<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): January 6, 1998
TRIMOL GROUP, INC.
(Exact Name of Registrant as specified in its 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
Nutronics International, Inc.
410 West 53rd Street, Suite 105
New York, New York 10019
(Former Name or Former Address,
if Changed Since Last Report)
<PAGE> 2
ITEM 1. Changes in Control of Registrant
As reported in the Current Report on Form 8-K filed with the Securities
and Exchange Commission (the "SEC") in January 1998 (the "8-K"), of Trimol
Group, Inc. (formerly Nutronics International, Inc.) (the "Company"), pursuant
to an Agreement and Plan of Reorganization dated as of December 31, 1997, by
and among the Company, 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"), and certain other parties, the Company, effective January 6,
1998, acquired (the "Acquisition") all of the issued and outstanding capital
stock of the Targets (as defined in the 8-K), from the Target Stockholders in
exchange for an aggregate of 10,000,000 shares of common stock, par value $.01
per share (the "Common Stock") of the Company. As described in the 8-K, the
Targets own certain capital stock of three (3) Moldovian operating entities
(collectively the "Asset Entities"). As a result of the Acquisition, the
Targets are wholly-owned subsidiaries of the Company, which in turn, and as
described in the 8-K, owns capital stock of the Asset Entities.
In the 8-K, the Company indicated that it did not have available the
required financial statements of the Asset Entities. The Company is filing
this Current Report on Form 8-K/A to amend the 8-K to, among other things,
include all required financial statements. See Item 7 below.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements.
See attached Index to Financial Statements.
(b) Pro Forma Financial Information.
As the Company, for at least the three (3)-year period
prior to the Acquisition, had no material operations and/or
assets, and as a result no material results of operations or
balance sheet information, the Company believes the financial
statements of the Company prior to the Acquisition are not
significant to an understanding of the Company. As a result,
the Company did not prepare pro forma financial information, as
the only relevant financial information of the Company consists
of the financial statements of the Asset Entities, which are
being filed with this Report.
<PAGE> 3
INDEX TO FINANCIAL STATEMENTS
Page No.
JOLLY ALON LIMITED
Report of Independent Auditors...................................F-1
Balance Sheets as at September 30, 1997 and 1996.................F-2
Statements of Income for the Nine Months Ended
September 30, 1997 and 1996....................................F-3
Statements of Changes in Shareholders' Equity
for the Nine Months Ended September 30, 1997 and 1996..........F-4
Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996....................................F-5
Notes to Financial Statements....................................F-7
Report of Independent Auditors...................................F-18
Balance Sheets as at December 31, 1996 and 1995..................F-19
Statements of Income for the Years Ended
December 31, 1996 and 1995.....................................F-20
Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1996 and 1995.................F-21
Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995.....................................F-22
Notes to Financial Statements.....................................F-24
BANCA COMMERCIALA PE ACTIUNI "EXPORT-IMPORT"
Report of Independent Auditors...................................F-36
Balance Sheets as at September 30, 1997 and 1996.................F-37
Statements of Income for the Nine Months Ended
September 30, 1997 and 1996....................................F-38
Statements of Changes in Shareholders' Equity
for the Nine Months Ended September 30, 1997 and 1996..........F-39
Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996....................................F-40
Notes to Financial Statements....................................F-41
Report of Independent Auditors...................................F-60
Balance Sheets as at December 31, 1996 and 1995..................F-61
Statements of Income for the Years Ended
December 31, 1996 and 1995................................... .F-62
Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1996 and 1995.................F-63
Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995.....................................F-64
Notes to Financial Statements....................................F-65
EXIM ASINT S.A.
Report of Independent Auditors....................................F-85
Balance Sheets as at September 30, 1997 and 1996..................F-86
Statements of Income for the Nine Months Ended
September 30, 1997 and 1996.....................................F-87
Statements of Changes in Shareholders' Equity
for the Nine Months Ended September 30, 1997 and 1996...........F-88
Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996.....................................F-89
Notes to Financial Statements.....................................F-90
Report of Independent Auditors....................................F-104
Balance Sheets as at December 31, 1996 and 1995...................F-105
Statements of Income for the Years Ended
December 31, 1996 and 1995......................................F-106
Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1996 and 1995..................F-107
Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995......................................F-108
Notes to Financial Statements.....................................F-109
<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: March 5, 1998
<PAGE> 5
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-1
<PAGE> 6
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 - $10,000 par value: 532 authorized, issued
and outstanding as of September 30, 1997 and 1996 5,320 5,320
Retained earnings 1,391 1,194
------- -------
6,711 6,514
------- -------
Total liabilities and shareholders' equity 7,063 6,907
======= ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE> 7
JOLLY ALON LIMITED
(MOLDOVAN COMPANY)
STATEMENTS OF INCOME
U.S. DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1 9 9 7 1 9 9 6
------- -------
NOTE
----
<S> <C> <C> <C>
Revenue 14(a) 2,120 2,614
Cost of revenue 14(b) 1,466 1,988
------- -------
Gross profit 654 626
Selling, administrative and general expenses 14(c) 405 482
------- -------
Income from regular operations 249 144
Financing income 14(d) - 169
Other income 14(e) - 16
Financing expenses 14(d) 105 92
Other expenses 14(e) 5 -
------- -------
Income before income taxes 139 237
Income taxes 15(b) 17 20
------- -------
Net income for the period 122 217
======= =======
Net income per share 16 0.23 0.41
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 8
JOLLY ALON LIMITED
(MOLDOVAN COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
U.S. DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
TOTAL
SHARE-
SHARE RETAINED HOLDERS'
CAPITAL * EARNINGS EQUITY
--------- -------- --------
<S> <C> <C> <C>
Balance as of January 1, 1996 5,320 977 6,297
Net income for nine months - 217 217
--------- -------- --------
Balance as of September 30, 1996 5,320 1,194 6,514
Net income for three months - 75 75
--------- -------- --------
Balance as of December 31, 1996 5,320 1,269 6,589
Net income for nine months - 122 122
--------- -------- --------
Balance as of September 30, 1997 5,320 1,391 6,711
========= ========= =========
* US$ 10,000 par value.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 9
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-5
<PAGE> 10
<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-6
<PAGE> 11
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-7
<PAGE> 12
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-8
<PAGE> 13
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-9
<PAGE> 14
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-10
<PAGE> 15
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-11
<PAGE> 16
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-12
<PAGE> 17
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-13
<PAGE> 18
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-14
<PAGE> 19
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-15
<PAGE> 20
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-16
<PAGE> 21
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-17
<PAGE> 22
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-18
<PAGE> 23
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 - $10,000 par value: 532 authorized, issued
and outstanding as of December 31, 1996 and 1995 5,320 5,320
Retained earnings 1,269 977
----- -----
6,589 6,297
----- -----
Total liabilities and shareholders' equity 7,046 7,491
===== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE> 24
JOLLY ALON LIMITED
(MOLDOVAN COMPANY)
STATEMENTS OF INCOME
U.S. DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1 9 9 6 1 9 9 5
------- -------
NOTE
----
<S> <C> <C> <C>
Revenue 15(a) 3,427 4,105
Cost of revenue 15(b) 2,620 2,496
----- -----
Gross profit 807 1,609
Selling, administrative and general expenses 15(c) 588 862
----- -----
Income from regular operations 219 747
Financing income 15(d) 168 --
Other income 15(e) 17 --
Financing expenses 15(d) (92) (288)
Other expenses 15(e) -- (122)
----- -----
Income before income taxes 312 337
Income taxes 16(b) 20 --
----- -----
Net income for the year 292 337
===== =====
Net income per share 17 0.55 0.63
===== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-20
<PAGE> 25
JOLLY ALON LIMITED
(MOLDOVAN COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
U.S. DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
TOTAL
SHARE-
SHARE RETAINED HOLDERS'
CAPITAL * EARNINGS EQUITY
--------- -------- ------
<S> <C> <C> <C>
Balance as of January 1, 1995 5,320 872 6,192
Net income for the year -- 337 337
Dividend ** -- (232) (232)
----- ----- -----
Balance as of December 31, 1995 5,320 977 6,297
Net income for the year -- 292 292
----- ----- -----
Balance as of December 31, 1996 5,320 1,269 6,589
===== ===== =====
</TABLE>
* US$ 10,000 par value.
** See Note 16(a)(1)[b]
The accompanying notes are an integral part of the financial statements.
F-21
<PAGE> 26
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-22
<PAGE> 27
<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-23
<PAGE> 28
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-24
<PAGE> 29
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-25
<PAGE> 30
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-26
<PAGE> 31
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-27
<PAGE> 32
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-28
<PAGE> 33
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-29
<PAGE> 34
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-30
<PAGE> 35
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-31
<PAGE> 36
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-32
<PAGE> 37
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-33
<PAGE> 38
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-34
<PAGE> 39
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-35
<PAGE> 40
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-36
<PAGE> 41
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-37
<PAGE> 42
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-38
<PAGE> 43
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-39
<PAGE> 44
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-40
<PAGE> 45
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-41
<PAGE> 46
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-42
<PAGE> 47
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-43
<PAGE> 48
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-44
<PAGE> 49
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-45
<PAGE> 50
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-46
<PAGE> 51
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-47
<PAGE> 52
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-48
<PAGE> 53
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-49
<PAGE> 54
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-50
<PAGE> 55
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-51
<PAGE> 56
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-52
<PAGE> 57
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-53
<PAGE> 58
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-54
<PAGE> 59
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-55
<PAGE> 60
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-56
<PAGE> 61
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-57
<PAGE> 62
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-58
<PAGE> 63
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-59
<PAGE> 64
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-60
<PAGE> 65
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-61
<PAGE> 66
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-62
<PAGE> 67
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-63
<PAGE> 68
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-64
<PAGE> 69
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-65
<PAGE> 70
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-66
<PAGE> 71
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-67
<PAGE> 72
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-68
<PAGE> 73
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-69
<PAGE> 74
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-70
<PAGE> 75
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-71
<PAGE> 76
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-72
<PAGE> 77
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-73
<PAGE> 78
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-74
<PAGE> 79
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-75
<PAGE> 80
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-76
<PAGE> 81
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-77
<PAGE> 82
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-78
<PAGE> 83
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-79
<PAGE> 84
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-80
<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>
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-81
<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-82
<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-83
<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-84
<PAGE> 89
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-85
<PAGE> 90
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-86
<PAGE> 91
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-87
<PAGE> 92
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-88
<PAGE> 93
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-89
<PAGE> 94
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-90
<PAGE> 95
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-91
<PAGE> 96
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-92
<PAGE> 97
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-93
<PAGE> 98
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-94
<PAGE> 99
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-95
<PAGE> 100
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-96
<PAGE> 101
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-97
<PAGE> 102
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-98
<PAGE> 103
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-99
<PAGE> 104
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-100
<PAGE> 105
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-101
<PAGE> 106
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-102
<PAGE> 107
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-103
<PAGE> 108
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-104
<PAGE> 109
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-105
<PAGE> 110
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-106
<PAGE> 111
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-107
<PAGE> 112
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-108
<PAGE> 113
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-109
<PAGE> 114
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-110
<PAGE> 115
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-111
<PAGE> 116
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-112
<PAGE> 117
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-113
<PAGE> 118
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-114
<PAGE> 119
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-115
<PAGE> 120
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-116
<PAGE> 121
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-117
<PAGE> 122
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-118
<PAGE> 123
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-119
<PAGE> 124
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-120
<PAGE> 125
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-121
<PAGE> 126
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-122
