<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earlier event reported): July 20, 1998
TRIMOL GROUP, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 0-28144 13-3859706
(State of Incorporation (Commission File No.) (IRS Identification Number)
or other Jurisdiction)
1285 Avenue of the Americas, 35th Floor
New York, New York 10019
(Address of Principal Executive Offices)
(212) 554-4394
(Registrant's Telephone Number Including Area Code)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
As reported in the Current Report on Form 8-K filed with the
Securities and Exchange Commission on May 20, 1998 (the "8-K"), on May 6, 1998,
pursuant to a Stock Purchase Agreement dated May 3, 1998 to which Trimol Group,
Inc. (the "Company"), was a party, the Company acquired all of the issued and
outstanding shares of the capital stock of Intercomsoft Limited, an Irish
corporation ("Intercomsoft") controlled by Boris Birshtein, a principal
stockholder of the Company, in exchange for 1,000,000 shares of Common Stock of
the Company.
In the Form 8-K, the Company indicated that it did not have
available the required financial information of Intercomsoft. The Company is
filing this Current Report on Form 8- K/A to amend the 8-K to include all
required financial statements and information. See Item 7 below.
Intercomsoft's revenues and net profit for the year ended
December 31, 1997 were $4,346,000 and $2,214,000, respectively, and its
revenues and net profit for the first quarter ended March 31, 1998 were
$1,312,000 and $715,000, respectively, as set forth in the financial
statements referred to in ITEM 7 below.
Also included in the financial statements referred to in
ITEM 7 below is Unaudited Proforma Consolidated Financial Information of the
Company for the year ended December 31, 1997 and the first quarter ended
March 31, 1998, which unaudited proforma consolidated financial information
includes the results of operations of Intercomsoft for such periods as if
Intercomsoft had been acquired by the Company as of January 1, 1997.
As set forth in such Unaudited Proforma Consolidated
Financial Information, the earnings per share of the Company for the quarter
ended March 31, 1998 were $.03 per share, exclusive of the results of
operations of Intercomsoft for such period and $.09 per share, inclusive of the
results of operations of Intercomsoft for such period.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
See the Index to Financial Statements and Exhibits.
<PAGE> 3
INDEX TO FINANCIAL STATEMENTS
Page No.
--------
UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION
Description of Transactions 5
Unaudited Proforma Consolidated Balance Sheet 6
Unaudited Proforma Consolidated Statement of
Operations 8
Notes to the Unaudited Proforma Consolidated
Financial Statements 12
INTERCOMSOFT LIMITED FINANCIAL STATEMENTS AS AT AND
FOR THE YEAR ENDED DECEMBER 31, 1997
Report of Independent Auditors 15
Balance Sheets as of December 31, 1996 and 1997 16
Statements of Operations for the Years Ended
December 31, 1996 and 1997 17
Statements of Shareholders' Equity for the Years
Ended December 31, 1996 and 1997 18
Statements of Cash Flows for the Years Ended
December 31, 1996 and 1997 19
Notes to the Financial Statements 20
INTERCOMSOFT LIMITED FINANCIAL STATEMENTS AS AT AND
FOR THE YEAR ENDED DECEMBER 31, 1996
Report of Independent Auditors 28
Balance Sheets as of December 31, 1995 and 1996 29
Statements of Operations for the 11 Months Ended
December 31, 1995 and for the Year Ended
December 31, 1996 30
Statements of Shareholders' Equity for the 11
Months Ended December 31, 1995 and for the
Year Ended December 31, 1996 31
Statements of Cash Flows for the 11 Months Ended
December 31, 1995 and for the Year Ended
December 31, 1996 32
Notes to the Financial Statements 33
INTERCOMSOFT LIMITED FINANCIAL STATEMENTS AS AT AND
FOR THE QUARTER ENDED DECEMBER 31, 1998
Balance Sheets as of March 31, 1998 41
Statements of Operations for the 3 Months Ended
March 31, 1998 42
Statements of Shareholders' Equity for the 3
Months Ended March 31, 1998 43
Statements of Cash Flows for the 3 Months Ended
March 31, 1998 44
Notes to the Financial Statements 45
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
Undersigned hereunto duly authorized.
TRIMOL GROUP, INC. (REGISTRANT)
By: /s/ Ted Shapiro
-------------------------------------
Ted Shapiro, President
Dated: As of July 20, 1998
<PAGE> 5
TRIMOL GROUP, INC.
UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION
DESCRIPTION OF TRANSACTIONS
(a) As of January 6, 1998 pursuant to an Agreement and Plan of Reorganization
dated as of December 31, 1997, Trimol Group, Inc. ("the Company") acquired
all of the issued and outstanding shares of the capital stock of Exim Asint
S.A. and of Banca Comerciale Pe Actiuni "Export - Import", and 65% of the
capital stock of Jolly Alon Limited (collectively, the "Target Companies")
in exchange for an aggregate of 10,000,000 shares of the Company's common
stock, par value $0.01 per share, which shares represented 90.9% of the
total issued and outstanding shares of the Company's common stock.
(b) Pursuant to a Stock Purchase Agreement dated May 3, 1998, to which the
Company was a party, on May 6, 1998 the Company acquired all of the issued
and outstanding shares of capital stock of Intercomsoft Limited, an Irish
corporation ("Intercomsoft") in exchange for 1,000,000 shares of the
Company's common stock, par value $0.01 per share.
<PAGE> 6
TRIMOL GROUP INC.
UNAUDITED PROFORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------------------
PROFORMA
AS REPORTED ADJUSTMENTS RESULTS
----------- ----------- -------
ASSETS
<S> <C> <C> <C>
ASSETS OF BANK BUSINESS
Cash and due from banks .................... $ 4,619 $ -- $4,619
Time deposits with banks ................... 520 -- 520
Securities purchased under resale agreements 212 -- 212
Held to maturity securities ................ 1,315 -- 1,315
Loans ...................................... 5,662 -- 5,662
Less: allowance for possible loan losses ... (602) -- (602)
Customer's acceptance liabilities .......... 1,895 -- 1,895
Investments in investee .................... 15 -- 15
Bank premises and equipment ................ 961 -- 961
Other account receivable and debit balances 371 -- 371
------- ---- -------
TOTAL ASSETS OF BANK BUSINESS .............. 14,968 -- 14,968
------- ---- -------
ASSETS OF INSURANCE BUSINESS
INVESTMENTS
Short term securities held to maturity ..... 267 -- 267
------- ---- -------
267 -- 267
------- ---- -------
Outstanding premiums ....................... 3 -- 3
Other accounts receivable .................. 9 -- 9
------- ---- -------
12 -- 12
------- ---- -------
REINSURERS' SHARE OF RESERVES
Provision for unearned premiums ............ 46 -- 46
Losses and loss adjustment reserves ........ 142 -- 142
------- ---- -------
188 -- 188
------- ---- -------
INVESTMENT IN AFFILIATE .................... 9 -- 9
------- ---- -------
FURNITURE, EQUIPMENT AND VEHICLES .......... 79 -- 79
------- ---- -------
OTHER ASSETS ............................... 46 -- 46
------- ---- -------
TOTAL ASSETS OF INSURANCE BUSINESS ......... 601 -- 601
------- ---- -------
ASSETS OF OTHER BUSINESSES
CURRENT ASSETS:
Cash and cash equivalents .................. 20 -- 20
Trade accounts receivable .................. 74 588 662
Other account receivable and debit balances 157 -- 157
Inventories ................................ 234 -- 234
------- ---- -------
485 588 1,073
------- ---- -------
OPERATING EQUIPMENT ........................ 266 -- 266
------- ---- -------
PROPERTY AND EQUIPMENT, NET ................ 6,057 -- 6,057
------- ---- -------
GOODWILL ................................... 89 -- 89
------- ---- -------
TOTAL ASSETS OF OTHER BUSINESSES ........... 6,897 588 7,485
------- ---- -------
TOTAL ASSETS ............................... $22,466 $588 $23,054
======= ==== =======
</TABLE>
<PAGE> 7
TRIMOL GROUP INC.
UNAUDITED PROFORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------------------
PROFORMA
AS REPORTED ADJUSTMENTS RESULTS
----------- ----------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
LIABILITIES OF BANK BUSINESS
DEPOSITS:
Non interest bearing deposits ............................. $ 5,945 $ -- $ 5,945
Interest bearing deposits ................................. 2,700 -- 2,700
Deposits of the National Bank ............................. 360 -- 360
------- ---- -------
9,005 -- 9,005
ACCEPTANCE OUTSTANDING .................................... 1,895 -- 1,895
------- ---- -------
OTHER LIABILITIES ......................................... 2,420 -- 2,420
------- ---- -------
TOTAL LIABILITIES OF BANK BUSINESS ........................ 13,320 -- 13,320
------- ---- -------
LIABILITIES OF INSURANCE BUSINESS
Losses and loss adjustment reserves ....................... 256 -- 256
Provision for unearned premiums ........................... 91 -- 91
Reinsurance balances payable .............................. 19 -- 19
Deferred policy acquisition costs, net .................... 5 -- 5
Other accounts payable .................................... 30 -- 30
------- ---- -------
TOTAL LIABILITIES OF INSURANCE BUSINESS ................... 401 -- 401
------- ---- -------
LIABILITIES OF OTHER BUSINESSES
Credit from banking institutions .......................... -- 4 4
Related parties ........................................... 121 -- 121
Trade accounts payable .................................... 91 528 619
Other accounts payable and credit balances ................ 100 -- 100
------- ---- -------
312 532 844
------- ---- -------
LONG TERM LIABILITIES
Deferred taxes ............................................ 25 -- 25
------- ---- -------
TOTAL LIABILITIES OF OTHER BUSINESSES ..................... 337 532 869
------- ---- -------
TOTAL LIABILITIES ......................................... 14,058 532 14,590
------- ---- -------
OUTSIDE SHAREHOLDERS' INTEREST ............................ 2,316 -- 2,316
------- ---- -------
SHAREHOLDERS' EQUITY
Preferred stock: 10,000 shares authorized of U.S.$100 par
value, 0 and 0 shares issued and outstanding, respectively -- -- --
Common stock: 30,000,000 shares authorized of U.S.$ 0.01
par value, 11,000,000 and 12,000,000 shares issued and
outstanding, respectively ................................. 110 10 120
Additional paid in capital ................................ 5,651 (10) 5,641
Retained earnings ......................................... 331 56 387
------- ---- -------
TOTAL SHAREHOLDERS' EQUITY ................................ 6,092 56 6,148
------- ---- -------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY .................................................... $22,466 $588 $23,054
======= ==== =======
</TABLE>
<PAGE> 8
TRIMOL GROUP INC.
UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
----------------------------------------
AS REPORTED AS REPORTED
BY THE BY PROFORMA
COMPANY INTERCOMSOFT RESULTS
------- ------------ -------
INCOME
<S> <C> <C> <C>
FROM BANK BUSINESS
INTEREST INCOME
Interest on due from banks and time deposits with banks $ 29 $ -- $ 29
Interest on securities ................................ 91 -- 91
Interest on loans ..................................... 450 -- 450
----- ----- -----
TOTAL INTEREST INCOME ................................. 570 -- 570
----- ----- -----
INTEREST EXPENSE
Interest on demand deposits ........................... -- -- --
Interest on time deposits ............................. 141 -- 141
Interest on deposits from banks ....................... 2 -- 2
----- ----- -----
TOTAL INTEREST EXPENSE ................................ 143 -- 143
----- ----- -----
NET INTEREST INCOME ................................... 427 -- 427
LESS: ALLOWANCE FOR POSSIBLE LOAN LOSSES .............. (64) -- (64)
----- ----- -----
NET INTEREST INCOME AFTER ALLOWANCE FOR POSSIBLE LOAN
LOSSES ................................................ 363 -- 363
----- ----- -----
NON INTEREST INCOME
Financial services fees ............................... 166 -- 166
Foreign exchange trading profits and commissions ...... 204 -- 204
Other ................................................. 17 -- 17
----- ----- -----
TOTAL NON INTEREST INCOME ............................. 387 -- 387
----- ----- -----
NON INTEREST EXPENSE
Salaries and related costs ............................ 151 -- 151
Equipment and depreciation ............................ 80 -- 80
Maintenance ........................................... 20 -- 20
Communication and transportation ...................... 78 -- 78
Taxes other than income ............................... 2 -- 2
Outside services and processing ....................... 26 -- 26
Marketing and development ............................. 29 -- 29
Fees paid ............................................. 26 -- 26
Other ................................................. 25 -- 25
----- ----- -----
TOTAL NON INTEREST EXPENSE ............................ 437 -- 437
----- ----- -----
INCOME BEFORE INCOME TAXES............................. 313 -- 313
INCOME TAX ............................................ 46 -- 46
----- ----- -----
NET INCOME FROM BANK BUSINESS ......................... $ 267 $ -- $ 267
----- ----- -----
</TABLE>
<PAGE> 9
TRIMOL GROUP INC.
UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
--------------------------------------------
AS REPORTED AS REPORTED
BY THE BY PROFORMA
COMPANY INTERCOMSOFT RESULTS
------- ------------ -------
<S> <C> <C> <C>
FROM INSURANCE BUSINESS
REVENUES
Gross insurance premiums written ...................... $ 45 $ -- $ 45
Change in provisions for unearned premium ............. 2 -- 2
----------- ------- -----------
Gross premiums earned ................................. 47 -- 47
----------- ------- -----------
Premiums ceded (reinsured) ............................ (24) -- (24)
Change in reinsurers' share for unearned premium ...... (17) -- (17)
----------- ------- -----------
Earned premiums ceded ................................. (41) -- (41)
----------- ------- -----------
Net premiums earned ................................... 6 -- 6
----------- ------- -----------
Interest income, net .................................. 14 -- 14
----------- ------- -----------
Other revenues
Commission earned from reinsurance .................... 11 -- 11
Other income .......................................... 2 -- 2
----------- ------- -----------
13 -- 13
----------- ------- -----------
TOTAL REVENUES ........................................ 33 -- 33
----------- ------- -----------
EXPENSES
Losses and loss adjustment expense .................... 61 -- 61
Reinsurers' share of losses and loss adjustment expense (35) -- (35)
----------- ------- -----------
26 -- 26
----------- ------- -----------
Other operating expenses .............................. 46 -- 46
Translation loss ...................................... 2 -- 2
----------- ------- -----------
48 -- 48
----------- ------- -----------
TOTAL EXPENSES ........................................ 74 -- 74
----------- ------- -----------
NET LOSS FROM INSURANCE BUSINESS ...................... (41) -- (41)
----------- ------- -----------
FROM OTHER BUSINESSES
Revenue .............................................. 694 1,312 2,006
Cost of revenue ...................................... 388 512 900
----------- ------- -----------
Gross profit ......................................... 306 800 1,106
Selling, administrative and general expenses ......... 124 85 209
----------- ------- -----------
Income before financing income ....................... 182 715 897
Financing income, net ................................ 6 -- 6
----------- ------- -----------
Income from regular operations ....................... 188 715 903
Other expenses ....................................... 5 -- 5
----------- ------- -----------
Income before income taxes ........................... 183 715 898
Income taxes ......................................... 42 -- 42
----------- ------- -----------
NET INCOME FROM OTHER BUSINESSES ..................... 141 715 856
----------- ------- -----------
TOTAL INCOME BEFORE OUTSIDE
SHAREHOLDERS' INTEREST IN NET EARNINGS ............... 367 715 1,082
OUTSIDE SHAREHOLDERS' INTEREST IN NET
EARNINGS .............................................. (44) -- (44)
----------- ------- -----------
TOTAL NET INCOME ...................................... $ 323 $ 715 $ 1,038
=========== ======= ===========
NET EARNING PER SHARE FOR THE PERIOD .................. $ 0.03 $ 7,153 $ 0.09
=========== ======= ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING ........................................... 10,333,333 100 12,000,000
=========== ======= ===========
</TABLE>
<PAGE> 10
TRIMOL GROUP INC.
UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------
AS REPORTED ACQUISITION AS REPORTED
BY THE OF TARGET BY PROFORMA
COMPANY COMPANIES INTERCOMSOFT RESULTS
------- --------- ------------ -------
<S> <C> <C> <C> <C>
INCOME
FROM BANK BUSINESS
INTEREST INCOME
Interest on due from banks and time deposits
with banks ..................................... $ -- $ 319 $ -- 319
Interest on securities ......................... -- 656 -- 656
Interest on loans .............................. -- 1,453 -- 1,453
-------- ------- ---- -------
TOTAL INTEREST INCOME .......................... -- 2,428 -- 2,428
-------- ------- ---- -------
INTEREST EXPENSE
Interest on demand deposits .................... -- 81 -- 81
Interest on time deposits ...................... -- 484 -- 484
Interest on deposits from banks ................ -- 202 -- 202
-------- ------- ---- -------
TOTAL INTEREST EXPENSE ......................... -- 767 -- 767
-------- ------- ---- -------
NET INTEREST INCOME ............................ -- 1,661 -- 1,661
LESS: ALLOWANCE FOR POSSIBLE LOAN LOSSES ....... -- (674) -- (674)
-------- ------- ---- -------
NET INTEREST INCOME AFTER ALLOWANCE FOR POSSIBLE
LOAN LOSSES .................................... -- 987 -- 987
-------- ------- ---- -------
NON INTEREST INCOME
Financial services fees ........................ -- 745 -- 745
Foreign exchange trading profits and commissions -- 1,123 -- 1,123
Other .......................................... -- 94 -- 94
-------- ------- ---- -------
TOTAL NON INTEREST INCOME ...................... -- 1,962 -- 1,962
-------- ------- ---- -------
NON INTEREST EXPENSE
Salaries and related costs ..................... -- 673 -- 673
Equipment and depreciation ..................... -- 156 -- 156
Maintenance .................................... -- 71 -- 71
Communication and transportation ............... -- 299 -- 299
Taxes other than income ........................ -- 32 -- 32
Outside services and processing ................ -- 279 -- 279
Marketing and development ...................... -- 40 -- 40
Fees paid ...................................... -- 106 -- 106
Other .......................................... -- 193 -- 193
-------- ------- ---- -------
TOTAL NON INTEREST EXPENSE ..................... -- 1,849 -- 1,849
-------- ------- ---- -------
INCOME BEFORE INCOME TAXES ..................... -- 1,100 -- 1,100
INCOME TAX ..................................... -- 208 -- 208
-------- ------- ---- -------
NET INCOME FROM BANK BUSINESS .................. $ -- $ 892 $ -- $ 892
-------- ------- ---- -------
</TABLE>
<PAGE> 11
TRIMOL GROUP INC.
UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------
AS REPORTED ACQUISITION AS REPORTED
BY THE OF TARGET BY PROFORMA
COMPANY COMPANIES INTERCOMSOFT RESULTS
------- --------- ------------ -------
<S> <C> <C> <C> <C>
FROM INSURANCE BUSINESS
REVENUES
Gross insurance premiums written ...................... $ -- $ 311 $ -- $ 311
Change in provisions for unearned premium ............. -- (45) -- (45)
----- ------------ ------- ------------
Gross premiums earned ................................. -- 266 -- 266
----- ------------ ------- ------------
Premiums ceded (reinsured) ............................ -- (196) -- (196)
Change in reinsurers' share for unearned premium ...... -- 20 -- 20
----- ------------ ------- ------------
Earned premiums ceded ................................. -- (176) -- (176)
----- ------------ ------- ------------
Net premiums earned ................................... -- 90 -- 90
----- ------------ ------- ------------
Interest income, net .................................. -- 53 -- 53
----- ------------ ------- ------------
Other revenues
Commission earned from reinsurance .................... -- 51 -- 51
Other income .......................................... -- 15 -- 15
----- ------------ ------- ------------
-- 66 -- 66
----- ------------ ------- ------------
TOTAL REVENUES ........................................ -- 209 -- 209
----- ------------ ------- ------------
EXPENSES
Losses and loss adjustment expense .................... -- 185 -- 185
Reinsurers' share of losses and loss adjustment expense -- (126) -- (126)
----- ------------ ------- ------------
-- 59 -- 59
----- ------------ ------- ------------
Other operating expenses .............................. -- 115 -- 115
Translation loss ...................................... -- 2 -- 2
----- ------------ ------- ------------
-- 117 -- 117
TOTAL EXPENSES ........................................ -- 176 -- 176
----- ------------ ------- ------------
INCOME BEFORE INCOME TAXES ............................ -- 33 -- 33
INCOME TAXES .......................................... -- 2 -- 2
----- ------------ ------- ------------
NET INCOME FROM INSURANCE BUSINESS .................... -- 31 -- 31
----- ------------ ------- ------------
FROM OTHER BUSINESSES
Revenue ............................................... -- 2,817 4,346 7,163
Cost of revenue ....................................... -- 2,123 2,008 4,131
----- ------------ ------- ------------
Gross profit .......................................... -- 694 2,338 3,032
Selling, administrative and general expenses .......... -- 737 123 860
----- ------------ ------- ------------
Income (loss) before financing income ................. -- (43) 2,215 2,172
Financing expenses, net ............................... -- 46 1 47
----- ------------ ------- ------------
Income (loss) from regular operations ................. -- (89) 2,214 2,125
Other expenses ........................................ -- 11 -- 11
----- ------------ ------- ------------
Income (loss) before income taxes ..................... -- (100) 2,214 2,114
Income taxes .......................................... -- 7 -- 7
----- ------------ ------- ------------
NET INCOME (LOSS) FROM OTHER BUSINESSES .............. -- (107) 2,214 2,107
----- ------------ ------- ------------
TOTAL INCOME BEFORE OUTSIDE
SHAREHOLDERS' INTEREST IN NET EARNINGS ................ -- 816 2,214 3,030
OUTSIDE SHAREHOLDERS' INTEREST IN NET LOSS ............ -- 34 -- 34
----- ------------ ------- ------------
TOTAL NET INCOME ...................................... $ -- $ 850 $ 2,214 $ 3,064
===== ============ ======= ============
NET EARNING PER SHARE FOR THE PERIOD .................. $ -- $ 0.08 $22,141 $ 0.26
===== ============ ======= ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING ........................................... -- 11,000,000 100 12,000,000
===== ============ ======= ============
</TABLE>
<PAGE> 12
TRIMOL GROUP INC.
NOTES TO THE UNAUDITED PROFORMA CONSOLIDATED
FINANCIAL STATEMENTS
1. The unaudited proforma consolidated balance sheet as of March 31, 1998 is
prepared under the assumption that the acquisition of Intercomsoft was
consummated on March 31, 1998.
2. The unaudited proforma consolidated statements of operations for the year
ended December 31, 1997 and for the period of three months ended March 31,
1998 are prepared under the assumption that the acquisition of target
companies and the acquisition of Intercomsoft were both implemented on
December 31, 1996.
3. The acquisition of the Target Companies was accounted for using the reverse
purchase method.
The excess amount of the purchase price over net assets amounted to $90,909
and was attributed to goodwill, which is amortized by the straight line
method over ten years.
The purchase price was calculated under the assumption that the value of
one share of the Company's common stock as of December 31, 1996 was $0.10.
4. The acquisition of Intercomsoft is a transaction between enterprises under
common control.
The assets and liabilities of Intercomsoft were accounted for by the
historical cost method in a manner similar to that in pooling of interests
accounting.
<PAGE> 13
INTERCOMSOFT LIMITED
FINANCIAL STATEMENTS
DECEMBER 31, 1997
US DOLLARS
<PAGE> 14
INTERCOMSOFT LIMITED
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
- ----
<S> <C>
REPORT OF INDEPENDENT AUDITORS........................................................1
Balance Sheets as of December 31, 1996 and 1997.......................................2
Statements of Operations for the years ended December 31, 1996 and 1997...............3
Statements of Shareholders' Equity for the years ended December 31, 1996
and 1997........................................................................4
Statements of Cash Flows for the years ended December 31, 1996 and 1997...............5
Notes to the Financial Statements.....................................................6 - 10
</TABLE>
<PAGE> 15
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Intercomsoft Limited
We have audited the accompanying balance sheets of Intercomsoft Limited (Irish
Company) ("the Company") as of December 31, 1996 and 1997, and the related
statements of operations, shareholders' equity and cash flows for each of the
two 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 1997 and the results of its operations and its cash flows for the years
then ended, in conformity with generally accepted accounting principles in the
United States.
Braude Bavly
Certified Public Accountants (Israel)
A Member of firm KPMG International
Tel Aviv, Israel
May 9, 1998
<PAGE> 16
INTERCOMSOFT LIMITED
BALANCE SHEETS
US DOLLARS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ............................................................... $ -- $ 15,020
Accrued income ..................................................... 404,996 210,494
Related parties (Note 3) .......................................... -- 638,919
----------- -----------
Total current assets ............................................ 404,996 864,433
----------- -----------
$ 404,996 $ 864,433
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Credit from banking institution .................................... $ 411 $ --
Supercom ........................................................... 350,640 295,873
Related parties (Note 3) ........................................... -- 894,220
----------- -----------
Total current liabilities ....................................... 351,051 1,190,093
----------- -----------
SHAREHOLDERS' EQUITY:
Ordinary share capital - English pound sign 1 par value: 1,000,000
shares authorised, 100 shares issued and outstanding as of
December 31, 1996 and 1997 respectively .......................... 156 156
Retained earnings (accumulated deficit) ............................ 53,789 (325,816)
----------- -----------
Total shareholders' equity (deficiency) ......................... 53,945 (325,660)
----------- -----------
$ 404,996 $ 864,433
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 17
INTERCOMSOFT LIMITED
STATEMENTS OF OPERATIONS
US DOLLARS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1997 1996
------- ------
<S> <C> <C>
Revenue (Note 5 (a)) ............................ $4,345,934 $1,605,952
Cost of revenue (Note 5 (b)) .................... 2,008,027 988,338
---------- ----------
Gross profit .................................... 2,337,907 617,614
Operating expenses:
Selling expenses (Note 5 (c)) .............. 5,200 2,200
Management and general expenses (Note 5 (c)) 117,401 136,964
---------- ----------
Total operating expenses ........................ 122,601 139,164
Income from operations ................ 2,215,306 478,450
Financing expenses (Note 5(d)) .................. 1,157 722
---------- ----------
Net income for the year ............... $2,214,149 $ 477,728
========== ==========
Net income per share (Note 7) ......... $ 22,141 $ 4,777
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 18
INTERCOMSOFT LIMITED
STATEMENTS OF SHAREHOLDERS' EQUITY
US DOLLARS
<TABLE>
<CAPTION>
ORDINARY SHARE RETAINED
CAPITAL EARNINGS
------------------- (ACCUMULATED
SHARES AMOUNT DEFICIT) TOTAL
------ ------ -------- -----
<S> <C> <C> <C> <C>
Balance as of January 1, 1996 . 100 $ 1.56 $ (803,544) $ (803,338)
Net income for the year ....... -- -- 477,728 477,728
--- -------- ----------- -----------
Balance as of December 31, 1996 100 $ 1.56 (325,816) (325,660)
Net income for the year ....... -- -- 2,214,149 2,214,149
Dividend paid ................. -- -- (1,834,544) (1,834,544)
--- -------- ----------- -----------
Balance as of December 31, 1997 100 $ 1.56 $ 53,789 $ 53,945
=== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 19
INTERCOMSOFT LIMITED
STATEMENTS OF CASH FLOWS
US DOLLARS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities
Net income for the year ............................................. $ 2,214,149 $ 477,728
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Changes in assets and liabilities:
Increase in accrued income .......................................... (194,502) (160,366)
Increase in related parties ......................................... (255,301) (654,606)
Increase in Supercom ................................................ 54,767 287,243
----------- -----------
Net cash provided by (used in) operating activities .................... 1,819,113 (50,001)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in credit from banking institution ......................... 411 --
Cash dividend paid .................................................. (1,834,544) --
----------- -----------
Net cash used in financing activities .................................. (1,834,133) --
----------- -----------
Decrease in cash ....................................................... (15,020) (50,001)
Balance of cash at beginning of year .................................. 15,020 65,021
----------- -----------
Balance of Cash at end of year ......................................... $ -- $ 15,020
========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 20
INTERCOMSOFT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
US DOLLARS
NOTE 1 - GENERAL
(a) Establishment of the Company
Intercomsoft Limited (the "Company") was incorporated on
February 1995 as a non resident Irish registered company.
(b) Activity of the Company
The Company imports equipment and auxiliary materials intended
for the production of computerised documents (passports,
drivers licenses, vehicle registrations and ID cards), and the
software that is necessary for operating of this equipment,
and leases it to the Moldovan Ministry of Economics, which is
the Company's sole client, according to the Contracts on
Leasing Equipment and Licensing Technology between the Company
and such Ministry (the "Supply Agreement") (for more details
see note 4).
(c) Concentration of risks that may have a significant impact on
the Company are as follows:
1. Political environment in Moldova. The political situation
could have a material effect on the Company's business.
2. Concentration of credit risk as mentioned above the
Company's only client is the Moldovan Ministry of
Economics.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in accordance with generally
accepted accounting principles in the United States ("US GAAP") applied on a
consistent basis. The significant accounting policies followed in the
preparation of the financial statements, are:
(a) FINANCIAL STATEMENTS IN US DOLLARS
The accompanying financial statements have been prepared in US
Dollars (the "dollar") because the functional currency of the
Company is the dollar. The dollar is the currency of the
primary economic environment in which the operations of the
Company are conducted. The Company manages its operations in
dollars (the incomes are received in dollars, and all the
expenses and equipment purchases are paid in dollars).
(b) 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 amounts
reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
(c) INVESTMENT IN LEASE
Due to uncertainties regarding the economic situation in
Moldova, the present value of the lease payments has been
charged to the statements of operations.
<PAGE> 21
INTERCOMSOFT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
US DOLLARS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
(d) REVENUE RECOGNITION
Revenue from the lease agreement with Moldovan Ministry of
Economics is recognised upon the number of computerised
documents that were produced during the period.
(e) ADVERTISING EXPENSES
Advertising expenses are charged to income as incurred.
Advertising expenses were $5,200 and $2,200 for 1997 and 1996,
respectively.
(f) 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.
NOTE 3 - RELATED PARTIES
(a) Transactions
In September 1995 the Company acquired equipment from a
related party for $894,220 US dollars.
(b) Balances with related parties
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
---- ----
<S> <C> <C>
CURRENT ASSETS
Related parties .............. $ -- $638,919
===== ========
CURRENT LIABILITIES
Related Party .................. $ -- $894,220
===== ========
</TABLE>
(1) Regarding the balance in 1996, see also note 3(a).
Regarding the balance in 1997, the amount in respect of the
said balance was paid.
<PAGE> 22
INTERCOMSOFT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
US DOLLARS
NOTE 4 - COMMITMENTS
(a) On August 25, 1995 the Company entered into an agreement with
Supercom Ltd. ("Supercom") for the purchase of equipment for
the production of computerised documents (passports, driver
licenses, vehicle registrations and I.D. documents).
Pursuant to the agreement, Supercom provides the Company with
the guidance and support required for the installation and
operation of the equipment, as well as the materials required
for its maintenance, and has the right to improve and upgrade
the equipment and make such improvements and upgrades
available to the Company.
The Company pays Supercom for each months delivery of
equipment, software and consumable on the following month plus
25% of the Company's profits payable monthly, and is required
to pay, in case of delays in payment, a penalty equal to 0.2%
of the overdue sum for each delayed day.
The unpaid balance as of December 31, 1997 is $350,640.
(b) The Company's selling, management and general expenses and
also the purchase of the auxiliary materials are paid by
Supercom, which is refunded after an invoice is submitted to
the Company.
(c) On April 29, 1996 the Company entered into the Supply
Agreement with the Moldovan Ministry of Economics for the
lease of equipment for production of computerised documents,
which it purchased from Supercom, for a period of ten years.
At the expiration of this period, the agreement shall be
automatically extended for an additional term of ten years.
Pursuant to the Supply Agreement the Company will also provide
professional training in the use of the equipment, maintenance
and consultancy services, and regular supply of supplementary
equipment. According to the Supply Agreement the lessee will
be entitled to receive ownership of the equipment at the end
of the term of the Agreement.
According to the Supply Agreement, the lessee shall pay to the
Company each month US $10 for each passport and US $4.50 for
any other document.
Regarding the accounting policy in respect of the leased
equipment - see note 2(c).
<PAGE> 23
INTERCOMSOFT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
US DOLLARS
NOTE 5 - SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------
1997 1996
---- ----
<S> <C> <C>
(a) Revenue
Services
Supplementary installations and services ... $4,345,934 $1,605,952
========== ==========
(b) Cost of revenue
Equipment (1) .............................. $1,547,929 $ 870,709
Auxiliary materials ........................ 442,994 89,486
Packaging ....................................... 6,928 9,466
Transportation .................................. 10,176 18,677
---------- ----------
$2,008,027 $ 988,338
========== ==========
</TABLE>
(1) Includes the amount of $809,880 and $711,466 in respect of 1997 and 1996,
respectively, in respect of amortization of leased equipment, and the
amount of $738,049 and $159,243 in respect of 1997 and 1996, respectively,
in respect of the portion of profit to which Supercom is entitled under
the Agreement. (Regarding the accounting policy in respect of the leased
equipment - see note 2(c)).
(c) Selling, management and general expenses
<TABLE>
<CAPTION>
<S> <C> <C>
(1) Selling expenses
Advertising ................. $ 5,200 $ 2,200
======== ========
(2) Management and general expense
Labor ............................ $ 61,776 $ 41,205
Travel ........................... 21,717 26,460
Communications ................... 3,760 5,261
Management fees .................. 20,000 --
Entertainment .................... 838 827
Legal fees ....................... -- 4,546
Professional services ............ 3,500 54,348
Other ............................ 5,810 4,317
-------- --------
</TABLE>
<PAGE> 24
<TABLE>
<CAPTION>
<S> <C> <C>
(d) Financing expenses ............... $117,401 $136,964
======== ========
Interest and commissions ......... $ 1,157 $ 722
======== ========
</TABLE>
<PAGE> 25
INTERCOMSOFT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
US DOLLARS
NOTE 6 - TAX EXPENSES
Company's tax liability
(a) The Company is a non resident Irish Registered Company, that
is wholly owned and controlled from outside of Ireland and
does not undertake any activities within this jurisdiction,
therefore, according to a legal opinion, the Company is not
subject to Irish tax.
(b) The Company delivers in Moldova the equipment on the basis of
the Supply Agreement with the Ministry of Economics of
Moldova. In this case, the Ministry of Economics is the
importer and therefore is subject to taxation. Based upon the
above, the Company is not subject to taxation in the Republic
of Moldova, because it is not carrying out the business
activity in Moldova which would subject it to taxation.
NOTE 7 - NET INCOME PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1997 1996
---- ----
<S> <C> <C>
Net income for the year ............... $2,214,149 $ 477,728
---------- ----------
Number of shares of
(English pound sign) 1 par value .... 100 100
========== ==========
Net income per share .................. $ 22,141 $ 4,777
========== ==========
</TABLE>
NOTE 8 - SUPPLEMENTARY INFORMATION REGARDING FINANCIAL INSTRUMENTS
(a) The Company has the following financial instruments:
Non-derived financial assets including cash and accrued income
and related parties and non-derived financial liabilities
including trade accounts payable and related parties.
Due to the nature of most of the financial instruments, their
fair value is similar or identical to their carrying value.
(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. As mentioned
in note 1(b), the Company has only one client which is the
Moldovan Ministry of Economics (see also note 2(c)).
Regarding debts of related parties see note 3.
<PAGE> 26
INTERCOMSOFT LIMITED
FINANCIAL STATEMENTS
DECEMBER 31, 1996
US DOLLARS
<PAGE> 27
INTERCOMSOFT LIMITED
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT AUDITORS ............................................ 1
BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 1996 ........................... 2
STATEMENTS OF OPERATIONS FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1996 ................................ 3
STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE ELEVEN MONTHS ENDED DECEMBER
31, 1995 AND FOR THE YEAR ENDED DECEMBER 31, 1996 ....................... 4
STATEMENTS OF CASH FLOWS FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1996 ................................ 5
NOTES TO THE FINANCIAL STATEMENTS ......................................... 6 - 10
</TABLE>
<PAGE> 28
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Intercomsoft Limited
We have audited the accompanying balance sheets of Intercomsoft Limited (Irish
Company) ("the Company") as of December 31, 1995 and 1996, and the related
statements of operations, shareholders' equity and cash flows for each of the
eleven monthes ended December 31, 1995 and for the year 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,
1995 and 1996 and the results of its operations and its cash flows for the
eleven monthes ended December 31, 1995 and for the year ended December 31, 1996,
in conformity with generally accepted accounting principles in the United
States.
Braude Bavly
Certified Public Accountants (Israel)
A Member of firm KPMG International
Tel Aviv, Israel
May 9, 1998
<PAGE> 29
INTERCOMSOFT LIMITED
BALANCE SHEETS
US DOLLARS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1 9 9 6 1 9 9 5
----------- -----------
<S> <C> <C>
NOTE
ASSETS
CURRENT ASSETS:
Cash ............................................................................ 15,020 $ 65,021
Accrued income .................................................................. 210,494 50,128
Related parties (Note 3) ........................................................ 638,919 156
----------- -----------
Total current assets ......................................................... 864,433 115,305
----------- -----------
$ 864,433 $ 115,305
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Supercom ........................................................................ $ 295,873 $ 8,630
Related parties (Note 3) ........................................................ 894,220 910,063
----------- -----------
Total current liabilities .................................................... 1,190,093 918,693
----------- -----------
SHAREHOLDERS' EQUITY:
Ordinary share capital - (English pound sign) 1 par value: 1,000,000 shares
authorised, 100 shares issued and outstanding as of December 31, 1995 and
1996 respectively ............................................................. 156 156
Accumulated deficit ........................................................... (325,816) (803,544)
----------- -----------
Total shareholders' deficiency ............................................... (325,660) (803,388)
----------- -----------
$ 864,433 $ 115,305
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 30
INTERCOMSOFT LIMITED
STATEMENTS OF OPERATIONS
US DOLLARS
<TABLE>
<CAPTION>
ELEVEN MONTHES
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
Revenue (Note 5 (a)) ............................... $ 1,605,952 $ 417,214
Cost of revenue (Note 5 (b)) ....................... 988,338 1,197,864
----------- -----------
Gross profit (loss) ...................... 617,614 (780,650)
Operating expenses:
Selling expenses (Note 5 (c)) ................. 2,200 --
Management and general expenses (Note 5 (c)) .. 136,964 22,794
----------- -----------
Total operating expenses ........................... 139,164 22,794
Income (loss) from operations ............ 478,450 (803,444)
Financing expenses (Note 5(d)) ..................... 722 100
----------- -----------
Net income (loss) for the period ......... $ 477,728 $ (803,544)
=========== ===========
Net income (loss) per share (Note 7) ..... $ 4,777 $ (8,035)
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 31
INTERCOMSOFT LIMITED
STATEMENTS OF SHAREHOLDERS' EQUITY
US DOLLARS
<TABLE>
<CAPTION>
RETAINED
ORDINARY SHARE CAPITAL EARNINGS
---------------------- (ACCUMULATED
SHARES AMOUNT DEFICIT) TOTAL
------ ------ -------- -----
<S> <C> <C> <C> <C>
Issuance of founders shares .............. 100 $1.56 -- $ 1.56
Net loss for the period from February 2,
1995 (date of inception) to December 31,
1995 ................................... -- -- (803,544) (803,544)
--- ----- --------- ---------
Balance as of December 31, 1995 .......... 100 $1.56 (803,544) (803,388)
Net income for the year .................. -- -- 477,728 477,728
--- ----- --------- ---------
Balance as of December 31, 1996 .......... 100 $1.56 $(325,816) $(325,660)
=== ===== ========= =========
</TABLE>
<PAGE> 32
INTERCOMSOFT LIMITED
STATEMENTS OF CASH FLOWS
US DOLLARS
<TABLE>
<CAPTION>
Eleven Months
YEAR ENDED Ended
DECEMBER 31, December 31,
------------ -------------
1996 1995
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) for the period .............................................. $ 477,728 $(803,544)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Changes in assets and liabilities:
Increase in accrued income .................................................... (160,366) (50,128)
Increase (decrease) in related parties ....................................... (654,606) 909,907
Increase in Supercom .......................................................... 287,243 8,630
--------- ---------
Net cash provided by (used in) operating activities .............................. (50,001) 64,865
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of shares ........................................................... -- 156
--------- ---------
Net cash provided by financing activities ........................................ -- 156
--------- ---------
Increase (decrease) in cash ...................................................... (50,001) 65,021
Balance of cash at beginning of period ........................................... 65,021 --
--------- ---------
Balance of Cash at end of period ................................................. $ 15,020 $ 65,021
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 33
INTERCOMSOFT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
US DOLLARS
NOTE 1 - GENERAL
(a) Establishment of the Company
Intercomsoft Limited (the "Company") was incorporated in
February 1995 as a non resident Irish registered company.
(b) Activity of the Company
The Company imports equipment and auxiliary materials intended
for the production of computerised documents (passports,
drivers licenses, vehicle registrations and ID cards), and the
software that is necessary for operating of this equipment,
and leases it to the Moldovan Ministry of Economics, which is
the Company's sole client, pursuant to the Supply Agreement
(for more details see note 4).
(c) Concentration of risks that may have a significant impact on
the Company are as follows:
1. Political environment in Moldova. The political situation
could have a material effect on the Company's business.
2. Concentration of credit risk as mentioned above the
Company's only client is the Moldovan Ministry of
Economics.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in accordance with
generally accepted accounting principles in the United States ("US
GAAP") applied on a consistent basis. The significant accounting
policies followed in the preparation of the financial statements,
are:
(a) FINANCIAL STATEMENTS IN US DOLLARS
The accompanying financial statements have been prepared in US
Dollars (the "dollar") because the functional currency of the
Company is the dollar. The dollar is the currency of the
primary economic environment in which the operations of the
Company are conducted. The Company manages its operations in
dollars (the incomes are received in dollars, and all the
expenses and equipment purchases are paid in dollars).
(b) 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 amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
(c) INVESTMENT IN LEASE
Due to uncertainties regarding the economic situation in
Moldova, the present value of the lease payments has been
charged to the statements of operations.
<PAGE> 34
INTERCOMSOFT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
US DOLLARS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
(d) REVENUE RECOGNITION
Revenue from the lease agreement with Moldovan Ministry of
Economics is recognised upon the number of computerised
documents that were produced during the period.
(e) ADVERTISING EXPENSES
Advertising expenses are charged to income as incurred.
Advertising expenses were $2,200 in 1996.
(f) 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.
NOTE 3 - RELATED PARTIES
(a) Transactions
In September 1995 the company acquired equipment from a related
party for $894,220 US dollars.
(b) Balances with related parties
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
-------- --------
<S> <C> <C>
CURRENT ASSETS
Related parties ............ $638,919 $ 78
======== ========
CURRENT LIABILITIES
Related Party (1) .......... 894,220 894,220
Spectrum Ltd ............... -- 15,843
-------- --------
$894,220 $910,063
======== ========
</TABLE>
(1) Regarding the balance in 1995 and 1996, see also note 3(a).
<PAGE> 35
INTERCOMSOFT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
US DOLLARS
NOTE 4 - COMMITMENTS
(a) On August 25, 1995 the Company entered into an agreement with
Supercom Ltd. ("Supercom") for the purchase of equipment for
the production of computerised documents (passports, driver
licenses, vehicle registrations and I.D. documents).
Pursuant to the agreement, Supercom provides the Company with
the guidance and support required for the installation and
operation of the equipment, as well as the materials required
for its maintenance, and has the right to improve and upgrade
the equipment and make such improvements and upgrades
available to the Company.
The Company pays Supercom for each months delivery of
equipment, software and consumable on the following month plus
25% of the Company's profits payable monthly, and is required
to pay, in case of delays in payment, a penalty equal to 0.2%
of the overdue sum for each delayed day.
The unpaid balance as of December 31, 1996 is $ 295,873.
According to an agreement between Supercom and the Company,
Supercom is entitled to 25% of the Company's profits each
year.
(b) The Company's selling, management and general expenses and
also the purchase of the auxiliary materials are paid by
Supercom, which is refunded after an invoice is submitted to
the Company.
(c) On April 29, 1996 the Company entered into the Supply
Agreement with the Moldovan Ministry of Economics ("the
lessee") for the lease of equipment for the production of
computerised documents, which it purchased from Supercom for
a period of ten years.
At the expiration of this period, the agreement shall be
automatically extended for an additional term of ten years.
Pursuant to the Supply Agreement the Company will also provide
professional training in the use of the equipment, maintenance
and consultancy services, and regular supply of supplementary
equipment. According to the Supply Agreement the lessee will be
entitled to receive ownership of the equipment at the end of
the term of the Agreement.
According to the Supply Agreement, the lessee shall pay to the
Company each month US$10 for each passport and US$4.5 for any
other document.
Regarding the accounting policy in respect of the leased
equipment - see note 2(c).
<PAGE> 36
INTERCOMSOFT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
US DOLLARS
NOTE 5 - SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION
<TABLE>
<CAPTION>
ELEVEN MONTHES
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
---------- ----------
<S> <C> <C>
(a) Revenue
Services
Supplementary installations and services ... $1,605,952 $ 417,214
========== ==========
(b) Cost of revenue
Equipment (1) .............................. $ 870,709 $1,187,888
Auxiliary materials ........................ 89,486 1,534
Packaging .................................. 9,466 --
Transportation ............................. 18,677 8,442
---------- ----------
$ 988,338 $1,197,864
========== ==========
</TABLE>
(1) Includes the amount of $711,466 and $1,187,888 in respect
of 1996 and 1995, respectively, in respect of amortization of
leased equipment, and the amount of $159,243 in respect of
1996, in respect of the portion of Intercomsoft's profit to
which Supercom is entitled under the Agreement.
(Regarding the accounting policy in respect of the leased
equipment - see note 2(c)).
<TABLE>
<S> <C> <C>
(c) Selling, management and general expenses
(1) Selling expenses
Advertising ........................... $ 2,200 $ --
======== ========
(2) Management and general expense
Labor .................................. $ 41,205 $ 12,324
Travel ................................. 26,460 7,115
Communications .......................... 5,261 --
Management fees ......................... -- --
Entertainment ........................... 827 3,355
Legal fees .............................. 4,546 --
</TABLE>
<PAGE> 37
INTERCOMSOFT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
US DOLLARS
<TABLE>
<S> <C> <C>
Professional services ........................... 54,348 --
Other ........................................... 4,317 --
-------- --------
$139,164 $ 22,794
======== ========
(d) Financing expenses
Interest and commissions ................... $ 722 $ 100
======== ========
</TABLE>
<PAGE> 38
INTERCOMSOFT LIMITED
NOTES TO THE FINANCIAL STATEMENTS
US DOLLARS
NOTE 6 - TAX EXPENSES
Company's tax liability
(a) The Company is a non resident Irish Registered Company,
that is wholly owned and controlled from outside of
Ireland and does not undertake any activities within this
jurisdiction, therefore, according to a legal opinion,
the Company is subject to Irish tax.
(b) The Company delivers in Moldova the equipment on
the basis of the Supply Agreement with the Ministry of
Economics of Moldova. In this case, the Ministry of
Economics is the importer of these services and therefore
is subject to taxation.
Based upon the above the Company is not subject to
taxation in the Republic of Moldova, because it is not
carrying out the business activity in Moldova which would
subject it to taxation.
NOTE 7 - NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Net income (loss) for the period ... $ 477,728 $(803,544)
--------- ---------
Number of shares of (English pound
sign) 1 par value ................ 100 100
========= =========
Net income (loss) per share ........ $ 4,777 $ (8,035)
========= =========
</TABLE>
NOTE 8 - SUPPLEMENTARY INFORMATION REGARDING FINANCIAL INSTRUMENTS
(a) The Company has the following financial instruments:
Non-derived financial assets including cash and accrued income
and related parties and non-derived financial liabilities
including trade accounts payable and related parties.
Due to the nature of most of the financial instruments, their
fair value is similar or identical to their carrying value.
(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. As mentioned
in note 1(b), the Company has only one client which is the
Moldovan Ministry of Economics (see also note 2(b)).
Regarding debts of related parties see note 3.
<PAGE> 39
INTERCOMSOFT LIMITED
FINANCIAL STATEMENTS
MARCH 31, 1998
US DOLLARS
<PAGE> 40
INTERCOMSOFT LIMITED
INDEX TO FINANCIAL STATEMENTS
PAGE
BALANCE SHEETS AS OF MARCH 31, 1998............................................1
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998.............2
STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 1998...3
STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998.............4
NOTES TO THE FINANCIAL STATEMENTS..............................................5
<PAGE> 41
INTERCOMSOFT LIMITED
BALANCE SHEETS
US DOLLARS
<TABLE>
<CAPTION>
MARCH 31,
--------------------------- DECEMBER 31,
1 9 9 8 1 9 9 7 1 9 9 7
---------- ---------- ----------
(UNAUDITED) (AUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ..................................................... $ -- $ 19,016 $ --
Accrued income ........................................... 588,412 373,736 404,996
Related parties .......................................... -- 1,293,536 --
---------- ---------- ----------
Total current assets .................................. 588,412 1,686,288 404,996
---------- ---------- ----------
$ 588,412 $1,686,288 $ 404,996
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Credit from banking institution .......................... $ 4,437 $ -- $ 411
Supercom ................................................. 457,646 500,273 350,640
Related parties .......................................... -- 894,220 --
Other trade payable ...................................... 70,000 -- --
---------- ---------- ----------
Total current liabilities ............................. 532,083 1,394,493 351,051
---------- ---------- ----------
SHAREHOLDERS' EQUITY:
Ordinary share capital - (Function) 1 par value: 1,000,000
shares authorised, 100 shares issued and outstanding as
of December 31, 1997 and as of March 31, 1997 and 1998,
respectively ............................................. 156 156 156
Retained earnings (accumulated deficit) .................. 56,173 291,639 53,789
---------- ---------- ----------
Total shareholders' equity (deficiency) ............... 56,329 291,795 53,945
---------- ---------- ----------
$ 588,412 $1,686,288 $ 404,996
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- 1 -
<PAGE> 42
INTERCOMSOFT LIMITED
STATEMENTS OF OPERATIONS
US DOLLARS
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
--------------------------- ----------
1 9 9 8 1 9 9 7 1 9 9 7
---------- ---------- ----------
(UNAUDITED) (AUDITED)
<S> <C> <C> <C>
Revenue ............................... $1,311,668 $1,332,850 $4,345,934
Cost of revenue ....................... 511,407 687,813 2,008,027
---------- ---------- ----------
Gross profit ................ 800,261 645,037 2,337,907
Operating expenses:
Selling expenses ................. -- -- 5,200
Management and general expenses... 84,954 27,397 117,401
---------- ---------- ----------
Total operating expenses .............. 84,954 27,397 122,601
Income from operating ....... 715,307 617,640 2,215,306
Financing expenses .................... 35 185 1,157
---------- ---------- ----------
Net income for the period ............. $ 715,272 $ 617,455 $2,214,149
========== ========== ==========
Net income per share .................. $ 7,153 $ 6,175 $ 22,141
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- 2 -
<PAGE> 43
INTERCOMSOFT LIMITED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
US DOLLARS
<TABLE>
<CAPTION>
RETAINED
ORDINARY SHARE CAPITAL EARNINGS
----------------------------- (ACCUMULATED
SHARES AMOUNT DEFICIT) TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance as of January 1, 1997 ......... 100 $ 1.56 $ (325,816) $ (325,660)
Net income for the three months ended 31
March 1997 (unaudited) ................. -- -- 617,455 617,455
----------- ----------- ----------- -----------
Balance as of March 31, 1997 ........... 100 $ 1.56 $ 291,639 $ 291,795
=========== =========== =========== ===========
Balance as of January 1, 1997 ......... 100 $ 1.56 $ (325,816) $ (325,660)
Net income for the year (audited) ...... -- -- 2,214,149 2,214,149
Dividend paid .......................... -- -- (1,834,544) (1,834,544)
----------- ----------- ----------- -----------
Balance as of December 31, 1997 ....... 100 $ 1.56 $ 53,789 $ 53,945
=========== =========== =========== ===========
Balance as of January 1, 1998 ......... 100 $ 1.56 $ 53,789 $ 53,945
Net income for the three months
ended 31 March 1998 (unaudited) ....... -- -- 715,272 715,272
Dividend paid .......................... -- -- (712,888) (712,888)
----------- ----------- ----------- -----------
Balance as of March 31, 1998 ........... 100 $ 1.56 $ 56,173 $ 56,329
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- 3 -
<PAGE> 44
INTERCOMSOFT LIMITED
STATEMENTS OF CASH FLOWS
US DOLLARS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED
------------------------------ DECEMBER 31,
1 9 9 8 1 9 9 7 1 9 9 7
----------- ----------- -----------
(UNAUDITED) (AUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the period .......................... $ 715,272 $ 617,455 $ 2,214,149
Adjustment to reconcile net income to net cash
provided by operating activities:
Changes in assets and liabilities:
Increase in accrued income ...................... (183,416) (163,242) (194,502)
Increase in related parties ..................... -- (654,617) (255,301)
Increase in Supercom ............................ 107,006 204,400 54,767
Increase in other trade payable ................. 70,000 -- --
----------- ----------- -----------
Net cash provided by operating activities .......... 708,862 3,996 1,819,113
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in credit from banking institutions..... 4,026 -- 411
Cash dividend paid .............................. (712,888) -- (1,834,544)
----------- ----------- -----------
Net cash used in financing activities .............. (708,862) -- (1,834,133)
----------- ----------- -----------
Increase (decrease) in cash ........................ -- 3,996 (15,020)
Balance of cash at beginning of period ............ -- 15,020 15,020
----------- ----------- -----------
Balance of cash at end of period ............... $ -- $ 19,016 $ --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- 4 -
<PAGE> 45
INTERCOMSOFT LIMITED
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
a. All significant accounting policies have been applied
consistently with the year ended December 31, 1997.
b. The accompanying unaudited interim financial statements as of
March 31, 1998 and for the three month period then ended (the
"Interim Financial Statements") were prepared in condensed
format, in accordance with US GAAP.
The accounting principles used in the presentation of the
unaudited interim financial statements are consistent with
those principles used in the presentation of annual financial
statements. However, the unaudited interim financial
statements do not include all the data and notes which are
required when preparing annual financial statements.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for fair
presentation have been included. The results of operations for
the three month period ended March 31, 1998, are not
necessarily indicative of the results that may be expected for
the year ending December 31, 1998. For further information,
refer to the financial statements and notes thereto for the
year ended December 31, 1997.
- 5 -
