National
Bank of Moldova (a) 1,520,102 1,889,400
Current accounts with foreign banks (b) 2,159,734 3,702,559
--------- ---------
5,115,386 7,548,288
Less allowance for doubtful accounts (18,882) -
--------- ---------
5,096,504 7,548,288
========= =========
</TABLE>
(a) The Bank maintains on a daily basis the level of the reserves
in MDL equal to 8% of the amount of the total attracted funds
in MDL and hard currency. At least 6% of the total amount must
be kept in MDL at the correspondent account with the National
Bank of Moldova.
The Bank may conduct operations that will reduce its balance
in the account below the level of the required reserves. In
such case until the end of the report period the Bank must
increase the amount of the obligatory reserves so that the
average amount of MDL for the report period meets the required
level.
The National Bank may change if necessary the norm of the
level of the obligatory reserves in conformity with the
monetary and currency policy of the Republic of Moldova.
(b) The maximum foreign currency exchange exposure (the difference
in MDL between the total assets and the total liabilities for
each currency divided by the total normative capital) that is
authorized by the National Bank of Moldova is 10% for each
currency or 25% for all the foreign currencies taken together.
In order to retain the foreign currency exposure limitations
fixed by the National Bank of Moldova and because of the
excess of sources in foreign currency, the Bank was required
to balance the exposure by deposits in current accounts with
foreign banks.
NOTE 4 - TIME DEPOSITS WITH BANKS
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1995
---- ----
U.S. DOLLARS
------------
<S> <C> <C>
Gross balance 739,032 132,685
Allowance for doubtful accounts (129,032) (132,685)
-------- --------
Net balance 610,000 -
======== ========
</TABLE>
The interest on time deposits with banks in 1996 was 20% (1995 - 50%).
F-78
<PAGE> 99
NOTE 5 - SECURITIES
All securities in the portfolio held by the Bank are State securities
issued for between 28 and 91 days and are held to maturity.
The State securities are issued into circulation by the Ministry of
Finance of Moldova in the form of electronic records. The securities
are issued for any period not exceeding 364 days.
The State securities are sold at discount and repurchased at par value.
The State securities are sold at auctions arranged by the National Bank
of Moldova following the instructions of the Ministry of Finance of
Moldova. The auctions are attended by commercial bank dealers that have
correspondent accounts with the clearing center of the National Bank.
Exim Bank is a licensed professional participant in the securities
market and has an agreement with the National Bank to service
transactions in respect of State securities. The redemption of the
State securities is effected by the Ministry of Finance from the
republican budget funds.
The yield of the State securities in 1996 was between 25% and 30%.
Regarding liens registered on securities see Note 17(d).
NOTE 6 - LOANS
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1995
---- ----
U.S. DOLLARS
------------
(a) Composition of loans:
<S> <C> <C>
Construction 69,914 6,873
Agriculture 789,774 663,423
Manufacturing 537,496 294,659
Commercial 1,303,340 965,882
Finance 57,117 79,435
Services 683,981 376,925
Consumers 395,957 11,552
--------- ---------
3,837,579 2,398,749
Allowance for possible loan losses (274,665) (265,257)
--------- ---------
3,562,914 2,133,492
========= =========
</TABLE>
The interest in loans in MDL in 1996 was between 20% and 70% (1995 - between 20%
and 130%).
The interest on loans in other currencies in 1996 was between 20% and 40% (1995
- - between 30% and 40%).
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1995
---- ----
U.S. DOLLARS
------------
<S> <C> <C>
(b) Impaired loan information
Impaired loans 74,788 191,033
Allowance for impaired loans 64,194 109,134
------- -------
10,594 81,899
======= =======
Average impaired loans 115,083 105,768
======= =======
</TABLE>
No interest was recognized on impaired loans on the cash
basis for the above years.
F-79
<PAGE> 100
NOTE 6 - LOANS (continued)
(c) Analysis of the change in the allowance for possible loan
losses:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1995
---- ----
U.S. DOLLARS
------------
<S> <C> <C>
Balance as of January 1 265,257 45,725
Provisions during the year 183,294 223,448
Write-offs (166,833) -
Inflationary erosion and adjustments (7,053) (3,916)
-------- -------
Balance as of December 31 274,665 265,257
======== =======
</TABLE>
The Bank must classify all loans on a quarterly basis in accordance with the
regulations of the National Bank of Moldova. On the basis of the classification
the minimum amount of the allowance for possible loan losses should be
determined.
Each of the Bank's loans must be ascribed to one of the following categories. If
a loan can be classified differently according to the given criteria it should
be ascribed to the stricter category.
The allowance for possible loan losses was calculated by applying the following
percentages to each category:
CREDIT CATEGORY ALLOWANCE
(%)
Standard -
Watch 2%
Substandard 5%
Doubtful 30%
Loss 100%
Write-offs are made in the quarter when the loans are classified as loan losses.
The minimum required allowance for loan losses according to the regulations of
the National Bank of Moldova as of December 31, 1996 is U.S.$ 263.6 thousand
(December 31, 1995 - U.S.$ 240.7 thousand).
F-80
<PAGE> 101
NOTE 7 - INVESTMENTS IN INVESTEES
Composition of balance of investment:
<TABLE>
<CAPTION>
INVESTEE PERCENTAGE OF HOLDING COST
----------------------------- ---------------------------- ------------
% U.S. DOLLARS
- ------------
<S> <C> <C>
DECEMBER 31, 1996
Bursa de Valori (a) 1.79 2,274
Exim Asint (b)(c) 15.00 45,713
------------
47,987
============
DECEMBER 31, 1995
Bursa de Valori (a) 1.79 2,274
Seabeco-Asint (c)(d) 22.30 4,902
------------
7,176
============
</TABLE>
(a) A legally-established enterprise which serves as the stock
exchange of Moldova.
(b) U.S.$ 25,461 of the amount of the authorized investment is
against the Bank's waiver of rental fees for a period of 27
years. See also Note 8.
(c) A related party.
(d) In 1996 the company changed its name to Exim Asint.
F-81
<PAGE> 102
NOTE 8 - BANK PREMISES AND EQUIPMENT
Bank premises and equipment as of December 31 include the following:
<TABLE>
<CAPTION>
DEPRECIABLE DECEMBER 31,
LIVES 1996 1995
----------- -------- ----------
YEARS U.S. DOLLARS
----- ------------
<S> <C> <C> <C>
Buildings (a)(c) 100 456,957 --
Improvements (1995 - leasehold
improvements)(b) 10 265,042 12,341
Furniture and equipment 4 - 15 319,986 188,849
--------- -------
1,041,985 201,190
Less accumulated depreciation (140,276) (29,023)
--------- -------
Balance as of end of the year 901,709 172,167
========= =======
</TABLE>
(a)Including:
(1) Building at a cost of U.S.$ 342,994 in which the Bank is
located.
(2) Building at a cost of U.S.$ 113,966 in which Exim Asint is
located.
The buildings were transferred from ownership by a Government
company to the Bank on February 12, 1996 as the Government's share
in increasing the Bank's capital. The buildings were recorded in
the books of the Bank at their depreciated cost as it appears in
the books of the Government company on the date of the transfer
(see also Note 12).
(b)Preceding the transfer the Bank building was rented from the
Government company.
(c)On April 23, 1996 the right to use the building was transferred to
Exim Asint for 27 years in consideration for receipt of 1,161 shares
of the company.
NOTE 9 - OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
------- -------
U.S. DOLLARS
------------
<S> <C> <C>
Accrued interest receivable 100,794 30,396
Prepaid expenses 33,920 71,452
Metals -- 84,150
Other real estate 949 17,493
------- -------
135,663 203,491
======= =======
</TABLE>
F-82
<PAGE> 103
NOTE 10- DEPOSITS
(a) Non interest bearing deposits are mainly demand deposits in MDL.
(b) (1) Demand deposits in foreign currency of foreign residents bear
interest of 4% on amounts above U.S.$ 500.
Demand deposits in foreign currency of enterprises bear interest
of 2% on amounts above U.S.$ 50,000.
Interest on time deposits in MDL in 1996 was between 20% and 50%
(1995 - same rates). Interest on time deposits in U.S.$ in 1996
was between 8% and 12% (1995 - same rates).
(2) Interest bearing deposits according to linkage basis:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------
DEUTSCHE
MDL U.S.$ MARK OTHER TOTAL
--------- --------- --------- --------- ---------
U.S. DOLLARS
------------
<S> <C> <C> <C> <C> <C>
Demand deposits -- 3,490,266 178,378 59,058 3,727,702
Time deposits 1,226,279 803,481 -- -- 2,029,760
--------- --------- --------- --------- ---------
1,226,279 4,293,747 178,378 59,057 5,757,462
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------------
DEUTSCHE
MDL U.S.$ MARK OTHER TOTAL
--------- --------- --------- --------- ---------
U.S. DOLLARS
------------
<S> <C> <C> <C> <C> <C>
Demand deposits -- 3,856,917 69,847 50,036 3,976,800
Time deposits 437,596 670,847 -- -- 1,108,443
--------- --------- --------- --------- ---------
437,596 4,527,764 69,847 50,036 5,085,243
========= ========= ========= ========= =========
</TABLE>
(c)Deposits of the National Bank of Moldova are time deposits bearing
interest of 18% - 22% in December 1996 (December 1995 - 21%).
NOTE 11- OTHER LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
--------- ---------
U.S. DOLLARS
------------
<S> <C> <C>
Dividend payable * 1,053,131 1,731,810
Taxes payable 14,108 15,430
Accrued interest payable 13,052 3,363
Deferred tax 22,004 3,167
--------- ---------
1,102,295 1,753,770
========= =========
</TABLE>
* The balance is the share of the foreign investors in the dividend
declared but which was not paid in cash (see also Note 12(b)).
F-83
<PAGE> 104
NOTE 12- SHAREHOLDERS' EQUITY AND DIVIDEND
(a) Shareholders' equity
Following a change in the minimum required capital of banks in Moldova by
the National Bank of Moldova, on February 12, 1996 additional shares were
allotted to the Bank's shareholders in proportion to their part in the
share capital of the Bank as of that date.
The consideration to the Government company for the allotment was
redeemed by transfer of two buildings to the ownership of the Bank (see
Note 8). The investment of the foreign investors was financed from the
dividends to which they are entitled.
(b)Dividend
In accordance with the law on the State budget, a Government-owned
company is required to transfer the Government's share in its revenues
(calculated in accordance with Moldovian accounting standards) as a
dividend to the State budget.
The Bank paid the dividend due to the Government until purchase of the
Government's share by the foreign investors.
According to a decision of the counsel of the Bank, the share of the
foreign investors in the dividend will remain in the Bank and will be
used to increase its authorized share capital and to purchase the
Government's share in the capital.
NOTE 13- INCOME TAXES
(a) Benefits under the Foreign Investments Law
The investment of the shareholders in the Bank was granted the status
of a foreign investment in accordance with the Foreign Investments Law
of the Government of Moldova. Accordingly, the income that was derived
by the Bank during its first five years of operation is taxable at a
reduced tax rate of 16% (regular tax rate in Moldova is 32%).
The period of tax benefits under the Foreign Investments Law will end
in 1998.
(b) Deferred tax liability
The liability for deferred taxes is the liability provided in respect
of fixed assets deductible for tax purposes in the year of their
purchase. The balance for deferred tax liability is presented in other
liabilities. See also Note 11.
F-84
<PAGE> 105
NOTE 13- INCOME TAXES (continued)
(c) Composition of taxes
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1996 1995
------- -------
U.S. DOLLARS
<S> <C> <C>
Current taxes 142,300 199,184
Deferred taxes 18,837 3,167
------- -------
161,137 202,351
======= =======
</TABLE>
NOTE 14- RELATED PARTY TRANSACTIONS
Exim Bank transacts business with related parties while conducting its
commercial banking activities. The transactions are on substantially
the same terms as those prevailing at the time for comparable
transactions with others.
F-85
<PAGE> 106
NOTE 15- ASSETS AND LIABILITIES CLASSIFIED ACCORDING TO LINKAGE BASES
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------------------------------------------
DEUTSCHE SOFT NON-MONETARY
MDL U.S.$ MARK CURRENCY* OTHER ITEMS TOTAL
----------- ----------- ----------- ----------- ----------- ----------- -----------
U.S. DOLLARS
------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from Bank 1,822,176 2,810,634 270,742 76,564 116,388 -- 5,096,504
Time deposits with banks -- 610,000 -- -- -- -- 610,000
Held to maturity security 2,911,475 -- -- -- -- -- 2,911,475
Loans 2,530,851 1,189,685 117,043 -- -- -- 3,837,579
Less allowance for possible
loan losses (240,829) (32,138) (1,698) -- -- -- (274,665)
Investments in investee -- -- -- -- -- 47,987 47,987
Bank premises and equipment -- -- -- -- -- 901,709 901,709
Other assets 79,516 27,751 878 -- -- 27,518 135,663
----------- ----------- ----------- ----------- ----------- ----------- -----------
TOTAL ASSETS 7,103,189 4,605,932 386,965 76,564 116,388 977,214 13,266,252
=========== =========== =========== =========== =========== =========== ===========
LIABILITIES
Non-interest bearing
deposits 2,304,547 156,605 7,924 75,569 -- -- 2,544,645
Interest bearing deposits 1,226,279 4,293,747 178,378 -- 59,058 -- 5,757,462
Deposits of the National
Bank of
Moldova 2,580,645 -- -- -- -- -- 2,580,645
----------- ----------- ----------- ----------- ----------- ----------- -----------
TOTAL DEPOSITS 6,111,471 4,450,352 186,302 75,569 59,058 -- 10,882,752
Other liabilities 1,101,173 1,122 -- -- -- -- 1,102,295
----------- ----------- ----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES 7,212,644 4,451,474 186,302 75,569 59,058 -- 11,985,047
=========== =========== =========== =========== =========== =========== ===========
DIFFERENCE (109,455) 154,458 200,663 995 57,330 977,214 1,281,205
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
* Including Rumanian leu and currencies of the former Soviet Union
F-86
<PAGE> 107
NOTE 15- ASSETS AND LIABILITIES CLASSIFIED ACCORDING TO LINKAGE BASES
(continued)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------------------------------------------------------
DEUTSCHE SOFT NON-MONETARY
MDL U.S.$ MARK CURRENCY* OTHER ITEMS TOTAL
----------- ----------- ----------- ----------- ----------- ----------- -----------
U.S. DOLLARS
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and due from Bank 2,157,775 4,998,841 256,076 73,144 62,452 -- 7,548,288
Time deposits with banks -- -- -- -- -- -- --
Held to maturity security -- -- -- -- -- -- --
Loans 2,319,314 79,435 -- -- -- -- 2,398,749
Less allowance for possible
loan losses (265,257) -- -- -- -- -- (265,257)
Investments in investee -- -- -- -- -- 7,176 7,176
Bank premises and equipment -- -- -- -- -- 172,167 172,167
Other assets 37,938 9,951 -- -- 84,150 71,452 203,491
----------- ----------- ----------- ----------- ----------- ----------- -----------
TOTAL ASSETS 4,249,770 5,088,227 256,076 73,144 146,602 250,795 10,064,614
=========== =========== =========== =========== =========== =========== ===========
LIABILITIES
Non-interest bearing
deposits 2,159,616 510,061 134,854 63,356 -- -- 2,867,887
Interest bearing deposits 437,596 4,527,764 69,847 -- 50,036 -- 5,085,243
Deposits of the National
Bank of Moldova 110,571 -- -- -- -- -- 110,571
----------- ----------- ----------- ----------- ----------- ----------- -----------
TOTAL DEPOSITS 2,707,783 5,037,825 204,701 63,356 50,036 -- 8,063,701
Other liabilities 1,752,855 915 -- -- -- -- 1,753,770
----------- ----------- ----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES 4,460,638 5,038,740 204,701 63,356 50,036 -- 9,817,471
=========== =========== =========== =========== =========== =========== ===========
DIFFERENCE (210,868) 49,487 51,375 9,788 96,566 250,795 247,143
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
* Including Rumanian leu and currencies of the former Soviet Union
F-87
<PAGE> 108
NOTE 16- ASSETS AND LIABILITIES CLASSIFIED ACCORDING TO MATURITY DATES
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------------------------------------
FROM 1 FROM 3 WITHOUT
UP TO 1 MONTH TO MONTHS TO FROM 1 YEAR FIXED
MONTH 3 MONTHS 1 YEAR TO 3 YEARS MATURITY TOTAL
----------- ----------- ----------- ----------- ----------- -----------
U.S.$ DOLLARS
-------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from Bank 5,096,504 -- -- -- -- 5,096,504
Time deposits with banks -- -- 610,000 -- -- 610,000
Held to maturity security 807,090 2,104,385 -- -- -- 2,911,475
Loans 977,323 1,421,785 1,397,255 41,216 -- 3,837,579
Less allowance for possible (152,828) (88,799) (32,213) (825) -- (274,665)
loan losses
Investments in investee -- -- -- -- 47,987 47,987
Bank premises and equipment -- -- -- -- 901,709 901,709
Other assets 109,811 9,523 12,065 4,264 -- 135,663
----------- ----------- ----------- ----------- ----------- -----------
TOTAL ASSETS 6,837,900 3,446,894 1,987,107 44,655 949,696 13,266,252
=========== =========== =========== =========== =========== ===========
LIABILITIES
Non-interest bearing deposits 2,544,645 -- -- -- -- 2,544,645
Interest bearing deposits 4,033,378 329,890 1,298,240 95,954 -- 5,757,462
Deposits of the National
Bank of Moldova 322,580 2,258,065 -- -- -- 2,580,645
----------- ----------- ----------- ----------- ----------- -----------
Total deposits 6,900,603 2,587,955 1,298,240 95,954 -- 10,882,752
Other liabilities 13,052 14,109 -- 22,004 1,053,130 1,102,295
----------- ----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES 6,913,655 2,602,064 1,298,240 117,958 1,053,130 11,985,047
=========== =========== =========== =========== =========== ===========
DIFFERENCE (75,755) 844,830 688,867 (73,303) (103,434) 1,281,205
=========== =========== =========== =========== =========== ===========
</TABLE>
F-88
<PAGE> 109
NOTE 16- ASSETS AND LIABILITIES CLASSIFIED ACCORDING TO MATURITY DATES
(continued)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------------------------------------------
FROM 1 FROM 3 WITHOUT
UP TO 1 MONTH TO MONTHS TO FROM 1 YEAR FIXED
MONTH 3 MONTHS 1 YEAR TO 3 YEARS MATURITY TOTAL
----------- ----------- ----------- ----------- ----------- -----------
U.S. DOLLARS
------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from Bank 7,548,288 -- -- -- -- 7,548,288
Time deposits with banks -- -- -- -- -- --
Held to maturity security -- -- -- -- -- --
Loans 381,282 1,124,282 892,079 1,106 -- 2,398,749
Less allowance for possible (242,591) (11,301) (11,365) -- -- (265,257)
loan losses
Investments in investee -- -- -- -- 7,176 7,176
Bank premises and equipment -- -- -- -- 172,167 172,167
Other assets 123,050 37,641 34,054 8,746 -- 203,491
----------- ----------- ----------- ----------- ----------- -----------
TOTAL ASSETS 7,810,017 1,150,622 914,780 9,852 179,343 10,064,614
=========== =========== =========== =========== =========== ===========
LIABILITIES
Non-interest bearing deposits 2,867,887 -- -- -- -- 2,867,887
Interest bearing deposits 4,072,607 164,975 813,838 33,823 -- 5,085,243
Deposits of the National
Bank of Moldova 110,571 -- -- -- -- 110,571
----------- ----------- ----------- ----------- ----------- -----------
Total deposits 7,051,065 164,975 813,838 33,823 -- 8,063,701
Other liabilities 3,363 18,597 -- -- 1,731,810 1,753,770
----------- ----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES 7,054,428 183,572 813,838 33,823 1,731,810 9,817,471
=========== =========== =========== =========== =========== ===========
DIFFERENCE 755,589 967,050 100,942 (23,971) (1,552,467) 247,143
=========== =========== =========== =========== =========== ===========
</TABLE>
F-89
<PAGE> 110
NOTE 17- COMMITMENTS AND CONTINGENT LIABILITIES
(a) In April 1996 a trilateral agreement was signed between Dresdner Bank
AG, Tirex-Petrol S.A. (an 80% State-run company) and the Exim Bank
concerning financing import of oil products into Moldova.
According to the agreement, the oil dealer nominated by Dresdner Bank
imports oil products into Moldova on the conditions agreed upon with
Tirex-Petrol. Dresdner Bank finances the transaction under the
letters of credit opened by Exim Bank and confirmed by Dresdner Bank.
The oil products are later sold on the local market for MDL, which
are then converted into U.S. dollars by Exim Bank and used for the
repayment to Dresdner Bank. The maximum period for actual financing
by Dresdner Bank is three months.
The Government of Moldova issued the standby guarantee signed by the
Minister of Finance of Moldova which states that it will repay the
indebtedness to Dresdner Bank if the other two parties do not fulfill
their obligations.
The agreement expires in 2001.
(b) In 1995 an agreement was signed between Moldova and the United States
for financing imports into Moldova of grain products from the United
States. Under this agreement Exim Bank opens letters of credit by
order of its client in favor of the grain supplier in the United
States. The correspondent bank in the United States then confirms the
letter of credit. The letter of credit stipulates that a
corresponding United States Government agency in conformity with the
agreement guarantees the payment upon receipt of the documents
confirming delivery of the goods.
(c) Off-balance sheet financial instruments
Notional amounts of the Bank's financial instruments with off-balance
sheet risk:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
--------- ---------
U.S. DOLLARS
------------
<S> <C> <C>
Guarantees 25,000 28,748
Letter of credit 2,546,260 239,833
Unutilized credit lines 60,610 160,703
--------- ---------
2,631,870 429,284
========= =========
</TABLE>
(d) The total amount of securities on which liens were registered in
favor of the National Bank of Moldova in respect of the obligatory
reserves as of December 31, 1996 is U.S.$ 1,774 thousand (December
31, 1995 - 0).
F-90
<PAGE> 111
NOTE 18- REGULATORY MATTERS
(a)The reserve requirements are considered fulfilled if for the reported
period the Bank maintained on the daily average 8% of the amount of the
total attracted funds in MDL and hard currency, not less than 6% of
which in MDL at the correspondent account with the National Bank of
Moldova and not more than 2% in MDL cash in the Bank.
(b)Starting from January 1, 1998 the Bank must have and maintain a total
normative capital of not less than U.S.$ 3.44 million (MDL 16 million).
(c)Tax related issues which could affect the banking sector in Moldova,
in accordance with the Tax Code and the 1998 State budget adopted by
the Parliament of Moldova in the first reading, including:
(1) Income from Moldovian Treasury Bills will not be taxable as in
the current year.
(2) Interest paid by banks on deposits of private clients will not
be taxed until 1999.
(d)Starting from January 1, 2000 all the banks must have and maintain a
ratio of total normative capital to risk weighted assets equal to at
least 12%.
NOTE 19- FINANCIAL INSTRUMENTS
(a)Balance sheet financial instruments
In the normal course of business, the Bank provides to its customers a
wide variety of financial instruments. These financial instruments
involve various degrees of risk, as follows:
(1) Credit risk - in conducting business activities, the Bank is
exposed to the possibility that borrowers may default on their
obligations to the Bank. To minimize this risk -
the Bank evaluates each customers' credit worthiness on a case
by case basis. The amount of collateral obtained, if it is
deemed necessary by the Bank upon extension of credit, is
based on management's credit evaluation of the counterparty.
Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment.
the Bank strives to maintain a credit risk profile that is
diverse in terms of industry and borrower concentration.
For significant group concentration of credit risk see Note
6(a).
(2) Market risk - in the normal course of business, the Bank is
exposed to market risks which include both price and liquidity
risks.
Price risk arises from fluctuation in interest rates, foreign
exchange rates and commodity and equity prices that may result
in changes in the value of financial instruments.
Liquidity risk arises from the possibility that the Bank may
be unable to satisfy current and future financial commitments.
F-91
<PAGE> 112
NOTE 19- FINANCIAL INSTRUMENTS (continued)
(a)Balance sheet financial instruments (continued)
In order to reduce the above risk, the Bank acts to balance its assets
and liabilities from the standpoint of repayment dates and linkage
basis, in light of the fact that interest rates related to the Bank's
financial instruments are fixed.
(b)Off-balance sheet financial instruments
The Bank is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of
its customers. These financial instruments include commitments to
extend credit, letters of credit and financial guarantees. Those
instruments involve, to varying degrees, elements of credit in excess
of the amount recognized in the statements of financial condition. The
contract or notional amounts of those instruments reflect the extent
of the Bank's involvement in particular classes of financial
instruments.
The Bank's exposure to credit loss in the event of non-performance by
the other party to the financial instrument for commitments to extend
credit, letters of credit, and financial guarantees written is
represented by the contractual notional amount of those instruments.
The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
Unless noted otherwise, the Bank requires collateral or other security
to support financial instruments with credit risk.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. The Bank acts to
limit these credit risks in the same way as for balance sheet credit
risk.
Financial guarantees written are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements, including commercial paper and similar
transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. The Bank holds deposits as collateral supporting those
commitments for which collateral is deemed necessary.
Regarding off-balance sheet financial instruments see Note 17(c).
(c)Fair value of financial instruments
The fair value of cash and cash equivalents is equal to their
carrying amounts in the financial statements.
The fair value of other financial instruments, including time deposits
with banks, securities, loans and deposits is not included herein,
although their fair value may differ substantially from their carrying
amount, since it is not practicable for Bank management to estimate
the fair value of those financial instruments for the following
reasons:
(1) A quoted market price is not available for any of those
financial instruments.
(2) Management of the Bank has not yet developed a valuation model
necessary to make an estimate, due mainly to the instability
of the local markets and the fluctuation in interest rates.
F-92
<PAGE> 113
NOTE 19- FINANCIAL INSTRUMENTS (continued)
(c)Fair value of financial instruments (continued)
Information pertinent to the estimation of fair value of those
financial instruments is included in:
(1) Carrying amounts in the balance sheets.
(2) Effective interest rates, as follows:
Time deposits with banks - Note 4.
Securities - Note 5.
Loans - Note 6.
Deposits - Note 10.
(3) Linkage bases - Note 15.
(4) Maturity dates - Note 16.
F-93
<PAGE> 114
REPORT OF THE INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
EXIM ASINT S.A.
(MOLDOVAN COMPANY)
We have audited the accompanying balance sheets of Exim Asint S.A (Moldovan
Company) ("the Company") as of September 30, 1997 and 1996, and as of December
31, 1996 and the related statements of income, changes in shareholders' equity
and cash flows for each of the periods of nine months and of twelve months then
ended, respectively. 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
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of September 30,
1997 and 1996, and as of December 31, 1996 and the related results of its
operations and cash flows for each of the periods of nine months and of twelve
months then ended, respectively, in conformity with generally accepted
accounting principles in the United States.
Braude Bavly
Certified Public Accountants (Israel)
A Member of KPMG International
Tel Aviv, December 25, 1997
F-94
<PAGE> 115
EXIM ASINT S.A.
(MOLDOVAN COMPANY)
BALANCE SHEETS
IN U.S. DOLLARS
<TABLE>
<CAPTION>
September 30, December 31,
Note 1 9 9 7 1 9 9 6 1 9 9 6
---- -------- ------- -------
ASSETS
<S> <C> <C> <C> <C>
SHORT TERM INVESTMENTS
Securities held to maturity 9 $285,827 $79,204 $47,919
-------- ------- -------
Cash and cash equivalents 15,16 26,201 67,280 178,321
Outstanding premiums 15 188,683 25,243 12,878
Other accounts receivable 10,15 6,186 194,922 15,967
-------- ------- -------
221,070 287,445 207,166
-------- ------- -------
REINSURERS' SHARE OF RESERVES
Provision for unearned premiums 177,787 64,990 43,646
Losses and loss adjustment reserves 5,13 115,272 54,846 38,237
-------- ------- -------
293,059 119,836 81,883
-------- ------- -------
INVESTMENT IN SUBSIDIARY AND AFFILIATE 18 8,810 - -
-------- ------- -------
Furniture, equipment and vehicles 7 34,067 19,412 19,579
Other assets 8 46,454 - 55,622
-------- ------- -------
80,521 19,412 75,201
-------- ------- -------
Total assets $889,287 $505,897 $412,169
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment reserves 5,13 $195,591 $97,948 $84,623
Provision for unearned premiums 218,323 69,008 47,045
Reinsurance balances payable 14 187,794 61,288 1,568
Deferred policy acquisition costs, net 12 942 4,824 3,172
Other accounts payable 10,109 18,400 29,010
-------- ------- -------
Total liabilities 612,759 251,468 165,418
-------- ------- -------
SHAREHOLDERS' EQUITY
Share capital 11 299,414 299,414 299,414
Accumulated loss (22,886) (44,985) (52,663)
-------- ------- -------
Total shareholders' equity 276,528 254,429 246,751
-------- ------- -------
Total liabilities and shareholders' equity $889,287 $505,897 $412,169
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-95
<PAGE> 116
EXIM ASINT S.A.
(MOLDOVAN COMPANY)
STATEMENTS OF INCOME
IN U.S. DOLLARS
<TABLE>
<CAPTION>
For the year
For the nine months ended ended
September 30, December 31,
Note 1997 1996 1996
---- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Gross insurance premiums written 3(a) $372,128 $115,531 $127,613
Change in provisions for unearned
premium 3(a) (171,278) (35,508) (13,546)
-------- -------- --------
Gross premiums earned 200,850 80,023 114,067
-------- -------- --------
Premiums ceded (reinsured) 3(a) (269,580) (96,502) (101,746)
Change in reinsurers' share for
unearned premium 3(a) 134,141 64,990 43,646
-------- -------- --------
Earned premiums ceded (135,439) (31,512) (58,100)
Net premiums earned 3(a) 65,411 48,511 55,967
-------- -------- --------
Interest income 43,448 14,414 20,592
-------- -------- --------
Other revenues
Translation loss (240) (178) (831)
Commission earned from reinsurance 3(c) 35,536 7,046 13,995
Other income 6,107 1,980 -
-------- -------- --------
41,403 8,848 13,164
-------- -------- --------
Total Revenues 150,262 71,773 89,723
-------- -------- --------
EXPENSES
Losses and loss adjustment expense 5 130,914 76,170 65,087
Reinsurers' share of losses and loss adjustment expense (89,123) (54,846) (39,748)
-------- -------- --------
41,791 21,324 25,339
Other operating expenses 3(d) 78,694 75,433 97,046
-------- -------- --------
Total expenses 120,485 96,757 122,385
Income (loss) for the period before tax 29,777 (24,984) (32,662)
-------- -------- --------
Taxes on income 17 - - -
Income (loss) for the period after tax $29,777 $(24,984) $(32,662)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-96
<PAGE> 117
EXIM ASINT S.A.
(MOLDOVAN COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
IN U.S. DOLLARS
<TABLE>
<CAPTION>
Retained
earnings Total
Share (accumulate shareholders'
capital deficit) equity
------- -------- -------
<S> <C> <C> <C>
Balance as of January 1, 1996 $21,164 $(20,001) $1,163
Issue of shares 278,250* - 278,250
Net loss for nine months - (24,984) (24,984)
------- -------- -------
Balance as of September 30, 1996 299,414 (44,985) 254,429
Net income for three months - (7,678) (7,678)
------- -------- -------
Balance as of December 31, 1996 299,414 (52,663) 246,751
Net income for nine months - 29,777 29,777
------- -------- -------
Balance as of September 30, 1997 $299,414 $(22,886) $276,528
------- -------- -------
</TABLE>
* The share capital was increased as of April 23, 1996 by 12,840 additional
shares of 100 MDL each. Each share carries the right to one vote. The share
capital was subscribed in cash and with contribution in kind. All additional
capital was paid on December 31, 1996 (See Note 11).
The accompanying notes are an integral part of these financial statements.
F-97
<PAGE> 118
EXIM ASINT S.A.
(MOLDOVAN COMPANY)
STATEMENTS OF CASH FLOWS
IN U.S. DOLLARS
<TABLE>
<CAPTION>
For the nine months ended
-------------------------- For the year ended
September 30, September 30, December 31,
1 9 9 7 1 9 9 6 1 9 9 6
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) for the period $ 29,777 $ (24,984) $ (32,662)
Adjustments to reconcile net income to net cash
provided (used) by operating activities-Schedule A 74,862 28,497 (10,369)
--------- --------- ---------
Net cash provided (used) by operating activities 104,639 3,513 (43,031)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of securities (237,908) (79,204) (47,919)
Acquisition of furniture, equipment and vehicles (6,834) (4,588) (4,751)
Payment on other assets (3,207) -- (30,782)
Investment in subsidiary companies (8,810) -- --
Repayment of leasing transaction -- 11,998 12,126
--------- --------- ---------
Net cash used by investing activities (256,759) (71,794) (71,326)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issue of shares -
Net cash provided by financing activities -- 55,403 212,520
--------- --------- ---------
Increase (decrease) in cash and cash equivalents (152,120) (12,878) 98,163
Cash and cash equivalents at beginning of period 178,321 80,158 80,158
--------- --------- ---------
Cash and cash equivalents at end of period $ 26,201 $ 67,280 $ 178,321
--------- --------- ---------
SCHEDULE A - ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES
Expenses not involving cash flows:
Depreciation $ 4,721 $ 1,859 $ 1,864
Changes in assets and liabilities:
Increase in outstanding premium (175,805) (25,243) (12,878)
Decrease (increase) in other accounts
receivable 9,781 (635) (3,774)
Increase (decrease) in unearned
premium reserve, net 37,137 (29,482) (30,101)
Increase (decrease) in deferred policy
acquisition costs, net (2,230) 4,824 3,172
Increase in losses and loss
adjustment reserve, net 33,933 21,216 24,500
Increase in reinsurers' accounts 186,226 61,288 1,568
Increase (decrease) in other accounts
payable (18,901) (5,330) 5,280
--------- --------- ---------
$ 74,862 $ 28,497 $ 10,369)
========= ========= =========
SCHEDULE B - NON-CASH TRANSACTIONS
Furniture, equipment and vehicles (See Note 11) 11,049 16,608 16,608
Building leased (See Note 11) 19,733 -- 24,840
Other accounts receivable (See Note 10,11) -- 206,239 24,282
--------- --------- ---------
$ 30,782 $ 222,847 $ 65,730
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-98
<PAGE> 119
EXIM ASINT S.A.
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Exim Asint S.A. ("the Company) began operations at the beginning of
1995. The Company is active in the general insurance sector and
provides property and liability coverage to domestic markets.
These financial statements have been prepared in conformity with
generally accepted accounting principles in the United States
The accounting practices used in the preparation of these financial
statements differ from statutory accounting practices prescribed or
permitted for insurance companies under Moldovan law.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
(A) FINANCIAL STATEMENTS IN UNITED STATES DOLLARS
(1) General
The Company operates in Moldova and its currency of operation
is the Moldovan lei ("MDL"). Moldova is still considered a
country with hyper-inflation as the accrued rate of inflation
in the three years preceding 1997 reached more than 100%.
In accordance with the Statement of Financial Accounting
Standards ("SFAS") No. 52, "Foreign Currency Translation," of
the Financial Accounting Standards Board ("FASB") of the United
States, the financial statements were remeasured in United
States dollars ("the dollar"). In light of the rate of
inflation as from 1995, it appears that the financial
statements for the periods as from January 1, 1998 will be
measured in local currency, ie the MDL.
(2) Principles of remeasurement
(a) Balance sheets
Monetary assets and liabilities, including losses and loss
adjustment reserves, were translated according to the exchange
rate of the dollar as of September 30, 1997 and 1996, as
applicable. Non-monetary items including unearned premium
reserves were translated according to the exchange rate of the
dollar as of the date of the related transactions.
(b) Statements of Income
Items expressing transactions in the reporting period are
included according to the average exchange rate of the dollar
in the month of the transaction. Components related to
non-monetary items were adjusted on the same basis as the
related balance sheet items.
The financing item is derived from other items in the financial
statements and expresses financing income and expenses in real
terms and erosion of monetary balances during the period.
(continued)
F-99
<PAGE> 120
EXIM ASINT S.A.
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
(B) EXCHANGE RATE OF THE DOLLAR
Following is information on the exchange rate of the
dollar:
EXCHANGE RATE
OF THE DOLLAR
ACCORDING TO
THE MDL
-------------
September 30,
1997 4.618
1996 4.621
December 31, 1996 4.650
PERCENT
-------------
Rate of increase (decrease) in the
nine months ended September 30,
1997 (0.7)
1996 2.2
Rate of increase in the year ended
December 31, 1996 2.8
(C) 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.
(D) GROSS PREMIUMS WRITTEN
All insurance premiums due in respect of insurance contracts
entered into in the period are included in gross written premiums
irrespective of whether they relate in whole or in part to a later
period. Gross, reinsurance ceded and unearned premiums are included
within gross written premiums, outwards reinsurance premiums and
unearned premiums, respectively. Gross premiums are net of premium
reimbursements
All insurance premiums are direct premiums. There are no assumed
premiums.
(E) RECOGNITION OF PREMIUM REVENUE
Recognition of Premium Revenues: Property and liability premiums
are generally recognized as revenue on a pro rata basis over the
policy term. The portion of premiums that will be earned in the
future are deferred and reported as unearned premiums.
(F) FURNITURE, EQUIPMENT AND VEHICLES
These assets are included at cost less accumulated depreciation.
The cost of furniture, equipment and vehicles is their purchase
cost, together with any incidental costs of acquisition.
Depreciation is calculated so as to write off the cost of these
assets, less their estimated residual values, on a straight line
basis over the expected useful lives of the assets concerned as
accepted in Moldova.
(continued)
F-100
<PAGE> 121
EXIM ASINT S.A.
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
(g) INVESTMENTS
Securities held to maturity: bonds which the insurance Company has
the intent and ability to hold to maturity are reported at cost,
adjusted for declines in fair value other than temporary declines.
(h) REINSURANCE
Reinsurance is accounted for on the basis of the legal form, which
means that contracts are accounted for as insurance or reinsurance
where the "insurance risk" is transferred or received.
In the normal course of business, the Company seeks to reduce the
loss that may arise from catastrophes or other events that cause
unfavorable underwriting results by reinsuring certain levels of
risk in various areas of exposure with other insurance enterprises
or reinsurers.
Amounts recoverable from reinsurers are estimated in a manner
consistent with the claim liability associated with the reinsured
policy.
(i) DEFERRED POLICY ACQUISITION COSTS
Commissions and other costs of acquiring insurance that vary with
and are primarily related to the production of new and renewal
business are deferred and amortized over the terms of the policies
or reinsurance treaties to which they relate.
(j) ALLOCATION OF EXPENSES
The operating expenses and operating profit have been allocated on
sectors according to the relative weight of the premium from the
sector to total premiums written.
(k) LOSSES AND LOSS ADJUSTMENT RESERVE
The Company has been operating since the beginning of 1995. During
this period, the actual results have not provided the Company with
sufficient historical experience to make current estimates of loss
reserves. Industry results are also limited due to current and
future developments in the sector in Moldova.
The liability for losses and loss adjustment expenses includes an
amount determined for losses incurred but not yet reported, which
is the Company's best estimate and is based on the instructions
prescribed by the insurance supervisor of Moldova and the
regulations thereunder. In terms of these regulations, the Company
is to maintain a reserve at specific rates of net premium earned as
detailed in Note 13 below. These reserves are based on market
experience as a whole and are intended to cover future claims
lodged with the Company. In addition, individual claims known but
not paid are provided for.
Such liabilities are necessarily based on estimates and, while
management believes that the amount is adequate, there is a high
degree of uncertainty surrounding the reserves and the ultimate
liability may be materially different from the amounts provided.
The reinsurers' share of losses and lost adjustment reserve is
disclosed separately as an asset in the balance sheet.
(continued)
F-101
<PAGE> 122
EXIM ASINT S.A.
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
(l) EMPLOYEES' BENEFITS
Contributions are made by the Company to the Government's health,
retirement benefit and unemployment schemes at the statutory rates
in force during the period, based on gross salary payments. The
cost of these payments is charged to the statements of income in
the same period as the related salary cost.
The Company has no liability under Moldovan law with respect to
future pension costs for its employees.
(m) CASH AND CASH EQUIVALENTS
For the purpose of presentation in the Company's statements of cash
flows, cash equivalents and short-terms, highly liquid investments
that are both (a) readily convertible to known amounts of cash and
(b) so near to maturity that they present insignificant risk of
changes in value due to changing interest rates.
(n) TAX ON INCOME
In accordance with the statement of financial accounting standards
("SFAS") No.109 "Accounting for Income Taxes" of the Financial
Accounting Standards Board ("FASB") of the United States, whereby
deferred income taxes are provided to reflect the net tax effects
of temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. Valuation allowances are provided against
net deferred tax assets when the realization of such assets is not
"more likely than not".
(o) NET INCOME (LOSS) PER SHARE
Information regarding net income (loss) per share is computed on
the basis of the weighted average of the number of ordinary shares
outstanding in the year.
(continued)
F-102
<PAGE> 123
EXIM ASINT S.A.
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
NOTE 3 - INFORMATION ABOUT LINES OF BUSINESS
(a) GROSS WRITTEN AND EARNED PREMIUMS
<TABLE>
<CAPTION>
For the nine months ended September 30, 1997
---------------------------------------------------------------------------------------------
Change in Net Net
Change in Reinsurance UPR change after
Gross UPR gross ceded reinsurance Net in UPR UPR
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Cargo $ 2,349 $ -- $ -- $ -- $ 2,349 $ -- $ 2,349
Property insurance 268,302 (146,847) 228,555 (124,481) 39,747 (22,366) 17,381
Medical insurance 63,017 (9,275) 31,509 (4,638) 31,508 (4,637) 26,871
Compulsory car
insurance 7,364 (3,809) 3,682 (1,905) 3,682 (1,904) 1,778
Employees' accident
insurance 16,511 (3,553) -- -- 16,511 (3,553) 12,958
Car insurance 14,585 (7,794) 5,834 (3,117) 8,751 (4,677) 4,074
--------- --------- --------- --------- --------- --------- ---------
$ 372,128 $(171,278) $ 269,580 $(134,141) 102,548 $ (37,137) $ 65,411
========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
For the nine months ended September 30, 1996
--------------------------------------------------------------------------------------------
Change in Net Net
Change in Reinsurance UPR change after
Gross UPR gross ceded reinsurance Net in UPR UPR
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Cargo $ 51 $ -- $ -- $ -- $ 51 $ -- $ 51
Property insurance 92,595 (34,654) 90,984 (64,554) 1,611 29,900 31,511
Medical insurance 11,051 (854) 5,518 (436) 5,533 (418) 5,115
Employees' accident
insurance 11,834 -- -- -- 11,834 -- 11,834
--------- --------- --------- --------- --------- --------- ---------
$ 115,531 $ (35,508) $ 96,502 $ (64,990) $ 19,029 $ 29,482 $ 48,511
========= ========= ========= ========= ========= ========= =========
</TABLE>
(continued)
F-103
<PAGE> 124
EXIM ASINT S.A.
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
<TABLE>
<CAPTION>
For the year ended December 31, 1996
--------------------------------------------------------------------------------------------
Change in Net Net
Change in Reinsurance UPR change after
Gross UPR gross ceded reinsurance Net in UPR UPR
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Cargo $ 51 $ -- $ -- $ -- $ 51 $ -- $ 51
Property insurance 97,129 (12,946) 93,817 (43,328) 3,312 30,382 33,694
Medical insurance 15,858 (600) 7,929 (318) 7,929 (282) 7,647
Compulsory car
insurance 173 -- -- -- 173 -- 173
Employees' accident
insurance 14,402 -- -- -- 14,402 -- 14,402
Car insurance -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
$ 127,613 $ (13,546) $ 101,746 $ (43,646) $ 25,867 $ 30,100 $ 55,967
========= ========== ========= ========== ========= ========= =========
</TABLE>
All gross written premiums in respect of direct and reinsurance
business are written in Moldova. Reinsurance activities started during
1996.
(b) INCURRED INDIVIDUAL CLAIMS (not including change in loss reserve)
<TABLE>
<CAPTION>
For the nine months ended For the year ended
September 30, 1997 December 31, 1996
---------------------------------- ----------------------------------
Reinsurance Reinsurance
Gross ceded Net Gross ceded Net
-------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Property insurance $ 8,700 $ (8,400) $ 300 $ 778 $ (389) $ 389
Medical insurance 3,718 (1,859) 1,859 2,245 (1,122) 1,123
Compulsory car insurance 3,258 (1,629) 1,629 -- -- --
Employees' accident
insurance 4,359 -- 4,359 -- -- --
Car insurance 500 (200) 300 -- -- --
-------- --------- -------- -------- -------- --------
$ 20,535 $(12,088) $ 8,447 $ 3,023 $ (1,511) $ 1,512
======== ========= ======== ======== ========= ========
</TABLE>
(c) COMMISSIONS EARNED FROM REINSURANCE
<TABLE>
<CAPTION>
For the nine months For the year
ended ended
September 30, December 31,
1 9 9 7 1 9 9 6 1 9 9 6
------- ------ -------
<S> <C> <C> <C>
Property insurance $26,959 $5,871 $11,710
Medical insurance 8,039 1,175 2,285
Compulsory car insurance 265 - -
Car insurance 273 - -
------- ------ -------
$35,536 $7,046 $13,995
======= ====== =======
(d) OPERATING EXPENSES
Property insurance $57,446 $58,193 $73,863
Medical insurance 13,378 8,325 12,059
Compulsory car insurance 1,573 - 172
Employees' accident insurance 2,361 8,915 10,952
Car insurance 3,936 - -
------- ------ -------
$78,694 $75,433 $97,046
======= ======= =======
</TABLE>
(continued)
F-104
<PAGE> 125
EXIM ASINT S.A.
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
NOTE 4 - MAJOR CLIENTS
The Company has two major clients in the property insurance, one of
which is a related party.
<TABLE>
<CAPTION>
Percentage of premium from total premium
----------------------------------------------
For the nine months For the year
ended ended
September 30, December 31,
-------------------------
1 9 9 7 1 9 9 6 1 9 9 6
------- ------- -------
Percent
-------
<S> <C> <C> <C>
Client A 39.9% - -
Client B - related party 17.4% 67.0% 60.3%
</TABLE>
NOTE 5 - MOVEMENT IN LOSSES AND LOSS ADJUSTMENT RESERVE
<TABLE>
<CAPTION>
September 30, December 31,
----------------------
1 9 9 7 1 9 9 6 1 9 9 6
------- ------- -------
<S> <C> <C> <C>
Balance as of January 1 $84,623 $21,886 $21,886
Less reinsurance recoverables 38,237 - -
------- ------- -------
Net balance as of January 1 46,386 21,886 21,886
------- ------- -------
Incurred related to
Current period 39,728 1,111 5,126
Prior years 2,063 20,213 20,213
------- ------- -------
Total incurred 41,791 21,324 25,339
------- ------- -------
Paid related to
Current period 6,287 108 839
Prior years 1,571 - -
------- ------- -------
Total paid 7,858 108 839
------- ------- -------
Net balance as of end of the period 80,319 43,102 46,386
Add: net recoverables for reinsurance 115,272 54,846 38,237
------- ------- -------
Balance as of end of the period $195,591 $97,948 $84,623
======= ======= =======
</TABLE>
The incurred loss reserve in respect of the prior underwriting year
is due mainly to a shift from the unearned premium reserve to the
loss reserve.
(continued)
F-105
<PAGE> 126
EXIM ASINT S.A.
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
NOTE 6 - EMPLOYEE INFORMATION
The Company signed an agreement with two of its directors according to
which the Company will pay them each 7.5% of the accumulated net profit
(after deduction of accumulated losses). Up to the date of the financial
statements no payment or provision has been made since the Company has
an accumulated loss.
NOTE 7 - FURNITURE, EQUIPMENT AND VEHICLES
<TABLE>
<CAPTION>
Furniture
and Motor
equipment Computers vehicles Total
---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
COST
Balance as of December 31, 1996 $ 1,941 $ 2,894 $ 16,608 $21,443
Additions 16,760 1,123 -- 17,883
-------- -------- -------- -------
Cost as of September 30, 1997 18,701 4,017 16,608 39,326
-------- -------- -------- -------
ACCUMULATED DEPRECIATION
Balance as of December 31, 1996 148 172 1,544 1,864
Depreciation charge for the period 1,356 258 1,781 3,395
-------- -------- -------- -------
Accumulated depreciation as of
September 30, 1997 1,504 430 3,325 5,259
-------- -------- -------- -------
DEPRECIATED BALANCE AS OF
SEPTEMBER 30, 1997 $ 17,197 $ 3,587 $ 13,283 $34,067
======== ======== ======== =======
DEPRECIATED BALANCE AS OF
SEPTEMBER 30, 1996 $ 1,626 $ 2,722 $ 15,064 $19,412
======== ======== ======== =======
ANNUAL DEPRECIATION RATES 5% - 13% 9% - 10% 14% -15%
======== ======== ========
</TABLE>
NOTE 8 - OTHER ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
------------------------ -----------
1997 1996 1996
------- ----- -------
<S> <C> <C> <C>
BUILDING LEASED (a)
Right of use of building - at fair value $24,840 $ -- $24,840
Improvements to buildings 22,940 -- --
------- ----- -------
47,780 -- 24,840
Amortization for the period 1,326 -- --
------- ----- -------
Balance $46,454 $ -- $24,840
PAYMENT ON ACCOUNT OF ASSETS (b) $ -- $ -- 30,782
------- ----- -------
Other assets $46,454 $ -- $55,622
======= ===== =======
</TABLE>
(a) The Company has the right of use of the office building for 27
years. This is in terms of an operating lease with Exim Bank
S.A. which received shares in exchange for that right. (See
Note 11)
The building was recorded at fair value according to State
valuation and the improvements were recorded at cost. These
amounts (including the prepaid lease amounts) are amortized
over the period of the lease.
(b) Payments on account of assets include improvements in progress
on the head office building and payments on account of
equipment.
(continued)
F-106
<PAGE> 127
EXIM ASINT S.A.
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
NOTE 9 - SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
September 30,
---------------------------- December 31,
1997 1996 1996
-------- -------- -------
<S> <C> <C> <C>
Deposits with public organizations $285,827 $ 79,204 $47,919
======== ======== =======
</TABLE>
*Financial investments as of September 30, 1997 are composed of treasury
bonds denominated in MDL bearing interest of 17.7% per annum and with a
maturity of three months from the date of deposit. The carrying value
of the bonds approximates their fair value.
NOTE 10 - OTHER ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
September 30,
-------------------------- December 31,
1997 1996 1996
------ -------- -------
<S> <C> <C> <C>
Shareholders' liability for acquisition of shares (a) $ -- $181,957 $ --
Financial lease - Exim Bank (b) 5,558 12,284 12,156
Payments on account of furniture and
equipment -- -- 3,685
Others 628 681 126
------ -------- -------
Other accounts receivable $6,186 $194,922 $15,967
====== ======== =======
</TABLE>
(a) In May 1996 the shareholders committed unrevokably to increase
the paid share capital of the Company to U.S.$ 299,414. In
December 1996 this commitment was wholly fulfilled (See Note
11).
(b) The Company signed a financial lease in May 1996 with a
related party (Exim Bank) in terms of which the Company will
transfer ownership of a motor vehicle at the end of the lease
agreement. The terms of payments are 50% at the date of the
agreement and the balance in twelve equal installments.
NOTE 11 - SHARE CAPITAL
<TABLE>
<CAPTION>
September 30,
---------------------------- December 31,
1997 1996 1996
-------- -------- -------------
<S> <C> <C> <C>
Authorized, as per statutory accounts,
called up and fully paid:
Number of shares 13,740 13,740 13,740
Value of shares $21.7914 $21.7914 $ 21.7914
-------- -------- -------------
$299,414 $299,414 $ 299,414
======== ======== =============
</TABLE>
The shareholders with a holding in excess of 5% and their share are:
<TABLE>
<S> <C> <C> <C>
Exim Bank S.A. 15% 9% 15%
Maximillia Ltd. 55% 58.8% 55%
Paul Garnier Ltd. 15% 16.1% 15%
Zizi's Company Inc. 15% 16.1% 15%
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
(continued)
F-107
<PAGE> 128
EXIM ASINT S.A.
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
Shareholders contributions in kind are described below:
<TABLE>
<CAPTION>
Value of
contribution in the
Shareholder Contribution Complementary data share capital
----------- ------------ ------------------ -------------
<S> <C> <C> <C>
Exim Bank S.A. Building Leased* The building is located at $24,840
number 3 Stefan cel Mare
street at Chisinau and is
used as the head office of
Exim Asint S.A.
Maximillia Ltd. Two cars An Opel Astra and a $40,890
Mitsubishi car
</TABLE>
* As per the contract with Exim Bank S.A., the right of use of Exim
Asint S.A. on the building is limited in time to 27 years. The
contract does not state any time limit for the related share
holding.
NOTE 12 - DEFERRED POLICY ACQUISITION COSTS, NET
<TABLE>
<CAPTION>
September 30,
----------------------------- December 31,
1997 1996 1996
-------- -------- --------
<S> <C> <C> <C>
(a) Deferred policy acquisition costs
Balance as of January 1 $ 7,906 $ -- $ --
Additions 13,026 11,597 7,906
Amortization (7,906) -- --
-------- -------- --------
Balance as at end of period 13,026 11,597 7,906
(b) Deferred reinsurance commission $(13,968) $(16,421) $(11,078)
-------- -------- --------
Balance as of end of period, net $ (942) $ (4,824) $ (3,172)
======== ======== ========
</TABLE>
Commission of agents and salaries of underwriters comprise the majority
of the additions to deferred policy acquisition costs.
NOTE 13 - LOSS AND LOSS ADJUSTMENT RESERVE
The loss and loss adjustment reserve are management's best estimate and
have been established in accordance with Moldovan legislation (see note
2(k)). The calculation is based on the premium earned on which a rate
is applied in accordance with the insurance category. Provision rates
are given here below for the year 1997. The rates are estimates as
prescribed by Moldovan law and the reserves are subject to a high
degree of uncertainties which are normal, recurring and inherent in the
property and liability insurance sectors. Future experience, changes in
the law and results of litigation may all impact materially on ultimate
claim costs.
(continued)
F-108
<PAGE> 129
EXIM ASINT S.A.
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
<TABLE>
<CAPTION>
For the nine months ended For the nine months ended September 30 and
September 30, 1997 the year ended December 31, 1996
------------------------------------------- -----------------------------------------
Complementary Complementary
Losses and loss losses and loss Losses and loss losses and loss
adjustment reserves adjustment reserves adjustment reserves adjustment reserves
------------------- ------------------- ------------------- -------------------
Provision rate (percent)
<S> <C> <C> <C> <C>
Property insurance 60% 2% 65% 4%
Medical insurance 65% 2% 60% 4%
Compulsory car insurance 55% 2% 55% 2%
Employees accident insurance 65% 2% 65% 4%
Car insurance 55% 2% 55% 2%
Cargo 60% 2% 60% 8%
</TABLE>
The basic assumption underlying many methods used in the estimation of
general insurance loss reserves is that past experience provides an
appropriate basis for predicting future events, with adjustment for
current trends affecting past experience. As the Company is relatively
new and has little of its own historical experience, the best method of
calculation is based on the framework of the calculation provided by
Moldovan legislation.
NOTE 14 - REINSURANCE BALANCE PAYABLE
<TABLE>
<CAPTION>
September 30, September 30, December 31,
1997 1996 1996
------------- ------------- ------------
<S> <C> <C> <C>
Accounts payables to reinsurers $187,794 $ 61,288 $1,568
======== ======== ======
</TABLE>
NOTE 15 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES
(a) TRANSACTIONS
(1) The Company has a current account and deposit
accounts with Exim Bank S.A. which is controlled by a
related party (see note 16).
(2) The Company insures the property and employees of
related parties such as Exim Bank S.A. and Jolly Alon
Limited. All the insurance is at regular commercial
conditions.
(3) The Company entered into a financial lease agreement
with a related party (See note 10(b)).
(4) The Company has the right of use of the office
building for 27 years. The building is owned by a
related party. In terms of an operating lease with
Exim bank S.A. that received shares in exchange for
that right.
(continued)
F-109
<PAGE> 130
EXIM ASINT S.A.
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
(b) BALANCES WITH RELATED PARTIES
<TABLE>
<CAPTION>
September 30,
----------------------------- December 31,
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Cash and cash equivalents $13,644 $66,536 $176,651
Outstanding premiums 48,480 25,243 12,878
Other accounts receivable 5,558 12,284 12,156
(c)TRANSACTIONS WITH RELATED PARTIES
Gross premium received $16,259 $51,401 $ 63,770
Claims paid and outstanding 8,735 -- --
</TABLE>
* Not including financing income and expenses from Exim Bank
S.A. derived in the ordinary course of business.
NOTE 16 - ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS AS SHOWN IN THE
BALANCE SHEET
<TABLE>
<CAPTION>
September 30, Change in December 31,
1997 the period 1996
--------- --------- ---------
<S> <C> <C> <C>
Current foreign currency accounts (See Note 15) $ 2,649 $(162,629) $ 165,278
Current accounts (See Note 15) 10,995 (378) 11,373
Deposit accounts in dollars 54,871 12,290 42,581
Write off of bankrupt bank account (42,875) (294) (42,581)
Cash at hand 561 (1,109) 1,670
--------- --------- ---------
$ 26,201 $(152,120) $ 178,321
========= ========= =========
</TABLE>
The write off amounting to U.S.$ 42,875 has been made to cover a
deposit at Intreprinzbank which went bankrupt during the year 1996.
NOTE 17 - TAXATION
The investment of the shareholder in the Company was granted the status
of a foreign investment in accordance with the Foreign Investments Law
of the Government of Moldova. Accordingly, income accruing to the
Company during its first five years of operation are taxable at a
reduced tax rate of 16% (regular tax rate in Moldova is 32%).
The period of tax benefits under the Foreign Investment Law will end in
the year 2000. Thereafter the Company tax rate will be as stated in the
previous paragraph.
<TABLE>
<CAPTION>
September 30,
------------------------------ December 31,
1997 1996 1996
------- ------- -------
<S> <C> <C> <C>
Income tax based on Moldovan statutory
tax rates applicable according to the
Foreign Investment Law $(4,764) $ 3,997 $ 5,226
Valuation allowances 4,764 (3,997) (5,226)
------- ------- -------
Tax on income $ -- $ -- $ --
======= ======= =======
</TABLE>
(continued)
F-110
<PAGE> 131
EXIM ASINT S.A.
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
NOTE 18 - INVESTMENTS IN SUBSIDIARY AND AFFILIATE
(a) INVESTMENT IN SALVO CENTER
In May 1997 Salvo Center S.A. was established to provide
towing services. The subsidiary has not yet commenced business
operation. The Company holds 90% of the equity in the
subsidiary. The Company is committed to purchase a trailer for
the subsidiary, at a cost of approximately U.S.$ 36,000 net of
transport costs, tax and customs levies. Until the date of the
financial statements, the Company paid 25% of the said amount.
A commitment exists to pay the balance of approximately U.S.$
27,000.
(b) INVESTMENT IN AUTO MARKET LTD.
The Company holds 24% of "Auto Market Ltd." which is a
newspaper publisher. Transfer of the shares is without
consideration. The Company is committed to participate in the
operations of the newspaper which up until the date of the
financial statements were not material. The Company is not
commited to any current or future material liability of the
newspaper.
NOTE 19 - REINSURANCE
The Company cedes insurance to other companies, the major one being
Munchener Ruckversicherungs Gesellshaft. These reinsurance contracts
do not relieve the Company from its obligations to policyholders.
Failure of reinsurers to honor their obligations could result in
losses to the Company. In order to reduce its credit risk, the Company
seeks to do business only with financially sound reinsurance companies
and regularly reviews the financial strength of reinsurers used. No
provision for uncollectible amounts has been made since none of the
receivables is deemed to be uncollectible. As of September 30, 1997 an
unearned premium reserve of U.S.$ 177,787 and losses and loss
adjustment reserve of U.S.$ 115,272 were associated mainly with a
single reinsurer.
NOTE 20 - NET INCOME (LOSS) PER SHARE IN U.S. DOLLARS
<TABLE>
<CAPTION>
Nine months ended
September 30, Year ended
-------------------------- December 31,
1997 1996 1996
------- ----------- -----------
<S> <C> <C> <C>
Net income (loss) for the period $29,777 $ (24,984) $ (32,662)
Number of shares 13,740 13,740 13,740
Net income (loss) per share $ 2.167 $ (1.818) $ (2.377)
</TABLE>
* Shares were issued on April 23, 1996 in the framework of a
private share issue and therefore according to SAB 83 the
number of paid up shares as of the date of the financial
statements was taken into account for purposes of calculating
the net loss per share.
(continued)
F-111
<PAGE> 132
EXIM ASINT S.A.
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
NOTE 21 - FINANCIAL INSTRUMENTS
(a) The Company has the following financial instruments:
Financial assets including cash and cash equivalents,
securities held to maturity, reinsurers' share of reserves,
outstanding premiums, and other accounts receivable; as of
financial liabilities including losses and loss adjustment
reserves, creditors arising out of reinsurance and reinsurance
operations, and other accounts payable and credit balances.
Due to the nature of most of the financial instruments, their
fair value is similar or identical to their carrying value.
(Regarding differences between the financial instruments whose
carrying value is materially different from their fair value
see paragraph (d) following).
(b) Supplementary credit risk information
Credit risk represents the accounting loss which may result to
the Company as of the date of the financial statements as a
result of debtors not meeting their liabilities.
Regarding reinsurers' share of reserves see Note 19.
Regarding other accounts receivable see Note 10.
The carrying value of securities held to maturity approximates
their fair value (See Note 9).
(c) Supplementary interest risk information
Interest risk is the risk inherent in changes in interest
rates and the influence on the financial instruments of the
Company.
The Company has financial instruments bearing fixed interest
only.
F-112
<PAGE> 133
REPORT OF THE INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
EXIM ASINT S.A.
(MOLDOVAN COMPANY)
We have audited the accompanying balance sheets of Exim Asint S.A.(Moldovan
Company) ("the Company") as of December 31, 1996 and 1995, and the related
statements of income, changes in shareholders' equity and cash flows for each of
the years then ended. 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
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1996 and 1995 and the related results of its operations and cash flows for each
of the years then ended, in conformity with generally accepted accounting
principles in the United States.
Braude Bavly
Certified Public Accountants (Israel)
A Member of KPMG International
Tel Aviv, December 25, 1997
F-113
<PAGE> 134
EXIM ASINT S.A.
(MOLDOVAN COMPANY)
BALANCE SHEETS
IN U.S. DOLLARS
<TABLE>
<CAPTION>
December 31,
------------------------
Notes 1 9 9 6 1 9 9 5
----- --------- ---------
<S> <C> <C> <C>
ASSETS
SHORT TERM INVESTMENTS
Securities held to maturity 9 $ 47,919 $ --
--------- ---------
Cash and cash equivalents 15,16 178,321 80,158
Outstanding premiums 15 12,878 --
Other accounts receivable 10,15 15,967 37
--------- ---------
207,166 80,195
--------- ---------
REINSURERS' SHARE OF RESERVES
Provision for unearned premiums 43,646 --
Losses and loss adjustment reserves 5,13 38,237 --
--------- ---------
81,883 --
--------- ---------
Furniture, equipment and vehicles 7 19,579 84
Other assets 8 55,622 --
--------- ---------
75,201 84
--------- ---------
Total assets $ 412,169 $ 80,279
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Losses and loss adjustment reserves 5,13 $ 84,623 $ 21,886
Provision for unearned premiums 47,045 33,500
Reinsurance balances payable 14 1,568 --
Deferred policy acquisition costs, net 12 3,172 --
Other accounts payable 29,010 23,730
--------- ---------
Total liabilities 165,418 79,116
--------- ---------
SHAREHOLDERS' EQUITY
share capital 11 299,414 21,164
Accumulated loss (52,663) (20,001)
--------- ---------
Total shareholders' equity 246,751 1,163
--------- ---------
Total liabilities and shareholders' equity $ 412,169 $ 80,279
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-114
<PAGE> 135
EXIM ASINT S.A.
(MOLDOVAN COMPANY)
STATEMENTS OF INCOME
IN U.S. DOLLARS
<TABLE>
<CAPTION>
For the year ended
December 31,
------------------------
Note 1 9 9 6 1 9 9 5
---- --------- ---------
<S> <C> <C> <C>
REVENUES
Gross insurance premiums written 3(a) $ 127,613 $ 66,289
Change in provisions for unearned premium 3(a) (13,546) (33,500)
--------- ---------
Gross premiums earned 114,067 32,789
--------- ---------
Premiums ceded (reinsured) 3(a) (101,746) --
Change in reinsurers' share for unearned premium 3(a) 43,646 --
--------- ---------
Earned premiums ceded (58,100) --
--------- ---------
Net premiums earned 3(a) 55,967 32,789
--------- ---------
Interest income 20,592 --
--------- ---------
Other revenues
Translation loss (831) (1,177)
Commission earned from reinsurance 3(c) 13,995 --
--------- ---------
13,164 (1,177)
--------- ---------
Total revenues 89,723 31,612
--------- ---------
EXPENSES
Losses and loss adjustment expenses 5 65,087 21,886
Reinsurers' share of losses and loss adjustment
expenses 5 (39,748) --
--------- ---------
25,339 21,886
Other operating expenses 3(d) 97,046 29,727
--------- ---------
Total expenses 122,385 51,613
--------- ---------
Loss for the year before tax (32,662) (20,001)
Taxes on income 17 -- --
--------- ---------
Loss for the year after tax $ (32,662) $ (20,001)
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-115
<PAGE> 136
EXIM ASINT S.A.
(MOLDOVAN COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
IN U.S. DOLLARS
<TABLE>
<CAPTION>
Retained
earnings Total
(accumulated shareholders'
Share capital deficit) equity
------------- ------------ -------------
<S> <C> <C> <C>
Balance as of January 1, 1995 (date of establishment of
the Company) $ 21,164 $ -- $ 21,164
Net loss for the year -- (20,001) (20,001)
--------- --------- ---------
Balance as of December 31, 1995 21,164 (20,001) 1,163
Issue of shares 278,250* -- 278,250*
Net loss for the year -- (32,662) (32,662)
--------- --------- ---------
Balance as of December 31, 1996 $ 299,414 $ (52,663) $ 246,751
========= ========= =========
</TABLE>
* The share capital was increased as of April 23, 1996 by 12,840 additional
shares of 100 MDL each. Each share carries the right to one vote. The share
capital was subscribed in cash and with contribution in kind. All
additional capital was paid on December 31, 1996 ( See Note 11).
The accompanying notes are an integral part of these financial statements.
F-116
<PAGE> 137
EXIM ASINT S.A.
(MOLDOVAN COMPANY)
STATEMENTS OF CASH FLOWS
IN U.S. DOLLARS
<TABLE>
<CAPTION>
For the year ended
December 31,
------------------------
1 9 9 6 1 9 9 5
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the year $ (32,662) $ (20,001)
Adjustments to reconcile net income to net cash
provided (used) by operating activities-Schedule A (10,369) 79,079
--------- ---------
Net cash provided (used) by operating activities (43,031) 59,078
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of securities (47,919) --
Acquisition of furniture, equipment and vehicles (4,751) (84)
Payments on account of other assets (30,782) --
Repayment of leasing transaction 12,126 --
--------- ---------
Net cash used by investing activities (71,326) (84)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issue of shares-
Net cash provided by financing activities 212,520 21,164
--------- ---------
Increase in cash and cash equivalents 98,163 80,158
Cash and cash equivalents at beginning of year 80,158 --
--------- ---------
Cash and cash equivalents at end of year $ 178,321 $ 80,158
========= =========
SCHEDULE A- ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES
Expenses not involving cash flows:
Depreciation $ 1,864 $ --
Changes in assets and liabilities:
Increase in outstanding premium (12,878) --
Increase in other accounts receivable (3,774) (37)
Increase (decrease) in unearned premium reserves, net (30,101) 33,500
Increase in deferred policy acquisition costs, net 3,172 --
Increase in losses and loss adjustment reserves, net 24,500 21,886
Increase in reinsurers' accounts 1,568 --
Increase in other accounts payable 5,280 23,730
--------- ---------
$ (10,369) $ 79,079
========= =========
SCHEDULE B- NON-CASH TRANSACTIONS
Furniture equipment and vehicles (See Note 11) 16,608 --
Building leased (See Note 11) 24,840 --
Other accounts receivable (See Note 10,11) 24,282 --
--------- ---------
$ 65,730 $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-117
<PAGE> 138
EXIM ASINT S.A.
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Exim Asint S..A. ("the Company) began operations at the beginning
of 1995. The Company is active in the general insurance sector and
provides property and liability coverage to domestic markets.
These financial statements have been prepared in conformity with
generally accepted accounting principles in the United States.
The accounting practices used in the preparation of these financial
statements differ from statutory accounting practices prescribed or
permitted for insurance companies under Moldovan law.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
(a) FINANCIAL STATEMENTS IN UNITED STATES DOLLARS
(1) General
The Company operates in Moldova and the currency of
operation is the Moldovan lei ("MDL"). Moldova is still
considered a country with hyper-inflation as the accrued
rate of inflation in the three years preceding 1996 reached
more than 100%.
In accordance with the Statement of Financial Accounting
Standards ("SFAS") No. 52, "Foreign Currency Translation,"
of the Financial Accounting Standards Board ("FASB") of the
United States, the financial statements were remeasured in
United States dollars ("the dollar"). In light of the rate
of inflation as from 1995, it appears that the financial
statements for the periods as from January 1, 1998 will be
measured in local currency, ie the MDL.
(2) Principles of remeasurement
(a) Balance sheets
Monetary assets and liabilities, including losses and
loss adjustment reserves, were translated according to
the exchange rate of the dollar as of December 31, 1996
and 1995, as applicable. Non-monetary items including
unearned premium reserves were translated according to
the exchange rate of the dollar as of the date of the
related transactions.
(b) Statements of income
Items expressing transactions in the reporting period
are included according to the average exchange rate of
the dollar in the month of the transaction. Components
related to non-monetary items were adjusted on the same
basis as the related balance sheet items.
The financing item is derived from other items in the
financial statements and expresses financing income and
expenses in real terms and erosion of monetary balances
during the year.
(continued)
- --------------------------------------------------------------------------------
F-118
<PAGE> 139
EXIM ASINT S.A.
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
(b) EXCHANGE RATE OF THE DOLLAR
Following is information on the exchange rate of the dollar:
<TABLE>
<CAPTION>
EXCHANGE RATE
OF THE DOLLAR
ACCORDING TO
THE MDL
-------------
<S> <C>
December 31,
1996 4.650
1995 4.522
</TABLE>
<TABLE>
<CAPTION>
PERCENT
-------------
<S> <C>
Rate of increase in the year ended
December 31,
1996 2.8
1995 5.8
</TABLE>
(c) 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.
(d) GROSS PREMIUMS WRITTEN
All insurance premiums due in respect of insurance contracts
entered into in the year are included in gross written premiums
irrespective of whether they relate in whole or in part to a later
year. Gross, reinsurance ceded and unearned premiums are included
within gross written premiums, outward reinsurance premiums and
unearned premiums, respectively. Gross premiums are net of premium
reimbursements
All insurance premiums are direct premiums. There are no assumed
premiums.
(e) RECOGNITION OF PREMIUM REVENUE
Recognition of Premium Revenues: Property and liability premiums
are generally recognized as revenue on a pro rata basis over the
policy term. The portion of premiums that will be earned in the
future are deferred and reported as unearned premiums.
(f) FURNITURE, EQUIPMENT AND VEHICLES
Furniture, equipment and vehicles are included at cost less
accumulated depreciation.
These cost of furniture, equipment and vehicles is their purchase
cost, together with any incidental costs of acquisition.
Depreciation is calculated so as to write off the cost of
furniture, equipment and vehicles, less their estimated residual
values, on a straight line basis over the expected useful lives of
the assets concerned as accepted in Moldova.
(continued)
- --------------------------------------------------------------------------------
F-119
<PAGE> 140
EXIM ASINT S.A.
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
(g) INVESTMENTS
Securities held to maturity: bonds which the insurance Company has
the intent and ability to hold to maturity are reported at cost,
adjusted for declines in fair value other than temporary declines.
(h) REINSURANCE
Reinsurance is accounted for on the basis of the legal form, which
means that contracts are accounted for as insurance or reinsurance
where the "insurance risk" is transferred or received.
In the normal course of business, the Company seeks to reduce the
loss that may arise from catastrophes or other events that cause
unfavorable underwriting results by reinsuring certain levels of
risk in various areas of exposure with other insurance enterprises
or reinsurers.
Amounts recoverable from reinsurers are estimated in a manner
consistent with the claim liability associated with the reinsured
policy.
(i) DEFERRED POLICY ACQUISITION COSTS
Commissions and other costs of acquiring insurance that vary with
and are primarily related to the production of new and renewal
business are deferred and amortized over the terms of the policies
or reinsurance treaties to which they relate.
(j) ALLOCATION OF EXPENSES
The operating expenses and operating profit have been allocated on
sectors according to the relative weight of the premium from the
sector to total premiums written.
(k) LOSS AND LOSS ADJUSTMENT RESERVE
The Company has been operating since the beginning of 1995. During
this period, the actual results have not provided the Company with
sufficient historical experience to make current estimates of loss
reserves. Industry results are also limited due to current and
future developments in the sector in Moldova.
The liability for losses and loss adjustment expenses includes an
amount determined for losses incurred but not yet reported, which
is the Company's best estimate and is based on the instructions
prescribed by the insurance supervisor of Moldova and the
regulations thereunder. In terms of these regulations, the Company
is to maintain a reserve at specific rates of net premium earned as
detailed in Note 13 below. These reserves are based on market
experience as a whole and are intended to cover future claims
lodged with the Company. In addition, individual claims known but
not paid are provided for.
Such liabilities are necessarily based on estimates and, while
management believes that the amount is adequate, there is a high
degree of uncertainty surrounding the reserves and the ultimate
liability may be materially different from the amounts provided.
The reinsurers' share of losses and loss adjustment reserve is
disclosed separately as an asset in the balance sheet.
(continued)
- --------------------------------------------------------------------------------
F-120
<PAGE> 141
EXIM ASINT S.A.
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
(l) EMPLOYEES' BENEFITS
Contributions are made by the Company to the Government's health,
retirement benefit and unemployment schemes at the statutory rates
in force during the period, based on gross salary payments. The
cost of these payments is charged to the statement of income in the
same period as the related salary cost.
The Company has no liability under Moldovan law with respect to
future pension costs for its employees.
(m) CASH EQUIVALENTS
For the purpose of presentation in the Company's statements of cash
flows, cash equivalents and short-terms, highly liquid investments
that are both (a) readily convertible to known amounts of cash and
(b) so near to maturity that they present insignificant risk of
changes in value due to changing interest rates.
(n) TAX ON INCOME
In accordance with the statement of financial accounting standards
("SFAS") No.109 "Accounting for Income Taxes" of the Financial
Accounting Standards Board ("FASB") of the United States, whereby
deferred income taxes are provided to reflect the net tax effects
of temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. Valuation allowances are provided against
net deferred tax assets when the realization of such assets is not
"more likely than not".
(0) NET INCOME (LOSS) PER SHARE
Information regarding net income (loss) per share is computed on
the basis of the weighted average of the number of ordinary shares
outstanding in the year.
(continued)
- --------------------------------------------------------------------------------
F-121
<PAGE> 142
EXIM ASINT S.A
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
NOTE 3 - INFORMATION ABOUT LINES OF BUSINESS
(A) GROSS WRITTEN AND EARNED PREMIUMS
<TABLE>
<CAPTION>
For the year ended December 31, 1996
Change in Net Net
Change in Reinsurance UPR change after
Gross UPR gross ceded reinsurance Net in UPR UPR
----- --------- ----- ----------- --- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C>
Cargo $ 51 $ -- $ -- $ -- $ 51 $ -- $ 51
Property insurance 97,129 (12,946) 93,817 (43,328) 3,312 30,382 33,694
Medical insurance 15,858 (600) 7,929 (318) 7,929 (282) 7,647
Compulsory car
insurance 173 -- -- -- 173 -- 173
Employees' accident
insurance 14,402 -- -- -- 14,402 -- 14,402
Car insurance -- -- -- -- -- -- --
--------- --------- --------- -------- ------- -------- -------
$ 127,613 $ (13,546) $ 101,746 $(43,646) $25,867 $ 30,100 $55,967
========= ========= ========= ======== ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31, 1995
Change in Net Net
Change in Reinsurance UPR change after
Gross UPR gross ceded reinsurance Net in UPR UPR
----- --------- ----- ----------- --- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C>
Property insurance $ 64,493 $.(33,500) $-- $-- $ 64,493 $(33,500) $30,993
Medical insurance 111 -- -- -- 111 -- 111
Employees' accident
insurance 1,685 -- -- -- 1,685 -- 1,685
Car insurance -- -- -- -- -- -- --
-------- --------- --- --- -------- -------- -------
$ 66,289 (33,500) $-- $-- $ 66,289 $(33,500) $32,789
======== ========= === === ======== ======== =======
</TABLE>
All gross written premiums in respect of direct and reinsurance
business are written in Moldova. Reinsurance activities started during
1996.
(B) INCURRED INDIVIDUAL CLAIMS (not including change in loss reserve)
<TABLE>
<CAPTION>
For the year ended For the year ended
December 31, 1996 December 31, 1995
Reinsurance Reinsurance
Gross ceded Net Gross ceded Net
----- ----- --- ----- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Property insurance $ 778 $ (389) $ 389 $-- $-- $--
Medical insurance 2,245 (1,122) 1,123 -- -- --
------- ------- ------ --- --- ---
$ 3,023 $(1,511) $1,512 $-- $-- $--
======= ======= ====== === === ===
</TABLE>
(continued)
F-122
<PAGE> 143
EXIM ASINT S.A
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
(C) COMMISSIONS EARNED FROM REINSURANCE
<TABLE>
<CAPTION>
For the year ended
December 31,
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C> <C>
Property insurance $11,710 $ --
Medical insurance 2,285 --
------- -------
$13,995 $ --
======= =======
(D) OPERATING EXPENSES
Property insurance $73,863 $29,727
Medical insurance 12,059 --
Compulsory car insurance 172 --
Employees' accident insurance 10,952 --
------- -------
$97,046 $29,727
======= =======
</TABLE>
NOTE 4 - MAJOR CLIENTS
The Company has three major clients in the property insurance, one of
which is a related party.
<TABLE>
<CAPTION>
Percentage of premium
from total premium
For the year ended
December 31,
1 9 9 6 1 9 9 5
------- -------
Percent
<S> <C> <C>
Client A - 31%
Client B - related party 60.3% -
Client C - 61%
</TABLE>
(continued)
F-123
<PAGE> 144
EXIM ASINT S.A
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
NOTE 5 - MOVEMENT IN LOSSES AND LOSS ADJUSTMENT RESERVE
<TABLE>
<CAPTION>
December 31,
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C>
Balance as of January 1 $21,886 $ --
Less reinsurance recoverables -- --
------- -------
Net balance as of January 1 $21,886 $ --
------- -------
Incurred related to
Current year 5,126 21,886
Prior years 20,213 --
------- -------
Total incurred 25,339 21,886
------- -------
Paid related to
Current year 839 --
Prior years -- --
------- -------
839 --
------- -------
Net balance as of end of the year 46,386 21,886
Add: net recoverables from reinsurance 38,237 --
------- -------
Balance as of end of the year $84,623 $21,886
======= =======
</TABLE>
The incurred loss reserve in respect of the prior underwriting year is due
mainly to a shift from the unearned premium reserve to the loss reserve.
NOTE 6 - EMPLOYEE INFORMATION
The Company signed an agreement with two of its directors according to
which the Company will pay them each 7.5% of the accumulated net profit
(after deduction of accumulated losses). Up to the date of the
financial statements no payment or provision has been made since the
Company has an accumulated loss.
(continued)
F-124
<PAGE> 145
EXIM ASINT S.A
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
NOTE 7 - FURNITURE, EQUIPMENT AND VEHICLES
<TABLE>
<CAPTION>
Furniture
and Motor
equipment Computers vehicles Total
--------- --------- -------- -----
COST
<S> <C> <C> <C> <C> <C>
Balance as of December 31, 1995 $ 84 $ -- $ -- $ 84
Additions 1,857 2,894 16,608 21,359
------ ------ ------- -------
Cost as of December 31, 1996 1,941 2,894 16,608 21,443
------ ------ ------- -------
ACCUMULATED DEPRECIATION
Balance as of December 31, 1995 -- -- -- --
Depreciation charge for the year 148 172 1,544 1,864
------ ------ ------- -------
Accumulated depreciation as of
December 31, 1996 148 172 1,544 1,864
------ ------ ------- -------
DEPRECIATED BALANCE $1,793 $2,722 $15,064 $19,579
====== ====== ======= =======
ANNUAL DEPRECIATION RATES 5%-13% 9%-10% 14%-15%
====== ====== =======
</TABLE>
NOTE 8 - OTHER ASSETS
<TABLE>
<CAPTION>
December 31,
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C>
BUILDING LEASED (A)
Right of use of building - at fair value $24,840 $--
Improvements to buildings -- --
------- ---
24,840 --
Amortization for the period -- --
------- ---
Balance $24,840 $--
PAYMENT ON ACCOUNT OF ASSETS (B) 30,782 --
------- ---
Other assets $55,622 $--
======= ===
</TABLE>
(a) The Company has the right of use of the office building for 27
years. This is in terms of an operating lease with Exim Bank S.A.
which received shares in exchange for that right. (See Note 11)
The building was recorded at fair value according to State
valuation and the improvements were recorded at cost. These amounts
(including the prepaid lease amounts) are amortized over the period
of the lease.
(b) Payments on account of assets include improvements in progress on
the head office building and payments on account of equipment.
(continued)
F-125
<PAGE> 146
EXIM ASINT S.A
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
NOTE 9 - SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
December 31,
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C>
Deposits with public organizations $47,919 $--
======= ===
</TABLE>
* Financial investments as of December 31, 1996 are composed of
treasury bonds denominated in MDL bearing interest of approximately
20% per annum and with a maturity of three months from the date of
deposit. The carrying value of the bonds approximates their fair
value.
NOTE 10 - OTHER ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
December 31,
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C>
Financial lease - Exim Bank* $12,156 $--
Payments on account of furniture, equipment and
vehicles 3,685 --
Others 126 37
------- ---
Other accounts receivable $15,967 $37
======= ===
</TABLE>
* The Company signed a financial lease in May 1996 with a related
party (Exim Bank) in terms of which the Company will transfer
ownership of a motor vehicle at the end of the lease agreement. The
terms of payments are 50% at the date of the agreement and the
balance in twelve equal installments.
NOTE 11 - SHARE CAPITAL
<TABLE>
<CAPTION>
December 31,
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C> <C>
Authorized, as per statutory accounts, called up and fully paid:
Number of shares 13,740 900
Value of shares * $ 21.79 $ 23.52
-------- -------
$299,414 $21,164
======== =======
</TABLE>
* The difference in the value of shares is the result of translation
differences.
The shareholders with a holding in excess of 5% and their share
<TABLE>
<CAPTION>
Percent
-------
<S> <C> <C>
Exim Bank S.A. 15% 22.3%
Maximillia Ltd. 55% -
Paul Garnier Ltd. 15% -
Zizi's Company Inc. 15% -
Seabeco Investor - 33.3%
Seabeco Moldova - 33.3%
Promovare - 11.1%
---- -----
100% 100%
==== =====
</TABLE>
(continued)
F-126
<PAGE> 147
EXIM ASINT S.A
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
Shareholders contributions in kind are described below:
<TABLE>
<CAPTION>
Value of
contribution in the
Shareholder Contribution Complementary data share capital
----------- ------------ ------------------ -------------
<S> <C> <C> <C>
Exim Bank S.A. Building Leased* The building is located at $24,840
number 3 Stefan cel Mare
street at Chisinau and is
used as the head office of
Exim Asint S.A.
Maximillia Ltd. Two cars An Opel Astra and a $40,890
Mitsubishi car
</TABLE>
* As per the contract with Exim Bank S.A., the right of use of Exim
Asint S.A. on the building is limited in time to 27 years. The
contract does not state any time limit for the related share
holding.
NOTE 12 - DEFERRED POLICY ACQUISITION COSTS
<TABLE>
<CAPTION>
December 31,
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C> <C>
(a) Deferred policy acquisition costs
Balance as of January 1 $ -- --
Additions 7,906 --
Amortization -- --
-------- --
Balance as at end of period 7,906 --
(b) Deferred reinsurance commission $(11,078) --
-------- --
Balance as of end of period, net $ (3,172) --
======== ==
</TABLE>
Commission of agents and salaries of underwriters comprise the majority
of the additions to deferred policy acquisition costs.
NOTE 13 - LOSS AND LOSS ADJUSTMENT RESERVE
The loss and loss adjustment reserve are management's best estimate and
have been established in accordance with Moldovan legislation (see Note
2(k)). The calculation is based on the premium earned on which a rate
is applied in accordance with the insurance category. Provision rates
are given here below. The rates are estimates as prescribed by Moldovan
law and the reserves are subject to a high degree of uncertainties
which are normal, recurring and inherent in the property and liability
insurance sectors. Future experience, changes in the law and results of
litigation may all impact materially on ultimate claim costs.
(continued)
F-127
<PAGE> 148
EXIM ASINT S.A
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
<TABLE>
<CAPTION>
For the year ended
December 31, 1996
Loss and loss Complementary
adjustment loss
reserves reserve
--------------- ---------------
Provision rate (%)
------------------
<S> <C> <C>
Property insurance 65% 4%
Medical insurance 60% 4%
Compulsory car insurance 55% 2%
Employees' accident insurance 65% 4%
Car insurance 55% 2%
Cargo 60% 8%
</TABLE>
The basic assumption underlying many methods used in the estimation
of general insurance loss reserves is that past experience provides
an appropriate basis for predicting future events, with adjustment
for current trends affecting past experience. As the Company is
relatively new and has little of its own historical experience, the
best method of calculation is based on the framework of the
calculation provided by Moldovan legislation.
NOTE 14 - REINSURANCE BALANCE PAYABLE
<TABLE>
<CAPTION>
December 31,
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C>
Other payables to reinsurers $1,568 $--
====== ===
</TABLE>
NOTE 15 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES
(A) TRANSACTIONS
(1) The Company has a current account and deposit accounts with
Exim Bank S.A. which is controlled by a related party (see Note
16).
(2) The Company insures the property and employees of related
parties such as Exim Bank S.A. and Jolly Alon Limited. All the
insurance is at regular commercial conditions.
(3) The Company entered into a financial lease agreement with a
related party (see Note 10(b)).
(4) The Company has the right of use of the office building for 27
years. The building is owned by a related party. This is in
terms of an operating lease with Exim bank S.A. that received
shares in exchange for that right.
(continued)
F-128
<PAGE> 149
EXIM ASINT S.A
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
(B) BALANCES WITH RELATED PARTIES
<TABLE>
<CAPTION>
December 31,
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C> <C>
(B) BALANCES WITH RELATED PARTIES
Cash and cash equivalents $176,651 $9,835
Outstanding premiums 12,878 --
Other accounts receivable 12,156 --
(C) TRANSACTIONS WITH RELATED PARTIES
Gross premium received 63,770 --
Claims paid and outstanding -- --
</TABLE>
* Not including financing income and expenses from Exim Bank S.A.
derived in the ordinary course of business.
NOTE 16 - ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS AS SHOWN IN THE
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, Change in December 31,
1 9 9 6 the year 1 9 9 5
------- -------- -------
<S> <C> <C> <C> <C>
Current foreign currency account (See Note 15) $ 165,278 $ 165,278 $ --
Current account (See Note 15) 11,373 1,539 9,834
Deposit accounts in dollars 42,581 (27,742) 70,323
Write off of bankrupt bank account (42,581) (42,581) --
Cash at hand 1,670 1,669 1
--------- --------- -------
$ 178,321 $ 98,163 $80,158
========= ========= =======
</TABLE>
The write off amounting to U.S.$ 42,875 has been made to cover a
deposit at Intreprinzbank which went bankrupt during the year 1996.
NOTE 17 - TAXATION
The investment of the shareholder in the Company was granted the status
of a foreign investment in accordance with the Foreign Investments Law
of the Government of Moldova. Accordingly, income accruing to the
Company during its first five years of operation are taxable at a
reduced tax rate of 16% (regular tax rate in Moldova is 32%).
The period of tax benefits under the Foreign Investment Law will end in
the year 2000. Thereafter the Company tax rate will be as stated in the
previous paragraph.
<TABLE>
<CAPTION>
December 31,
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C> <C>
Income tax based on Moldovan statutory tax rates
applicable according to the Foreign Investment Law $ 5,226 $ 6,400
Valuation allowances (5,226) (6,400)
------- -------
Tax on income $ -- $ --
======= =======
</TABLE>
(continued)
F-129
<PAGE> 150
EXIM ASINT S.A
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
NOTE 18 - REINSURANCE
The Company cedes insurance to other companies, the major one being
Munchener Ruckversicherungs Gesellshaft. These reinsurance contracts do
not relieve the Company from its obligations to policyholders.
Failure of reinsurers to honor their obligations could result in losses
to the Company. In order to reduce its credit risk, the Company seeks
to do business only with financially sound reinsurance companies and
regularly reviews the financial strength of reinsurers used. No
provision for uncollectible amounts has been made since none of the
receivables is deemed to be uncollectible. As of December 31,1996 an
unearned premium reserve of U.S.$ 43,646 and losses and loss adjustment
reserve of U.S.$ 38,237 were associated mainly with a single reinsurer.
The investment in Salvo Center is accounted for on the equity basis.
NOTE 19 - NET LOSS PER SHARE IN U.S. DOLLARS
<TABLE>
<CAPTION>
December 31,
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C>
Net loss for the year $(32,662) $(20,001)
Number of shares 13,740 13,740
Net loss per share $ (2.377) $ (1.455)
======== ========
</TABLE>
* Shares were issued on April 23, 1996 in the framework of a private
share issue and therefore according to SAB 83 the number of paid up
shares as of the date of the financial statements was taken into
account for purposes of calculating the net loss per share.
NOTE 20 - FINANCIAL INSTRUMENTS
(A) The Company has the following financial instruments:
Financial assets including cash and cash equivalents, securities
held to maturity, reinsurers' share of reserves, outstanding
premiums, and other accounts receivable; and financial liabilities
including losses and loss adjustment reserves, creditors arising
out of reinsurance and reinsurance operations, and other accounts
payable and credit balances.
Due to the nature of most of the financial instruments, their fair
value is similar or identical to their carrying value. (Regarding
differences between the financial instruments whose carrying value
is materially different from their fair value see paragraph (d)
following).
(continued)
F-130
<PAGE> 151
EXIM ASINT S.A
NOTES TO THE FINANCIAL STATEMENTS
IN U.S. DOLLARS
(B) Supplementary credit risk information
Credit risk represents the accounting loss which may result to the
Company as of the date of the financial statements as a result of
debtors not meeting their liabilities.
Regarding reinsurers' share of reserves see Note 18.
Regarding other accounts receivable see Note 10.
The carrying value of securities held to maturity approximates
their fair value (See Note 9).
(C) Supplementary interest risk information
Interest risk is the risk inherent in changes in interest rates and
the influence on the financial instruments of the Company.
The Company has financial instruments bearing fixed interest only.
(continued)
F-131
<PAGE> 152
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.
TRIMOL GROUP, INC.
By: /s/ TED SHAPIRO
------------------------------------
Dated: April 14, 1998 Ted Shapiro, President
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:
<TABLE>
<S> <C>
Dated: April 14, 1998 By: /s/ BORIS BIRSHTEIN
----------------------------------------------------
Boris Birshtein, Chairman of the Board
Dated: April 14, 1998 By: /s/ TED SHAPIRO
----------------------------------------------------
Ted Shapiro, President, Chief Executive Officer and
Director
Dated: April 14, 1998 By: /s/ SHMUEL GURFINKEL
----------------------------------------------------
Shmuel Gurfinkel, Chief Financial Officer and Director
(Principal Accounting Officer)
Dated: April 14, 1998 By: /s/ ROBERT L. BLESSEY
----------------------------------------------------
Robert L. Blessey, Secretary and Director
</TABLE>
<PAGE> 153
APPENDIX "A"
REPUBLIC OF MOLDOVA*
The Republic of Moldova is an independent nation and former member republic
of the Union of Soviet Socialist Republics ("USSR"). Moldova achieved
independence in August 1991. The Republic of Moldova is situated in southeastern
Europe between Romania and Ukraine, and is a member of the United Nations. It
has a population of nearly 4.3 million people, and territory covering 33,800
square km.
DEMOGRAPHICS: 4.3 million people: 65% Moldavan, 14% Ukrainian, 13%
Russian, with lesser populations of ethnic Gagauz (Turkish Christians),
Belarusians, Germans, Poles and Gypsies. With about 129 inhabitants per square
kilometer, Moldova is the most densely populated of the Newly Independent States
(NIS). Chisinau (formerly known as Kishinev) is the capital (676,000). Other
large cities include: Bel'tsy (162,000), Bendery (132,000), and Tiraspol
(184,000). Romanian (officially referred to as Moldovan in Moldova) and Russian
are the official languages.
POLITICAL CLIMATE: Moldova declared independence from the USSR on August
27, 1991, and in 1994, held parliamentary elections and adopted a new
Constitution guaranteeing democratic political, civil and human rights.
Democratic elections in late 1996 resulted in an orderly transition to a new
presidency with subsequent new executive and ministry appointments. The
Trans-dniester region which, unlike the rest of the country, was never part of
Romania, has sought autonomous status within a Moldovan confederation. A brief
armed conflict ended in a cease fire in July 1992, with negotiations on the
status of this region in progress.
ECONOMIC PERFORMANCE: Moldova's government has moved consistently towards
economic and social reform. Its successful efforts to reduce its budget deficit
and inflation, and implement structural reforms, notably privatization, have
been supported by the International Monetary Fund and other international
lending institutions, development loans, and public and private investment.
Moldova has removed price controls on all products, ceased issuing preferential
credits, and launched both small and medium to large scale privatization
programs.
However, Moldova has undertaken substantial economic reform. The government
has liberalized most prices and phased out subsidies on most basic consumer
goods. A program begun in March 1993 has privatized 80% of all housing units,
and nearly 2,000 small, medium, and large enterprises.
Moldova's National Commodity Exchange was established in April 1991, and
the Moldova Stock Exchange was opened in June 1995. Moldova has International
Monetary Fund standby and systemic transformation programs in effect.
Moldova has a mild sunny climate considered ideal for agriculture, which
accounts for about 40% of the country's GDP. Primary crops include wheat, corn,
barley, tobacco, sugar beets, and soybeans. Beef and dairy cattle are raised,
and beekeeping and silkworm breeding are widespread.
Moldova's best-known product is wine, produced from its vineyards which are
concentrated in the central and southern regions. Moldova also produces liquors
and champagne.
DEFENSE AND MILITARY ISSUES
Moldova has accepted all relevant arms control obligations of the former
Soviet Union. On October 30, 1992, Moldova ratified the Conventional Armed
Forces in Europe Treaty, which establishes comprehensive limits on key
categories of conventional military equipment and provides for the destruction
of weapons in
- ---------------
* The information contained herein comes from the following sources: "Trade &
Economic Overview of Moldova," June 1997, by Business Information Service for
the Newly Independent States (BISNIS), U.S. Department of Commerce,
International Trade Administration; "Background Notes: Moldova, March 1996,"
Bureau of Public Affairs; "National Bank of Moldova," accessed at
http://www.moldova.org/html/nat-bank.htm (current as of October 1, 1996); and
"Economic Reforms in Moldova," accessed at
http://www.moldova.org/html/Economic.htm.
A-1
<PAGE> 154
excess of those limits. It acceded to the provisions of the nuclear
Non-Proliferation Treaty in October 1994 in Washington, D.C. It does not have
nuclear, biological, or chemical weapons. Moldova joined the North Atlantic
Treaty Organization's Partnership for Peace on March 16, 1994.
FOREIGN RELATIONS
The dissolution of the Soviet Union in December 1991 brought an end to the
Cold War and created the opportunity to build bilateral relations with the
former Soviet republics as they began a political and economic transformation.
The United States recognized the independence of Moldova on December 25, 1991,
and opened an embassy in its capital, Kishinev, in March 1992.
Moldova's parliament approved the country's membership in the Commonwealth
of Independent States ("CIS"), a group of 12 former Soviet republics, and a CIS
charter on economic union in April 1994. In 1995, the country became the first
newly independent state admitted to the Council of Europe. In addition to its
membership in NATO's Partnership for Peace, Moldova also belongs to the United
Nations, the OSCE, the North Atlantic Cooperation Council, the International
Monetary Fund, the World Bank, and the European Bank for Reconstruction and
Development.
THE MONETARY SYSTEM AND ECONOMIC POLICY
The Moldovan currency is the Moldovan Leu ("MDL"), which was introduced in
November 1993. The MDL has a floating exchange rate and its value is fixed daily
on the Moldovan Interbank Foreign Currency Exchange. Upon introduction, the
exchange rate was set as 3.85 MDL to one American dollar ("US$"). As of October
1, 1996 the exchange rate was 4.6212 MDL/US$. NBM claims that as of such date,
this is the lowest exchange rate, relative to the American dollar, of any
currency of any of the former Soviet republics.
Moldova established a National Bank of Moldova ("NBM") in June 1991, and
adopted laws governing financial institutions (the "Banking Law") in July 1995.
The NBM's functions include the regulation and creation of monetary policy,
development and implementation of monetary, credit and foreign exchange
policies, preservation of liquidity and the honoring of credit, supervision of
the system of payments and balance of external payments, management of
international reserves and foreign debt, and maintenance of the national
treasury. The NBM licenses, supervises and regulates financial institutions. The
objective of the macroeconomic policy promoted by the Moldovan government and
NBM is to promote a tight monetary and credit policy.
The Banking Law endeavors to protect private investors, limit excessive
risk in the financial system, foster and encourage a strong, competitive
financial sector, and permit market forces to interact with participants in the
financial sector. Banks are permitted to enter into agreements and possess
goods.
Moldova has achieved relatively low inflation, which NBM attributes to a
tight monetary policy. In September 1996, inflation was measured at 1.5 percent
monthly, as compared with 18.9 percent in January 1994 and 55.7 percent in
January 1993 (all figures are monthly rates). August 1996 inflation was measured
at negative 0.3 percent (slight deflation). For the year 1996, the cumulative
inflation rate was 15.1%. Annual inflation in 1995 was 23.8% and 104.5% in 1994.
In 1993, there was hyperinflation. NBM claims that the taming of inflation has
permitted a more favorable refinancing rate, which as of September 25, 1996 was
20%, as compared to 42% at the beginning of 1995. NBM asserts that the stability
of the MDL and controlling of inflation will be important in attracting foreign
investment into Moldova.
After a degree of financial stability had been achieved, Moldova adopted
the provisions of Article VIII, Sections 2 through 4 of the Articles of
Agreement of the International Monetary Fund. This adoption permits the
convertibility of the MDL, which in turn allows for market participants and
other economic agents to engage in foreign exchange for all payments related to
current account operations and other capital account operations.
NBM asserts that although economic results from the last two years (1995
and 1996) have produced significant results, the country continues to experience
difficulties on the microeconomic level and requires extensive structural
reforms which it believes will require Western assistance.
A-2
<PAGE> 155
Foreign reserves have increased from US$76 million in January 1994 to
US$392 million in July 1997. Exports have increased from US$390 million in 1993
to US$800 million in 1997.
The Moldovan government has attempted to pay down its budget deficits
through the issuance of State Certificates, instead of resorting to the issuance
by the NBM of new money (i.e., printing more money). Through September 3, 1996,
95 auctions were held at which State Certificates in an aggregate face value of
670.2 million MDL were sold. State Certificates are sold at a discount, and are
available for both legal entities and individuals who work through commercial
banks.
ECONOMY, TRADE AND COMMERCE
GDP has declined in the last seven years, so that in 1997 Moldova's
economic output was equivalent to its output in 1972. In 1995, Moldova's GDP was
$1.781 billion, and per capita GDP was $367. The Moldovan economy has an
agri-industrial base, with over 75% of the net domestic product ("NDP")
originating from agriculture or industry, and 9.9% originating from construction
and 8.1% originating from transportation. Only 5.8% of NDP comes from trade and
commerce. Approximately 61% of all trade is with former Soviet republics.
Moldova's main foreign trade partners are Russia, Ukrania, Romania and Germany.
Approximately 33% of all imports are from foreign countries other than the
former Soviet republics.
Acknowledging that foreign capital is vital for the success of reforms, the
Government made the attraction of foreign investments one of its priorities.
To that end, on July 25, 1997, the Parliament passed a law on land reform
which was one of the IMF conditions for approving a standby loan to Moldova.
Under the law, land may be purchased by both Moldovans and foreigners (but
farmland may be purchased only by Moldovans).
Other legal reforms have been instituted for the protection of foreign
investment.
The fact that Moldova is a stable, credit-worthy nation may be demonstrated
by the recent Moody's risk rating of Moldova as a Ba2 type country. Thus,
Moldova was placed in the top tier of countries with high credit-worthiness and
an investment climate rated excellent and, at the same level with such countries
as Mexico, Egypt and Lithuania. The Ba2 rating is one level above Romania, two
above Argentina, Brazil and Turkey and three above Bulgaria. The recent issuance
of US$75 million worth of Eurobonds, in cooperation with Merrill Lynch, was
oversubscribed with demand three times that of the available supply on the
international financial markets.
The Moldovan government claims its efforts to reduce its budget deficit,
control inflation, implement structural reforms and privatize industry have been
supported by the IMF, World Bank and the European Bank for Reconstruction and
Economic Development, which have offered the country about $650 million, in
addition to a loan of $100 million from the World Bank with regards to which
negotiations are pending.
In 1996, the EBRD ranked Moldova 11th out of 25 former Communist countries
in Europe with regards to the progress of their economies in transition from a
central-planning to a market orientation. This ranking places Moldova behind
Czechoslovakia, Hungary and Estonia, but ahead of Bulgaria, the Ukraine, and
Azerbajidan.
TAXES
The corporate tax rate consists of 32% of taxable income, with a 20% value
added tax.
ECONOMIC RELATIONS AND FOREIGN AID
A trade agreement providing reciprocal most-favored-nation tariff treatment
with the United States became effective in July 1992. An Overseas Private
Investment Corporation agreement, which encourages U.S. private investment by
providing direct loans and loan guarantees, was signed in June 1992. A bilateral
investment treaty was signed in April 1993. Generalized system of preferences
status was granted in August 1995, and some Ex-Im bank coverage became available
in November 1995.
A-3
<PAGE> 156
The Republic of Moldova cooperates extensively with international economic
organizations, including the International Monetary Fund, The World Bank, World
Trade Organization, UN Economic Commission for Europe, European Bank for
Reconstruction and Economic Development and the United Nations Development
Program.
Moldova also participates in the commercial and economic structures of the
Commonwealth of Independent States (CIS) and has developed bilateral relations
with many Eastern European countries, Germany, the United States, Austria,
Israel, Greece, Turkey and many other countries.
Cooperation between Moldova and the world community is based on the
commitment of the Moldovan President, Parliament, Government and citizens to the
principles of an open economy, democracy and human rights.
Moldova has received significant foreign aid from the United States. From
1992 through September 1995, total U.S. assistance to Moldova included about $59
million in humanitarian shipments; $104 million in U.S. Department of
Agriculture food assistance -- including about 80,000 metric tons of food aid,
valued at $20 million, in FY 1994-95; and $61 million in technical assistance.
In January 1992, the U.S. initiated the Coordinating Conference on
Assistance to the New Independent States in response to the humanitarian
emergencies facing those countries. The resulting Operation Provide Hope
provided desperately needed food, fuel, medicine, and shelter. By January 1996,
the total in humanitarian medical supplies, food, and clothing provided by the
U.S. to Moldova had risen to about $61 million. Initiatives included the 1993
shipment of Department of Defense excess medical supplies, the 1994 donation of
a military hospital to Moldova, and the 1995 provision of U.S. equipment that
allowed for mass immunization of the Moldovan population against diphtheria.
Recently, the focus of U.S. aid has shifted to technical assistance in
support of Moldova's transition to a market economy and democratic society. The
establishment of a Western NIS Enterprise Fund was announced by President
Clinton in January 1994, to provide investment capital to privatizing firms in
Ukraine, Moldova, and Belarus. The Enterprise Fund is the capstone of focusing
assistance efforts on creating the institutions necessary to support market
economies. The Fund's Chisinau office opened in October 1995 and as of early
1996 had committed investment capital of over $3 million to companies in
Moldova.
In 1995, the U.S. provided assistance and training that played an important
role in the Moldovan parliament's passage of the Law on the Circulation of
Securities and Stock Exchanges. In July 1995, U.S. advisors were placed at
Moldova's Central Bank to help with the bank sector's transition to
international accounting standards. The U.S. has also provided training in a
variety of related areas, including entrepreneurship, agribusiness development,
and international trade and investment. Technical assistance has been provided
to support implementation of Moldova's privatization programs.
Training and technical assistance programs have been provided in law school
curriculum reform, rule of law, law enforcement, assessment of the draft
Moldovan constitution, municipal organization and staffing, political parties
and elections, independent media, pluralism, protection of minority rights, and
diplomacy and foreign policy. Educational exchanges play an important role in
these areas. Resident advisers have worked with the executive and legislative
branches of the Moldovan Government. Peace Corps volunteers are working in
Moldova with a focus on teaching English and advising small businesses.
FOREIGN INVESTMENT LAW IN MOLDOVA
1. In the event new legislative acts are adopted which impact an
enterprise with foreign investments and which was organized before
these provisions have passed, such enterprise has the right to follow
the legislation in effect when the enterprise was organized for ten
years after the effective date of the new legislative acts.
2. Foreign investments cannot be expropriated, nationalized or be subject
to any other similar measures in other way but according to the law on
the basis of a law for the sake of national interests and for
appropriate compensation.
A-4
<PAGE> 157
3. After payment of taxes, customs and duties foreign investors have the
guaranteed right to remit abroad their monetary funds in foreign
currency obtained as the result of investment.
4. After payment of income taxes, foreign employees have the guaranteed
right to remit abroad their unused wages (salaries) and other incomes
in foreign currency obtained by them as the result of their working
activity.
5. PROFIT TAX EXEMPTION
Having formed founding capital and declared the first income an
enterprise with foreign investments has the right to reduce its profit
tax at 50% within the period of 5 years, and is exempt from the
obligatory sale of income in foreign currency.
6. ADDITIONAL PRIVILEGES
(a) During the term of exemption from profit tax an enterprise with
foreign investments is exempted from investment tax for new capital
construction.
(b) After the signing and ratification of bilateral agreements
preventing double taxation, the dividends received by foreign investors in
enterprises are not subject to taxation.
Companies which are (a) established with both foreign and Moldovan capital,
(b) established with exclusively foreign capital, or (c) in which a foreign
party acquires a holding in an already operational Moldovan company or acquires
the entire company, are regarded as companies with foreign equity participation
and are thus subject to the Foreign Investment Law. Such companies have the
right to establish subsidiaries, both in Moldova and in other countries. They
may also acquire any part of already existing firms.
FOREIGN CURRENCY TRANSACTIONS
Any foreign currency transactions must be effected in conformity with the
Currency Regulations approved by the Administrative Council of the National Bank
of Moldova on January 13, 1994, and their subsequent amendments.
Foreigners may exchange hard currency to MDL and back in any exchange
office. Such offices can be found in many convenient public places, including
hotels.
Upon arrival to and departure from Moldova, resident and non-resident
foreigners must declare any bank notes, coins or checks currently on their
person in MDL or hard currency with customs authorities. Non-residents may take
out of Moldova hard currency not exceeding either the amount stated in their
customs declarations at the time of their arrival to Moldova and certified by
the customs authorities, or the figure stated in the permission to take currency
out of the country issued by an authorized bank or by the National Bank of
Moldova. Furthermore, the amount taken out in cash should not exceed USD 50,000
(or the equivalent amount in other currencies) per person. Amounts exceeding USD
50,000 or the equivalent amounts in other currencies cannot be taken out of the
country in cash, and should be remitted through a bank.
A value-added tax is imposed at the rate of 20% of the customs value of
imported goods, on goods supplied within the Russian Federation and on certain
services.
FOREIGN CAPITAL INVESTMENTS
Since Moldova's independence, public companies have performed enormous work
to improve the picture about the country abroad and to amplify the
attractiveness of the country. The memberships in the Multilateral Investment
Guarantee Agency ("MIGA") of the World Bank has ensured compensation for foreign
investments against civil wars, political disturbances and governmental actions.
Within the Ministry of Economy and Reforms there has been created the
Development and Foreign Investment Agency that provides a large range of
services for foreign investors.
A-5
<PAGE> 158
Companies which utilize foreign capital (joint companies and companies
fully owned by foreign investors) can be established under any legal form of
business. Requirements towards promotion and performance of companies with
foreign capital go under the regulation "On Foreign Investments" adopted in
April 1992, as well as of further amendments issued in 1994 and 1996 and other
normative acts of the Republic of Moldova.
As of January 1997, the number of companies with foreign capital registered
in Moldova was 915. In 1996 there were 322 joint enterprises, an increase of 50
percent compared with the previous year.
A-6
<PAGE> 159
TRIMOL GROUP, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
2 Agreement and Plan of Reorganization, effective January 6,
1998, by and among the Company, Edward F. Cowle, H. DeWorth
Williams, Gold Hill Mines, Inc., Magnum Associates Ltd. and
Starbeam, Ltd.(1)
3 By-Laws(2)
4 Specimen of Certificate of Common Stock(2)
21 List of Subsidiaries
23.1 Consent of Jones, Jensen & Company, LLC
23.2 Consent of KPMG Braude Bavly, an affiliate of KPMG
International
</TABLE>
- ---------------
(1) Incorporated by reference to the Company's Report on Form 8-K, filed on
January 6, 1998 and as amended on March 5, 1998 and as amended as of March
27, 1998.
(2) Incorporated by reference to the Company's Registration Statement on Form
10-SB.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
The subsidiaries of the Company are as follows:
Jolly Alon Limited, a Moldovan corporation ("Hotel")
Banca Commerciala pe Actiuni "Export-Import,"
a Moldovan corporation ("Bank")
Exim Asint S.A., a Moldovan corporation ("Insurance Company")
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
[LETTERHEAD OF JONES, JENSEN & COMPANY, LLC]
We have issued our report dated March 12, 1998 accompanying the financial
statements of Nutronics International, Inc., contained in the Annual Report on
Form 10-KSB (the "10-KSB") for Trimol Group, Inc., a Delaware corporation (the
"Company") (formerly known as Nutronics International, Inc.) for the year ended
December 31, 1997. We consent to the use of the aforementioned report in the
10-KSB and to the use of our name as it appears therein.
/s/ JONES, JENSEN & COMPANY, LLC
--------------------------------------
Salt Lake City, Utah
April 14, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
[LETTERHEAD OF KPMG BRAUDE BAVLY]
We have issued our reports dated September 30, 1997 and December 31, 1996,
accompanying the financial statements of each of Jolly Alon Limited, Banca de
export-Import, and Exim Asint S.A., each, a Moldovian corporation, contained in
the Annual Report on Form 10-KSB (the "10-KSB") for Trimol Group, Inc., a
Delaware corporation (the "company") for its fiscal year ended December 31,
1997. We consent to the use of the aforementioned reports in the 10-KSB and to
the use of our name as it appears therein.
/s/ KPMG BRAUDE BAVLY
-----------------------------
Tel Aviv, Israel
April 15, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,169)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
