|• 10-Q • EXHIBIT 31.1 • EX-31.2 • EXHIBIT 32.1 • EXHIBIT 32.2|
U.S. Securities and Exchange Commission
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
June 30, 2012
Commission file number: 000-26971
TRIMOL GROUP, INC.
(Exact Name of Small Business Issuer as it appears in its charter)
(State or other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
1221 Avenue of the Americas, Suite 4200
New York, New York 10020
(Address of principal executive offices)
(Issuer’s Telephone Number)
Indicate by check mark whether the Registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Small reporting company x
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.
Yes ¨ No x
As of August 14, 2012, there were 100,472,328 issued and outstanding shares of the Registrant’s common stock.
TRIMOL GROUP, INC.
TABLE OF CONTENTS
QUARTERLY REPORT FOR THE PERIOD ENDED JUNE 30, 2012
PART I - FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2012
The accompanying notes are an integral part of the financial statements
The accompanying notes are an integral part of the financial statements
The accompanying notes are an integral part of the financial statements
TRIMOL GROUP, INC.
Notes to the consolidated financial statements
June 30, 2012
Note 1 - Basis of presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X relating to smaller reporting companies. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months June 30, 2012 are not necessarily indicative of the results that may be expected for the year ended December 31, 2012.
The balance sheet at December 31, 2011 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.
The accounting policies followed by the Company are set forth in Note 3 to the Company’s consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2011.
For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission (“SEC”).
NOTE 2 – GOING CONCERN
The accompanying unaudited consolidated interim financial statements have been prepared in conformity with GAAP, which contemplates the Company’s continuation as a going concern.
As of June 30, 2012, the Company does not have any current operations that generate revenue and has not generated any revenue since April 2006. Further, as shown on the accompanying balance sheet, the Company’s liabilities exceed its assets by approximately $6,692,000. These circumstances, among others, raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES
The preparation of the consolidated interim financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make assumptions, estimates and judgments that affect the amounts reported in these consolidated interim financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. The Company relies on historical experience and on other assumptions believed to be reasonable under the circumstances in making required judgments and estimates. Actual results could differ materially from those estimates. The significant accounting policies which the Company believes are most critical to aid in fully understanding or evaluating its reported financial results are set forth in Note 3 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC and dated March 30, 2012.
NOTE 4 – OPERATIONS
Although the Company is seeking business opportunities, as of June 30, 2012, and for the past six years, it did not have any operations other than administrative operations and has not generated any revenue since 2006.
NOTE 5 - RELATED PARTY TRANSACTIONS AND BALANCES
As of June 30, 2012 payables to related parties consist of the following:
These amounts are non-interest bearing and due on demand.
NOTE 6 - STOCK COMPENSATION PLANS
During the six months ended June 30, 2012, the Company did not issue any options to purchase its common stock. As of June 30, 2012, there were no options outstanding pursuant to the Company’s 2001 Omnibus Plan, as amended.
NOTE 7 - SUBSEQUENT EVENTS
The Company evaluated all events or transactions that occurred subsequent to June 30, 2012 up to the date these financial statements were issued and has determined that there are no material subsequent events or transactions which would require recognition or disclosure in the financial statements.
The following Management's Discussion and Analysis of Financial Condition and Results of Operations, and other sections on this Quarterly Report, should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2011, as well as our unaudited consolidated financial statements and notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. Such financial statements are subject to risks and uncertainties that could cause actual results to differ materially from those described. We expressly disclaim any obligation or undertaking to update these financial statements in the future.
Description of the Company
Although the Company is seeking business opportunities, as of June 30, 2012, and for the past six years, we did not have any business operations that generated revenue.
Intercomsoft Limited (“Intercomsoft”) is our wholly owned subsidiary. Although its does not currently have any operations, through April 2006, pursuant to a Contract on Leasing Equipment and Licensing Technology (the “Supply Agreement”) awarded to Intercomsoft in April 1996 by the Ministry of Economics, Republic of Moldova, Intercomsoft provided Moldova with a National Register of Population and a National Passport System. Under the terms of the Supply Agreement, Intercomsoft supplied all of the equipment, technology, software, materials and consumables utilized by the Government of Moldova for the production of all national passports, drivers’ licenses, vehicle permits, identification cards and other government authorized identification documents used in the Republic of Moldova. Moldova has asserted that the Supply Agreement expired by its terms on April 29, 2006 and was not renewed. The non-renewal of the Supply Agreement has been disputed by Intercomsoft and is the subject of two pending legal actions. (See Part II Item 1 - Legal Proceedings).
As used in this report, unless otherwise required by the context, Trimol Group, Inc. and its subsidiary are sometimes collectively referred to as the "Company" or are implicit in the terms "we", "us" and "our".
RESULTS OF OPERATIONS
During the three and six month periods ended June 30, 2012, our operations consisted solely of administrative activities, activities concerning exploration of potential business opportunities and those activities related to pursuing breach of contract claims against the Republic of Moldova as more fully described herein in Part II Item 1 – Legal Proceedings.
Comparison of Three and Six Month Periods Ended June 30, 2012 to June 30, 2011
During the three and six months ended June 30, 2012, we did not generate any revenues from operations and similarly generated no revenues in the comparable period in 2011.
Total operating expenses for the three months ended June 30, 2012 were approximately $167,000 and were $178,000 in the comparable three month period in 2011. Such expenses totaled $318,000 for the six months ended June 30, 2012, and $408,000 in the comparative period in 2011. All of such expenses consisted of general corporate and administrative expenses. The reduction in operating expenses in the three and six month periods ended June 30, 2012 as compared to the three and six months ended June 30, 2011 were the result of a reduction in the expenses related to business development activities.
Such operating expenses resulted in a net loss from operations of approximately $167,000 and $318,000 for the three and six month periods ended June 30, 2012, respectfully, as compared to a net loss of approximately $178,000 and $408,000 for the same three and six month periods in 2011.
Liquidity & Capital Resources
We have not generated any revenue since the first quarter 2006. At June 30, 2012 our cash balance was approximately $15,000 which is not sufficient to fund our operating expenses for the foreseeable future.
For over six years, we have funded our operating expenses from loans and advances provided by our Chairman of the Board and Royal HTM Group, Inc., our majority shareholder, a company owned and controlled by our Chief Executive Officer and Chief Financial Officer, who also serve as the two members of our Board of Directors. We are dependent upon these loans to fund our future operating expenses.
None of our officers, directors or shareholders are under any obligation to provide us with any future loans or advances. However, if they do not loan us funds at a time when funds are necessary, we may be forced to suspend our operations.
Our assets are nominal and our liabilities currently exceed our assets by approximately $6,692,000. These circumstances, among others, raise substantial doubt about our ability to continue operations.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Stock Compensation Plans
There were no options to purchase shares of our common stock issued or exercised during the three and six month periods ended June 30, 2012. As of June 30, 2012, we have no options to purchase shares of our common stock issued or outstanding.
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, in accordance therewith, file reports, proxy and information statements and other information with the SEC.
All reports filed by us with the SEC are available free of charge via EDGAR through the SEC web site at www.sec.gov. In addition, the public may read and copy materials we file with the SEC at the public reference facilities maintained by the SEC at its public reference room located at 100 F Street, N.E. Washington, D.C. 20549. We will also provide copies of such material to shareholders upon written request.
No person has been authorized to give any information or to make any representation other than as contained or incorporated by reference in this Quarterly Report and, if given or made, such information or representation must not be relied upon as having been authorized by us.
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports, as defined in Rule 13a-15(f) under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 15d-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of the end of the period covered by this Quarterly Report, we carried out, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures to ensure that information required to be disclosed by us in this Quarterly Report was recorded, processed, summarized and reported within the required time periods. In carrying out that evaluation, management identified a material weakness (as defined in Public Company Accounting Oversight Board Standard No. 2) in our internal control over financial reporting regarding a lack of adequate segregation of duties. Accordingly, based on their evaluation of our disclosure controls and procedures as of June 30, 2012, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of that date, our controls and procedures were not effective for the purposes described above.
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the period ended June 30, 2012, that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. We have assessed the effectiveness of those internal controls as of June 30, 2012, using the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control – Integrated Framework as a basis for our assessment.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
A material weakness in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects our ability to initiate, authorize, record, process, or report external financial data reliably in accordance with accounting principles generally accepted in the United States of America such that there is more than a remote likelihood that a material misstatement of our annual or interim financial statements that is more than inconsequential will not be prevented or detected. In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified a material weakness in our internal control over financial reporting. This material weakness consisted of inadequate staffing and supervision within the bookkeeping and accounting operations of our company. The relatively small number of individuals who have bookkeeping and accounting functions prevents us from segregating duties within our internal control system. The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews.
As we are not aware of any instance in which we failed to identify or resolve a disclosure matter or failed to perform a timely and effective review, we determined that the addition of personnel to our bookkeeping and accounting operations is not an efficient use of our very limited resources at this time and not in the interest of our shareholders.
This Quarterly Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Quarterly Report.
PART II - OTHER INFORMATION
In the normal course of business, the Company may become subject to lawsuits and other claims and proceedings. Such matters are subject to uncertainty and outcomes are not predictable with assurance. Management is not aware of any pending or threatened lawsuits or proceedings which would have a material effect on the Company’s financial position, liquidity, or results of operations other than as follows:
The Swiss Proceeding
On March 25, 2009, Intercomsoft commenced an action in the court of first instance in Geneva Switzerland for the appointment of an arbitration tribunal in connection with its claims against the Ministry of Economics of the Republic of Moldova and the Government of the Republic of Moldova (the “Moldovan Defendants”) seeking damages of approximately $41 million for breach of contract and an injunction prohibiting Moldova from producing further essential government documents pursuant to the terms of the ten year Supply Agreement under which Intercomsoft had produced, since 1996, essential government documents for the Republic of Moldova including passports, driver’s licenses, permits and national identification documents (the “Swiss Proceeding”).
The Swiss court granted Intercomsoft’s request to establish an ad hoc arbitration panel to hear the merits of its claims in such proceeding. Two members of such panel have been appointed. To date, the Government of Moldova has failed to appear in such action and is currently in default with respect to its rights to appoint one of the three members of the ad hoc arbitration panel established in the Swiss Proceeding. On May 17, 2012, the Swiss Cooperation Office in the Republic of Moldova served the judgment appointing the second member of the ad hoc arbitration panel. Under applicable law, if Moldova does not appeal from the judgment, the judgment becomes final on September 14, 2012 and the arbitration could proceed after that date.
The Moldovan Proceeding
On or about November 5, 2010, the Moldovan Defendants commenced an action before the courts of Moldova claiming that the Supply Agreement was properly terminated on April 29, 2006 and seeking reimbursement of legal costs in the amount of approximately $1.6 million (the “Moldovan Proceeding”). On or about November 24, 2010, Intercomsoft asserted a counterclaim in the Moldovan Proceeding seeking redress for its aforementioned claims, and seeking damages of approximately $51 million, including interest and penalties which continue to accrue pursuant to the terms of the Supply Agreement. On July 26, 2011, the District Court in Chisinau, Moldova issued a Judgment rejecting the Moldovan Defendants’ claim for reimbursement of legal costs of approximately $1.6 million as unfounded, and awarded approximately $35.6 million in damages to Intercomsoft. The Moldovan Defendants appealed the decision of the Moldovan District Court to the Economic Appeal Court in Chisinau, Moldova. On December 13, 2011, the Appeal Court partially upheld the Judgment of the District Court, similarly rejecting the Moldovan Defendants’ claim, and reduced the damage award to Intercomsoft to approximately $20.75 million. The Moldovan Defendants have appealed the decision of the Appeal Court to the Supreme Court of Justice in Moldova. The case is currently pending in that court.
There can be no assurance as to the outcome of such arbitration proceedings and actions
For information regarding factors that could affect the Company’s results of operations, financial condition or liquidity, see the risk factors as disclosed in the Company’s most recent Annual Report on Form 10-K. There have been no material changes from the risk factors previously disclosed in the Company’s most recent Annual Report on Form 10-K.
Related Party Transactions
Boris Birshtein, the Chairman of our Board of Directors and Chief Executive Officer and Jack Braverman, a member of our Board of Directors and our Chief Financial Officer, own or control approximately 77% of our issued and outstanding shares of common stock.
Mr. Birshtein also serves as a Director and the President and Chief Executive Officer of our wholly owned subsidiary, Intercomsoft Limited, and Mr. Braverman serves as a Director as well as the Vice President, Secretary and Treasurer of such entity.
Our Chief Executive Officer
During the three and six month periods ended June 30, 2012, we accrued approximately $23,000 per month in compensation and $1,800 per month in expenses to Mr. Birshtein related to his services as the Chairman of the Board and our Chief Executive Officer. At June 30, 2012 we owe Mr. Birshtein approximately $1,938,000 of accrued compensation and expenses.
Our Chief Financial Officer
During the three and six month periods ended June 30, 2012, we accrued $10,000 per month in compensation due to Mr. Braverman related to his services as our Chief Financial Officer. At June 30, 2012, we owe Mr. Braverman approximately $420,000 of accrued compensation.
Our Majority Shareholder
Royal HTM Group, Inc., a Canadian company owned and controlled by Messrs Birshtein and Braverman, is our majority shareholder and renders certain business development services to us. In 2006 we agreed to pay Royal HTM Group, Inc. $120,000 annually for its business development services and have accrued such amount from such time through December 31, 2011. As of January 1, 2012 we modified such arrangement and agreed to pay Royal HTM Group, Inc. $30,000 annually for such services. During the three and six month periods ended June 30, 2012, we accrued $2,500 per month for such services, totaling $15,000 in the six month period ended June 30, 2012.
Additionally, beginning in April 2011, we agreed to accrue $5,000 per quarter related to expenses of Royal HTM Group, Inc. incurred in connection with such business development services rendered to us. In the six month period ended June 30, 2012, we accrued $10,000 for such expenses and as of June 30, 2012, we accrued $25,000 for such expenses since April 2011.
We have not generated any revenue since 2006 and since such time have borrowed funds from Royal HTM Group, Inc. to cover our on-going expenses. During the six month period ended June 30, 2012, Royal HTM Group, Inc. lent us approximately $93,000 to cover our on-going expenses.
As of June 30, 2012, we owe Royal HTM Group, Inc. approximately $3,522,000. Such amount includes accrued consulting fees and expenses as well as loans and advances, all of which are non-interest bearing and are due on demand.
The exhibits listed below are filed as part of this Quarterly Report for the period ended June 30, 2012:
* Pursuant to Rule 45(a)(2) of Regulation S-T, the Company will furnish the XBRL Interactive Data files with detailed footnote tagging as Exhibit 101 in an amendment to this Form 10-Q within the permitted 30-day grace period granted for the first quarterly period in which detailed footnote tagging is required.
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.