BIOFARM S.A. Audited Financial Statements for the year ended 31 December BDO Conti Audit SRL Accountants & Consultants

Transcription

1 Audited Financial Statements for the year ended 31 December 2006 BDO Conti Audit SRL Accountants & Consultants

2 Audited financial statements for the year ended 31 December 2006 Content Page Auditor's opinion 3-4 Administrator s report 5-16 Balance Sheet Income statement Cash flow statement 24 Statement of changes in equity 25 Notes to financial statements Data (Cod 30) 44 Data regarding non current assets (Cod 40) Note: The English version of the financial statements is the translation of the original Romanian version of audited financial statements. In case any differences are noticed between the two versions, the Romanian one is prevailing. Independent Auditors report to the Shareholders General Assembly 2

3 BDO BDO Conti Audit SRL Accountants & Consultants 90-92, Calea Serban Voda Bucharest 4, ROMANIA Phone: Fax: We have audited the accompanying balance sheet of BIOFARM S.A. as of December 31 st 2006 and the related income statement, cash flow statement, statement of changes in shareholders equity, and notes to financial statements for the year then ended. 2. Management is responsible for the preparation and fair presentation of these financial statements in accordance with MoPF Order 1752/2005 for the approval of accounting regulations, complying with European directives. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. 3. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. 4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 3

4 BDO BDO Conti Audit SRL Accountants & Consultants 5. In our opinion the financial statements referred to above present fairly, in all material aspects, the financial position and results from operation of BIOFARM S.A. as of December 31, 2006 in conformity with MPFO 1752/2005 regarding the approval of Accounting Regulations in agreement with the European directives. 6. According to MoPFO 1752/2005 our engagement was extended to the review of the Administrator s Report on Financial Statements for the year ended December 31, Based on our review, we did not observe any inconsistencies of Administrator s Report comparing with the enclosed financial statements. BDO CONTI AUDIT SRL Bucharest, March 22,

5 Report of Administrators of SC BIOFARM SA for the Financial Year 2006 S.C. BIOFARM S.A. has its registered offices in Bucharest, No. 99 Logofatul Tautu STR, sect.3 and has as its main activity the manufacturing and marketing of pharmaceutical products for human use, CAEN code 2442 manufacturing of pharmaceutical products. SC BIOFARM SA was established by Government Order no from The company does not have any branches or subsidiaries within country or abroad and did not suffer any major changes in the company structure in the course of the year Shares released by SC BIOFARM SA are listed at the Bucharest Stock Exchange market on the first category. During 2006 there have been no actions taken by SC BIOFARM SA to acquire its own shares. SC BIOFARM SA did not release during 2006 any debentures. The company s subscribed and paid-up share capital at 31 December 2006 was of LEI, entirely private, the nominal value of one share being of 0, 1 lei/share. The shareholder s structure at 14 December 2006 was the following: Number of Shares % S.I.F. OLTENIA S.A % S.I.F. MOLDOVA S.A % S.I.F. BANAT-CRISANA S.A % Others: % Total Shares % During 2006 the General Shareholders Meeting decided the increase of the subscribed and paid up share capital from lei to lei from reserves and the net profit that was obtained by means of giving shareholders shares instead of the split profit. The Administration Council The Board of Administration of SC BIOFARM SA in the period was formed by: - Danut VASILE BOA president - Ristea PRIBOI BOA member - Ion ANDREI BOA member - Alexandru Adrian CEUCA BOA member - Dumitru TUDOR BOA member Mr. Dumitru TUDOR resigned from its function as administrator in

6 The Board of Administration al SC BIOFARM SA in the period was formed by: - Danut VASILE BOA president - Ristea PRIBOI BOA member - Ion ANDREI BOA member - Alexandru Adrian CEUCA BOA member - Ioan CUZMAN BOA member The persons who form the executive management or the board of administration of the company have not been involved in litigations or administrative procedures regarding their activity with the emittent. The evolution of the Company during Evaluation of the Sales activity The total value for the sales of finished products during 2006 has grown in value, as well as in units compared to The main markets that BIOFARM targets by means of its active portfolio are: Digestive tract products Musculoskeletal products Vitamins Multivitamins Antiseptics and Disinfectants: Respiratory tract products, etc. By categories, BIOFARM products modified their portfolio shares from one year to another, so that at the end of 2006 we can notice a significant increase of sales for Nutritional Supplements from 18% in 2005 to 23%. For the prescription bound products we can notice a slight increase in their weight from 15% in 2005 to 16% in Though, the non prescription bound medication dropped from 63% in 2005 to 57% in Another category of products are the hygiene products which have kept their weight of 4% from total sales during the period. According to the statistics data supplied by CEGEDIM, in 2006 Biofarm SA occupied the 10 th place in the top of pharmaceutical manufacturers by units sold with a total of units sold and a market share of 2,9%, from a total of 256 manufacturers which are active on the Romanian market. We are market leaders in 10 therapeutic areas, the market share varying between 27, 44% for Silimarina (in the hepatoprotectors market) and 88, 55% for Brocriptin (in the prolactin inhibitors market). The rest of the leading market products are: Vitamin A (vitamin A products market), Vitamin E (vitamin E products market), auricular solution (auricular corticosteroids product market), Cavit Junior (pediatric products market), Vitamin A+D (vitamin A and D combinations market), Bixtonim (nasal decongestants product market), Triferment (digestive enzymatic supplements product market) and Colebil (choleretics and cholerokinetics product market). 6

7 The main products in the total sales for 2006 have been: Triferment, Colebil, Bixtonim, Silimarina, Vitamina E, Magneziu forte, Calciu Magneziu Vitamina D, Anghirol, Carmol, Bixtonim Xylo, Sirop patlagina, Brocriptin, Cavit Junior, Vincamina, Vitamina A Soft gel Capsules. The increase in exports represents one of the main objectives of the company in the medium and long term development strategy and according to this strategy, BIOFARM requested in 2006 marketing authorizations for 42 products in 10 countries, from which 16 products in 5 countries have received the marketing authorizations. Exports registered in 2006 an increase of 53% compared to 2005.The export markets for S.C. Biofarm S.A. products are: Russia, Azerbaijan, Moldavia, Belarus and Bulgaria - the last two being new markets for our products. For the near future, Biofarm is considering extending its present collaboration with international renowned companies for the nutritional supplements market as: Poly Pharma (Korea), Losan Pharma, Max Biocare(Australia), Eckhart-Solanova(U.S.A..) and other pharmaceutical products with Specifar (Greece), Genepharm (Greece), Pinnewood (Ireland), Chemo (Spain). Year 2006 has been characterized by price changes of the pharmaceutical products (in March and September), which lead to the reticence of the pharmacy s to make large stocks. The main competitors intensified their promotion efforts, increasing the promotion budgets: media (TV, radio, written media). Bixtonim has a market share of 39%. For example, Biofarm released at the end of Bixtonim Xylo spray. The main competitor of Bixtonim - Olynth (Pfizer) had a permanent media campaign throughout the entire year 2006 with the Grip Device commercial, also having a powerful commercial offer for the last semester of 2006, from 2+1 to consumer. This way Olynth gained market share from 22.46% at the end of 2005 to 25.96% at the end of The market share for Colebil is 48,7%. In these conditions, the main competitor for Colebil is Fiobilin (Terapia), with a market share of 8,06%, which has managed to increase by a factor of four the number of units sold in the last semester compared to the first semester of 2006 by means of a massive TV campaign. These investments may seem large, but we must take into consideration that all companies direct their strategies to the OTC and Nutritional Supplements market, the market where Biofarm has tradition in. The orientation towards these products is dictated by the new regulations for the prescription-bound pharmaceutical products and by the delays in receiving revenue from the products that are on national programs (free or compensated). To ensure a steady cash-flow which will allow their survival, companies are directing their interests towards pharmaceutical products that are not bound by prescriptions and investing in media campaigns and commercial campaigns. 7

8 The multivitamins market, in which Biofarm has a major interest by the presence of Cavit, has been extremely competitive for every player. KRKA (Pikovit), Wyeth (Centrum), Bayer (Supradyne), GSK (Eurovita) had media campaigns, doubled by commercial campaigns and medical promotion through dedicated teams. Nevertheless Cavit Junior kept its position as market leader with 30,61% market share, followed closely by Pikovit with 27,51%. SC Biofarm SA has annual selling contracts with the largest distributors in the pharmaceutical market, with a good supply chain to pharmacies. During 2006 there have been no incidents in our collaboration with the distributors, neither from the sales point of view nor from the cash in of revenues from them. The company makes sustained efforts to increase the sales and the market share, by bringing new products to the market, modifying and improving existing products, penetration of new markets and diversification of the working protocols with the distributors. Next to the export activity, the launch of new products and preventing the erosion of our present portfolio will ensure the needed growth along with the growth of the market. The timetable for the launch of new products will influence the marketing and sales expenses in order to make them competitive on the market. During 2006 there have been registered 12 new products (2 Rx, 2 OTC, 7 Nutritional Supplements and 1 Cosmetic) and 3 dossiers have been submitted for review to the National Medicine Association. At the same time, 3 products from Biofarm s current active portfolio have been reauthorized. During 2006, Biofarm has started 68 in-house development projects, 7 reformulation projects for current products, and 61 new product projects, from which 11 nutritional supplements and 50 prescription bound or OTC. During 2006, Biofarm signed 2 new product development contracts with Romanian companies and mixed capital companies. By 30 June 2006 all active products in the portfolio were resubmitted and approved by the National Medicine Agency. 2. Asessment of the Research and Development activity The research activity is an important link in maintaining the growth of the company. Keeping this in mind, in 2006 the expenses for research and development had a weight of 2% from the company s turnover and for 2007 it is expected an increase of 8.5% compared to the previous period. 3. Asessment of the procurement and supply activity (local and import sources) According to the data in the financial balance sheet at , the stocks were mostly at the same level with those from ; this considering that the sales had increased with approximately 15%. 8

9 At the same time with the efforts to maintain the stocks at an optimal level, the company made an effort to improve the conditions and the working procedures with its suppliers as following: Supplier portfolio in 2006 : 107 suppliers for raw materials and packaging materials ( aprox. 70 % import sources and 30 % local sources ), 64 suppliers for other production materials (60 % import sources and 40 % local sources). Increase of the payment period for internal and external suppliers. Number of new suppliers approved in (for approximately 40 % of raw materials and supplied packaging there are backup suppliers). Suppliers have been selected according to quality, documentation, lowest prices and optimal payment conditions. 4. Asessment concerning the impact that the main activity of the company on the environment. The basic characteristic of the environmental program sustained by SC Biofarm SA in 2006 is shown by the following major aspects: All activities that have taken place during the year 2006 had a reduced impact on the environment, taking place within the limits of the applicable law, without any sanction able deviation; For the entire year the environmental policy has been respected, objectives have been defined and action plans established with the purpose of eliminating minor nonconformities and the reasons of which they appear; The consistency in applying the environmental policy has made it possible that throughout the year there have been no accidents that had as a result the pollution of the environment. Environment objectives have been established beyond the minimal requirements of environmental protection law. 5. Asessment of the aspects regarding the company s employees The medium number of employees for 2006 is 332. From the total employees 59% are part of the Independent Society Syndicate, registered at the democratic syndicate confederation in Romania. 35% from the total employees have superior studies, 17% are employees with medium studies and the rest are at the gymnasium/ professional school level. During 2006 there have not been registered any conflicts between the managing staff and the employees. Annually, the contractual conditions between the managing staff and the syndicate are negotiated for the present year, conditions that are mentioned in the collective work contract, applicable at a company level. 6. Asessment of the risk management activity made by the company. In order to lower the impact of exposing the company to price risks, measures have been taken to make medium term supplying contracts with negotiated prices as well as in the national currency and in other currencies (especially USD and EURO) with at least two or three raw materials suppliers or services providers. Behind these pricing negotiations, the 9

10 sensitivity of BIOFARM s product profitability in cases of price modifications or change of currency rates for the prices for raw materials has been taken into consideration. BIOFARM has the possibility to modify the prices for the majority of its products, with the exception of the products that are price controlled by the National Medicine Association, their weight being of only 16% from the total sales. Even in the case of these products, price increases can be obtained by justifying the increase of production costs; although this process is rather slow. The profit of this period is superior by 8.55% to that obtained in The general liquidity rate of in 2006 was of 3.87, current assets overtaking the value of current obligations, and the rate of financial autonomy is of 3.22 in increase compared to The company does not have any unpaid obligations to the state budget or to its suppliers. Presentation of the financial situation for the year 2006 The Board of Administration, among other tasks, also focused on complying with the provisions of Law 82/1991 regarding the correct and updated management organization patrimony s accounting, as well as the stipulations of the Order 1752/2005 issued by the Public Finances Ministry for the approving of the accounting regulations in accordance with the European Directives and the International Accounting Standards. Since 2001, the company began applying the International Accounting Standards in accordance with the stipulations of the above mentioned order, by submitting financial situations accordingly drawn up. There was also assured the chronological and systematic registration of the patrimonial operations, recording and processing the information regarding the situation of the patrimony and of the financial results, the information necessary for patrimony establishing, the execution of the incomes and expenses budget, drawing up of the checking balance sheet and of the annual report. The drawing up of the report pertaining to the financial results on was made complying with the Law no. 82/1991, with the subsequent updates and completions, and with the Order no. 1752/2005 for the approval of the accounting regulations completed with the European Directives and with the International Accounting Standards. The financial statements are drawn up according to the engagement accounting. Thus the effects of the transactions and other events are acknowledged when the transactions and the events effectively take place (and not considering the cashing in, nor the payments) and are registered in the accounting reports and reported in the financial reports of the due periods. The financial reports are usually drawn up based on the presumption that the company will carry on the activity in the predictable future. The company has neither the intention nor the need to liquidate or reduce significantly the activity; if such an intention or need exists, it is likely that the financial situations to be drawn upon a different basis of evaluation and in this case there will be presented the information pertaining to the used base. 10

11 Balance sheet on Lei I INTANGIBLE ASSETS 55, , % II TANGIBLE ASSETS 37,806,926 40,800,268 8% A FIXED ASSETS TOTAL 37,862,007 41,161,719 9% I STOCKS 7,273,273 7,467,217 3% II RECIEVABLES 10,694,164 12,846,933 20% 10,840,240 9,353,656-14% III SHORT TERM FINANCIAL INVESTMENTS IV CASH AND ACCOUNTS IN BANKS 8,322,162 15,014,002 80% B CURRENTS ASSETS- TOTAL 37,129,839 44,681,808 20% C ADVANCE EXPENSES 158, ,737-13% D DEBTS PAYABLE WITHIN ONE YEAR 14,459,014 11,501,369-20% E CURRENT ASSETS RESPECTIVELY NET CURRENT DEBTS 22,829,232 33,318,176 46% TOTAL ASSETS MINUS CURRENT DEBTS F 60,687,404 74,476,831 23% G DEBTS PAYABLE IN MORE THEN ONE YEAR 1,779,650 2,120,288 19% PROVISIONS FOR RISKS AND EXPENSES 1,710,447 1,823,163 7% H I INCOMES IN ADVANCE 3,835 3,064-20% J CAPITAL AND RESERVES I PAID UP SUBSCRIBED CAPITAL 35,927,289 46,950,394 31% II REEVALUATION RESERVES 3,871,641 4,402,612 14% III LEGAL RESERVES 2,343,721 3,064,194 31% IV OTHER RESERVES 1,756,965 1,756,965 0% V OWN SHARES 89, VI REPORTED RESULT 13,387,058 2,403,822-82% VII RESULT OF THE FINANCIAL SITUATION 11,713,463 12,715,098 9% VIII PROFIT DISTRIBUTION 11,713, ,343-94% TOTAL OWN CAPITALS 57,197,307 70,532,742 23% Fixed Assets The commercial company S.C. BIOFARM S.A. is a pharmaceutical products for human use manufacturer. By having this quality it is submitted to special laws concerning authorization for the functioning of pharmaceutical products manufacturers. From these, great attention is shown to the GMP regulations (Good Manufacturing Practice) standing as standard in Romania. 11

12 To meet GMP specifications requested by the European Community and the National Medicine Agency, our company finalized during the year 2004 a massive investment process which has taken shape in the arrangement of clean rooms made of modular walls and ceilings with metal facets with a special covering and polyurethane core, antistatic PVC floors, which create sealed spaces for the functioning of the production equipments, a large spectrum of equipments and systems for the treatment of air (cooling, dehumidifying, heating, filtering, pressurizing of the air and of toxic gas releases control) ensuring a filtering coefficient of 99,997%. In 2006 there were made investments in amount of Ron. Out of which Ron represents investments for intangible assets (mainly licenses for products), and the difference as following: Tangible assets Purchases in 2006 Lands Buildings Technical installations and machines Other installations, equipments and furniture In 2006 investments continued with the purchase of equipment and machines for the production activity and followed the investments toward the completion for GMP. This way in 2006 the following investments were received: acclimatization installations, climatic stability chamber, tablet press, microbiological incubators, blistering equipments, chromatographic liquid, spectrophotometer, decomposition tester and other equipments related to the Research and Development activity and the CTC laboratories. The investment process continued, by investing in creating storage spaces that are in accordance with the GMP requirements, production space modernization and offices. By these means, for the outfitting of the storage space, from Ion Minulescu Street -Bucharest, investments have been received in value of lei, invested sums existing and following to be received during In November 2006, SC Biofarm SA purchased a land with the surface of mp located in Bucharest, sector 3 and in February 2007 another piece of land has been purchased with the surface of mp in the same location. On this land, SC Biofarm SA will start in 2007 the construction of a building with the role of warehouse and laboratory. Significant investments have been made to be in line with the standing environment regulations. By this way has been bought and partially paid for a used water purification plant, for which a light construction has been built in the place of the building demolished in During 2006, to cope with the much stronger competition in the pharmaceutical market, SC Biofarm SA significantly increased its marketing and sales teams. This meant for the company a major investment to insure the logistics needed for the new departments: the car fleet, office outfitting and computers. 12

13 SC Biofarm SA holds its production activity in #99 Logofatul Tautu street, Bucharest, sector3. At , the buildings in the company s patrimony have been reevaluated by SC Iprochim SA, associated member of National Evaluator Agency in Romania (ANEVAR), with the certificate nr.183/1992. The reevaluation report of the buildings was taken into consideration in the accounting situation. So, the buildings in the company s patrimony are found at their true value in the financial report. Following the inventory at fixed assets have been proposed for cassation with a not liquidated value for which a provision has been created for lei. Provisions have been created in the past years because of the physical depreciation of the fixed assets, as well as the moral depreciation following the GMP implementation. In 2006 a provision was canceled in the sum of LEI, representing the net un-liquidated value of a partially demolished building. Also in 2006 some of the previously created provisions have been canceled for depreciation of fixed assets in the sum of lei. In the case of tangible assets presented above, lei are fully liquidated tangible assets and still in use. The company has lands that are not found in the yearly report because the documents that prove the ownership have not yet been obtained. The dossiers are suspended at the Bucharest City Hall, notifications existing under the Law nr. 10/2001. According to the stipulations of HG no. 834/1991, art. 1, the company requests the procurement of the certificates that prove the ownership, for the lands needed to insure the activity according to the object of activity of the company. The value of the lands for which an ownership certificate will be procured shall be established according to the law. According to the Law 137/2003, the paid up share capital of the company will be increased with the value of the lands and the shares will enter the state s possession. At 31 December 2006, the company did not own any ownership title over the buildings in use from 99 Logofatul Tautu street and Iancu de Hunedoara Bd., but these buildings are in the patrimony of SC Biofarm SA. Stocks The stocks of raw materials and materials have registered an increase by 2, 67% compared to the same period of the last year; significant increases have been for the last two months of The stocks of finished products at the end of 2006 represent 25% of the total stocks, decreasing compared to

14 Receivables Receivables have increased in 2006 by 20% mainly because of the turnover increase. In 2006, SC Biofarm SA also managed, because of the commercial policy used, to maintain the cashing-in term from the customers to days, with an effective average of 113 days. This had a positive impact to the cash flow of the company. Short and long-term debts The short term debts have diminished compared to the same period of the previous year from lei at , to lei at the end of This drop was determined by the decrease of commercial debts and debts to the state budget. Long term debts have marked a slight increase compared to 2005, because of contracting an investment credit. Obligations to the state budget and the local budgets, taxes special funds, have been correctly calculated and deposited until the settled deadlines. Equity For the last three years, SC Biofarm SA redirected the net annual profit, with the Shareholders General Meeting approval, after creating the legal reserve permitted by the law, to the increase of the paid up share capital. So, if at the paid up share capital had a value of lei, at it has the value of lei. Own capital has increased by 23, 33 %. In the own capitals are included also the reserves from the fiscal facilities in amount of 4.02 million lei. These reserves are neither distributable to the shareholders nor used in the increase of the share capital or for covering the accounting losses. In case the destination of these reserves is changed, on these amounts there will be recalculated the profit tax and also calculated interests of delay and penalties since the date of applying the respective facility (Law 571/2003) 14

15 The Profit and Loss account The net turnover made in 2006 was of lei increasing by 14, 6% compared to Analyzed in their own structure, the main working expenses are presented as following: Working expenses posts % Expenses with raw materials and materials 16,529,833 14,449, % Expenses with energy and water 1,533,521 1,563, % Expenses with employees 9,533,142 10,866,240 13,98% Adjustment of the liquidation value, circulating 2,935,104 3,606,427 actives and provisions 22.9% Expenses with external services, Other working 7,890,825 9,707,360 expenses 23% WORKING EXPENSES 39,922,792 42,230, % Important structural modifications are only related to raw materials, where there is a decrease of 12.66% because of the increased efficiency in the process of production. The Expenses with external services register an increase of 23% compared to the same period of the last year as a result of the increase in promotion for the traditional products and new products and for the launch of new products. The marketing and sales promotions have increased by 65% in 2006 compared to the same period of In this time new teams have been created for marketing and sales that attracted supplemental expenses in 2006: salaries, official trips, consumables. Taking into consideration the turnover increase of 14.6% there can be noticed an increase of working expenses of only 5.8%, the operational result being of lei. During the last year SC Biofarm SA made a financial profit of lei, compared to lei in This fluctuation is based on the currency rates that have influenced in a favorable way the financial profit of So, the operational result lists an increase of 12, 5% and the gross profit registers an increase of 8, 48%. The net profit of 2006 is of lei, compared to lei in 2005; in the last year registering an increase of 8, 6% on net profit. 15

16 Cash flow Statement Description December 2004 December 2005 December 2006 Opening balance Cash from the main activity Cash from investment activity ( ) ( ) ( ) Cash from financing activities ( ) ( ) ( ) Closing balance At the end of 2006 the company has availability in liquidities of lei, increasing compared to 2005 with lei. REPORT OF THE PRESIDENT OF S.C. BIOFARM S.A. BOARD OF ADMINISTRATION During the financial year 2006 the President of the Board of Administration called 16 meetings of the members of the Board. The call has been made according to the Constitutive Act of the company and of the Law 31/1990 regarding commercial companies, reedited, with modifications and supplementations. The meetings of the Board of Administration took place at the company s headquarters in Bucharest, 99 Logofatul Tautu street, sector 3. Monthly, the financial reports of the previous month as well as other important issues were presented to the Board of Administration and debated in order to make the necessary decisions for the welfare of the company. Following the meetings of the Board of Administration, a number of 19 decisions were made and communicated to the departments that had to carry them out. All decisions of the Board of Administration have been fulfilled. During the financial year of 2006, the Board of Administration convened to increase the paid up share capital respecting the competence delegation granted by the general shareholders meeting by decision nr.49 from Following the resignation of Mr. Dumitru Tudor (after ), the board of administration decided in the meeting from to appoint Mr. Cuzman Ioan as a temporary Administrator. President of the Board of Administration, Danut Vasile 16

17 BALANCE SHEET (all amounts are presented in RON, unless stated otherwise) Row No. 31 December December 2006 I. INTANGIBLE ASSETS Concessions, patents, licenses, trademarks and similar rights and assets, and other intangibles (a/c ) Advance payments for intangible non-current assets (a/c ) TOTAL INTANGIBLE ASSETS (rows 01 to 05) II. TANGIBLE ASSETS Land and buildings (a/c ) Plant and equipment (a/c ) Other plant and equipment, fixtures and fittings (a/c ) Advance payments and tangible assets in progress (a/c ) TOTAL TANGIBLE ASSETS (rows 07 to 10) A. NON-CURRENT ASSETS - TOTAL B. CURRENT ASSETS I. INVENTORIES Raw materials and consumables (a/c / / ) Work in progress (a/c / ) Finished goods and goods purchased for resale (a/c /3485+/ / / ) Advance payments to suppliers for purchase of (a/c 4091) TOTAL INVENTORIES: (rows 20 to 23) General Manager Danut Vasile 17 Chief Accountant Laura Boer

18 BALANCE SHEET (all amounts are presented in RON, unless stated otherwise) Row no. 31 December December 2006 II. RECEIVABLES Trade receivables (a/c ) Other receivables (a/c ) TOTAL RECEIVABLES: (row 25 la 29) III. SHORT TERM FINANCIAL INVESTMENTS Other short term financial investments (a/c ) TOTAL - SHORT TERM FINANCIAL INVESTMENTS: (rd. 31 la 33) IV. CASH AND CASH EQUIVALENTS (a/c ) B. CURRENT ASSETS - TOTAL C. PREPAYMENTS (a/c 471) D. CURRENT LIABILITIES Credit institutions payables (a/c ) Advance payments from customers (a/c 419) Trade payables (a/c ) Other payables, including fiscal liabilities and other social security liabilities (a/c ) D. CURRENT LIABILITIES -TOTAL (row 38 to 44) E. NET CURRENT ASSETS (row ) General Manager Danut Vasile 18 Chief Accountant Laura Boer

19 BALANCE SHEET (all amounts are presented in RON, unless stated otherwise) Row no. 31 December December 2006 F. TOTAL ASSETS LESS CURRENT LIABILITIES (row ) G. NON-CURRENT LIABILITIES Borrowings Trade payables Other payables, including fiscal liabilities and other social security liabilities (a/c ) G. NON-CURRENT LIABILITIES -TOTAL (rd. 50 to 57) H. PROVISIONS Tax Provisions (a/c ) Other provisions (a/c 151) H. PROVISIONS - TOTAL: (rd ) I. DEFERRED INCOME: Subsidies for investments (ac.131) I. DEFERRED INCOME TOTAL (rd.61+62): J. CAPITAL AND RESERVES I. CAPITAL (rd. 66 la 68), of which: subscribed and paid in share capital (a/c 1012) III. REVALUATION RESERVES (a/c 105) IV. RESERVES (rd. 71 la 73-74) Legal reserves (a/c ) Other reserves (a/c /-107) General Manager Danut Vasile 19 Chief Accountant Laura Boer

20 BALANCE SHEET (all amounts are presented in RON, unless stated otherwise) Row no. 31 December December 2006 Treasury stock (own shares) (a/c 109) TOTAL RESERVES V. RETAINED EARNINGS (a/c. 117 sold C) VI. PROFIT FOR THE PERIOD (a/c. 121 sold C) Profit appropriation (a/c. 129) TOTAL EQUITY (rd ) J. EQUITY - TOTAL (rd ) General Manager Danut Vasile 20 Chief Accountant Laura Boer

21 INCOME STATEMENT Row no Turnover (rd. 02 la 04) Sales of finished goods (a/c ) Sale of goods purchased for resale (a/c. 707) 2. Change in inventories (a/c. 711 sold C) (a/c. 711 sold D) Work performed by enterprise and capitalised (a/c ) 4. Other operating income (a/c ) OPERATING INCOME - TOTAL (rd ) 5.a) Raw materials expenses (a/c ) Other materials (a/c ) b) Other external costs (electricity, heating and water) (a/c ) Cost of goods (a/c. 607) 6. Staff costs (rd ) a) Salaries (a/c ) b) Social security contribution (a/c ) 7.a) Adjustments of the value of non-current assets (rd ) a.1) Expenses (a/c ) a.2) Income (a/c ) General Manager Danut Vasile 21 Chief Accountant Laura Boer

22 INCOME STATEMENT Row no b) Adjustments of the value of current assets (rd ) 21 ( ) b.1) Expenses (a/c ) b.2) Income (a/c ) 8. Other operating expenses (rd. 25 la 27) Third party services (a/c ) 8.2. Other taxes, duties, and similar expenses (a/c. 635) 8.3. Other operating expenses (a/c ) Adjustments for risk and charges provisions (rd ) Expenses Income OPERATING EXPENSES - TOTAL (rd. 10 la ) OPERATING RESULT: (rd ) Profit Interest income (a/c. 766) - of which, within the group Other financial revenues (a/c ) FINANCIAL REVENUES - TOTAL (rd ) General Manager Danut Vasile 22 Chief Accountant Laura Boer

23 INCOME STATEMENT Row no Interest expenses (a/c ) Other financial expenses (a/c ) FINANCIAL EXPENSES - TOTAL (rd ) FINANCIAL RESULT: (rd ) Profit (rd ) Loss RESULT BEFORE EXTRAORDINARY ITEMS: (rd ) Profit EXTRAORDINARY RESULT TOTAL INCOME (rd ) TOTAL EXPENSES (rd ) GROSS RESULT: (rd ) Profit INCOME TAX (a/c 691) NET RESULT OF THE FINANCIAL YEAR: Profit General Manager Danut Vasile 23 Chief Accountant Laura Boer

24 CASH FLOW STATEMENT Cash flow from operating activities Net profit/(loss) before taxation, and extraordinary item Adjustments for: Depreciation and provision for intangible assets depreciation Income from investment subsidies (842) (771) Provisions Income from assets sale ( ) (91.105) Net value of disposed assets Interest income ( ) ( ) Interest expenses Operating profit before working capital changes Decrease/(Increase) in trade and other receivable ( ) ( ) Decrease/(Increase) inventories ( ) ( ) Decrease/(Increase) short term financial investments ( ) Decrease/(Increase) in trade and other payable (66.111) Cash generated from operations Interest paid ( ) ( ) Income tax paid Net cash from operating activities Cash flow from investing activities Purchase of property, plant and equipment ( ) ( ) Proceeds from sale of property, plant and equipment Interest received ( ) ( ) Net cash used in investing activities Cash flow from financing activities Movements in borrowings ( ) Finance lease payments ( ) ( ) Payments in instalments to suppliers of fixed assets ( ) ( ) ( ) ( ) Net cash proceeds from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of period Cash and cash equivalents at the end of period General Manager Danut Vasile 24 Chief Accountant Laura Boer

25 STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY Description Capital Revaluation reserves Legal reserve Other Accumulated reserves result Own shares Profit distribution TOTAL Balance at 1 January Capital increase ( ) Revaluation differences - (47.876) (47.876) Result of the financial year Own shares (89.366) - (89.366) Legal reserve ( ) Total equity 31 December (89.366) Capital increase ( ) - Revaluation differences Result of the financial year Own shares Legal reserve (39.870) - ( ) - Total equity 31 December ( ) Included in "Other reserves" and " Accumulated result" there are reserves from fiscal facilities. These reserves are restricted for distribution to the shareholders, to be used for share capital increases or to cover the accounting loss. In case the destination of these reserves is changed, the tax on income, interest and penalties will be calculated from the moment when the reserve have been created. 25

26 NOTES TO FINANCIAL STATEMENTS NOTE 1. NON-CURRENT ASSETS Description INTANGIBLE ASSETS Land Constructions TANGIBLE ASSETS Plant and machinery, motor vehicles Furniture and office equipment Advance payments and tangible assets in progress TOTAL Cost La Additions Revaluation Disposals/Transfers At Depreciation At In period Revaluation Disposals At Provisions At Charge Disposals At Net book value At At

27 NOTES TO FINANCIAL STATEMENTS 1. Fiscal depreciation is calculating using all methods allowed by Law 15/1994, starting with the next month after the first month of functioning. Life duration is settled based on Law 15/1994 regulations with later amendments and supplements. 2. The accounting depreciation is calculating using the straight method, according to IAS 16. For new fixed assets, entered in 2006, as plant or machinery the life duration were settled considering: - estimated level of usage based on the utilization of the asset's capacity; - maintenance and fixing program that Biofarm is using; - technical obsolescence determined by the possible changes of the production process depending on the company portfolio of products. 3. The company decided the write-off for some fixed assets in 2006; a provision has been created for the remaining value of these fixed assets, in amount of ron. Provisions have been created as a result of physical depreciation of tangible assets as well as their obsolesce as a result of GMP implementation. In 2006 have been written down provisions created for the net book value of a building partly breaks up in amount of RON and provisions created for obsolesce of fixed assets in amount of RON. 4. Among the tangible assets presented above, RON are tangible assets fully depreciated and utilised. 5. Until 31 decembrie 2006, the title deeds for the buildings located in Logofat Tautu nr. 99 si Iancu de Hunedoara nr have not been obtained 6. The reorganization expenses for a new location, including building demolish expenses in amount of RON have been capitalized in the tangible assets in progress. These expenses are related with a wastewater station. 27

28 NOTES TO FINANCIAL STATEMENTS NOTE 2. PROVISIONS FOR RISK AND CHARGES According to MPFO 1752/2005, starting with 2006 the deferred tax is reclassified from the category of Receivables and Payables in the category of Provisions. A provision for taxes has been created in the amount of RON. In 2005 a provisions for risk and charges has been created in the amount of RON for sales returns in January March 2006, regarding of sales of finished goods Colebil in In 2006 this provision has been written down. In December 2006 a provision has been created for unpaid salaries in the amount of RON. Destination 31 December December 2006 Tax provisions Provisions for risk and charges Total NOTE 3. PROFIT APPROPRIATION Destination Profit net to distribute: legal reserve ( ) ( ) Profit not distributed Legal reserve from income from 2006 income was constituted at 5% from gross annual profit but not more that 20% from the share capital. From the year 2005 profit, the amount of RON was distributed to legal reserves. 28

29 NOTES TO FINANCIAL STATEMENTS NOTE 4. OPERATING RESULT ANALYSIS OPERATION RESULT ANALYSIS INDICATOR TURNOVER Cost of goods sold and ( ) ( ) Services performed (3+4+5) 3. Main activity expenses ( ) ( ) 4. Expenses related to auxiliary operations ( ) ( ) 5. Production overheads ( ) ( ) 6. Gross result related to the turnover (1+2) Sale and distribution expenses ( ) ( ) 8. General administrative expenses ( ) ( ) 9. Research and development expenses ( ) ( ) 10. Other expenses ( ) ( ) 11. Other operating income ( ) 12. Operating result ( ) NOTE 5. RECEIVABLES AND PAYABLES RECEIVABLES Description 31 December LIQUIDITY 2006 Less than Over 1 year one year Trade receivables Other receivables Total Description 31 December LIQUIDITY 2005 Less than Over 1 year one year Trade receivables Other receivables Total

30 NOTES TO FINANCIAL STATEMENTS "Trade receivables" comprise of: Description 31 December December 2006 Advance payments for services Customers Provisions for doubtful customers Provisions for bad debts customers (64.684) (98.102) Invoice to be issued - customers ( ) ( ) Total The customers balance is decreased with the amount of RON, representing bills of exchange receivables received by the company. These amounts are presented in the balance sheet under the line "Short term financial investments". The "Customers not yet invoiced" balance partly represents discounts to be invoiced related to 2006, including non-exigible VAT, in the amount of RON. Other receivables include: Description 31 December December 2006 Excises Non-exigible V.A.T VAT receivable Sundry debtors Other tax

31 NOTES TO FINANCIAL STATEMENTS PAYABLES Description 31 December EXIGIBILITY 2006 Less than one Over 1 year year Advance payments received from customers Trade payables Borrowings Other liabilities, including fiscal liabilities and other social security payables Total Description 31 December EXIGIBILITY 2005 Less than one Over 1 year year Advance payments received from customers Trade payables Borrowings Other liabilities, including fiscal liabilities and other social security payables Total Trade payables include: Description 31 Decembrie Decembrie 2006 Accounts payable Investment suppliers Suppliers, invoices not received Total GEA Klimatechnik represents the major part of the closing balance of non-current assets suppliers. The company concluded a Clean Room contract of 2.83 million EUR with the Australian supplier and the future payments under this contract are scheduled up to The credit supplier financing facility from GEA amounted to 1,750,000 EUR, repayable in 12 installments, with due amount bearing a variable interest of EURIBOR %. 31