-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qd87UsEi0KW0wrw7Et4b2T+73o8bVLCNKxQBfC6BBso3Woavhw2TB+2SEpzh7oSh yZR+faJx5mZWEQfnF9dKzw== 0000950123-98-002348.txt : 19980309 0000950123-98-002348.hdr.sgml : 19980309 ACCESSION NUMBER: 0000950123-98-002348 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980106 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980306 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRIMOL GROUP INC CENTRAL INDEX KEY: 0001011733 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 133859706 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-28144 FILM NUMBER: 98558596 BUSINESS ADDRESS: STREET 1: 410 WEST 53RD ST STE 105 CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2126648949 MAIL ADDRESS: STREET 1: 51 HUDSON POINT LN CITY: OSSINING STATE: NY ZIP: 10562 FORMER COMPANY: FORMER CONFORMED NAME: NUTRONICS INTERNATIONAL INC DATE OF NAME CHANGE: 19960404 8-K/A 1 TRIMOL GROUP, INC. 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) 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. 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 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 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 6 JOLLY ALON LIMITED (MOLDOVAN COMPANY) BALANCE SHEETS U.S. DOLLARS IN THOUSANDS
SEPTEMBER 30, 1 9 9 7 1 9 9 6 ------- ------- NOTE ---- 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 - $10,000 par value: 532 authorized, issued and outstanding as of September 30, 1997 and 1996 5,320 5,320 Retained earnings 1,391 1,194 ------- ------- 6,711 6,514 ------- ------- Total liabilities and shareholders' equity 7,063 6,907 ======= ======
The accompanying notes are an integral part of the financial statements. F-2 7 JOLLY ALON LIMITED (MOLDOVAN COMPANY) STATEMENTS OF INCOME U.S. DOLLARS IN THOUSANDS
NINE MONTHS ENDED SEPTEMBER 30, 1 9 9 7 1 9 9 6 ------- ------- NOTE ---- Revenue 14(a) 2,120 2,614 Cost of revenue 14(b) 1,466 1,988 ------- ------- Gross profit 654 626 Selling, administrative and general expenses 14(c) 405 482 ------- ------- Income from regular operations 249 144 Financing income 14(d) - 169 Other income 14(e) - 16 Financing expenses 14(d) 105 92 Other expenses 14(e) 5 - ------- ------- Income before income taxes 139 237 Income taxes 15(b) 17 20 ------- ------- Net income for the period 122 217 ======= ======= Net income per share 16 0.23 0.41 ======= =======
The accompanying notes are an integral part of the financial statements. F-3 8 JOLLY ALON LIMITED (MOLDOVAN COMPANY) STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY U.S. DOLLARS IN THOUSANDS
TOTAL SHARE- SHARE RETAINED HOLDERS' CAPITAL * EARNINGS EQUITY --------- -------- -------- Balance as of January 1, 1996 5,320 977 6,297 Net income for nine months - 217 217 --------- -------- -------- Balance as of September 30, 1996 5,320 1,194 6,514 Net income for three months - 75 75 --------- -------- -------- Balance as of December 31, 1996 5,320 1,269 6,589 Net income for nine months - 122 122 --------- -------- -------- Balance as of September 30, 1997 5,320 1,391 6,711 ========= ========= ========= * US$ 10,000 par value.
The accompanying notes are an integral part of the financial statements. F-4 9 JOLLY ALON LIMITED (MOLDOVAN COMPANY) STATEMENTS OF CASH FLOWS U.S. DOLLARS IN THOUSANDS
NINE MONTHS ENDED SEPTEMBER 30, 1 9 9 7 1 9 9 6 ------- ------- 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 ======= =======
The accompanying notes are an integral part of the financial statements F-5 10
NINE MONTHS ENDED SEPTEMBER 30, 1 9 9 7 1 9 9 6 ------- ------- 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 ======= =======
The accompanying notes are an integral part of the financial statements. F-6 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 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:
EXCHANGE RATE OF THE DOLLAR ACCORDING TO MOLDOVAN LEU ------------ SEPTEMBER 30, 1997 4.618 1996 4.621
PERCENT ------- RATE OF INCREASE (DECREASE) IN THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (0.7) 1996 0.9
F-8 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 14 NOTE 3 - CASH AND CASH EQUIVALENTS
SEPTEMBER 30, ----------------- 1997 1996 ---- ---- US$ THOUSANDS ------------- 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 ==== ====
(1) Debt of the Government of Moldova, unlinked and without repayment date. F-10 15 NOTE 8 - PROPERTY, PLANT AND EQUIPMENT, NET (a) Composition
MACHINERY BUILDINGS AND (b) EQUIPMENT VEHICLES FURNITURE TOTAL --------- --------- -------- --------- ------- US$ THOUSANDS 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% ====== ========== ========= ==========
(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 16 NOTE 9 - RELATED PARTIES
SEPTEMBER 30, ------------------ 1997 1996 ---- ---- US$ THOUSANDS ------------- Seabeco International Ltd. - 153 ANB International Antverpen Belgium Ltd. 97 - --- --- 97 153 === ===
Regarding transactions and balances with related parties see Note 13. NOTE 10- TRADE ACCOUNTS PAYABLE Open accounts 183 183 Checks payable - - --- --- 183 183 === ===
NOTE 11- OTHER ACCOUNTS PAYABLE AND CREDIT BALANCES 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 === ===
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 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
SEPTEMBER 30, ----------------- 1997 1996 ---- ---- US$ THOUSANDS ------------- 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 === ===
(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)
NINE MONTHS ENDED SEPTEMBER 30, ----------------- 1997 1996 ---- ---- US$ THOUSANDS ------------- Income from hotel services 137 119 Expenses in respect of consultancy fees and agents' fees - 118 Expenses in respect of acquisition of inventories - 62
(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
NINE MONTHS ENDED SEPTEMBER 30, ----------------- 1997 1996 ---- ---- US$ THOUSANDS ------------- Acquisition of hotel furniture and equipment (mainly by Seabeco International ltd. and ANB International Antverpen Belgium Ltd.) 72 176
F-13 18 NOTE 14- SUPPLEMENTARY INCOME STATEMENT INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, ------------------ 1997 1996 ---- ---- US$ THOUSANDS ------------- (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 ===== =====
F-14 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
NINE MONTHS ENDED SEPTEMBER 30, ----------------- 1997 1996 ---- ---- US$ THOUSANDS ------------- Current taxes 18 - Deferred taxes (1) 20 --- --- 17 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 20 - Changes in the period (1) 20 --- --- Balance as of September 30 19 20 === ===
F-15 20 NOTE 15- INCOME TAXES (continued) (d) Deferred taxes are included in the balance sheet as follows:
SEPTEMBER 30, ----------------- 1997 1996 ---- ---- US$ THOUSANDS ------------- Current liabilities 2 1 Long term liabilities 17 19 --- --- 19 20 === ===
NOTE 16- NET INCOME PER SHARE
NINE MONTHS ENDED SEPTEMBER 30, ----------------- 1997 1996 ---- ---- US$ THOUSANDS ------------- 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 ==== ====
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 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:
SEPTEMBER 30, ---------------------------------------------------- ADDITIONAL 1997 1996 INFORMATION ------------------------ ------------------------ ------------------------- BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE ---------- ---------- ---------- ---------- US$ THOUSANDS Long term debt 121 (1) 124 (1) Commercial balance - debt of Government of Moldova
(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 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 23 JOLLY ALON LIMITED (MOLDOVAN COMPANY) BALANCE SHEETS U.S. DOLLARS IN THOUSANDS
DECEMBER 31, ------------------- 1 9 9 6 1 9 9 5 ------- ------- NOTE ---- 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 - $10,000 par value: 532 authorized, issued and outstanding as of December 31, 1996 and 1995 5,320 5,320 Retained earnings 1,269 977 ----- ----- 6,589 6,297 ----- ----- Total liabilities and shareholders' equity 7,046 7,491 ===== =====
The accompanying notes are an integral part of the financial statements. F-19 24 JOLLY ALON LIMITED (MOLDOVAN COMPANY) STATEMENTS OF INCOME U.S. DOLLARS IN THOUSANDS
YEAR ENDED DECEMBER 31, --------------------- 1 9 9 6 1 9 9 5 ------- ------- NOTE ---- Revenue 15(a) 3,427 4,105 Cost of revenue 15(b) 2,620 2,496 ----- ----- Gross profit 807 1,609 Selling, administrative and general expenses 15(c) 588 862 ----- ----- Income from regular operations 219 747 Financing income 15(d) 168 -- Other income 15(e) 17 -- Financing expenses 15(d) (92) (288) Other expenses 15(e) -- (122) ----- ----- Income before income taxes 312 337 Income taxes 16(b) 20 -- ----- ----- Net income for the year 292 337 ===== ===== Net income per share 17 0.55 0.63 ===== =====
The accompanying notes are an integral part of the financial statements. F-20 25 JOLLY ALON LIMITED (MOLDOVAN COMPANY) STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY U.S. DOLLARS IN THOUSANDS
TOTAL SHARE- SHARE RETAINED HOLDERS' CAPITAL * EARNINGS EQUITY --------- -------- ------ Balance as of January 1, 1995 5,320 872 6,192 Net income for the year -- 337 337 Dividend ** -- (232) (232) ----- ----- ----- Balance as of December 31, 1995 5,320 977 6,297 Net income for the year -- 292 292 ----- ----- ----- Balance as of December 31, 1996 5,320 1,269 6,589 ===== ===== =====
* US$ 10,000 par value. ** See Note 16(a)(1)[b] The accompanying notes are an integral part of the financial statements. F-21 26 JOLLY ALON LIMITED (MOLDOVAN COMPANY) STATEMENTS OF CASH FLOWS U.S. DOLLARS IN THOUSANDS
YEAR ENDED DECEMBER 31, ------------------- 1 9 9 6 1 9 9 5 ------- ------- 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 === ===
The accompanying notes are an integral part of the financial statements. F-22 27
YEAR ENDED DECEMBER 31, ------------------ 1 9 9 6 1 9 9 5 ------- ------- 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 === ===
The accompanying notes are an integral part of the financial statements. F-23 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 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 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 31 NOTE 3 - CASH AND CASH EQUIVALENTS
DECEMBER 31, -------------- 1996 1995 ---- ---- US$ THOUSANDS ------------- 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 === ===
(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 32 NOTE 8 - PROPERTY, PLANT AND EQUIPMENT, NET (a) Composition
MACHINERY BUILDINGS AND (b) EQUIPMENT VEHICLES FURNITURE TOTAL --------- --------- -------- --------- ----- US$ THOUSANDS ------------- 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% ===== ========= ======== =========
(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 33 NOTE 9 - SHORT TERM CREDIT FROM BANKING INSTITUTIONS (a) Composition
ANNUAL INTEREST RATE AS OF DECEMBER 31, DECEMBER 31, ------------ 1996 1996 1995 ---- ---- ---- PERCENT US$ THOUSANDS ------- ------------- Short term credit from company controlled by an related party 50 153 119 === ===
(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
DECEMBER 31, -------------- 1996 1995 ---- ---- US$ THOUSANDS ------------- 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 === ===
F-29 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
DECEMBER 31, ----------------- 1996 1995 ---- ---- US$ THOUSANDS ------------- 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 ===== =====
(1) Exim Bank S.A. (Regarding credit conditions see Note 9). (2) Regarding details of related parties see Note 10. F-30 35 NOTE 14- TRANSACTIONS AND BALANCES WITH RELATED PARTIES (continued) (c) Transactions with related parties (1)
YEAR ENDED DECEMBER 31, ---------------- 1996 1995 ---- ---- US$ THOUSANDS ------------- 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)
(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
YEAR ENDED DECEMBER 31, -------------- 1996 1995 ---- ---- US$ THOUSANDS ------------- Acquisition of hotel furniture and equipment (mainly by Seabeco International Ltd. and ANB International Antverpen Belgium Ltd.) 387 96
NOTE 15- SUPPLEMENTARY INCOME STATEMENT INFORMATION
YEAR ENDED DECEMBER 31, ---------------- 1996 1995 ---- ---- US$ THOUSANDS ------------- (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 ===== =====
F-31 36 NOTE 15- SUPPLEMENTARY INCOME STATEMENT INFORMATION (continued) (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 === ===
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 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
YEAR ENDED DECEMBER 31, --------------- 1996 1995 ---- ---- US$ THOUSANDS ------------- 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 -- ==== ====
(d) Deferred taxes are included in the balance sheet as follows:
DECEMBER 31, --------------- 1996 1995 ---- ---- US$ THOUSANDS ------------- Current liabilities 1 -- Long term liabilities 19 -- ---- ---- 20 -- ==== ====
F-33 38 NOTE 17- NET INCOME PER SHARE
YEAR ENDED DECEMBER 31, ------------- 1996 1995 ---- ---- US$ THOUSANDS ------------- 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 ==== ====
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 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:
DECEMBER 31, ------------------------------------ ADDITIONAL 1996 1995 INFORMATION ---------------- ---------------- ------------------ BOOK FAIR BOOK FAIR VALUE VALUE VALUE VALUE ----- ----- ----- ----- US$ THOUSANDS ------------- Long term debt 121 (1) 124 (1) Commercial balance - debt of Government of Moldova
(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 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 41 BANCA COMERCIALA PE ACTIUNI "EXPORT-IMPORT" (MOLDOVAN COMPANY) BALANCE SHEETS IN U.S. DOLLARS
SEPTEMBER 30, ------------------------------- Notes 1 9 9 7 1 9 9 6 ----- ---------- ----------- 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 ========== ==========
The accompanying notes are an integral part of the financial statements. F-37 42 BANCA COMERCIALA PE ACTIUNI "EXPORT-IMPORT" (MOLDOVAN COMPANY) STATEMENTS OF INCOME IN U.S. DOLLARS
Nine months ended September 30, ------------------------------- 1 9 9 7 1 9 9 6 ---------- ---------- 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 ========== ==========
The accompanying notes are an integral part of the financial statements. F-38 43 BANCA COMERCIALA PE ACTIUNI "EXPORT-IMPORT" (MOLDOVAN COMPANY) STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY IN U.S. DOLLARS
Nine months ended September 30, ------------------------------ 1 9 9 7 1 9 9 6 ---------- ---------- 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 ========== ==========
The accompanying notes are an integral part of the financial statements. F-39 44 BANCA COMERCIALA PE ACTIUNI "EXPORT-IMPORT" (MOLDOVAN COMPANY) STATEMENTS OF CASH FLOWS IN U.S. DOLLARS
NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- 1 9 9 7 1 9 9 6 ----------- ------------- 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
The accompanying notes are an integral part of the financial statements. F-40 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 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:
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-42 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 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 49 NOTE 3 - CASH AND DUE FROM BANKS
SEPTEMBER 30, ----------------------------- 1997 1996 ---------- --------- U.S. DOLLARS 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 ========== =========
(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
SEPTEMBER 30, -------------------------- 1997 1996 ----------- ----------- U.S. DOLLARS Gross balance 986,323 649,836 Allowance for doubtful accounts (55,161) (129,836) -------- -------- Net balance 931,162 520,000 ======== ========
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 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
SEPTEMBER 30, ------------------------------ 1997 1996 ---------- ---------- U.S. DOLLARS (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 ========== ==========
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%).
SEPTEMBER 30, -------------------------- 1997 1996 --------- ---------- U.S. DOLLARS (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 ====== =======
No interest was recognized on impaired loans on the cash basis for the above periods. F-46 51 NOTE 6 - LOANS (continued) (c) Analysis of the change in the allowance for possible loan losses:
SEPTEMBER 30, -------------------------- 1997 1996 -------- -------- U.S. DOLLARS 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 ======== ========
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:
Allowance (%) --------------------- September 30, --------------------- Credit category 1997 1996 - --------------- ---- ---- Standard 2% -- Watch 3% 2% Substandard 5% 5% Doubtful 75% 30% Loss 100% 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 September 30, 1997 is U.S.$ 203.3 thousand (September 30, 1996 - U.S.$ 271.3 thousand). F-47 52 NOTE 7 - INVESTMENTS IN INVESTEES Composition of balance of investment:
INVESTEE PERCENTAGE OF HOLDING COST - ------------ --------------------- ------------ % U.S. Dollars ------- ------------ 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 ======
(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:
DEPRECIABLE SEPTEMBER 30, ------------------------------- LIVES 1997 1996 ----------- ------------ ------------ YEARS U.S. Dollars 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 ========= ========
(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 53 NOTE 9 - OTHER ASSETS
SEPTEMBER 30, ----------------------- 1997 1996 ------- ------- U.S. DOLLARS 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 ======= =======
* 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:
SEPTEMBER 30, 1997 ------------------------------------------------------------------------------- DEUTSCHE MDL U.S.$ MARK OTHER TOTAL --------- --------- ------- --------- --------- U.S. DOLLARS 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 ========= ========= ======= ========= =========
SEPTEMBER 30, 1996 ------------------------------------------------------------------------------- DEUTSCHE MDL U.S.$ MARK OTHER TOTAL --------- --------- ------- --------- --------- U.S. DOLLARS 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 ========= ========= ======= ========= =========
(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 54 NOTE 11- OTHER LIABILITIES
SEPTEMBER 30, ----------------------- 1997 1996 ------- -------- U.S. DOLLARS 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 ======= ======
* 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 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
NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 1997 1996 ------- -------- U.S. DOLLARS Current taxes 185,754 119,633 Deferred taxes 134 16,728 ------- ------- 185,888 136,361 ======= =======
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 56 NOTE 15- ASSETS AND LIABILITIES CLASSIFIED ACCORDING TO LINKAGE BASES
September 30, 1997 -------------------------------------------------------------------------------------- Deutsche Soft Non-monetary MDL U.S.$ Mark currency* Other items Total -------- ------- -------- --------- ------ ------------ ------ U.S. Dollars 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 ========== ========== ======== ====== ======= ========= ===========
* Including Rumanian Leu and currencies of the former Soviet Union F-52 57 NOTE 15- ASSETS AND LIABILITIES CLASSIFIED ACCORDING TO LINKAGE BASES (continued)
September 30, 1996 -------------------------------------------------------------------------------------- Deutsche Soft Non-monetary MDL U.S.$ Mark currency* Other items Total -------- ------- -------- --------- ------ ------------ ------ U.S. Dollars 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 ========== ========== ======== ====== ====== ========= ===========
* Including Rumanian Leu and currencies of the former Soviet Union F-53 58 NOTE 16- ASSETS AND LIABILITIES CLASSIFIED ACCORDING TO MATURITY DATES
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 ---------- ---------- ---------- -------- --------- ----------- 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 ========== ========== ========== ======== ========= ===========
F-54 59 NOTE 16- ASSETS AND LIABILITIES CLASSIFIED ACCORDING TO MATURITY DATES (continued)
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 ---------- ---------- ---------- -------- --------- ----------- 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 ========== ========== ========== ======== ========= ===========
F-55 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:
SEPTEMBER 30, ---------------------------- 1997 1996 ----------- ---------- U.S. DOLLARS 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 ========= =======
(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 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 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 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 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 65 BANCA COMERCIALA PE ACTIUNI "EXPORT-IMPORT" (MOLDOVAN COMPANY) BALANCE SHEETS IN U.S. DOLLARS
DECEMBER 31, ------------ NOTE 1 9 9 6 1 9 9 5 ---- ------- ------- 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 ========== ==========
The accompanying notes are an integral part of the financial statements. F-61 66 BANCA COMERCIALA PE ACTIUNI "EXPORT-IMPORT" (MOLDOVAN COMPANY) STATEMENTS OF INCOME IN U.S. DOLLARS
YEAR ENDED DECEMBER 31, ------------ 1 9 9 6 1 9 9 5 ------- ------- 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 ========= =========
The accompanying notes are an integral part of the financial statements. F-62 67 BANCA COMERCIALA PE ACTIUNI "EXPORT-IMPORT" (MOLDOVAN COMPANY) STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY IN U.S. DOLLARS
YEAR ENDED DECEMBER 31, ------------ 1 9 9 6 1 9 9 5 ------- ------- 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 ========== ==========
The accompanying notes are an integral part of the financial statements. F-63 68 BANCA COMERCIALA PE ACTIUNI "EXPORT-IMPORT" (MOLDOVAN COMPANY) STATEMENTS OF CASH FLOWS IN U.S. DOLLARS
YEAR ENDED DECEMBER 31, ------------ 1 9 9 6 1 9 9 5 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES 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 -
The accompanying notes are an integral part of the financial statements. F-64 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 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 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 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 73 NOTE 3 - CASH AND DUE FROM BANKS
DECEMBER 31, ------------ 1996 1995 ---- ---- U.S. DOLLARS ------------ 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 ========= =========
(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
DECEMBER 31, ------------ 1996 1995 ---- ---- U.S. DOLLARS ------------ Gross balance 739,032 132,685 Allowance for doubtful accounts (129,032) (132,685) -------- -------- Net balance 610,000 - ======== ========
The interest on time deposits with banks in 1996 was 20% (1995 - 50%). F-69 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
DECEMBER 31, ------------ 1996 1995 ---- ---- U.S. DOLLARS ------------ (a) Composition of loans: 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 ========= =========
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%).
DECEMBER 31, ------------ 1996 1995 ---- ---- U.S. DOLLARS ------------ (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 ======= =======
No interest was recognized on impaired loans on the cash basis for the above years. F-70 75 NOTE 6 - LOANS (continued) (c) Analysis of the change in the allowance for possible loan losses:
DECEMBER 31, ------------ 1996 1995 ---- ---- U.S. DOLLARS ------------ 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 ======== =======
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 76 NOTE 7 - INVESTMENTS IN INVESTEES Composition of balance of investment:
INVESTEE PERCENTAGE OF HOLDING COST ----------------------------- ---------------------------- ------------ % U.S. DOLLARS - ------------ 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 ============
(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 77 NOTE 8 - BANK PREMISES AND EQUIPMENT Bank premises and equipment as of December 31 include the following:
DEPRECIABLE DECEMBER 31, LIVES 1996 1995 ----------- -------- ---------- YEARS U.S. DOLLARS ----- ------------ 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 ========= =======
(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
DECEMBER 31, 1996 1995 ------- ------- U.S. DOLLARS ------------ 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 ======= =======
F-73 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:
DECEMBER 31, 1996 ------------------------------------------------------------- DEUTSCHE MDL U.S.$ MARK OTHER TOTAL --------- --------- --------- --------- --------- U.S. DOLLARS ------------ 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 ========= ========= ========= ========= =========
DECEMBER 31, 1995 ------------------------------------------------------------- DEUTSCHE MDL U.S.$ MARK OTHER TOTAL --------- --------- --------- --------- --------- U.S. DOLLARS ------------ 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 ========= ========= ========= ========= =========
(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
DECEMBER 31, ---------------------- 1996 1995 --------- --------- U.S. DOLLARS ------------ 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 ========= =========
* 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 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 80 NOTE 13- INCOME TAXES (continued) (c) Composition of taxes
YEAR ENDED DECEMBER 31, ------------------ 1996 1995 ------- ------- U.S. DOLLARS Current taxes 142,300 199,184 Deferred taxes 18,837 3,167 ------- ------- 161,137 202,351 ======= =======
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 81 NOTE 15- ASSETS AND LIABILITIES CLASSIFIED ACCORDING TO LINKAGE BASES
DECEMBER 31, 1996 --------------------------------------------------------------------------------------------------- DEUTSCHE SOFT NON-MONETARY MDL U.S.$ MARK CURRENCY* OTHER ITEMS TOTAL ----------- ----------- ----------- ----------- ----------- ----------- ----------- U.S. DOLLARS ------------ 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 =========== =========== =========== =========== =========== =========== ===========
* Including Rumanian leu and currencies of the former Soviet Union F-77 82 NOTE 15- ASSETS AND LIABILITIES CLASSIFIED ACCORDING TO LINKAGE BASES (continued)
DECEMBER 31, 1995 ---------------------------------------------------------------------------------------------------- DEUTSCHE SOFT NON-MONETARY MDL U.S.$ MARK CURRENCY* OTHER ITEMS TOTAL ----------- ----------- ----------- ----------- ----------- ----------- ----------- U.S. DOLLARS ASSETS 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 =========== =========== =========== =========== =========== =========== ===========
* Including Rumanian leu and currencies of the former Soviet Union F-78 83 NOTE 16- ASSETS AND LIABILITIES CLASSIFIED ACCORDING TO MATURITY DATES
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 ------------- 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 =========== =========== =========== =========== =========== ===========
F-79 84 NOTE 16- ASSETS AND LIABILITIES CLASSIFIED ACCORDING TO MATURITY DATES (continued)
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 ------------ 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 =========== =========== =========== =========== =========== ===========
F-80 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:
DECEMBER 31, ---------------------- 1996 1995 --------- --------- U.S. DOLLARS ------------ 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 ========= =========
(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 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 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 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 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 90 EXIM ASINT S.A. (MOLDOVAN COMPANY) BALANCE SHEETS IN U.S. DOLLARS
September 30, December 31, Note 1 9 9 7 1 9 9 6 1 9 9 6 ---- -------- ------- ------- ASSETS 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 ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-86 91 EXIM ASINT S.A. (MOLDOVAN COMPANY) STATEMENTS OF INCOME IN U.S. DOLLARS
For the year For the nine months ended ended September 30, December 31, Note 1997 1996 1996 ---- -------- -------- -------- 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) ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-87 92 EXIM ASINT S.A. (MOLDOVAN COMPANY) STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY IN U.S. DOLLARS
Retained earnings Total Share (accumulate shareholders' capital deficit) equity ------- -------- ------- 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 ------- -------- -------
* 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 93 EXIM ASINT S.A. (MOLDOVAN COMPANY) STATEMENTS OF CASH FLOWS IN U.S. DOLLARS
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 --------- --------- --------- 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 ========= ========= =========
The accompanying notes are an integral part of these financial statements. F-89 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 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 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 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 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
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 --------- --------- --------- --------- --------- --------- --------- 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 ========= ========= ========= ========= ========= ========= =========
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 --------- --------- --------- --------- --------- --------- --------- 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 ========= ========= ========= ========= ========= ========= =========
(continued) F-94 99 EXIM ASINT S.A. NOTES TO THE FINANCIAL STATEMENTS IN U.S. DOLLARS
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 --------- --------- --------- --------- --------- --------- --------- 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 ========= ========== ========= ========== ========= ========= =========
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)
For the nine months ended For the year ended September 30, 1997 December 31, 1996 ---------------------------------- ---------------------------------- Reinsurance Reinsurance Gross ceded Net Gross ceded Net -------- --------- -------- -------- -------- -------- 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 ======== ========= ======== ======== ========= ========
(c) COMMISSIONS EARNED FROM REINSURANCE
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 ------- ------ ------- 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 ======= ======= =======
(continued) F-95 100 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.
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 ------- Client A 39.9% - - Client B - related party 17.4% 67.0% 60.3%
NOTE 5 - MOVEMENT IN LOSSES AND LOSS ADJUSTMENT RESERVE
September 30, December 31, ---------------------- 1 9 9 7 1 9 9 6 1 9 9 6 ------- ------- ------- 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 ======= ======= =======
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-96 101 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
Furniture and Motor equipment Computers vehicles Total ---------- ---------- ---------- ------- 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% ======== ======== ========
NOTE 8 - OTHER ASSETS
September 30, December 31, ------------------------ ----------- 1997 1996 1996 ------- ----- ------- 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 ======= ===== =======
(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-97 102 EXIM ASINT S.A. NOTES TO THE FINANCIAL STATEMENTS IN U.S. DOLLARS NOTE 9 - SECURITIES HELD TO MATURITY
September 30, ---------------------------- December 31, 1997 1996 1996 -------- -------- ------- Deposits with public organizations $285,827 $ 79,204 $47,919 ======== ======== =======
*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
September 30, -------------------------- December 31, 1997 1996 1996 ------ -------- ------- 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 $15,967 ====== ======== =======
(a) In May 1996 the shareholders committed unrevokably to increase the paid share capital of the Company to U.S.$ 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
September 30, ---------------------------- December 31, 1997 1996 1996 -------- -------- ------------- 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 ======== ======== =============
The shareholders with a holding in excess of 5% and their share are: 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% === === ===
(continued) F-98 103 EXIM ASINT S.A. NOTES TO THE FINANCIAL STATEMENTS IN U.S. DOLLARS Shareholders contributions in kind are described below:
Value of contribution in the Shareholder Contribution Complementary data share capital ----------- ------------ ------------------ ------------- 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
* 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
September 30, ----------------------------- December 31, 1997 1996 1996 -------- -------- -------- (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) ======== ======== ========
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-99 104 EXIM ASINT S.A. NOTES TO THE FINANCIAL STATEMENTS IN U.S. DOLLARS
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) 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%
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
September 30, September 30, December 31, 1997 1996 1996 ------------- ------------- ------------ Accounts payables to reinsurers $187,794 $ 61,288 $1,568 ======== ======== ======
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-100 105 EXIM ASINT S.A. NOTES TO THE FINANCIAL STATEMENTS IN U.S. DOLLARS (b) BALANCES WITH RELATED PARTIES
September 30, ----------------------------- December 31, 1997 1996 1995 ------- ------- -------- 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 -- --
* 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
September 30, Change in December 31, 1997 the period 1996 --------- --------- --------- 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 ========= ========= =========
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.
September 30, ------------------------------ December 31, 1997 1996 1996 ------- ------- ------- 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 $ -- $ -- $ -- ======= ======= =======
(continued) F-101 106 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
Nine months ended September 30, Year ended -------------------------- December 31, 1997 1996 1996 ------- ----------- ----------- 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)
* 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-102 107 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-103 108 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-104 109 EXIM ASINT S.A. (MOLDOVAN COMPANY) BALANCE SHEETS IN U.S. DOLLARS
December 31, ------------------------ Notes 1 9 9 6 1 9 9 5 ----- --------- --------- 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 ========= =========
The accompanying notes are an integral part of these financial statements. F-105 110 EXIM ASINT S.A. (MOLDOVAN COMPANY) STATEMENTS OF INCOME IN U.S. DOLLARS
For the year ended December 31, ------------------------ Note 1 9 9 6 1 9 9 5 ---- --------- --------- 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) ========= =========
The accompanying notes are an integral part of these financial statements. F-106 111 EXIM ASINT S.A. (MOLDOVAN COMPANY) STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY IN U.S. DOLLARS
Retained earnings Total (accumulated shareholders' Share capital deficit) equity ------------- ------------ ------------- 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 ========= ========= =========
* 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-107 112 EXIM ASINT S.A. (MOLDOVAN COMPANY) STATEMENTS OF CASH FLOWS IN U.S. DOLLARS
For the year ended December 31, ------------------------ 1 9 9 6 1 9 9 5 --------- --------- 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 $ -- ========= =========
The accompanying notes are an integral part of these financial statements. F-108 113 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-109 114 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:
EXCHANGE RATE OF THE DOLLAR ACCORDING TO THE MDL ------------- December 31, 1996 4.650 1995 4.522
PERCENT ------------- Rate of increase in the year ended December 31, 1996 2.8 1995 5.8
(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 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-110 115 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-111 116 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-112 117 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
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 ----- --------- ----- ----------- --- ------ --- 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 ========= ========= ========= ======== ======= ======== =======
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 ----- --------- ----- ----------- --- ------ --- 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 ======== ========= === === ======== ======== =======
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)
For the year ended For the year ended December 31, 1996 December 31, 1995 Reinsurance Reinsurance Gross ceded Net Gross ceded Net ----- ----- --- ----- ----- --- Property insurance $ 778 $ (389) $ 389 $-- $-- $-- Medical insurance 2,245 (1,122) 1,123 -- -- -- ------- ------- ------ --- --- --- $ 3,023 $(1,511) $1,512 $-- $-- $-- ======= ======= ====== === === ===
(continued) F-113 118 EXIM ASINT S.A NOTES TO THE FINANCIAL STATEMENTS IN U.S. DOLLARS (C) COMMISSIONS EARNED FROM REINSURANCE
For the year ended December 31, 1 9 9 6 1 9 9 5 ------- ------- 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 ======= =======
NOTE 4 - MAJOR CLIENTS The Company has three major clients in the property insurance, one of which is a related party.
Percentage of premium from total premium For the year ended December 31, 1 9 9 6 1 9 9 5 ------- ------- Percent Client A - 31% Client B - related party 60.3% - Client C - 61%
(continued) F-114 119 EXIM ASINT S.A NOTES TO THE FINANCIAL STATEMENTS IN U.S. DOLLARS NOTE 5 - MOVEMENT IN LOSSES AND LOSS ADJUSTMENT RESERVE
December 31, 1 9 9 6 1 9 9 5 ------- ------- 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 ======= =======
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-115 120 EXIM ASINT S.A NOTES TO THE FINANCIAL STATEMENTS IN U.S. DOLLARS NOTE 7 - FURNITURE, EQUIPMENT AND VEHICLES
Furniture and Motor equipment Computers vehicles Total --------- --------- -------- ----- COST 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% ====== ====== =======
NOTE 8 - OTHER ASSETS
December 31, 1 9 9 6 1 9 9 5 ------- ------- 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 $-- ======= ===
(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-116 121 EXIM ASINT S.A NOTES TO THE FINANCIAL STATEMENTS IN U.S. DOLLARS NOTE 9 - SECURITIES HELD TO MATURITY
December 31, 1 9 9 6 1 9 9 5 ------- ------- Deposits with public organizations $47,919 $-- ======= ===
* 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
December 31, 1 9 9 6 1 9 9 5 ------- ------- 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 ======= ===
* 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
December 31, 1 9 9 6 1 9 9 5 ------- ------- 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 ======== =======
* 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
Percent ------- 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% ==== =====
(continued) F-117 122 EXIM ASINT S.A NOTES TO THE FINANCIAL STATEMENTS IN U.S. DOLLARS Shareholders contributions in kind are described below:
Value of contribution in the Shareholder Contribution Complementary data share capital ----------- ------------ ------------------ ------------- 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
* 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
December 31, 1 9 9 6 1 9 9 5 ------- ------- (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) -- ======== ==
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-118 123 EXIM ASINT S.A NOTES TO THE FINANCIAL STATEMENTS IN U.S. DOLLARS
For the year ended December 31, 1996 Loss and loss Complementary adjustment loss reserves reserve --------------- --------------- Provision rate (%) ------------------ 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%
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
December 31, 1 9 9 6 1 9 9 5 ------- ------- Other payables to reinsurers $1,568 $-- ====== ===
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-119 124 EXIM ASINT S.A NOTES TO THE FINANCIAL STATEMENTS IN U.S. DOLLARS (B) BALANCES WITH RELATED PARTIES
December 31, 1 9 9 6 1 9 9 5 ------- ------- (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 -- --
* 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
December 31, Change in December 31, 1 9 9 6 the year 1 9 9 5 ------- -------- ------- 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 $80,158 ========= ========= =======
The write off amounting to U.S.$ 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.
December 31, 1 9 9 6 1 9 9 5 ------- ------- 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 $ -- $ -- ======= =======
(continued) F-120 125 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
December 31, 1 9 9 6 1 9 9 5 ------- ------- Net loss for the year $(32,662) $(20,001) Number of shares 13,740 13,740 Net loss per share $ (2.377) $ (1.455) ======== ========
* 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-121 126 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 -----END PRIVACY-ENHANCED MESSAGE-----