NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – DESCRIPTION OF BUSINESS
Trimol Group, Inc. (the “Company”)
was incorporated in 1953 in Delaware. Although the Company is seeking business opportunities, as of December 31, 2012, and for
the past six years, it did not have any operations other than administrative operations and did not have any business operations
that generated revenue.
The Company owns all of the outstanding
shares of Intercomsoft Limited “(Intercomsoft”), a company which, until April 2006, was engaged in the operation of
a computerized photo identification and database management system utilized in the production of secure essential government identification
documents such as passports, drivers’ licenses, national identification documents and other forms of essential personal government
identification. As more detailed in Note 4, the Company is pursuing legal actions related to the prior operations of Intercomsoft.
NOTE 2 - GOING CONCERN
The accompanying consolidated financial
statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which
contemplate our continuation as a going concern. However, the Company does not have any current operations that generate revenue
and did not generate any revenue in year 2012 or in 2011, nor has it generated any revenue since April 2006. Further, as shown
on the accompanying balance sheet, the Company has a shareholder’s deficiency of $7,012,000. 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
Principles of Consolidation
The consolidated financial
statements of the Company include the accounts of the Company and its wholly-owned subsidiary, Intercomsoft. Intercompany transactions
and balances have been eliminated in consolidation.
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 the 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.
Revenue Recognition
Historically, revenue from Intercomsoft
was recognized upon the quantity of product (number of computerized documents) produced during the period reported. However, Intercomsoft
did not generate any revenue in year 2012 or in year 2011, nor has it generated revenue since April 2006.
Income Taxes
The Company uses the asset and liability
method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax
expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences
of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is
provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it
is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740.10.30 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold
and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken
in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods
presented.
Income (Loss) Per Share
Income (loss) per share of common stock
has been computed on the basis of the weighted average number of shares of common stock outstanding. Diluted earnings per share
are based on the weighted average number of shares and common stock equivalents outstanding. The Company had no common stock equivalents
outstanding during the periods presented.
Comprehensive Income
Comprehensive income is defined as any
change in equity from transactions and other events originating from non-owner sources, and is included as accumulated comprehensive
income in the Statements of Changes in Shareholders’ Equity.
Fair Value Measurements
The Company adopted the provisions of ASC
Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting
pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial
instruments, including cash and cash equivalents, payables to related parties, and accounts payable and accrued expenses are carried
at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
ASC 820 defines fair value as the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes
a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical
assets or liabilities
Level 2 — quoted prices for similar assets and liabilities
in active markets or inputs that are observable
Level 3 — inputs that are unobservable (for example cash
flow modeling inputs based on assumptions)
New Accounting Pronouncements
From time to time, new accounting pronouncements
are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s
accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance
for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact
will not be material to its financial position, results of operations, and cash flows when implemented.
NOTE 4 - LEGAL PROCEEDINGS
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
In March 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 for breach of contract and an injunction to prohibit Moldova from further producing
essential government documents for the Republic of Moldova including passports, driver’s licenses, permits and national identification
documents, which Intercomsoft had produced from 1996-2006, pursuant to the terms of the ten year Supply Agreement (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. Such action is pending and there can be no assurances as to its outcome.
The Moldovan Proceeding
In
November 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 certain legal costs (the “Moldovan Proceeding”).
Intercomsoft asserted a counterclaim seeking redress for various claims and damages, including interest and penalties which continue
to accrue pursuant to the terms of the Supply Agreement. In July 2011 the District Court in Chisinau, Moldova issued a Judgment
rejecting the Moldovan Defendants’ claim for reimbursement of legal costs 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 and in December 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 further appealed the decision of the Appeal Court to the Supreme Court of Justice in Moldova. In September
2012, t
he Supreme Court of Justice partially upheld the judgment of the Economic Appeal Court rejecting the Moldovan Defendants’
claim and further reduced the damage award to Intercomsoft to approximately $4 million. The Moldovan Defendants had a right to
appeal that judgment if such appeal was filed on or before November 15, 2012.
To date, Intercomsoft
has not been notified that any further appeal was filed.
There can be no assurance
as to the outcome of such legal actions.
NOTE 5 - SHAREHOLDERS’ EQUITY
The Company has authorized 130,000,000
shares of $0.01 par value common stock, 100,472,328 of which were issued and outstanding as of December 31, 2012 and 2011.
The Company has authorized 10,000 shares
of $1.00 par value shares of Preferred Stock, none of which were issued and outstanding as of December 31, 2012 and 2011.
NOTE 6 - RELATED PARTY TRANSACTIONS
AND BALANCES
The following schedule sets forth various
obligations of the Company to related parties.
Transactions
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Compensation and related expenses of the Company’s Chairman of the Board and Chief Executive Officer (1)
|
|
$
|
298,000
|
|
|
$
|
291,000
|
|
|
|
|
|
|
|
|
|
|
Compensation of the Company’s Chief Financial Officer (2)
|
|
|
120,000
|
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
Cash advances from Royal HTM Group (3)
|
|
|
174,000
|
|
|
|
209,000
|
|
|
|
|
|
|
|
|
|
|
Cash advances in the form of direct payment of expenses by Royal HTM Group (3)
|
|
|
-
|
|
|
|
36,000
|
|
|
|
|
|
|
|
|
|
|
Business development services provided by Royal HTM Group (4)
|
|
|
30,000
|
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
Royal HTM Group expense allowance (4)
|
|
|
20,000
|
|
|
|
15,000
|
|
|
|
$
|
642,000
|
|
|
$
|
791,000
|
|
|
1)
|
Boris Birshtein serves as the Company’s Chairman of the Board of Directors and its Chief
Executive Officer on a month-to-month basis. Mr. Birshtein owns 50% of Royal HTM Group, our majority shareholder.
|
|
2)
|
Jack Braverman serves as a member of the Company’s Board of Directors and as the Company’s
Chief Financial Officer on a month-to-month basis. Mr. Braverman owns 50% of Royal HTM Group, our majority shareholder.
|
|
3)
|
Royal HTM Group, a Canadian company owned and controlled by the Company’s two members of
its Board of Directors, renders certain business development services to the Company. Royal HTM Group has also advanced money to
the Company to fund its expenses, and is the Company’s majority shareholder.
|
|
4)
|
Royal HTM Group renders certain business development services to the Company. Beginning as of January
1, 2012, the monthly rate for such services is $2,500 (reduced from $10,000 per month in year 2011). Additionally, Royal HTM Group
is entitled to a quarterly expense allowance of $5,000 for expenses incurred in connection with its business development services
rendered to the Company
|
Balances
Payables to related parties
consist of the following:
|
|
DECEMBER 31,
|
|
|
|
2012
|
|
|
2011
|
|
Amount due to Royal HTM Group
|
|
$
|
3,627,000
|
|
|
$
|
3,403,000
|
|
|
|
|
|
|
|
|
|
|
Accrued compensation due to the Company’s Chief Financial Officer
|
|
|
480,000
|
|
|
|
360,000
|
|
|
|
|
|
|
|
|
|
|
Accrued compensation due to the Company’s Chairman of the Board
|
|
|
2,087,000
|
|
|
|
1,790,000
|
|
|
|
$
|
6,194,000
|
|
|
$
|
5,553,000
|
|
These amounts are non-interest bearing and due on demand.
NOTE 7 - STOCK COMPENSATION PLANS
Pursuant to the Company’s 2001 Omnibus
Plan, as amended, eligible persons, as defined therein, may be granted (a) stock options which may be designated as nonqualified
stock options or incentive stock options, (b) stock appreciation rights, (c) restricted stock awards, (d) performance awards, or
(e) other forms of stock-based incentive awards.
The maximum number of shares with respect
to which the awards may be granted under the 2001 Omnibus Plan, as amended, is 10,000,000 shares of common stock; provided, however,
that such number of shares of common stock may also be subject to adjustment, from time to time, at the discretion of the Board
of Directors of the Company.
As of December 31, 2012 and 2011, there
are no options issued and outstanding under the Company’s 2001 Omnibus Plan, as amended.
NOTE 8 - INCOME TAX
The Company’s income tax benefit differs from the expected
income tax benefit by applying the U.S. Federal statutory rate of 34% to net income (loss) as follows:
|
|
DECEMBER 31,
|
|
|
|
2012
|
|
|
2011
|
|
Income tax benefit at statutory rate of 34%
|
|
$
|
216,000
|
|
|
$
|
267,000
|
|
Change in valuation allowance
|
|
|
(216,000
|
)
|
|
|
(267,000
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred tax assets consist of:
|
|
DECEMBER 31,
|
|
|
|
2011
|
|
|
2012
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
|
7,502,000
|
|
|
|
7,286,000
|
|
|
|
|
7,502,000
|
|
|
|
7,286,000
|
|
Valuation allowance (see Note 2)
|
|
|
(7,502,000
|
)
|
|
|
(7,286,000
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
For the year ended December 31, 2012, the
Company had approximately $21,500,000 of federal and state net operating loss carryovers (“NOLs”) which begin to expire
in 2026. The NOLs may be subject to limitation under Internal Revenue Code Section 382 should there be a greater than 50% ownership
change as determined under regulations.
In assessing the realization of deferred
tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be
realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, the Company has
established a full valuation allowance against all of the deferred tax assets for every period because it is more likely than not
that all of the deferred tax assets will not be realized.
The Company is currently open to audit
for all years ended
December 31, 2001
to present because of its large NOL carryforwards. However,
The Company is only open to additional tax assessments under the Internal Revenue Code statute of limitations for the years ended
December 31, 2009
to present; however, it does not currently have any ongoing tax examinations.
NOTE 9 - SUBSEQUENT EVENTS
The Company evaluated all events or transactions
that occurred subsequent to December 31, 2012 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.