<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A NO. 1
Amending Item Number 7*
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 1, 1996
--------------
EASTBROKERS INTERNATIONAL INCORPORATED
----------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-26202 52-1807562
---------- --------- ------------
(State or other jurisdiction (Commission File Number.) (IRS Employer
of incorporation) Identification No.)
15245 Shady Grove Road, Suite 340, Rockville, MD 20850
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 527-1110
----------------
CZECH INDUSTRIES, INC.
(Former name, if changed since last report)
* The 8-K dated August 1, 1996 is being amended to include the opinion of
Heritage Capital Corp. concerning the fairness of the acquisition of
Eastbrokers Beteiligungs AG to the shareholders of the Company, the revised
Report of Independent Public Accountants, the revised financial statements
which correspond with the revised Report of Independent Public Accountants
and Reports of other auditors as referenced in the Report of Independent
Public Accountants.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) The financial statements being filed with this Report are as follows:
(1) Czech Industries, Inc. Pro Forma Condensed Financial Statements
For the Year Ended December 31, 1995 and the Three Months Ended March 31,
1996;
(2) Eastbrokers Beteiligungs Aktiengesellschaft For the Years Ended
December 31, 1994 and 1995 (unaudited) and the Three Months Ended March 31,
1996 (unaudited); and
(3) WMP Borsenmakler Aktiengesellschaft for the Years Ended December
31, 1994 and 1995 (unaudited) and the Three Months Ended March 31, 1996
(unaudited).
(b) Exhibits required by Item 601 of Regulation S-B.
Exhibit No. Exhibit
- ------------ -------
(2) Stock Purchase Agreement dated as of June 14, 1996 and
Exhibits A through J, incorporated by reference to the
Registrant's Form 8-K dated August 1, 1996. (a)
(23) Consent of Heritage Capital Corp. dated August 4, 1997.
(99.1) Opinion of Heritage Capital Corp.
(99.2) Reports of other auditors
- ------------
(a) Previously filed.
- 2 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to this report to be signed on its
behalf by the undersigned hereunto duly authorized.
EASTBROKERS INTERNATIONAL INCORPORATED
------------------------------------------
(Registrant)
Date August 4, 1997 By: /s/ Peter Schmid
-------------------------- --------------------------------------
(Signature)
Peter Schmid
Chairman, President, Chief Executive Officer
and Director
- 3 -
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page
- ----------- --------- ------
(2) Stock Purchase Agreement dated as of June 14,
1996 and Exhibits A through J, incorporated by
reference to the Registrant's Form 8-K dated
August 1, 1996. (a)
(23) Consent of Heritage Capital Corp. dated August 4, 1997. 18
(99.1) Opinion of Heritage Capital Corp. 19
(99.2) Reports of other auditors 21
- ------------
(a) Previously filed.
- 4 -
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----------
Report of Independent Public Accountants F-2
Financial Statements
Consolidated Statements of Financial Condition F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Changes in Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Eastbrokers Beteiligungs Aktiengesellschaft
The consolidated statements of financial condition of Eastbrokers Beteiligungs
Aktiengesellschaft, as of December 31, 1994 and 1995, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the years then ended have been prepared from the consolidated
financial statements, which are not presented separately herewith, of
Eastbrokers Beteiligungs Aktiengesellschaft presented in accordance with
generally accepted accounting principles in Austria, as described in Note 1. We
have reviewed for compilation only the consolidated financial statements, and,
in our opinion, those statements have been properly compiled from the amounts
and notes of the underlying financial statements of Eastbrokers Beteiligungs
Aktiengesellschaft and its subsidiaries, on the basis described in Note 1.
The financial statements for Eastbrokers Beteiligungs Aktiengesellschaft and its
subsidiaries, presented in accordance with generally accepted accounting
principles in Austria were audited by other auditors as set forth in their
reports included elsewhere herewith. We have not been engaged to audit the
consolidated financial statements of Eastbrokers Beteiligungs Aktiengesellschaft
in accordance with generally accepted auditing standards and to render an
opinion as to the fair presentation of such consolidated financial statements in
accordance with generally accepted accounting principles in Austria.
The consolidated financial statements of Eastbrokers Beteiligungs
Aktiengesellschaft in accordance with generally accepted accounting principles
in Austria have been converted to the accompanying consolidated financial
statements presented in accordance with generally accepted accounting principles
in the United States of America, on the basis described in Note 1. We have
audited this conversion and, in our opinion, the compiled consolidated financial
statements described in the first paragraph of this report have been properly
converted to a presentation in accordance with generally accepted accounting
principles in the United States of America.
The United States dollar amounts shown in the accompanying consolidated
financial statements have been translated solely for convenience. We have
audited this translation and, in our opinion, the compiled consolidated
financial statements expressed in Austrian Schillings have been translated into
dollars on the basis described in Note 1.
/s/ Pannell Kerr Forster PC
July 15, 1996
F-2
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------ --------------
1994 1995 1996
-------------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 1,169,542 $ 751,329 $ 1,559,217
Cash and securities segregated for regulatory
purposes or deposited with clearing organizations 6,168 43,385 46,733
Securities purchased under agreements to resell 2,067,267 1,530,020 1,364,842
Receivables
Customers 1,429,007 14,893,133 14,694,205
Broker dealers and other 553,471 2,184,644 2,569,065
Affiliated companies 1,104,235 741,740 811,704
Securities owned, at value
Equities and other 328,272 3,168,924 1,261,113
Furniture and equipment, at cost (net of accumulated
depreciation and amortization of $235,493,
$346,242 and $389,522 respectively) 356,089 653,971 644,843
Deferred taxes 168,532 142,000 137,710
Investments held for resale 19,807 2,668,594 2,668,594
Investments in affiliated companies 2,010,558 5,546,822 5,516,372
Other assets 82,498 245,797 94,737
-------------- -------------- --------------
Total Assets $ 9,295,446 $ 32,570,359 $ 31,369,135
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings
Lines of credit $ 640,527 $ 1,624,961 $ 1,814,434
Affiliated companies 421,173 1,947,845 1,948,371
Payables
Customers 3,315,192 17,232,222 14,396,558
Broker dealers and other 527,819 1,223,827 2,487,700
Accounts payable and accrued expenses 348,707 888,376 1,080,027
-------------- -------------- --------------
5,253,418 22,917,231 21,727,090
Long-term borrowings - 2,422,500 2,422,500
-------------- -------------- --------------
Total liabilities 5,253,418 25,339,731 24,149,590
-------------- -------------- --------------
Minority interest in consolidated subsidiaries 613,559 794,615 847,270
-------------- -------------- --------------
Stockholders' equity
Capital stock 3,018,000 4,803,600 4,803,600
Paid-in capital - 178,560 178,560
Unrestricted retained earnings 160,742 1,030,769 1,094,716
Restricted retained earnings 14,934 14,934 14,934
Cumulative translation adjustment 234,793 408,150 280,465
------------- -------------- --------------
Total stockholders' equity 3,428,469 6,436,013 6,372,275
-------------- -------------- --------------
Total Liabilities and Stockholders' Equity $ 9,295,446 $ 32,570,359 $ 31,369,135
============== ============== ==============
</TABLE>
See report of Independent Public Accountants.
See notes to consolidated financial statements.
F-3
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------------------------------------------
1994 1995 1995 1996
------------- ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Commissions $ 603,384 $ 1,506,946 $ 192,650 $ 467,383
Interest and dividends 146,008 629,881 22,758 184,374
Principal transactions-net
Trading 1,941,560 2,818,947 385,929 573,874
Investment 38,693 (105,412) (17,205) 40,645
Management fees - 481,353 48,050 7,056
Other 243,662 264,834 21,100 62,046
Equity in earnings (loss) of unconsolidated affiliates 311,843 644,904 (15,411) 179,516
------------- ------------ ------------- ------------
Total revenues 3,285,150 6,241,453 637,871 1,514,894
------------- ------------ ------------- ------------
Costs and expenses
Compensation and benefits 265,790 1,183,471 91,142 241,149
Interest 158,927 558,815 33,020 108,289
Brokerage, clearing, exchange fees, and other 115,326 954,169 44,979 279,179
Occupancy and equipment 37,919 386,533 7,625 151,360
Communications 15,680 109,624 8,500 24,206
General and administrative 1,967,715 1,704,238 513,740 455,410
Depreciation and amortization 53,806 135,882 7,158 17,482
------------- ------------ ------------ ------------
Total costs and expenses 2,615,163 5,032,732 706,164 1,277,075
------------- ------------ ------------ ------------
Income (loss) before provision for income taxes
and minority interest in earnings of subsidiaries 669,987 1,208,721 (68,293) 237,819
Provision for income taxes 113,646 253,721 22,472 63,966
Minority interest in earnings of subsidiaries 90,845 84,973 32,535 109,906
------------- ------------ ------------ ------------
Net income (loss) $ 465,496 $ 870,027 $ (123,300) $ 63,947
============= ============ ============ ============
Weighted capital shares outstanding
Registered (par value 500,000 ATS) 2 2 2 2
============= ============ ============ ============
Registered (par value 1,000 ATS) 1 1 1 1
============= ============ ============ ============
Bearer (par value 1,000 ATS) 120 120 120 120
============= ============ ============ ============
Bearer (par value 100 ATS) 348,790 528,790 348,790 528,790
============= ============ ============ ============
Earnings (loss) per capital share
Registered (par value 500,000 ATS) $ 6,465.22 $ 8,055.81 $ (1,712.50) $ 592.10
============= ============ ============ ============
Registered (par value 1,000 ATS) $ 12.93 $ 16.11 $ (3.43) $ 1.18
============= ============ ============ ============
Bearer (par value 1,000 ATS) $ 12.93 $ 16.11 $ (3.43) $ 1.18
============= ============ ============ ============
Bearer (par value 100 ATS) $ 1.29 $ 1.61 $ (0.34) $ 0.12
============= ============ ============ ============
</TABLE>
See Report of Independent Public Accountants.
See notes to consolidated financial statements.
F-4
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
UNRESTRICTED RESTRICTED CUMULATIVE
CAPITAL PAID-IN RETAINED RETAINED TRANSLATION
STOCK CAPITAL EARNINGS EARNINGS ADJUSTMENT TOTAL
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 $ 1,965,600 $ - $ (293,016) $ 3,196 $ 14,509 $ 1,690,289
Net income - - 465,496 - - 465,496
Restriction of retained earnings in
accordance with regulatory
requirements - - (11,738) 11,738 - -
Issuance of capital stock 1,052,400 - - - - 1,052,400
Translation adjustment - - - - 220,284 220,284
------------ ------------ ------------ ------------ ------------ ------------
Balances at December 31, 1994 3,018,000 - 160,742 14,934 234,793 3,428,469
Net income - - 870,027 - - 870,027
Issuance of capital stock 1,785,600 178,560 - - - 1,964,160
Translation adjustment - - - - 173,357 173,357
------------ ------------ ------------ ------------ ------------ ------------
Balances at December 31, 1995 4,803,600 178,560 1,030,769 14,934 408,150 6,436,013
Net income - - 63,947 - - 63,947
Translation adjustment - - - - (127,685) (127,685)
------------ ------------ ------------ ------------ ------------ ------------
Balances at March 31, 1996 $ 4,803,600 $ 178,560 $ 1,094,716 $ 14,934 $ 280,465 $ 6,372,275
============ ============ ============ ============ ============ ============
</TABLE>
See Report of Independent Public Accountants.
See notes to consolidated financial statements.
F-5
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------------- ---------------------------
1994 1995 1995 1996
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 465,496 $ 870,027 $ (123,300) $ 63,947
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 53,806 135,882 7,158 17,482
Deferred taxes 1,091 26,532 (22,238) 4,290
Equity in earnings (loss) of unconsolidated affiliates 311,843 644,904 (15,411) 179,516
------------ ------------ ------------ ------------
832,236 1,677,345 (153,791) 265,235
Changes in operating assets and liabilities
Cash and securities segregated for
regulatory purposes (6,168) (37,217) - -
Securities purchased to resell (2,067,267) 537,247 (22,229) 165,178
Receivables
Customers 8,384,951 (13,464,126) 842,580 198,928
Broker dealers and other (398,007) (1,631,173) (147,675) (384,421)
Affiliated companies (495,210) 362,495 (166,115) (69,964)
Securities owned, at value 1,055,514 (2,840,652) 45,329 1,907,811
Other assets (12,299) (163,299) 4,199 151,060
Payables
Customers (10,251,656) 13,917,030 (114,516) (2,835,664)
Affiliated companies 237,940 696,008 (526,938) 1,263,873
Accounts payable and accrued expenses 246,369 539,669 96,450 191,651
------------ ------------ ------------ ------------
Net cash provided by (used in) operating activities (2,473,597) (406,673) (142,706) 853,687
------------ ------------ ------------ ------------
Cash flows from investing activities
Net proceeds from (payments for)
Investments in affiliates (1,028,731) (4,181,168) (238,921) (149,066)
Investments held for resale 64,617 (2,648,787) - -
Purchases of furniture and equipment (276,863) (433,764) (34,652) (8,354)
------------ ------------ ------------ ------------
Net cash provided by (used in) investing activities (1,240,977) (7,263,719) (273,573) (157,420)
------------ ------------ ------------ ------------
Cash flows from financing activities
Net proceeds from (payments for)
Short-term financings 692,769 2,511,106 (97,634) 189,999
Other long-term debt - 2,422,500 281,941 -
Issuance of capital stock for cash 1,052,400 1,964,160 - -
------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities 1,745,169 6,897,766 184,307 189,999
------------ ------------ ------------ ------------
Foreign currency translation adjustment 440,264 354,413 419,592 (78,378)
------------ ------------ ------------ ------------
Increase (decrease) in cash and cash equivalents (1,529,141) (418,213) 187,620 807,888
Cash and cash equivalents at beginning of period 2,698,683 1,169,542 1,169,542 751,329
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period $ 1,169,542 $ 751,329 $ 1,357,162 $ 1,559,217
============ ============ ============ ============
Supplemental disclosure of cash flow information
Cash paid for income taxes $ 93,191 $ 213,262 $ 22,472 $ 63,966
============ ============ ============ ============
Cash paid for interest $ 158,927 $ 558,815 $ 33,020 $ 108,289
============ ============ ============ ============
</TABLE>
See Report of Independent Public Accountants.
See notes to consolidated financial statements.
F-6
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include Eastbrokers Beteiligungs
Aktiengesellschaft and its subsidiaries ("Eastbrokers" or the "Company").
All significant intercompany balances and transactions have been
eliminated. These consolidated financial statements reflect, in the opinion
of management, all adjustments (consisting of normal, recurring accruals)
necessary for a fair presentation of the consolidated financial position
and the results of the operations of the Company.
The Company's financial statements have been converted to generally
accepted accounting principles in the United States ("U.S. GAAP"). The
financial statements which were converted were prepared in accordance with
the Austrian Commercial Code, which represents generally accepted
accounting principles in Austria ("Austrian GAAP"). Generally accepted
accounting principles in Austria vary in certain significant respects from
generally accepted accounting principles in the United States. The primary
significant differences are related to deferred income taxes and the
valuation of the securities portfolios.
Substantially all of the Company's financial assets and liabilities, as
well as financial instruments with off-balance sheet risk, are carried at
market or fair values or are carried at amounts which approximate current
fair value because of their short-term nature. Estimates of current value
are made at a specific point in time, based on relevant market information
and information about the financial instrument, specifically, the value of
the underlying financial instrument. These estimates do not reflect any
premium or discount that could result from offering for sale at one time
the Company's entire holdings of a particular financial instrument.
Accounts receivable from and payable to customers include amounts due on
cash transactions. Securities owned by customers are held as collateral for
these receivables. Such collateral is not reflected in the consolidated
financial statements.
Securities sold under agreements to resell are treated as financing
arrangements and are carried at contract amounts reflecting the amounts at
which the securities will be subsequently resold as specified in the
respective agreements. The Company takes possession of the underlying
securities purchased under agreements to resell and obtains additional
collateral when the market value falls below the contract value.
Government and agency securities and certain other debt obligations
transactions are recorded on a trade date basis. All other securities
transactions are recorded on a settlement date basis and adjustments are
made to a trade date basis, if significant.
Securities owned are carried at market value. Changes in unrealized
appreciation (depreciation) arising from fluctuations in market value or
upon realization of security positions are reflected in revenues, principal
transactions-net, investment.
Furniture and equipment are carried at cost and are depreciated on a
straight-line basis over the estimated useful life of the related assets
ranging from four to ten years.
Deferred income taxes in the accompanying financial statements reflect
temporary differences in reporting results of operations for income tax and
financial accounting purposes.
The assets and liabilities of the consolidated financial statements were
translated into the U.S. dollar currency from the Austrian Schilling at the
exchange rates prevailing at the respective dates of the consolidated
statements of financial condition. Revenues and expenses are translated at
the average exchange rates during the corresponding periods. The gains or
losses resulting from translating foreign currency financial statements
into U.S. dollars are included as a separate component of stockholders'
equity. Gains or losses resulting from foreign currency transactions are
included in the consolidated statements of operations.
Assets and liabilities of the Company's foreign subsidiaries were
translated into the Austrian Schilling from the respective foreign currency
at the exchange rates prevailing at the respective dates of the statements
of financial condition. Revenues and expenses are translated at the average
exchange rates during the
F-7
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
corresponding periods. The gains or losses resulting from translating
foreign currency financial statements into U.S. dollars are included as a
separate component of stockholders' equity. Gains or losses resulting from
foreign currency transactions are included in the consolidated statements
of operations.
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.
For purposes of the consolidated statement of cash flows, the Company
considers all demand deposits held in banks and highly liquid investments
with original maturities of ninety days or less other than those held for
sale in the ordinary course of business to be cash and cash equivalents.
2. RELATED PARTY TRANSACTIONS
In the normal course of business, the Company provides brokerage services
including clearance, investment banking and related activities for some of
its affiliates. The amounts related to such activities are not significant.
3. CASH AND SECURITIES SEGREGATED UNDER FEDERAL AND OTHER REGULATIONS
Cash of $6,168 and $43,385 as of December 31, 1994 and 1995, respectively,
have been segregated in special reserve bank accounts for the benefit of
customers in accordance with regulations under Austrian law.
4. INVESTMENTS HELD FOR RESALE
The Company is currently holding two investments in the capital stock of
unconsolidated affiliated companies for sale, at cost, to certain
stockholders of the Company. These investments are being carried at the
Company's original cost which approximates the estimated market value of
these investments.
5. INVESTMENTS IN AFFILIATED COMPANIES
Investment in WMP Borsenmakler Aktiengesellschaft
During the years ended December 31, 1994, and 1995, the Company had
acquired a total of twenty-two percent and forty-eight percent,
respectively, of the outstanding capital stock of WMP Borsenmakler
Aktiengesellschaft ("WMP"). The total cost of this acquisition was
36,756,375 Austrian Schillings (approximately $3,600,000). WMP is a stock
broker-dealer in Vienna, Austria. WMP is licensed as a Class B bank under
Austrian law. A Class B bank may, at its discretion, conduct any of the
normal activities associated with a bank with one major exception: it
cannot accept customer deposits. Although WMP has the ability to lend funds
to unrelated third parties, it has chosen not to actively pursue this line
of business.
The Company accounts for this investment using the equity method of
accounting. The carrying value of this investment was $1,770,983 and
$4,663,741 at December 31, 1994 and 1995, respectively. Summarized
statements of financial condition and statements of operations information
for WMP for the years ended December 31, 1994 and 1995 were as follows:
1994 1995
------------ ----------
Summarized Statements of Financial Condition
Total assets $ 11,470,504 $ 14,971,955
------------ -----------
Total liabilities 1,565,835 2,868,778
------------ ------------
Stockholders' equity $ 9,904,669 $ 12,103,177
============ ============
F-8
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
5. INVESTMENTS IN AFFILIATED COMPANIES (CONTINUED)
Investment in WMP Borsenmakler Aktiengesellschaft (continued)
1994 1995
-------------- ------------
Summarized Income Statement
Revenues $ 4,257,821 4,832,466
Expenses 2,853,124 3,463,296
-------------- ------------
Net income $ 1,404,697 $ 1,369,170
============== ============
Investments in Other Unconsolidated Affiliates
The Company also has other investments in unconsolidated affiliates
accounted for using the equity method of accounting. These investments are
primarily in the start-up phase and were not actively operating at December
31, 1994 and 1995. Unconsolidated affiliate investments included here are
as follows: Eastbrokers - Sofia, Eastbrokers - Ljubljana, Eastbrokers -
Zagreb, Eastbrokers - Kazakhstan, Eastbrokers - Moskow, Slovakia
Industries, and TRUD Investments. The combined carrying amount of these
investments was $239,575 and $883,081 at December 31, 1994 and 1995,
respectively.
6. INCOME TAXES
Income taxes at statutory rates included in the consolidated statements of
operations represent the following:
Current Deferred Total
------------ ------------ ------------
Year ended December 31, 1994 $ 93,191 $ 20,455 $ 113,646
============ =========== ============
Year ended December 31, 1995 $ 213,262 $ 40,459 $ 253,721
============ =========== ============
The temporary differences giving rise to the deferred tax asset at December
31, 1994 and 1995 are primarily from the valuation of the securities
portfolios and net operating loss carryforwards for tax purposes. The net
operating loss carryforwards are approximately 5,400,000 Austrian
Schillings and 4,200,000 Austrian Schillings, respectively. These net
operating losses are available for carryforward indefinitely. These
carryforwards are available to reduce future income taxes in Austria of
approximately 1,800,000 Austrian Schillings and 1,400,000 Austrian
Schillings, respectively at the current statutory rates. This is equivalent
to approximately $170,000 and $142,000.
The significant components of the net deferred tax assets as of December 31
were as follows:
1994 1995
----------- ------------
Deferred tax asset
Net operating loss carryforwards $ 236,708 $ 142,000
Deferred tax liability
Valuation adjustment to market value for
the securities portfolios (68,176) --
------------ ------------
Net deferred tax asset $ 168,532 $ 142,000
============ ============
F-9
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
6. INCOME TAXES (CONTINUED)
There are no valuation allowances recorded against deferred tax assets at
December 31, 1994 and 1995 since management believes there will be
sufficient taxable income in future years to fully utilize this tax
benefit.
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Company's customer, trading and
correspondent clearance activities involve the execution, settlement and
financing of various securities and financial instrument transactions. The
execution of these transactions includes the purchase and sale of
securities. These activities may expose the Company to off-balance sheet
risk in the event the customer or counterparty to the transaction is unable
to fulfill its contractual obligations and the collateral is not sufficient
to fully cover losses. In these situations, the Company may be required to
purchase or sell financial instruments at prevailing market prices which
may not fully cover the obligations of its customers or counterparties. The
Company limits this risk by requiring customers and counterparties to
maintain a satisfactory level of collateral as determined by the Company.
8. CONCENTRATIONS OF CREDIT RISK
As a securities broker and dealer in Eastern Europe, the Company is engaged
in various securities trading and brokerage activities servicing a diverse
group of domestic and foreign corporations, governments, institutional and
individual investors substantially all of whom are located in Western
Europe. Generally, substantially all of the Company's transactions are
collateralized. The Company's exposure to credit risk associated with the
non-performance of these customers in fulfilling their contractual
obligations pursuant to these securities transactions, can be directly
impacted by volatile securities markets, credit markets and regulatory
changes. Credit risk is the amount of accounting loss the Company would
incur if a counterparty failed to perform its obligations under contractual
terms and the collateral held, if any, was deemed insufficient.
At various times throughout the year, the Company maintained balances in
various financial institutions in excess of insured limits. The insured
limit per account is 200,000 Austrian Schillings.
9. SHORT-TERM BORROWINGS
Lines of Credit
Short-term borrowings are from financial institutions and are demand
obligations at interest rates between 7.50 percent and 13.50 percent. As of
December 31, 1994 and 1995, the amounts borrowed under these arrangements
totaled $640,527 and $1,624,961, respectively.
Affiliated Companies
At various times throughout the year, the Company received operating
advances from its affiliates. These advances are due on demand, typically
short-term in nature and not subject to interest charges.
10. LONG-TERM BORROWINGS
During 1995, the Company issued bonds with a face value of 25,000,000
Austrian Schillings in a public offering. These bonds are unsecured and
bear interest at ten percent payable on an annual basis. These bonds and
the corresponding unpaid accrued interest are due and payable in full on
July 31, 1997.
11. OFFICE LEASES
The Company and its subsidiaries lease their office space at the various
locations under operating leases. The various operating leases contain
cancellation clauses whereby the Company may cancel the lease with
F-10
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
11. OFFICE LEASES (CONTINUED)
ninety days written notice. For the years ended December 31, 1994 and 1995,
rent expense under these leases was approximately $73,000 and $173,000,
respectively.
12. CAPITAL STOCK
The Company was authorized to issue shares with a total combined par value
of 36,000,000 and 54,000,000 Austrian Schillings at December 31, 1994 and
1995, respectively. In the event additional shares will be offered to the
public, the Board of Directors will determine which type and the
corresponding par value of the shares to be issued. Total par value of the
shares issued and outstanding was 36,000,000 and 54,000,000 Austrian
Schillings at December 31, 1994 and 1995, respectively. The authorized,
issued, and outstanding shares of capital stock at December 31, 1994 and
1995 were as follows:
REGISTERED SHARES
Two classes of registered shares have been issued as of December 31, 1994
and 1995. The primary difference between these two classes is in the par
value. One class has a par value of 500,000 Austrian Schillings and the
other has a par value of 1,000 Austrian Schillings. Total par value of the
authorized, issued, and outstanding registered shares was 1,001,000
Austrian Schillings at December 31, 1994 and 1995.
There are two authorized, issued, and outstanding shares with a par value
of 500,000 Austrian Schillings. Total par value of this class of issued
registered shares was 1,000,000 Austrian Schillings at December 31, 1994
and 1995. Each of these registered shares grants the right to name one
person to the board of directors.
There is one authorized, issued, and outstanding share with a par value of
1,000 Austrian Schillings. Total par value of this class of issued
registered shares was 1,000 Austrian Schillings at December 31, 1994 and
1995. Each of these registered shares grants the right to name one person
to the board of directors.
BEARER SHARES
Two classes of bearer shares have been issued as of December 31, 1994 and
1995. The primary difference between these two classes is in the par value.
One class has a par value of 1,000 Austrian Schillings and the other has a
par value of 100 Austrian Schillings. Total par value of the authorized,
issued, and outstanding bearer shares was 34,999,000 and 52,999,000
Austrian Schillings at December 31, 1994 and 1995, respectively.
There are 120 authorized, issued, and outstanding shares with a par value
of 1,000 Austrian Schillings. Total par value of this class of issued
bearer shares was 120,000 Austrian Schillings at December 31, 1994 and
1995.
There are 348,790 and 528,790 authorized, issued, and outstanding shares
with a par value of 100 Austrian Schillings at December 31, 1994 and 1995,
respectively. Total par value of this class of issued bearer shares was
34,879,000 Austrian Schillings and 52,879,000 Austrian Schillings at
December 31, 1994 and 1995, respectively.
13. NET CAPITAL REQUIREMENTS
The Company along with certain Austrian and foreign subsidiaries of the
Company are subject to minimum net capital requirements of their respective
regulatory agencies. As of December 31, 1994 and 1995, the Company and its
subsidiaries were in compliance with all applicable regulatory capital
adequacy requirements.
F-11
<PAGE>
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
(A COMPANY INCORPORATED IN AUSTRIA)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
14. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed by dividing net income (loss)
applicable to capital stock by the proportionate share of the cumulative
par value of each class of stock outstanding for each period presented.
15. SUBSEQUENT EVENTS
In June 1996, the Company purchased a Warsaw, Poland based securities
company WDM Securities. This purchase allows the Company to be a full
member and shareholder of the Warsaw Stock Exchange. The total investment
is approximately $1.2 million and provides for an 89% ownership interest in
this new subsidiary. The Company expects to assume control of this new
subsidiary's operations in September 1996.
In April 1996, the Company entered into a preliminary agreement with a U.S.
Company, Czech Industries, Inc. to provide financing to the Company. Under
the terms of this agreement, Czech Industries, Inc. will provide up to $5.5
million at terms yet to be negotiated. This agreement contains various
covenants and conditions which will be fulfilled prior to the receipt of
financing by Czech Industries, Inc.
F-12
<PAGE>
EXHIBIT 23
CONSENT
We consent to the reference to our firm in this Amendment No. 1 to this
Current Report on Form 8-K/A of Eastbrokers International Incorporated, formerly
known as Czech Industries, Inc. (the "Company"), and to the filing of our
opinion, dated July 19, 1996, concerning the fairness of the acquisition of
Eastbrokers Beteiligungs AG to the shareholders of the Company as an exhibit to
such report.
/s/ Heritage Capital Corp.
August 4, 1997
New York, New York
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<PAGE>
EXHIBIT 99.1
HERITAGE Heritage Capital Corp.
CAPITAL 950 Third Avenue, 25th Floor
New York, NY 10022
212 319 1600
Fax 212 319 0527
July 19, 1996
Board of Directors
Czech Industries, Inc.
15245 Shady Grove Road
Rockville, MD 20850
Dear Directors:
The Board of Directors of Czech Industries, Inc. ("Czech") has requested our
opinion (the "Opinion") as to the fairness, from a financial point of view, to
the common shareholders of Czech of a transaction (the "Merger") whereby Czech
will acquire the number of issued and outstanding shares of common stock which
in the aggregate represent eighty percent (80%) of the issued and outstanding
capital of Eastbrokers Beteiligungs AG ("Eastbrokers") for 5,400,000 shares of
common stock of Czech and up to 600,000 additional shares of common stock of
Czech contingent on the Net Profits of Eastbrokers in the two fiscal years
ending December 31, 1998, (the "Purchase Price").
In arriving at our Opinion, we reviewed the financial terms of the Stock
Purchase Agreement between Czech Industries, Inc. and Eastbrokers Beteiligungs
AG dated June 14, 1996 (the "Agreement") and discussed with certain senior
officers, representatives and advisors of Czech and Eastbrokers the business,
operations and prospects of Czech and Eastbrokers. We examined certain publicly
available business and financial information relating to Eastbrokers as well as
certain financial forecasts and other data for Czech and Eastbrokers that were
provided to us by Czech and Eastbrokers. We reviewed the financial terms of the
Merger as set forth in the Agreement in relation to, among other things: current
and historical market prices of the common stock of Czech; the book value and
earnings per share of common stock of Czech and Eastbrokers and the
capitalization and financial condition of Czech and Eastbrokers. We considered,
to the extent publicly available, (i) the financial terms of certain other
transactions recently completed and (ii) financial and business information
regarding certain publicly traded companies. In addition to the foregoing, we
conducted such other analyses
- Investment Bankers Since 1977 -
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<PAGE>
July 19, 1996
Page 2
and examinations and considered such other financial, economic and market
criteria as we deemed necessary in arriving at our Opinion.
In rendering our Opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
publicly available information furnished to or otherwise reviewed by or
discussed with us. We have not undertaken an independent appraisal or evaluation
of the assets or liabilities of Czech or Eastbrokers. With respect to financial
forecasts and other information provided to or otherwise reviewed by or
discussed with us, we have been advised by the management of Czech that such
forecasts and other information were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the management of Czech as
to the future financial performance of Czech and Eastbrokers and the strategic
implications and operations anticipated from the Merger. We have not been asked
to consider, and our Opinion does not address, the relative merits of the Merger
described in the Agreement as compared to any alternative business strategies
that might exist for Czech. We are not expressing any opinion as to what the
value of Czech's shares actually will be or will trade subsequent to the Merger.
Our Opinion herein is necessarily based upon financial, stock market and other
conditions and circumstances existing and disclosed to us as of the date hereof
and it should be understood that subsequent developments may affect this Opinion
and that we do not have any obligation to update, revise or reaffirm this
opinion.
The Opinion expressed herein is provided solely for the use of the Board of
Directors of Czech in evaluating the Merger. Our Opinion may not be published or
otherwise used or referred to without our prior written consent.
Based upon and subject to the foregoing, our experience as investment bankers
and other factors we deemed relevant, we are of the Opinion that, as of the date
hereof, the Merger is fair, from a financial point of view, to the common
shareholders of Czech.
Very truly yours,
/s/ Heritage Capital Corp.
Heritage Capital Corp.
- Heritage Capital Corp. -
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<PAGE>
EXHIBIT 99.2
ATTESTATION NOTICE
concerning the
ANNUAL STATEMENT OF ACCOUNTS
of the EASTBROKERS Beteiligungs Aktiengesellschaft Wien
("EASTBROKERS Shareholding Corporation Vienna")
as of December 31, 1995
According to our audit executed as ordered, bookkeeping and the annual statement
of accounts are in accordance with the law. Under observance of the principles
of sound accounting practice, the annual statement of accounts reflects the
truest possible representation of the Company's assets, finances and earnings.
The situation report is in accordance with the annual statement of accounts.
Vienna, dated April 30th, 1996.
DELOITTE & TOUCHE
DANUBIA TREUHAND GMBH
("DANUBIA TRUSTEESHIP CO. LTD.")
Signed: /s/ Dr. Kollmann /s/ Dr. Heller
(Mag. Dr. Anton Kollmann) (Dr. Michael Heller)
Tax Consultant Certified Auditor and
Tax Consultant
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<PAGE>
EXHIBIT 99.2
ATTESTATION NOTICE
concerning the
ANNUAL STATEMENT OF ACCOUNTS
of the EASTBROKERS Beteiligungs Aktiengesellschaft Wien
("EASTBROKERS Shareholding Corporation Vienna")
as of December 31, 1994
According to our audit executed as ordered, bookkeeping and the annual statement
of accounts are in accordance with the law. Under observance of the principles
of sound accounting practice, the annual statement of accounts reflects the
truest possible representation of the Company's assets, finances and earnings.
The situation report is in accordance with the annual statement of accounts.
Vienna, dated November 30th, 1995.
ARTHUR ANDERSON & CO
TREUHAND GMBH
("ARTHUR ANDERSON & CO TRUSTEESHIP COMPANY LTD")
Signed: /s/ Mag. Michael Schober /s/ Mag. Dr. Alexius Goschl
Mag. Michael Schober Mag. Dr. Alexius Goschl
Certified Auditors
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<PAGE>
EXHIBIT 99.2
AUDITOR'S CERTIFICATE FOR THE SHAREHOLDERS OF EASTBROKERS
We have carried out the audit of the statements of account for the year 1995 in
accordance with the Law of the Czech National Council No. 524/1992, Collective
Law relating to Auditors and the Chamber of Auditors of the Czech Republic, as
well as in accordance with the Auditors Guidelines issued by the Chamber of
Auditors. The audit includes the examination of information which supports the
figures given in the statements of accounts, as well as the accountancy
procedures and the estimates used by the company in the preparation thereof.
The accounts unit is the organ of the company which in accordance with the
Articles of Association, is responsible for the conduct of accounting, for its
completeness, its support by proof, and its correctness. It is our duty to
request all information which is essential for the examination of the statements
of account, to the best of our knowledge and belief. The examination was carried
out as a selection procedure, respecting the degree of importance of the facts
as demonstrated.
On the basis of the audit of the accounts, we are of the view, by respecting the
principle of the degree of significance of the items selected, that "the
statements of account represent a faithful impression of the assets as at
31.12.1995, and of the economic developments in 1995".
There was no clearly defined internal control system in place within the company
in the course of 1995. Minor inadequacies were detected in respect of the
completeness, support by proof, correctness and timeliness of the accounts. In
the light of these inadequacies, we recommend that the statements of accounts
for the year 1995 be expressed, within certain reservations.
At the time of the completion of the audit report we didn't have the annual
stockholders report of the company and thus we cannot render an opinion. We
assume that this comment on the annual report will be done in a separate report
and attached to this report.
Prague, June 28th 1996
/s/ Ing. Frantisek Safar
Ing. Frantisek Safar
Registration No. 563
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<PAGE>
EXHIBIT 99.2
CHARTERED ACCOUNTANT DECLARATION (OPINION -OR FINDINGS) FOR THE STOCKHOLDERS OF
THE EASTBROKERS A.S.
We completed the chartered accounts audit for 1994 as required by the Czech
National law No 524/1992 SIC and in the requirement of the Society of Czech
Auditors and theirs guiding principles of the Commercial chartered accounts
examination of the Czech Republic. This audit embraced the examination of year
- -end results, the accounting procedures as well as the companies produced
evaluation information evidence.
For the bookkeeping (accounting) , its validity (quality), evidence and
correctness is the responsibility of the statutory organ of the accounting unit.
Our duty is, collection of all information which in our opinion is needed for
the proper audit, This examination embraced random sampling taking in account
(considering) the importance of each item.
The company didn't have through the year 1994 any clear cut internal controls.
Insignificant (trivial, petty) deficiency (shortcomings) in the whole (total) in
conformity with, correctness and timeliness of the accounting were found.
Despite this shortcoming we have determined through our audit and with
consideration of principles of the significance (consequence) that "THE YEAR END
ACCOUNTING REPRESENTS A TRUTHFUL AND ACCURATE PICTURE OF THE COMPANY ASSETS AS
OF DECEMBER 31ST, 1994 AND ITS COMPANY'S PERFORMANCE IN THE YEAR 1994".
At the time of the completion of the audit report we didn't have the annual
stockholders report of the company and thus we cannot render an opinion. We
assume that this comment on the annual report will be done in a separate report
attached to this report.
Prague, August 8th 1995
/s/ Ing. Vera Slavikova
Ing. Vera Slavikova
Registration No. 1230
- 24 -
<PAGE>
EXHIBIT 99.2
INDEPENDENT AUDITOR'S REPORT For the owners of Eastbrokers
Budapest Securities Ltd.
I have completed the audit of the Annual Report 1995 of Eastbrokers Budapest
Ltd.
Basically the audit focused on the relationships of profit/loss statement and
auxiliary supplements, and on the realistic nature or reported data.
The audit has been carried out on the basis of random sampling based on the
accounting law, stock market regulations and governmental decrees on the
procedure of audits.
The guidelines of the accounting policy have been properly applied in developing
the report.
I did not detect any infringement of law or irregularities during the audit.
However, the attention is drawn to the fact that the receivables from the
Batthyany group (minority owner) amount to 18,550 THUF. Based on the above
facts, please find enclosed the following clause, which can be authorised
without limitation:
THE ANNUAL REPORT AND THE SUPPORTING SYNTHETIC STATEMENTS CORRESPOND TO THE
CONDITIONS DETERMINED IN THE ACCOUNTING LAW AND IN THE STOCK MARKET REGULATIONS,
AND TO THE REALITY ACCORDING TO THEIR PROVISIONS.
THE ANNUAL REPORT PROVIDES A RELIABLE AND REALISTIC PICTURE ON THE EQUITY,
FINANCIAL AND INCOME CONDITIONS OF THE COMPANY.
BUDAPEST, JANUARY 29TH 1996
/s/ Margit Lakacs
Margit Lakacs
Registered Auditor
KI-059/93/IV
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<PAGE>
EXHIBIT 99.2
INDEPENDENT AUDITORS' REPORT
To the Quotaholders of Eastbrokers Budapest Ertekpapir Kereskedelmi Kft.:
We have audited the accompanying balance sheet of Eastbrokers Budapest
Ertekpapir Kereskedelmi Kft. ("the Company") as of December 31st 1994, and the
related statement of operations and supplement (collectively "the financial
statements") for the year then ended included in the Company's 1994 Annual
Report. The Annual Report is the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audit and assess whether the related accounting information contained in the
business report included in the Annual Report is consistent with that contained
in the financial statements. The accompanying financial statements of the
Company as of December 31st 1993 were approved by another auditor, and those
statements were furnished with an unqualified opinion on May 31st 1994.
We conducted our audit in accordance with the applicable laws and regulations in
force in Hungary and with International Standards on Auditing. 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. Our work with
respect to the business report included in the Annual Report was limited to the
aforementioned scope, and did not include a review of any information other than
that drawn from the audited accounting records of the Company. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the Annual Report has been compiled in accordance with Law XVII
of 1991 on Accounting, as amended, Government Decree 183/1991. (XII.30), and
with generally accepted accounting principles in Hungary. The Annual Report
provides a true and fair view of the financial position of the Company as of
December 31st 1994 and the results of its operations for the year then ended.
- 26 -
<PAGE>
Without qualifying our opinion, we draw attention to Note 6 of the accompanying
supplement. The Company has a receivable from the Minority Owner of 12,550
thousands of HUF as of December 31st 1994 included in other receivables in the
accompanying balance sheet. This receivable arose due to settlements upon the
purchase of the Company's quotas on August 3rd 1994. The change in ownership is
described in Note 1 of the supplement. The Minority Owner declared to management
of the Company to pay this amount before December 31st 1995.
Arthur Andersen & Co. Kft.
/s/ Szilagyi Judit
Szilagyi Judit
Budapest, Hungary
May 26th 1995
- 27 -
<PAGE>
EXHIBIT 99.2
Auditor's Report
on the inspection of the annual financial statement
EASTBROKERS SLOVAKIA a.s.
Liptovsky Mikulas
Period of inspection: January to December 1995
Date of report: June 7, 1996
The report is made for the shareholders in the company
Number of copies: 3
- 28 -
<PAGE>
Organization under inspection: Eastbrokers Slovakia
Akciova spolocnost
(Public Limited Company)
Namestie Osloboditelov 24
031 01 Liptovsky Mikulas
Firm ensuring the inspection : BDRspol. Sro
Hodzova 3
97401 Banska Bystrica
Slovak Auditors Chamber
Licence No. 6
Auditors performing the inspection:
Responsible auditor Ing. Peter Bieleny
Licence No. 75
Ing. Sylvia Zvonarova
Licence No. 487
Ing. Tatiana Mihalova
Licence No. 588
Program of inspection:
I. Introduction:
II. Inspection of bookkeeping documents, materials for inspection
1. Evaluation of the system and level of conducting the bookkeeping
2. Verification of the guideline for the procedures of bookkeeping and
inventorying
3. Methods used in evaluating assets and supplies
III. Inspection of the accomplished preparatory work for the financial
statement
1. Completion of the accounting of the account items of the current year
2. Accounting of the currency differences in the financial accounts of
receivables, credits and financial subsidies.
3. Accounting in the suspense accounts of assets and liabilities
4. Accounting of adjusting entries
5. Accounting of reserves
6. Inventorying and accounting of differences
7. Inspection of the calculation of the accounting economic result
8. Accounting of income tax
IV: Inspection of the objective contents of the financial statement
1. Inspection of the balance continuity
2. Compilation of the financial statement
V. Overall opinion of the auditors
VI. Final award
- 29 -
<PAGE>
I. Introduction:
The company Eastbrokers Slovakia a.s. was founded on November 11, 1993 and
is registered in the Companies Register of the District Court in Banska Bystrica
in Section Sa entry 581/S. The company's statuary body is its Board of
Directors. The chairman of the Board of Directors is Ing., Dusan Lukasik.
In public the company is represented by its Board of Directors. Each
director has the right to negotiate on behalf of the company. The directors
obligate the company in all matters by attaching the signatures of two directors
to the printed or written name of the company. In matters of the company's
current management the managing director obligates the company by his signature
by attaching it to the printed or written name of the company.
The audit was carried out in accordance with Act No. 73/1992 Corpus Juris
on the auditors. In virtue of the terms agreed the inspection was carried out on
a selective principle.
The auditing activity was directed at proving the due and law abiding mode
of the bookkeeping.
The inspection of the annual financial statement for 1995 was carried out
in virtue of the order made by the chairman of the Board of Directors in the
days of Nov. 18, 1995, May 6, May 28, and June 7th, 1996.
II. Inspection of bookkeeping documents, materials for inspection
The type and scope of the activities was selected in dependence on the
significance of the inspected areas and organisation of bookkeeping as well as
the effectiveness of the internal control system . The inspection activities
were concentrated on the compliance with the valid regulations, mainly Act. No
563/1991 Corpus Juris on bookkeeping, Accounting System, Accounting Procedures
for Entrepreneurs, Measures issued by the Ministry of Finance of the Slovak
Republic (MF SR No. 65/395/1994 dated Aug. 18, 1994, Measures issued by the MF
SR No 65/287/1993 dated Nov. V/1-31 388/1992 in the wording of the changes and
amendments of the MF SR No 52/502/1994 and other related financial statutory and
bookkeeping regulations.
The underlying materials for carrying out the audit were the following
documents submitted:
-Profit and loss account in full
-Balance sheet in full
-Extract from the Companies Register of the District Court Banska Bystrica
in Section Sa, entry 581/S
-Nominal ledger
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<PAGE>
-Primary accounting documents: invoices received
invoices sent
petty cash slips
internal documents
-inventory sheets
All the underlying materials and supplementing information were provided by
Mrs Molnarova, contractually appointed to process the company's bookkeeping.
1. Evaluation of the system and level of conducting the bookkeeping
The system of bookkeeping is realised by way of the double accounting
schedule in the developed form with single - entry and double entry analytical
bookkeeping. The bookkeeping was elaborated on a contractual basis by Magda
Molnarova using the program solution of the Q-SOFT Association Bratislava. There
is no company-internal bookkeeping. The circulation of the accounting documents
and the compliance with the accounting principles is in accordance with Act No.
563/1991 Corpus Juris. The linking of the bookkeeping to the determination of
the tax base is ensured through syntetical and analytical accounts and
inspection of accounting documents.
2. Verification of the guideline for the procedures of bookkeeping and
inventorying
The company follows its company-internal guideline for the accounting
procedures, which defines the procedure of inventorying the assets, receivables
and obligations under Art. 29 and 30 of Act No. 563/1991 Corpus Juris on
bookkeeping.
3. Methods used in evaluating assets and supplies
In evaluating the assets and the individual kinds of supplies, the company
follows Art. 24-26 of Act No. 563/1991 Corpus Juris on bookkeeping, Accounting
System, Accounting Procedures for Entrepreneurs. The purchased tangible and
intangible investment property and the supplies are evaluated in acquisition
prices, securities in the acquisition price with the application of the weighted
arithmetical average in case of their diminuition.
III. Inspection of the accomplished preparatory work for the financial
statement
1. Completion of the accounting of the account items of the current year
In its work on the annual financial statement the company followed the
Methodological Guideline of the MF SR No. 65/287/1993. In the financial
statement it included all the accounted items related to the inspected period.
2. Accounting of the currency differences in the financial accounts of
receivables , credits and financial subsidies.
- 31 -
<PAGE>
As of Dec. 31, 1995 the company exhibited no receivables and obligations in
foreign currency. The company calculated the balance in foreign-exchange cash
under the current rate of exchange and included the exchange-rate differences in
its profits and losses.
3. Accounting in the suspense accounts of assets and liabilities
As of Dec. 31, 1995, in accordance with the Accounting Procedures for
Entrepreneurs, the company accounted the time differentiation of the costs and
expenses of the following periods and the expected active and passive items
related to the period under inspection.
The company accounted in its costs the complex costs of the future periods
related to the 2nd wave of the voucher privatization.
The company accounted in its profits the profits of the future periods to
the 2nd wave of the voucher privatization.
4. Accounting of adjusting entries
In virtue of the inventorying carried out as of Dec. 31, 1995, the company
refrained from enforcing the principle of caution by creating adjusting entries.
5. Accounting of reserves
As of Dec. 31, 1995, the company created no statutory or other reserves.
6. Inventorying and accounting of differences
In accordance with Art. 29 and 30 of Act No. 563/1991 Corpus Juris on
bookkeeping the company carried out the inventorying of its assets and
obligations with no differences found.
As of Dec. 31, 1995 the company exhibits overdue receivables of Sk 253, 439
thousand and overdue obligations of Sk 303,865 thousand.
7. Inspection of the calculation of the accounting economic result
In ascertaining the economic result in its bookkeeping the company followed
Art IX of the Introductory Provisions of the Accounting Procedures for
Entrepreneurs, and exhibited the pre-taxation economic result of Sk 264
thousand.
8. Accounting of income tax
As of Dec. 31, 1995, the company accounted the income tax on extraordinary
activities in the amount of Sk 356,800.
IV. Inspection of the objective contents of the financial statement
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<PAGE>
1. Inspection of the balance continuity
The inspection of the initial balances of the nominal ledger as of Jan. 1,
1996 and the final balances of the nominal ledger as of Dec. 31, 1994 shows no
discrepancies . The balance continuity as of Jan. 1, 1995 was preserved.
The company's capital stock registered in the Companies Register as of the
date of inspection represented Sk 1,500 thousand. The above amount corresponds
to the present situation in the bookkeeping as shown in the analytical account
of the capital stock registered in the Companies Register. In the analytical
account of the capital stock not registered in the Companies Register the
company exhibits the amount of Sk 3,500 thousand accounted in 1994 in virtue of
the decision by the General Meeting. The company had not requested the
registration of the above increase in the capital stock in the Companies
Register until the course of the accounting period of 1995.
2. Compilation of the financial statement
In accordance with Art. 18 sect. 1 of Act No. 563/1991 Corpus Juris on
bookkeeping and the measures issued by the MF SR No. 65/277/1993 prescribing the
contents of the schedule forming part of the financial statement, the company
compiled the financial statement in the following scope:
a. Balance sheet in full
b. Profit-and-loss account in full
c. Schedule in full
V. Overall opinion of the auditors
As a whole, the financial statement is linked to the nominal ledger and the
Balance sheet. The company performs evaluation in accordance with the act on
bookkeeping.
The compiled financial statement respects the standards and provisions of
the related statutes.
VI. Final award
In the virtue of the submitted documents of the annual financial statement,
the effected inspection of the accounted quantities, information gained and our
findings, we state that the submitted annual financial statement reflects the
assets and financial situation of the company EASTBROKERS SLOVAKIA a.s. having
its registered office in Liptovsky Mikulas, is linked to the accounting books,
and the duly run bookkeeping corresponds to the statutory standards
without reservations.
/s/ BDR spol. s.r.o.
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