Technology Acquisition
Agreement and the Research and Development
Agreement entered into by the Company and API in 2001.
In consideration of the
Termination Agreement Royal HTM Group, Inc, a
company also beneficially owned and controlled by the Companys Chairman of the
Board, cancelled $400,000 of the Companys indebtedness to it. The forgiveness
of debt was accounted for as a credit to additional paid in capital on the
accompanying consolidated balance sheet as of September 30, 2008
In
addition, the Company entered into an amendment of the Termination Agreement
dated as of July 9, 2008 (the Amendment). Pursuant to the terms of the
Amendment, API transferred 21,000,000 shares of the Companys common stock
owned by it to the Company as further consideration in connection with the
Termination Agreement, to be utilized by the Company solely in connection with
certain acquisitions that the Company is currently exploring. The Amendment
provides that in the event that the Company does not conclude any of such
acquisitions by December 31, 2008, API has the right to require the Company to
reconvey such 21,000,000 shares to it for an aggregate purchase price of
$1,000. A further Amendment No. 2 to the Termination Agreement dated as of
September 24, 2008, extended the December 31, 2008 reconveyance date to
September 23, 2009. Such transaction reduced the number of our issued and
outstanding shares by 21,000,000 resulting in a total of 79,472,328 issued and
outstanding shares as of the date of this quarterly report.
NOTE
4 - RISKS AND UNCERTAINTIES
The following risk
factors relating to the
Company and its business should be carefully considered:
The Companys subsidiary
operates in the
Republic of Moldova.
The Companys
wholly owned subsidiary,
Intercomsoft Limited, operates in the Republic of Moldova, a former member of
the Soviet Union with a historically uncertain economic and political climate.
This may have a material adverse impact on the Company and Intercomsoft.
The Company has no current source
of revenue.
The Company had no
source of revenue for the
nine month period ended September 30, 2008, nor for the year ended December 31,
2007. Its sole revenue source for several years prior to such time was from
Intercomsoft whose only customer was the Republic of Moldovas Ministry of
Economics to which it supplied its goods and services pursuant to the Supply
Agreement between the Government of Moldova and Intercomsoft.
On or about February 11,
2006, the Company
received a notice from the Government of the Republic of Moldova advising the
Company that it did not intend to renew the Supply Agreement which, unless
renewed, expired by its terms on April 29, 2006. The Company believes that such
non-renewal notice may not have been sent timely under the applicable
provisions of the Supply Agreement. However, inasmuch as the Companys only
revenues are derived from Intercomsofts activities under the Supply Agreement,
as of April 29, 2006, the Company has had no current source of revenue as a
consequence of the non-renewal of such Agreement. Although the Company has
contested Moldovas notice of non-renewal of the Supply Agreement, there can be
no assurance as to the outcome of such dispute. Such event has had a material
adverse effect on Intercomsoft and the Company.
The Company has commenced a legal
action
against the Government of Moldova.
On or about February 11,
2006, The Company received
a notice from the Government of the Republic of Moldova advising that it did
not intend to renew the Supply Agreement which, unless renewed, expired by
9
its terms on April 29,
2006. The Company believes
that such non-renewal notice was not sent timely under the applicable
provisions of the Supply Agreement and has contested such non-renewal notice.
On September 18, 2006,
Intercomsoft commenced an
action with the International Chamber of Commerce (the ICC), International
Court of Arbitration, in Geneva, Switzerland 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 in accordance with the terms of the Supply Agreement.
The Moldova Defendants interposed counterclaims against Intercomsoft in amounts
totaling $30 million. The counterclaims contain allegations of fraud and
misrepresentation which the Moldovan Defendants claim occurred during the
performance of the Supply Agreement. Management of the Company and Intercomsoft
have denied any wrongdoing and are contesting the counterclaims.
The Moldovan Defendants
contested the action and
objected to the ICCs jurisdiction to hear the arbitration. Hearings were held
before an ICC Arbitral Tribunal in Switzerland on the jurisdictional issue. By
Final Award of the ICC dated July 30, 2008, and subsequently communicated to
Intercomsoft by the ICC, the Arbital Tribunal constituted under the auspices of
the ICC declined jurisdiction over the arbitration. In addition, the Final
Award also assessed costs and fees against Intercomsoft in the amount of
$635,000. The Final Award relates to costs and fees of the arbitration only and
is not a determination on the merits of the action. Intercomsoft is considering
its options including seeking the intercession of the Swiss courts.
In addition, the
Moldovan Defendants have
commenced an action before the International Commercial Court of Arbitration
attached to the Chamber of Commerce and Industry of the Republic of Moldova,
claiming that it is the proper body to administer any arbitration between the
parties. The claims asserted in the current action are the same claims asserted
by the Moldovan Defendants in the ICC arbitration. There have been no hearings
in such arbitration.
There can be no
assurance as to the outcome of such
arbitration proceedings and actions.
The Company has
terminated its agreement with
Supercom Limited.
Pursuant to a Sales
Agreement between Intercomsoft and Supercom Limited
(Supercom) dated August 25, 1995, as amended, Supercom supplied the
equipment, software, technology and consumables utilized by Intercomsoft for
the production of computerized documents under the Supply Agreement. Pursuant
to this agreement, Intercomsoft was provided with the guidance and support
required for the installation and operation of the equipment, as well as the
materials required for its maintenance.
On March 24, 2005,
Intercomsoft and Supercom
entered into a Termination Agreement, terminating the Sales Agreement.
Notwithstanding, pursuant to the terms of the Termination Agreement, Supercom,
in consideration of certain payments to be made to it, agreed to continue to
supply Moldova with such equipment, consumables, software and technology during
the remaining term of the Supply Agreement, pursuant to the requirements of the
Supply Agreement. Supercom agreed not to take any action, directly or
indirectly, to interfere with Intercomsofts contractual rights with Moldova or
to, in any way, cause Moldova to terminate or not renew the Supply Agreement
and agreed to pay to Intercomsoft certain amounts specified in the Termination
Agreement as liquidated damages in the event of any breach or default by
Supercom thereunder. Except and as to the extent provided under the Termination
Agreement, Intercomsoft has no other rights to Supercoms proprietary
technology as referred to above.
The Company has no current business
activities that generate revenue.
Although the Company is
currently exploring opportunities,
it is not currently engaged in any business activities that generate revenue.
10
Going Concern
The
financial statements have been prepared assuming that the Company will continue
as a going concern. As discussed in Note 4 above, the Companys only customer
did not renew its contract which expired April 29, 2006 and, as a result, the
Company has not generated any revenue since such date. In addition, as shown on
the balance sheet, the Companys liabilities exceeded its assets by $3,664,000.
These circumstances, among others, raise substantial doubt about its ability to
continue as a going concern.
NOTE 5 -
RELATED PARTY TRANSACTIONS AND BALANCES
See Note 3 regarding the Termination
Agreement with API.
Transactions
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Compensation and related expenses to
Chairman (1)
|
|
$
|
239,000
|
|
$
|
239,000
|
|
|
|
|
|
|
|
|
|
Cash
advance from Royal HTM Group (2)
|
|
|
194,000
|
|
|
88,000
|
|
|
|
|
|
|
|
|
|
Cash
advances in the form of direct payment of expenses by Royal HTM Group (2)
|
|
|
272,000
|
|
|
431,000
|
|
|
|
|
|
|
|
|
|
Business
development services (2)
|
|
|
90,000
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
$
|
795,000
|
|
$
|
848,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1)
|
Mr.
Boris Birshtein serves as the Companys Chairman of the Board of Directors
(the Chairman) on a month-to-month basis.
|
|
|
|
|
2)
|
The
Company has engaged Royal HTM Group, Inc., a Canadian company beneficially
owned and controlled by the Chairman, to render certain business development
services to the Company. Royal HTM Group has also advanced money to the
Company to fund its operating expenses.
|
Balances
As
of September 30, 2008 payables to related parties consist of the following:
|
|
|
|
|
Amount due to the Chairman and a
company owned and controlled by such
individual.
|
|
$
|
1,714,000
|
|
|
|
|
|
|
Accrued compensation
due to the Chairman.
|
|
|
810,000
|
|
|
|
|
|
|
|
|
$
|
2,524,000
|
|
|
|
|
|
|
These amounts
are non-interest bearing and due on demand.
NOTE 6 - STOCK COMPENSATION
PLANS
During the nine months ended
September 30, 2008, the Company did not issue any options to purchase its
11
common stock.
As of September 30, 2008, the total options outstanding were 6,870,000, of
which 3,870,000 were issued pursuant to the 2001 Omnibus Plan, as amended.
NOTE 7 - SEGMENT INFORMATION
The Companys
operations are classified into two reportable segments. The segments consist of
Intercomsoft, which produced secure essential government identification
documents, and general and administrative expenses incurred for corporate
purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercomsoft
|
|
Corporate and
Administrative
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
NINE MONTHS
ENDED SEPTEMBER 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Operating
expenses
|
|
|
661,000
|
|
|
728,000
|
|
|
1,389,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(661,000
|
)
|
$
|
(728,000
|
)
|
$
|
(1,389,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NINE MONTHS
ENDED SEPTEMBER 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Operating
expenses
|
|
|
24,000
|
|
|
899,000
|
|
|
923,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(24,000
|
)
|
$
|
(899,000
|
)
|
$
|
(923,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS
ENDED SEPTEMBER 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Operating
expenses
|
|
|
644,000
|
|
|
238,000
|
|
|
882,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(644,000
|
)
|
$
|
(238,000
|
)
|
$
|
(882,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS
ENDED SEPTEMBER 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Operating
expenses
|
|
|
8,000
|
|
|
391,000
|
|
|
399,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,000
|
)
|
$
|
(391,000
|
)
|
$
|
(399,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
|
The
following managements discussion and analysis of financial condition and
results of operation should be read in conjunction with our Annual Report on
Form 10-KSB for the year ended December 31, 2007, as well as our unaudited
consolidated financial statements and notes thereto contained elsewhere in this
Quarterly Report on Form 10-Q. Such 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
statements in the future.
OPERATIONS
Business Development
Since
1998 and through April 2006 we operated our wholly-owned subsidiary,
Intercomsoft Limited, a company established to operate a computerized photo
identification and database management system.
Additionally,
until May 30, 2008, we had an exclusive worldwide license to a mechanically
rechargeable aluminum-air fuel cell technology for use with portable consumer
electronic devices which we acquired in January 2001.
However,
other than certain legal actions related to Intercomsofts Supply Agreement as
more detailed in Part II Item 1 of this report entitled
Legal Proceedings
. although we are seeking
other opportunities, we are not currently engaged in any business operations or
activities that generate revenue.
Intercomsoft Ltd.
Intercomsoft,
Ltd. was established to operate 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 such forms of essential personal
identification.
Although
it has pursued other opportunities, Intercomsofts only customer since
inception was the Government of the Republic of Moldova, pursuant to a ten (10)
year renewable Contract on Leasing Equipment and Licensing Technology (the
Supply Agreement) entered into in April 1996.
On
or about February 11, 2006, we received notice from the Government of the
Republic of Moldova that it did not intend to renew the Supply Agreement which,
unless renewed, expired by its terms on April 29, 2006. We believe that such
notice of non-renewal may not have been sent timely under the applicable
provisions of the Supply Agreement and are currently contesting the claimed
non-renewal of such Agreement.
13
We
are currently involved in a number of legal actions in connection with the
Supply Agreement, which are set forth in detail in Part II Item 1 of this
report entitled
Legal Proceedings
.
Aluminum-Air Fuel Cell Technology
From
January 2001 through May 30, 2008, we had an exclusive worldwide license to a
mechanically rechargeable aluminum-air fuel cell technology solely for use with
portable consumer electronic devices, all rights and title to a certain
technology relating to aluminum-air fuel cells and the design and know how to a
converter designed and developed by Aluminum-Power, Inc. (Aluminum Power),
our majority shareholder at that time, which was (and continues to be)
beneficially owned and controlled by our Chairman of the Board.
Since
we acquired such technology and through the second quarter of 2003 we engaged
in research, development and marketing efforts in connection with such
technology. Further, we had also actively sought strategic business partners to
commercialize the technology and pursued the prosecution of patent applications
resulting in the issuance by the United States Patent and Trademark Office of
two patents on our aluminum-air fuel cell technology. However, as of the second
quarter of 2003 we discontinued our research and development efforts on the
aluminum-air fuel cell technology and have not actively pursued the development
of such technology since such time.
On
May 30, 2008 we entered into a termination agreement (the Termination
Agreement) with Aluminum Power terminating the Technology Acquisition
Agreement and the Research and Development Agreement entered into by us and
Aluminum Power in 2001. In consideration of the Termination Agreement, Royal
HTM Group, Inc, a company beneficially owned and controlled by the Companys
Chairman of the Board, cancelled $400,000 of our indebtedness to it.
Additionally,
we entered into an amendment of the Termination Agreement dated as of July 9,
2008 (the Amendment). Pursuant to the terms of the Amendment, Aluminum Power
transferred to us 21,000,000 shares of our common stock owned by it as further
consideration in connection with the Termination Agreement. Such shares are to
be utilized by us solely in connection with certain acquisitions that we are
currently exploring. The Amendment provides that in the event that we do not conclude
any of such acquisitions by December 31, 2008, Aluminum Power has the right to
require us to reconvey such 21,000,000 shares to it for a purchase price of
$1,000. A further Amendment No. 2 to the Termination Agreement dated as of
September 24, 2008, extended the December 31, 2008 reconveyance date to
September 23, 2009.
RESULTS OF OPERATIONS
General
During
the three and nine month period ended September 30, 2008, our operations
consisted solely of administrative activities, activities surrounding
exploration of certain
14
acquisitions
and those related to pursuing the breach of contract claims against the
Republic of Moldova as more fully described in Part II Item 1 herein.
Comparison of Three Month Period Ended
September 30, 2008 to September 30, 2007
During
the three months ended September 30, 2008, we generated no revenues from
operations and similarly generated no revenues in the comparative period in
2007. Revenue in periods prior to those at issue resulted from Intercomsofts
production of government documents in the Republic of Moldova and the lack of
revenue in the periods at issue resulted from the contested non-renewal of the
Supply Agreement on April 29, 2006.
Total
expenses for the three months ended September 30, 2008, were approximately
$882,000, which consisted of $644,000 of Intercomsoft expenses consisting of
$635,000 in costs and expenses related to a legal action (as more fully
disclosed herein in Part II Item 1 entitled
Legal
Proceedings
) and the balance of which relates to machinery and
equipment depreciation, and $238,000 of which were general corporate and
administrative expenses. For the same period in 2007, general and
administrative expenses aggregated approximately $399,999, which consisted of
$8.000 of Intercomsoft expenses consisting of machinery and equipment
depreciation and $391,000 of which were general and corporate administrative
expenses. The decrease in general and administrative expenses in the three
months ended September 30, 2008, when compared to the same period in 2007,
resulted from a further reduction of costs and expenses due to limited business
operations.
We
had net loss from operations of approximately $882,000 for the three month
period ended September 30, 2008, as compared to a net loss of approximately
$399,999 for the same period in 2007. A significant factor in the difference
between the comparative periods in the legal costs and expenses incurred in the
current period.
Comparison of Nine Month Period Ended
September 30, 2008 to September 30, 2007
During
the nine months ended September 30, 2008, we generated no revenues from
operations and similarly generated no revenues in the comparative period in
2007. Revenue in periods prior to those at issue resulted from Intercomsofts
production of government documents in the Republic of Moldova and the lack of
revenue in the periods at issue resulted from the contested non-renewal of the
Supply Agreement on April 29, 2006.
Total
expenses for the nine months ended September 30, 2008, were approximately
$1,389,000, which consisted of $661,000 of Intercomsoft expenses consisting
$635,000 in costs and expenses related to a legal action (as more fully
disclosed herein in Part II Item 1 entitled
Legal
Proceedings
) and the balance of which relates to machinery and
equipment depreciation, and $728,000 of which were general corporate and
administrative expenses. For the same period in 2007, general and
administrative expenses aggregated approximately $923,000, which consisted of
$24,000 of Intercomsoft expenses consisting of machinery and equipment
depreciation and
15
$899,000 of
which were general and corporate administrative expenses. The decrease in
general and administrative expenses in the nine months ended September 30,
2008, when compared to the same period in 2007, resulted from a further
reduction of costs and expenses due to limited business operations.
We
had a net loss from operations of approximately $1,389.000 for the nine month
period ended September 30, 2008, as compared to a net loss of approximately
$923,000 for the same period in 2007. A significant factor in the difference
between the comparative periods in the legal costs and expenses incurred in the
third quarter 2008.
Liquidity & Capital Resources
Intercomsofts
Supply Agreement expired by its terms in April 2006. As a consequence of what
we believe was an untimely notice of non-renewal of the Supply Agreement,
Moldova discontinued payment to us for amounts due thereunder and our sole
source of revenue ended. Although we are vigorously contesting the non-renewal
of the Supply Agreement, there can be no assurances as to the outcome such
dispute. If the Supply Agreement is not renewed, we will need to pursue future
business opportunities in order to sustain continued operations.
We
have not generated any revenue since the first quarter 2006 and have funded our
limited operations through loans and advances from our Chairman of the Board
and/or companies owned or controlled by him.
Our
liabilities currently exceed our assets by $3,664,000. 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 cancelled, issued or
exercised during the three or nine month periods ended September 30, 2008. As
of September 30, 2008, the total number of shares of our common stock reserved
for issuance under options outstanding was 6,870,000, of which options to
purchase 3,870,000 shares were issued pursuant to our 2001 Omnibus Plan, as
amended.
Available information
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 Commission. Reports,
proxy statements and other information filed by us with the Commission pursuant
to the informational requirements of the Exchange Act may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza,
16
450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of such material may also be
obtained upon written request addressed to the Commission, Public Reference
Section, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission also maintains an Internet web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission at
www.sec.gov
.
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.
|
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|
|
|
Not
applicable.
|
|
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
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 Securities
Exchange Act of 1934 (the Exchange Act) is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission (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 management, including
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 September 30, 2008, our Chief
17
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
September 30, 2008 that has materially affected or is reasonably likely to
materially affect our internal control over financial reporting.
Managements 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
Securities Exchange Act of 1934. We have assessed the effectiveness of those
internal controls as of September 30, 2008, 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.
18
This
Quarterly Report does not include an attestation report of our registered
public accounting firm regarding internal control over financial reporting.
Managements report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only managements report in this Quarterly
Report.
PART II -
OTHER INFORMATION
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ITEM 1.
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LEGAL PROCEEDINGS
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On
or about February 11, 2006, we received a notice from the Government of the
Republic of Moldova advising us that it did not intend to renew the Supply
Agreement which, unless renewed, expired by its terms on April 29, 2006. We
believe that such non-renewal notice was not sent timely under the applicable
provisions of the Supply Agreement and we have contested such non-renewal
notice.
On
September 18, 2006, Intercomsoft commenced an action with the International
Chamber of Commerce (the ICC), International Court of Arbitration, in Geneva,
Switzerland 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 in
accordance with the terms of the Supply Agreement. The Moldova Defendants
interposed counterclaims against Intercomsoft in amounts totaling $30 million.
The counterclaims contain allegations of fraud and misrepresentation which the
Moldovan Defendants claim occurred during the performance of the Supply
Agreement. Management of the Company and Intercomsoft have denied any
wrongdoing and are contesting the counterclaims.
The
Moldovan Defendants contested the action and objected to the ICCs jurisdiction
to hear the arbitration. Hearings were held before an ICC Arbitral Tribunal in
Switzerland on the jurisdictional issue. By Final Award of the ICC dated July
30, 2008, and subsequently communicated to Intercomsoft by the ICC, the Arbital
Tribunal constituted under the auspices of the ICC declined jurisdiction over
the arbitration. In addition, the Final Award also assessed costs and fees
against Intercomsoft in the amount of $635,000. The Final Award relates to
costs and fees of the arbitration only and is not a determination on the merits
of the action. Intercomsoft is considering its options including seeking the
intercession of the Swiss courts.
In
addition, the Moldovan Defendants have commenced an action before the
International Commercial Court of Arbitration attached to the Chamber of
Commerce and Industry of the Republic of Moldova, claiming that it is the
proper body to administer any arbitration between the parties. The claims
asserted in the current action are the same claims asserted by the Moldovan
Defendants in the ICC arbitration. There have been no
19
hearings in
such arbitration.
There
can be no assurance as to the outcome of such arbitration proceedings and
actions.
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ITEM 2.
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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None
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ITEM 3.
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DEFAULTS UPON SENIOR SECURITIES
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None.
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ITEM 4.
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
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ITEM 5.
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OTHER INFORMATION
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During
the nine month period ended September 30, 2008, we accrued an aggregate of
$207,000 ($23,000 per month) in compensation and $16,200 ($1,800 per month) in
expenses due to Boris Birshtein related to his performance as our Chairman of
the Board.
During
the nine month period ended September 30, 2008 we borrowed an aggregate of
approximately $466,000 from our Chairman of the Board and Royal HTM Group,
Inc., a Canadian company beneficially owned and controlled by such individual,
to meet on-going operational expenses. Such amount is non-interest bearing and
is due on demand.
Royal
HTM Group renders certain business development services to us on ongoing basis.
During the nine month period ended September 30, 2008 we accrued an aggregate
of $90,000 ($10,000 per month) for consulting fees due to Royal HTM Group for
such services. Such amount is non-interest bearing and is due on demand.
On
May 30, 2008 we entered into a termination agreement (the Termination
Agreement) with Aluminum Power Inc., a company beneficially owned and controlled
by our Chairman of the Board. The Termination Agreement terminated the
Technology Acquisition Agreement and the Research and Development Agreement
entered into by us with Aluminum Power in 2001. In consideration of the
Termination Agreement, Royal HTM Group cancelled $400,000 of our indebtedness
to it. The forgiveness of such debt was accounted for as a credit to additional
paid in capital on the consolidated balance sheet as of September 30, 2008. As
of the date of the Termination Agreement, Aluminum Power was our majority
shareholder.
20
On
July 9, 2008, we entered into an amendment of the Termination Agreement (the
Amendment). Pursuant to the terms of the Amendment, Aluminum Power
transferred to us 21,000,000 shares of our common stock owned by it as further
consideration in connection with the Termination Agreement. Such shares are to
be utilized by us solely in connection with certain acquisitions that we are
currently exploring. The Amendment provides that in the event that we do not
conclude any of such acquisitions by December 31, 2008, Aluminum Power has the
right to require us to reconvey such 21,000,000 shares to it for a purchase
price of $1,000. A further Amendment No. 2 to the Termination Agreement dated
as of September 24, 2008, extended the December 31, 2008 reconveyance date to
September 23, 2009. Such transaction reduced the number of our issued and
outstanding shares by 21,000,000 resulting in a total of 79,472,328 issued and
outstanding shares as of the date of this quarterly report.
On
July 10, 2008 Royal HTM Group and Aluminum Power entered into an agreement
pursuant to which Aluminum Power transferred to Royal HTM Group 49,275,000 of
its shares of our common stock. With such transaction, Royal HTM Group became
our majority shareholder.
The
exhibits listed below are filed as part of this Quarterly Report for the period
ended September 30, 2008:
21
SIGNATURES
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.
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TRIMOL GROUP, INC.
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Date:
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November 13,
2008
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By: /s/
Yuri Benenson
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Name: Yuri
Benenson
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Title: Chief
Executive Officer
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By: /s/
Jack Braverman
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Name: Jack Braverman
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Title: Chief
Financial Officer
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22