-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IXnVKeYeecdYfTRnLBgmNnGz9vA1rVHWsU8nI4/hY2xvDqtwNhMVe5IiJ9XHJFZC LgA5/dEYolPscQWRt/4PGQ== 0000912057-00-018068.txt : 20000417 0000912057-00-018068.hdr.sgml : 20000417 ACCESSION NUMBER: 0000912057-00-018068 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRIMOL GROUP INC CENTRAL INDEX KEY: 0001011733 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 133859706 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: SEC FILE NUMBER: 000-28144 FILM NUMBER: 601204 BUSINESS ADDRESS: STREET 1: 1285 AVENUE OF THE AMERICAS STREET 2: 35TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2125544394 MAIL ADDRESS: STREET 1: 1285 AVENUE OF THE AMERICAS STREET 2: 35TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: NUTRONICS INTERNATIONAL INC DATE OF NAME CHANGE: 19960404 10KSB40 1 10KSB40 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB (Mark One) /X/ Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1999 / / Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Commission File Number 0-28144 TRIMOL GROUP, INC. ------------------------------ (Name of small business issuer in its charter) DELAWARE 13-3859706 - ------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1285 AVENUE OF THE AMERICAS, 35TH FLOOR, NEW YORK, NY 10019 ----------------------------------------------------------- (Address of principal executive offices) (Zip Code) Issuer's telephone no.: (212) 554-4394 Securities registered pursuant to Section 12(b) of the Exchange Act: None Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock Check whether the issuer (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 /___/ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. / X / State the issuer's revenues for its most recent fiscal year. $7,981,000. State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock as of a specified date within 60 days. $3,071,500 (based upon the average of the closing bid ($0.50) and closing asked ($2.00) prices on March 31, 2000). State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Class Outstanding as of March 31, 2000 Common Stock, par value $.01 per share 12,039,000 shares of Common Stock DOCUMENTS INCORPORATED BY REFERENCE: NONE Transitional Small Business Disclosure Format. Yes / / No / X / TRIMOL GROUP, INC. TABLE OF CONTENTS
PART I Page Number Item 1. Description of Business 2 Item 2. Description of Property 23 Item 3. Legal Proceedings 23 Item 4. Submission of Matters to a Vote of Security Holders 23 PART II Item 5. Market for Common Equity and Related Stockholder Matters 24 Item 6. Management's Discussion and Analysis or Plan of Operation 26 Item 7. Financial Statements 32 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 33 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act 34 Item 10. Executive Compensation and Stock Based Compensation 36 Item 11. Security Ownership of Certain Beneficial Owners and Management 37 Item 12. Certain Relationships and Related Transactions 39 Item 13. Exhibits, List and Reports on Form 8-K 41 FINANCIAL STATEMENTS SIGNATURES
(i) EXPLANATORY NOTES I. THE FUNCTIONAL CURRENCY IN THE REPUBLIC OF MOLDOVA, WHERE THE REGISTRANT'S OPERATIONS ARE SITUATED, OR FROM WHERE THEY DERIVE THEIR REVENUE, IS THE MOLDOVAN LEU. II. REFERENCES HEREIN TO $ OR U.S. $ ARE TO THE UNITED STATES DOLLAR. REFERENCES HEREIN TO MDL ARE TO THE MOLDOVAN LEU. (ii) PART I ITEM 1. DESCRIPTION OF BUSINESS GENERAL Trimol Group, Inc. (the "Company" or "Registrant"), was organized on May 6, 1953 under the laws of the State of Delaware. Although since its incorporation the Company has engaged in several different businesses and has effected several name changes, for at least three years prior to January 6, 1998, the Company did not engage in any material operations. THE REORGANIZATION Pursuant to an Agreement and Plan of Reorganization effective on January 6, 1998, (the "Reorganization Agreement"), by and among the Company, Edward F. Cowle, H. DeWorth Williams, then officers, directors and principal stockholders of the Company, and Gold Hill Mines, Inc., an Idaho corporation, then a principal stockholder of the Company (that was majority owned by Mr. Cowle), and Magnum Associates Ltd. ("Magnum"), a corporation organized under the laws of Ireland, and Starbeam, Ltd. ("Starbeam"), a corporation organized under the laws of Ireland (Magnum and Starbeam shall hereinafter sometimes be collectively referred to as the "Target Stockholders"), the Company acquired (the "Acquisition"), all of the issued and outstanding capital stock of the Targets (as defined below), from the Target Shareholders in exchange for an aggregate of 10,000,000 shares of common stock, par value $.01 per share (the "Common Stock") of the Company. Pursuant to the terms of the Reorganization Agreement, effective as of January 6, 1998, Ed Cowle, Joseph Mancini and Robyn Mancini resigned as officers and directors of the Company and certain of the beneficial owners of the 10,000,000 shares of Common Stock issued in the Acquisition set forth elsewhere herein became officers and directors of the Company. Prior to the Acquisition, the Target Stockholders owned all of the issued and outstanding capital stock of the following four holding corporations: Maximilia, Ltd., a corporation organized under the laws of Ireland ("Maximilia"); Sturge Ltd., a corporation organized under the laws of Ireland ("Sturge"); Jolly LLC, a limited liability corporation organized under the laws of Wyoming ("Jolly LLC"); and Paul Garnier Ltd., a corporation organized under the laws of Ireland ("Garnier"). Garnier, together with Maximilia, Sturge and 2 Jolly LLC shall sometimes hereinafter be referred to collectively, as the "Targets." Jolly LLC owns sixty-five (65%) percent of the issued and outstanding capital stock of Jolly Alon Limited, a Moldovan corporation ("Jolly Alon" or the "Hotel"), that operates and manages the Jolly Alon Hotel in Chisinau, Moldova and rents stores and offices located on the hotel property, with the remaining thirty-five (35%) percent of the issued and outstanding capital stock of Jolly Alon being owned by the Government of the Republic of Moldova; Sturge and Maximilia each own fifty (50%) percent (one hundred (100%) percent in the aggregate) of the issued and outstanding capital stock of Banca Commerciala pe Actiuni "Export-Import," a Moldovan corporation ("Bank"), which owns a commercial bank in Moldova; and Maximilia owns fifty-five (55%) percent and Garnier owns fifteen (15%) percent (seventy (70%) percent in the aggregate) of the issued and outstanding capital stock of Exim Asint S.A., a Moldovan corporation which owns a property and casualty insurance business in Moldova ("Insurance Company"), with the remaining thirty (30%) percent being owned by the Bank. On May 6, 1998, pursuant to a stock purchase agreement dated May 3, 1998, the Company acquired all of the issued and outstanding shares of the capital stock of Intercomsoft in exchange for 1,000,000 shares of the Company's Common Stock. The Hotel, the Bank, the Insurance Company and Intercomsoft shall sometimes hereinafter be collectively referred to as the "Asset Entities." As a result of the Acquisition of the Targets by the Company, the Targets became wholly-owned subsidiaries of the Company, which, in turn, and as described above, own capital stock of the Asset Entities which now constitute the Company's business operations. THE ECONOMIC CRISIS IN RUSSIA All of the Company's Asset Entities (subsidiaries) operate in, or derive their revenues from, the Republic of Moldova, a former Republic of the Soviet Union. The Company believes that the current and possible future) economic crisis in Russia, which caused an economic slowdown in the Republic of Moldova, resulting in less disposable income to the Moldovan population, had an adverse impact on the revenues and income of the Company's subsidiaries. Such slowdown may continue to have such adverse impact. In addition, the Moldovan Leu, the currency of the Republic of Moldova, has undergone significant devaluation, which has also had a significant and adverse impact on the revenue and income of the Company's subsidiaries. Additional devaluation of the currency may continue to have such an adverse impact. Political uncertainty and instability in the Republic of Moldova may also play a role in the future revenue and income of the Company and its subsidiaries. 3 THE BUSINESS OPERATIONS OF THE ASSET ENTITIES The following discusses the business operations of the Bank, the Hotel, the Insurance Company and Intercomsoft, in that order. BANCA COMMERCIALA PE ACTIUNI "EXPORT-IMPORT" BACKGROUND. The Bank, which before June 1996 was named "Banca de Export-Import a Moldovei S.R.L.," was established in April 1994 and, in accordance with a Decree of the President of the Republic of Moldova ("Moldova"), was to be owned sixty-five (65%) percent by foreign investors and thirty-five (35%) percent by the Government of Moldova. The Bank received its General Banking License from the National Bank of Moldova in April 1994 and began activity as a new commercial bank in June 1994. The Bank was previously a Moldovan extension of the Vnesh-Econom Bank of the Soviet Union (now a Russian bank), which then became an international division of the National Bank of Moldova. In September 1996, the Government of Moldova's ownership interest was repurchased by the Bank for approximately U.S. $700,000. As a result of the Reorganization Agreement, it is a second-tier wholly-owned subsidiary of the Company. The Bank's head office is located in Chisinau, with two branches located in Ungeni and Comrat, four exchange offices in Chisinau, eleven Registru cash office (nine in Chisinau, one in Ungheni and one in Comrat), and three specialized offices for Western Union services (one in Chisinau, one in Ungheni and one in Comrat). See "Services Provided By The Bank." The Bank conducts a variety of commercial banking activities in Moldova. These activities include, among other things, receipt of monetary deposits, granting credit, transactions in foreign currency, financing international transactions, and investing in government securities. The Bank is, under Moldovan law, anauthorized dealer permitted to engage in foreign currency transactions and is licensed to buy and sell Moldovan Government securities. Although the Bank's license permits it to engage in most of the services that a commercial bank in the United States or Western Europe would engage in, its actual activities vary in respect of those of United States or Western European banks. 4 SERVICES PROVIDED BY THE BANK. The Bank accepts funds from depositors on a demand or time deposit basis. Interest is paid on all time deposits, both in Moldovan Leu and U.S. Dollars. Only demand deposits in Moldovan Leu made by legal commercial entities are interest bearing. Demand deposits in foreign currency, both personal and commercial, are non interest bearing. Additionally, those persons and entities that deposit funds on demand are charged a fee for withdrawing their funds. Additional services provided include, but are not limited to, the following: (a) picking up and delivering of cash; (b) providing short term interest bearing loans that in most instances are collateralized with assets in excess of the amount of the loan; (c) arranging foreign currency transactions including documentary letters of credit and collection; (d) transfers of client funds within Moldova and internationally through wire (or cross) transfers of funds and/or Western Union payments; (e) effecting money transfers for customers via Western Union; (f) issuing and cashing traveler's checks; (g) rental of safety deposit boxes; (h) acceptance of utility (telephone, electric) or rental (on government owned properties) payments from customers and non-customers; (i) providing cash collection services for the Moldovan State Registration Department (the Registru), the only Moldovan authority to issue identification documents, passports, driver's licenses and other forms of government issued identification documents; and 5 (j) bidding on Moldovan government securities at auctions and purchasing same. The Bank also participates in such auctions on its own behalf as principal. See "Investments." Fees are charged for the above services, with borrowers being charged interest. In Moldova, the concept of a "check," either personal or commercial has not yet been accepted. Transactions are completed in cash or by transfer of funds. Credit cards are not generally accepted nor are long term loans, mortgages and equipment financing currently used. Loans are secured with collateral. Personal non-collateralized loans are not accepted. The Bank's loans are made on a short term (three to six months) basis and occasionally yearly. The above transactions can be engaged in with either persons or legal entities. FUNDS ON DEPOSIT. During the last four fiscal years funds deposited by the Bank's customers had, as a percentage of deposits, the following sources.
================================================= 1996 1997 1998 1999 ---- ---- ---- ---- Interest Bearing Accounts 32% 27% 50% 51% Demand Accounts(1) 67% 72% 50% 46% Interbank Credits 1% 1% * 3% =================================================
* Less than 1%. SPECIFIC AGREEMENTS. In 1995, an agreement was signed between the Government of Moldova and the United States for financing imports into Moldova of grain products from the United States. Under this agreement the Bank issues letters of credit for its clients in favor of the grain supplier in the United States. The letters of credit provide for a corresponding agency of the United States to guarantee the payment to the supplier upon receipt of the documents confirming delivery of the goods. - -------- (1) Interest is now paid on Demand Accounts in Moldovan Leu made by legal commercial entities only. 6 In April 1996, a trilateral agreement was signed between Dresdner Bank AG, Tirex-Petrol S.A. (a company 80% owned by the Government of Moldova) and the Bank concerning the financing of imports of oil products into Moldova. An oil dealer nominated by Dresdner Bank imports oil products into Moldova and the Dresdner Bank finances the transactions under letters of credit issued by the Bank. The oil products are later sold on the local market by the Moldovan Government which collects payment in local currency. The funds are then converted into U.S. dollars by the Bank and used for repayment to Dresdner Bank. The Government of Moldova issued a standby guarantee signed by the Minister of Finance of Moldova which states that it will repay the indebtedness to Dresdner Bank if the other parties do not fulfill their obligations. This agreement expires in 2001. The maximum line of credit authorized is U.S. $50,000,000, while the largest amount outstanding to date has been U.S. $8,000,000. Although the trilateral agreement was due to expire in 2001, the project was discontinued in September 1998 as the mechanism of the project was changed. Dresdner Bank ceased providing financing and Tirex-Petrol S.A. began to pay for the oil products directly on the basis of cash covered letter of credit. In both instances the Bank charges a fee for the issuance of its letters of credit. INVESTMENTS. In addition to charging fees and interest for the services indicated above, the Bank also obtains revenues by participating in auctions for and purchasing interest bearing treasury bills issued by the Moldovan Government and interest earned on funds deposited in correspondent foreign banks. The Bank has also made investments in other enterprises, including the Insurance Company. Loans to affiliated parties are made on the same basis as to non-affiliates. BORROWERS. The Bank attempts to diversify its portfolio of loaned funds to avoid a concentration of risk. During the Bank's fiscal year ended December 31, 1999, the Bank issued an aggregate of approximately $8,293,362 in loans. The Bank's largest borrowers identified by business categories and their approximate borrowings are as follows: 7 Food Distributors $598,598 Cigarette Manufacturers $579,956 Supermarkets $475,766 Gasoline Station $462,999 Carpet Factory $426,467 Oil Products Broker $232,355 Pharmaceuticals Dealer $ 68,151
LOANS TO RELATED PARTIES. Two loans were made by the Bank to Dufermol,("Dufermol") a chain of duty free shops in the Republic of Moldova whose principal shareholder is the Chairman of the Board of the Company. The first loan is an $83,0000 principal amount loan, bears interest at the rate of 35% per annum, was made on February 9, 1999 and matures on February 9, 2001. The second loan is a $60,000 principal amount loan, bears interest at the rate of 35% per annum, was made November 16, 1999 and matures on May 16, 2000. It should be noted that 35% per annum was the rate in effect in Moldova at the time such loans were made. The Bank also made a $72,000 principal amount loan bearing interest at the rate of 35% per annum to NIT, a television station in the Republic of Moldova whose principal shareholder is the Chairman of the Board of the Company. The loan was made on August 4, 1999 and matures on February 4, 2001. The Bank also made a $500,000 principal amount loan to Polen S.R.L., an entity doing business in the Republic of Moldova whose beneficial owner is the Company's Chairman of the Board. The loan was not paid when it matured in 1999. As a result of non-payment, of such loan, the Bank foreclosed on the building held as collateral for such loan, which is valued at $682,000, based on an independent appraisal from Pricewaterhouse Coopers dated February 25, 2000. The Bank intends to use this building (which is located a few doors away from as its main facility in Chisinau) as a client services annex to the Bank and for other expanded banking services. COMPETITION. At present, all authorized banks operating in Moldova, may be classified into three categories (1) Current and former government owned banks. Only one bank, the Savings Bank, is still partially owned by the Government of the Republic of Moldova. The three banks in this first category have been privatized and have become joint stock commercial banks in full. These banks are the Moldova-Agroindbank, Banca Sociala and Moldindcombank. Another commercial bank, Victoria Bank, may be included in this category as its total assets are at the same level and the European Bank of Reconstruction and Development is among its 8 shareholders. These five banks represent the first category of Moldovan banks - the largest banks in Moldova. (2) The second category is comprised of small commercial banks that experience financial troubles in one way or another. It is quite possible that these banks may lose their license because of the steady rising capital requirements of the National Bank of Moldova. (3) All other banks, approximately ten banks, including the Company's Bank, form the third category. Branches of foreign banks could be included in this category as well. It is typical for these banks to have similar financial indicators, such as total assets, liquid asset-to-total asset ratio and deposit and loan portfolio volumes. Only four of the banks in this third category may be considered competitors of the Bank, Universalbank, Mobiasbank, Fincombank and Unibank. The Company believes that the Bank competes on the basis of overall customer service, interest rates and other terms and conditions of loans, the professionalism of its staff, service offerings (especially in the areas of cash transport and foreign exchange), community reputation and the fact of its foreign ownership, which the Bank believes enhances its attractiveness to depositors and other customers. GOVERNMENT REGULATION. The license granted to the Bank by the National Bank of Moldova authorizes the Bank to do the following, among other things: (1) accept deposits (demand and time) which may or may not bear interest; (2) grant credits (consumer or factoring), financing of commercial transactions and the granting of secured or non secured mortgages; (3) loan funds for its or its clients' accounts; (4) provide cash services; (5) issue and control payment documents and instruments(credit and payment cards, travelers checks and bank promissory notes, etc.); (6) engage in foreign currency exchange; (7) financial leasing; 9 (8) various credit services; (9) act as a financial agent or consultant; and (10) any other activity permitted by the National Bank of Moldova. The Company believes it is in compliance with the banking laws, rules and regulations of banks in Moldova. CAPITALIZATION REQUIREMENTS. The Bank currently operates under a B-License issued by the National Bank of Moldova. The National Bank of Moldova regularly revises the capital requirements for banks. In accordance with current regulations, banks operating under a B-License (such as the Bank) must maintain a shareholders' equity of $48 million Moldovan Leu as of July 1, 2000 (approximately $4.1 million U.S. at the exchange rate in effect at December 31, 1999.) The Bank's shareholders' equity as of December 31, 1999 was approximately $35 million Moldovan Leu (approximately $3 million U.S.) As a result, the Bank must increase its shareholders' equity by approximately $13 million Leu (approximately $1.1 million U.S.), by July 1, 2000 in order to maintain its current banking license in Moldova. In addition, the National Bank of Moldova has declared that all banks with a B-License will be required to maintain shareholders' equity of no less than $76 million Leu (approximately $6.5 million U.S.), by January 1, 2001. Should the Bank be unable to meet these capitalization requirements, it may lose its B- license to operate as a bank in Moldova. Although the Company believes that the Bank will increase its shareholders' equity to the required amounts, within the required time frames, in the event that the Bank is not able to do so, the Bank's ability to operate as a bank in Moldova would, in all likelihood, be terminated which would have a material adverse effect on the Company. SALES AND MARKETING. The Bank advertises its service on Russian and Romanian television stations broadcast in Moldova and on four local radio stations. The Bank also advertises in local newspapers and financial publications as well as newspapers and magazines oriented toward foreign citizens. In 1999, the Bank established a web site WWW.EXIMBANK.COM in two languages (English and Russian.) The Bank also offers "promotional" items to its customers such as pens, bags and calendars. 10 ADMINISTRATION. Executive Directors (five persons). Non-policy management of the Bank is conducted by the following departments: FUNDS MANAGEMENT (seven persons) - having responsibility over lending, depositor relations and investments. ANALYSIS (three persons) - having responsibility over financial analysis, reporting, development and planning. INTERNATIONAL (eleven persons) - having responsibility over international transfers, export-import controls, dealing with foreign correspondent banks, foreign currency dealings including conversions and rendering foreign currency exchange services to clients. CASH (twenty-three persons) - processing of cash and coin in local and foreign currencies and cash collection at the Registru cash offices noted above. EXCHANGE (seven persons) - provides cash currency exchange services in five exchange offices in Chisinau. COMPUTER OPERATIONS (seven persons) - development of software, maintenance, selecting software and hardware supplies and overseeing installation. ACCOUNTING (nine persons) - Accounting and customer service. INTERNAL AUDITING (two persons) - internal auditing, monitoring accounting and operations. SECURITY (eighteen persons) - internal security and cash transportation. LEGAL (three persons) - legal representation. MAINTENANCE (fifteen persons) - provides maintenance, support and miscellaneous auxiliary services. MARKETING (two persons) - marketing research and advertising. TWO REMOTE BRANCHES (twenty persons). The Bank's operations are augmented by a computer system with terminals available to all necessary persons with security access, as appropriate, installed. Bank personnel developed the Bank's computer system which covers virtually all aspects of the Bank's operations (cash deposits, payments, crediting, account controls, currency exchange transactions, traveler's check transactions, past due obligations of Bank customers, client indexes, internal reporting, interfacing with the National Bank of Moldova, account maintenance, analysis of Bank activity and record-keeping of assets, salary, materials, etc.). The Bank's computer is connected to various outside services, including the Internet for information gathering, Swift for international settlements and Reuters for foreign exchange rates and other similar services. 11 PERSONNEL. At December 31, 1999, the Bank employed 132 people, consisting of 112 in its main office and 20 in its two remote branches. All employees have one year employment agreements which are renewable for one year on mutually agreeable terms or subject to compliance with the Bank's annual employee testing requirements. Notwithstanding such employment agreements, discharge is permitted for incompetence and other similar situations. As all employers in Moldova, the Bank is required to contribute an amount equal to 31% of an employee's salary to a government mandated social fund. FUTURE PLANS. The Bank currently has plans to enlarge its activities through the development of new services as well as opening additional branches and cash offices. In November 1999 the Bank acquired new premises across the street from its main office in Chisinau, where a Western Union service facility is anticipated later this year that will offer services including the ability by Moldovan residents to make utility and rental payments. The Bank also acquired a building which is a few doors away from its main facility which it intends to use as a client services annex to the Bank and for other expanded banking services. In addition, the Bank plans to open two new branches in the Chisinau area this year, one in the Rishkanovka (north of Chisinau) and a second in downtown Chisinau beside the National Bank of Moldova and the Ministry of Finance. The activity of these two new branches will be oriented toward both personal and corporate banking. The Bank is also planning to open a new branch in the city of Belts, the second largest city in the Republic of Moldova, and the center of the industrial area of northern Moldova. 12 JOLLY ALON LIMITED In October of 1991, the Government of Moldova established Seabeco Moldova, SA ("SEMSA") to be 65% owned by a private investor with the remaining 35% to be owned by the Government of Moldova. At that time, the Government of Moldova transferred the hotel in Chisinau that it owned to SEMSA. The hotel was known as the Seabeco Moldova Hotel. Thereafter, the Hotel and SEMSA changed their names to Jolly Alon Limited and Jolly Alon Hotel, respectively. Originally opened approximately 30 years ago, the Hotel is primarily used by visiting foreign diplomats, other foreign embassy employees, dignitaries and businessmen. The private investor began a program of reconstruction and refurbishment with its own funds which program currently continues, including the construction of a "wing" currently occupied by the German Embassy and the addition of a sixth floor to the then five story hotel. Other improvements include the installation of fuel storage tanks and the construction of the Hotel's HVAC facilities. The Hotel is situated on government-owned land, which has been rented to the Hotel for a fifty year term and which is located at M. Chibortero Street, Chisinau, Moldova. Chisinau is the capital of Moldova, located approximately 800 miles from Moscow, 350 miles from Budapest, 350 miles from Bucharest and 300 miles from Kiev. The Hotel is located approximately twenty minutes from Chisinau's airport which is serviced by flights from such cities as Athens, Berlin, Bucharest, Istanbul, Kiev, Minsk, Odessa, Prague, Sofia, Warsaw, Budapest, Frankfurt, Moscow, Tel Aviv and Vienna by Air Moldova, Transaero, Air Moldova International, Moldavian Airlines and Tarom. The Hotel is centrally located, near Moldova's Parliament, its President's residence, and adjoins a substantial public park. OPERATIONS. The Hotel's revenues are primarily derived from the rental of its modern well appointed guest accommodations and from restaurant and bar operations, leasing of space to the German Embassy and leasing of private business offices (to business tenants, including Pricewaterhouse Coopers). The Company considers the Hotel to be the only "first class" hotel in Chisinau carrying Moldova's designation as a four star hotel with accommodations for up to 120 guests in 80 hotel rooms. Hotel rooms range from single occupancy rooms to suites as follows: single (forty rooms), double (twenty-nine rooms), luxury (three rooms), deluxe (six rooms) and suites (three). Hotel rooms range in price from $95.00 for a single room to $295.00 for a suite with discounts offered for extended residence. Reduced rates are offered during the fall and winter "off-season." All rooms have bath and shower facilities, are air-conditioned, have satellite delivered color TV and direct dial telephones for local and international calls. 13 Additional services owned and operated by the Hotel are a full service restaurant opened for guest buffet breakfast (complimentary) and lunch and dinner with a full range of food and beverage offerings, bars, saunas, an indoor swimming pool, beauty salon, barbershop, room service and a small private casino (for Hotel guests only), all serviced by a multi-lingual staff. The Hotel leases retail office space to a clothing boutique, fragrance, jewelry and publications concession and a seller of local artifacts. A small foreign currency exchange office is provided by the Bank. In addition to revenues from room rentals to business/diplomatic travelers, the Hotel also provides business services, meeting/conference rooms, notarial service, interpretation to and from major European languages, limousine services and tourist services. CLIENTELE. Hotel guests are primarily business men, both foreign and from the Republics which had comprised the USSR, diplomats and other embassy personnel. The area in which the Hotel is located does not have any significant tourism and such travelers comprise only a small number of the Hotel's guests. An unscientific and informal guest survey encompassing the years 1995 - 1998 indicates Hotel usage from personnel from the embassies of over twenty countries (including the United States, Great Britain, Israel and Germany), multi-national corporations and international agencies. Regular guests of the Hotel are the personnel from International Monetary Fund, and the International Bank for Reconstructions and Development (part of the World Bank Group). Average unaudited monthly occupancy rates for the years ended December 31, 1999 and 1998 were approximately 38% and 48%, respectively. COMPETITION. In its locale, the Hotel's competition consists of two other hotels only one of which the Company considers to be of a similar class but lacking the range of services that the Hotel offers. The other hotel is state owned. The Company believes that it competes with the other hotels in its locale on the basis of its physical appearance, the range and quality of services and other amenities offered. 14 INSURANCE. Through the Insurance Company, the Hotel maintains insurance to cover comprehensive casualty losses from occurrences such as flood, fire and other natural disasters generally in the amount of U.S. $7,000,000 (with the Hotel being a 20% coinsurer for earthquakes) and U.S. $1,000,000 of general accident liability insurance. SALES AND MARKETING. The Hotel's sales and marketing activities to date have included the development of its web site www.jollyalon.com, advertising in local newspapers and local radio and television stations, the distribution of brochures to airlines servicing Moldova, diplomatic embassies and other foreign missions, providing discounts to tour operators and their clients, contracts with international exhibition organizations and private parties, banquets and celebrations in the Hotel's restaurant ADMINISTRATION AND PERSONNEL. The non-policy day-to-day operations of the Hotel are managed by an in-house management staff of nine persons. Overall operations are overseen by a General Director whose responsibilities include day-to-day budgeting and finance, oversight of employee hiring and assignments and the maintenance of good relations with vendors and Hotel clientele. Among the General Director's staff are several other directors who assist in the overall Hotel operations, including a financial and technical director, a deputy and a hotel manager. The financial director assigns duties to the administrative staff involved in the Hotel's financial organization (accounting and record-keeping) and their hiring and firing. The financial director is also responsible for Hotel leases (with and to third parties) and contracting for supplies and arranging for their distribution. The Hotel manager is responsible for the oversight of service personnel, their adherence to the Hotel's policies regarding client contact and a dress code, "plant" maintenance (including the Hotel's physical appearance, computers and other equipment), reservation control, upkeep of the Hotel's services to its clientele, with personal attention to government representatives, and the determination of those situations appropriate for discounted rentals. The technical director is responsible for the maintenance of technical and electro-technical equipment, exterior maintenance and the maintenance of the HVAC, telephone, fire alarm and security systems and business equipment (telecopiers, etc.). The Hotel's administrative staff consists of accountants, cashiers, and other clerical personnel. 15 The Hotel's remaining staff may be categorized as Hotel service staff including a staff manager, porters, maids and laundress (42 persons), security (12 persons), technicians, such as engineers, carpenters, drivers and mechanics (20 persons), food service staff such as restaurant and bar persons, cooks and a confectioner (60 persons), casino staff (12 persons) and miscellaneous staff (53 persons). EXIM ASINT SA (THE "INSURANCE COMPANY") The Insurance Company has engaged in the insurance business since it began operations in 1995. The Insurance Company's business consists of issuing and underwriting policies principally for property and casualty liability insurance, exclusively to policyholders in Moldova. The Insurance Company has received government licenses to issue, and offers, the following types of insurance coverage: Comprehensive Liability Property; Travelers' Medical Insurance; Voluntary Transportation Means Insurance (CASCO); Automobile; government mandated Third-party Automobile Liability; Cargo; Personal Accident; and Voluntary Third Party Liability Coverage. COMPREHENSIVE LIABILITY PROPERTY INSURANCE. The Insurance Company offers comprehensive liability/multi-peril liability insurance providing coverage of 100% of the actual cost of property losses resulting from fire, robbery, larceny, or certain other natural disasters and third party illegal actions. Damage from earthquakes is covered at 80% of the actual cost. TRAVELERS' MEDICAL INSURANCE. The Insurance Company offers three travelers' medical insurance plans for Moldovan permanent residents traveling abroad. The plans are distinguished by the United States dollar amount of coverage afforded by each plan, which is $15,000, $30,000 or $50,000, respectively. It is customary for certain countries to disallow entry to visitors who do not possess medical insurance covering accidents or illnesses suffered while traveling, as opposed to pre-existing conditions and illnesses. AUTOMOBILE INSURANCE. The Insurance Company offers Voluntary Third Party Liability Insurance covering losses resulting from road accidents, fire, explosions, natural disaster, theft and third party illegal actions. The Insurance Company also offers government mandated Third-Party Liability insurance coverage for automobile accidents, which coverage 16 is mandated for all drivers by the Moldovan Government. Under this coverage, a policyholder whose automobile is damaged is covered for up to 180,000 MDL in damage. In case of bodily injury or death due to an automobile accident, the compensation is not limited by the maximum sum and is paid in the full amount of the actual and real damage as confirmed by the Insurance Company. This automobile insurance excludes from coverage certain hazardous activities, including off-road use, riots, labor actions or other civil disobedience, transportation of explosives, hazardous or flammable content, and accidents sustained while the vehicle was used for commercial purposes. The Insurance Company does not offer insurance which covers injuries to passengers due to the driver's negligence, nor is the concept of such liability currently recognized under Moldovan law. PERSONAL ACCIDENT INSURANCE. Personal accident insurance is offered and can cover an insured for up to a specified amount, for death or disability. CARGO INSURANCE. The Insurance Company offers insurance which covers damage sustained to commercial goods while in transit. VOLUNTARY THIRD PARTY LIABILITY INSURANCE. The Insurance Company offers insurance to compensate damages caused to third parties. The number of insurance policies issued by the Insurance Company, by industry segment in the last three calendar years, are as follows:
1997 1998 1999 ---- ---- ---- Comprehensive 242 179 84 Travelers' Medical 2,757 2,216 2,464 Third-Party Automobile 1,035 1,076 1,411 Personal Accident 19 2 2 Other (Cargo, etc.) 14 27 9 ----- ----- ----- TOTAL: 4,067 3,500 3,970
USE OF REINSURANCE. The Insurance Company has entered into agreements with certain other insurance companies whereby such companies provide reinsurance to the Insurance Company. Reinsurance is an insurance industry practice of alleviating the primary insurer's risk by means of the assumption by an insurance company, acting as a reinsurer, of a portion of the underlying policy's risk in return for a portion of the premiums generated from such policy. Such reinsurers are typically larger and better capitalized insurance companies. The Insurance Company utilizes reinsurance in order to limit its maximum exposure to significant losses from several policies at or about the same time, or very large losses from any one policy, resulting from events including but not limited to, natural disasters. Reinsurance is customarily renegotiated on a year-to-year basis. 17 Under a reinsurance agreement, the primary insurer ordinarily assumes the first portion of a claim ("FIRST TIER") and then it and the reinsurer share the risk of coverage thereafter with the reinsurer assuming more of the claims, and risk, for coverage above the FIRST TIER, while sharing, proportionately, the amount of the premium for the coverage in excess of the FIRST TIER. However, the primary insurer is allowed to take a "commission" (or retain an amount of the premium not proportionate to the risks retained by the primary insurer or assumed by the reinsurer). Although the Insurance Company cedes insurance to the reinsurer pursuant to such agreements, it is not relieved from its obligations to policyholders. The failure of reinsurers to honor their obligations could result in significant losses to the Insurance Company. The Insurance Company's principal reinsurer is Muenchener Rueckversicherungs-Gesellschaft ("Munich Re"), and it has other reinsurers to cover its comprehensive liability insurance policies. Under its agreement with Munich Re. The Insurance Company is heavily dependent upon Munich Re for reinsurance. Reinsurance is a product used by primary insurers to alleviate risks undertaken when underwriting insurance policies, and borne when substantial claims and losses result from multiple policyholders, or from very large claims and losses of holders in the event of major catastrophes (such as natural disasters). Munich Re is the Insurance Company's primary reinsurer. The Company believes that the loss of Munich Re as a reinsurer, or the reduced capacity or inclination of Munich Re to act as a reinsurer for policies underwritten by the Insurance Company, would not materially adversely affect the ability of the Insurance Company to absorb a significant number of large claims and losses, or any one significant claim and loss, suffered as a result of underwriting policies, as other international reinsurers are available to the Insurance Company at rates competitive with Munich Re. MANDATORY INSURANCE CLAIMS RESERVES. The Moldova Ministry of Finance requires that insurance companies maintain reserves in an amount at least 50% to 60% of its current premiums to cover losses and claims. The Insurance Company also maintains a reserve at specific rates of net earned premiums, which reserve is set according to market experience as a whole and is not necessarily intended to cover future claims lodged with the Insurance Company. 18 INVESTMENTS. The Insurance Company receives additional revenues from the investment of premium fund reserves which are controlled by the Moldova Ministry of Finance. The Insurance Company's reserves, as of December 31, 1999, were allocated as follows (in U.S. Dollars):
$ 33,082 current accounts $121,714 bank deposits $ 23,857 government bonds; and $116,472 other investments -------- $295,125
SALES AND MARKETING. The Insurance Company is heavily dependent on personal contacts and visits to potential clients, as well as attendance at trade conferences, newspaper and yellow page advertisements and the efforts of commission agents who are not employees of the Insurance Company or other subsidiaries/affiliates of the Company for the marketing of its insurance products. The Insurance Company employs both full-time and part-time sales agents who work strictly on a commission basis. The Insurance Company sells insurance policies from its main office in Chisinau and a small marketing extension office located at the Bureau of Registration (automobile) in Chisinau. The Insurance Company also has a sales representative in the German Embassy located in a wing of the Hotel, who sells premium medical insurance to persons applying for visas to travel to countries within the European Union ("EU"). CUSTOMERS. The Insurance Company is dependent upon the economy, somewhat, and delays in salary payments to customers, the increase in unemployment and other economy related factors in the Republic of Moldova have negatively affected the insurance industry and the Insurance Company. In 1997 the Insurance Company issued a total of 4,067 policies; in 1998, 3,500 policies and in 1999, 3,970 policies. In 1999, the Bank, Universal Bank and the Hotel accounted for approximately 12.4%, 6.2% and 23% of the Insurance Company's premiums, respectively. The Insurance Company also receives client referrals from the Bank of persons/entities seeking insurance upon collateral used to obtain Bank loans and provides insurance to the Hotel. COMPETITION. According to the Insurance Company management, there are approximately 40 other insurance companies currently operating in Moldova. 19 Competition is primarily based on the rating of premiums, as well as name recognition and quality of customer service. The Insurance Company's management believes that other insurance companies in Moldova are applying premium rates higher than those for comparable policies for western Europe policyholders. Management believes that the prevalence of local insurance companies which are not reinsured gives the Insurance Company a competitive edge as such competitors are and have disregarded their assumed effective risk and endangered their capital in the process. Management believes that its underwriting policies are more prudent than its competitors and its pricing system is based on consideration of the attendant risks and collaboration with reinsurers. The Insurance Company endeavors to compete with such companies on the basis of offering superior service and prompt payment of claims. CURRENCIES. The Insurance Company conducts its business in MDL. However, reinsurance business is conducted in United States dollars (US$). RELATED PARTY LOAN. On March 23, 1999 the Insurance Company made a $88,000 principal amount loan to Dufermol, a chain of duty free stores in the Republic of Moldova whose principal shareholder is the Chairman of the Board of the Company. The loan was made on March 23, 1999 and matures on March 22, 2001. INTERCOMSOFT Intercomsoft is a provider of proprietary technology and equipment (the "Intercomsoft System")required to produce secure essential government identification documents. The Intercomsoft System is leased from Supercom pursuant to a lease agreement dated August 25, 1995 with a term of ten (10)years, automatically extended for an additional ten (10) years unless prior notification of either party is received. An important aspect of Intercomsoft System is that it can be readily connected to any existing computer mainframe or central database (such as a national population registry) to capture millions of records and images of data. These records (and images) are stored and printed at high level speed to accommodate the needs and demands of the customer. Pursuant to the Supply Agreement (as defined below), Intercomsoft leased the Intercomsoft System to the Government of the Republic of Moldova which utilizes it, together with and related technology, for national document production, including passports, national identification documents, drivers' licenses and other essential identification products which are processed by Moldovan government employees. Intercomnsoft also provides the consumables 20 needed to produce such identifications products. Other applications of the technology include police and military use, access control, high security identification, government identification, and company identification products. The Intercomsoft System consists principally of a technology of laser printing on plastic which can print up to 450 high quality cards an hour, utilizing a secured proprietary process. At the heart of all of such systems is "ID-SOFT," an ID application generator software which allows these systems to integrate into any given project, such features as fingerprints, palm geometry and signatures, to name just a few. The Intercomsoft System utilizes a variety of specially designed consumable materials which include security features to safeguard the end-product. These safety features, coupled with a related secured printing process, help make the end-product a more secure document. Governments control and mass produce various types of national identification documents and cards such as passports, drivers' licenses, and national or regional identification cards. Such documents and cards generally provide their owners with the ability to exercise special rights, obtain benefits, or effect transactions. The use of fraudulent identification cards creates national security risks by enabling unauthorized access to sensitive information or secure public facilities. In addition, holders of fraudulent documents or cards can improperly obtain certain benefits and rights such as welfare, or other governmental benefits and access to bank accounts. The costs associated with such fraud, as well as the cost generated by related law enforcement actions are significant. In an effort to combat forgery and fraud, photographic identification cards encapsulated within laminated pouches were developed. However, photographic identification cards can be replicated using widely available advanced color copiers and printers, and laminated pouches have proven easy to delaminate. Consequently, governments are seeking solutions that will heighten security, reduce costs associated with forged or fraudulent identification documents or cards and enable cost-effective production of secure and durable documents and cards. Moreover, due to the increasing sophistication of the technology available for the production of identification documents containing advanced security features, there has been an increase in the cost of producing identification documents. The Company believes that Intercomsoft System represents the "state-of-the-art" in secure document production in the Republic of Moldova. Because of the state-of-the-art technology it offers, Intercomsoft has secured a license from the Moldovan Government for official national document production in the Republic of Moldova as described below (see "Supply Agreement with the Republic of Moldova"). 21 SUPPLY AGREEMENT WITH THE REPUBLIC OF MOLDOVA. In April 1996, Intercomsoft was awarded a ten-year contract by the Ministry of Economics, Republic of Moldova (the "Supply Agreement"), to provide a National Register of Population and National Passport System. Accordingly, Intercomsoft supplies all of the equipment, technology, software and materials necessary to produce all national passports, drivers' licenses, vehicle permits, identification cards and other national documents in the Republic of Moldova. Pursuant to the Supply Agreement (as defined below), Intercomsoft currently produces and supplies a number of Moldovan essential documents including: (a) Travel Documents (b) Passport Documents (c) Picture Identification Cards (d) Drivers' Licenses (e) Car Licenses (f) Tax and other Government Authorized Cards (g) Other forms of Identifications Documents Intercomsoft derives all of its revenues and income pursuant to the Supply Contract. If for any reason (or for no reason) the Supply Contract were terminated, the terms were materially or adversely amended, or business reduced, such event would have a material adverse effect on Intercomsoft as well as the Company. GOVERNMENT AUDIT. In November 1999, the Company learned that the Ministry of Economy Affairs and Reform of the Republic of Moldova (the "Ministry"), was soliciting bids to select an audit company to review the Supply Agreement between Intercomsoft and the Government of the Republic of Moldova pursuant to which Intercomsoft is granted the right to act as the exclusive supplier of the technology required to produce secure essential documents to the Government. The Company believes that the review will involve the assessment of such contract comparing it with international norms for prices charged for the service performed. No assurance can be given when, if ever, such review shall begin or the results therefrom. A loss, or a substantial change in the terms of such contract could, however, have a material adverse affect on Intercomsoft and the Company. As of the date of this filing, the Company is not aware that any review has begun, nor if a bid on such review has been awarded. COMPETITION. By virtue of the Supply Agreement to produce various Government mandated essential documents, Intercomsoft supplies all of such documents to the Government of Moldova and, accordingly, Intercomsoft believes it currently has no competition for its products in Moldova. 22 ITEM 2. PROPERTIES The Bank's main office is located at Blvd. Stefan Cel/Mare, 6, MD-2001, Chisinau, Moldova occupying approximately 1300 square meters of space in a Bank owned building. The Bank has recently acquired an additional building a few doors away from its main office in Chisinau occupying 1,867 square meters which it intends to make use of as a client service center annex to the Bank's main office and for other expanded banking services. The Bank's two branches are leased from non-affiliated third parties and located in the Moldovan cities of Ungeni (approximately 110 square meters) and Komrat (approximately 214 square meters) at an aggregate annual rental cost of $9,000 for such two branches. The Bank's office premises are insured against fire, burglary, earthquake and water (flood) risks by a policy issued by the Insurance Company. Until September of 1997, private land ownership was not permitted in Moldova. The Company utilizes the land on which the Hotel is located pursuant to a fifty-year lease from the Government of Moldova. Based upon the Company's interpretation of current Moldovan law, the Company believes that the owner of a building has the primary right to purchase the land on which it is situated once the building is wholly privately owned. The Company has not yet submitted a request for the acquisition of the land on which the Bank's main branch is located. The Insurance Company leases approximately 100 square meters of office space from the Bank pursuant to a 27-year operating lease with the Bank, under which the Bank received payment in the form of equity shares in the Insurance Company, such shares in the aggregate having been valued at $24,840. The Insurance Company also maintains desk space, along with other insurance companies, at the automobile registration offices in Moldova. The Insurance Company believes its present leased office space will be suitable to meet its needs for the next several years. ITEM 3. LEGAL PROCEEDINGS Neither the Company nor any of its subsidiaries were, to its knowledge, a party to or otherwise involved in any material legal proceedings as of December 31, 1999. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the Company's last fiscal year ended December 31, 1999. 23 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS No shares of the Common Stock have been registered with the Securities and Exchange Commission (the "Commission") or any state securities agency or authority, pursuant to the registra tion requirements of the Securities Act of 1933, as amended (the "Act") and similar state securities laws. During its fiscal years ended December 31, 1996, 1997, it is believed that there was no active market for the Common Stock. Since January 30, 1998, the Common Stock has been quoted on the NASD OTC Bulletin Board (the "OTC BB")under the trading symbol "TMOL". Because no active trading market existed during 1996 and 1997, no historical price information for the Company's shares is included for such years. Beginning with the Company's reorganization on January 6, 1998, the Common Stock began trading on the OTC BB, opening at $.01 on January 6, 1998 and closing at $10.50 on December 31, 1998 with a high during the year of $15.00. The Common Stock opened on January 1, 1999 at $11.25 and closed on December 31, 1999 at $2.25 with a high during the year of $11.50. The Common Stock closed on March 31, 2000 at $0.50 The ability of an individual stockholder to trade his/her shares in a particular state may be subject to various rules and regulations of that state. A number of states require that an issuer's securities be registered in their state or appropriately exempted from registration before the securities are permitted to trade in that state. The Company's shares may be subject to the provisions of the Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), known as the "penny stock" rules. The "penny stock" rules generally define penny stocks to be any equity security that has a price of less than $5.00 per share, subject to certain exceptions, and provide that any equity security is considered to be a penny stock unless that security is: registered and traded on a national securities exchange meeting specified criteria set by the Commission; authorized for quotation on the Nasdaq Stock Market; issued by a registered investment company; or excluded from the definition on the basis of price (at least $5.00 per share) or the issuer's net tangible assets. If the Company's shares are deemed to be a penny stock, trading in the shares will be subject to additional sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors, generally persons with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse. 24 For transactions covered by the "penny stock" rules, broker-dealers must make a special suitability determination for the purchase of such securities and must have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information for the penny stocks held in the account and information on the limited market in penny stocks. Consequently, these rules may restrict the ability of broker-dealers to trade and/or maintain a market in the Company's common stock and may affect the ability of shareholders to sell their shares. As of March 31, 2000, there were 409 holders of record of the Common Stock. As of March 31, 2000, the Company has issued and outstanding 12,039,000 shares of Common Stock. Of this total, 1,000,000 shares may be deemed to have been issued in transactions more than two years ago and may be sold or otherwise transferred without restriction pursuant to the terms of Rule 144 ("Rule 144") of the Act, without the volume limitations of said rule unless held by an affiliate or controlling shareholder of the Company. Of the 12,039,000 shares, the Company has identified 9,581,800 shares as being held by affiliates or controlling shareholders of the Company. The remaining 2,457,200 shares may be deemed to be free from restrictions and, if so, may be sold and/or transferred without further registration under the Act. The 9,581,800 shares presently held by affiliates or controlling shareholders of the Company may be sold pursuant to Rule 144, subject to the volume and other limitations set forth under Rule 144. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owed restricted shares of the Company for at least one year, including any person who may be deemed to be an "affiliate" of the Company (as the term "affiliate" is defined under the Act), is entitled to sell, within any three-month period, an amount of shares that does not exceed the greater of (i) the average weekly trading volume in the Company's common stock during the four calendar weeks preceding such sale or (ii) 1% of the shares then outstanding. A person who is not deemed to be an "affiliate" of the Company and who has held restricted shares for at least two years would be entitled to sell such shares without regard to the resale limitations of Rule 144. DIVIDEND POLICY. The Company has not declared or paid cash dividends or made distributions in the past, and the Company does not anticipate that it will pay cash dividends or make distributions in the foreseeable future. The Company currently intends to retain and reinvest future earnings, if any, to finance its operations. 25 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's financial statements and notes thereto appearing elsewhere in this report. General The Company, through its wholly-owned subsidiaries, owns 65% of the issued and outstanding shares of capital stock of the Hotel with the remaining thirty-five (35%) percent of the issued and outstanding shares of capital stock of the Hotel being owned by the Government of the Republic of Moldova; 100% of the issued and outstanding shares of capital stock of the Bank; 100% of the issued and outstanding shares of capital stock of the Insurance Company; and 100% of the issued and outstanding shares of capital stock of Intercomsoft, which is the exclusive supplier to the Government of the Republic of Moldova of the technology and equipment required to manufacture secured essential government documents (e.g. passports, drivers' licenses, etc.). The Company's interests in the Bank, the Hotel and the Insurance Company were acquired on January 6, 1998. The Company's interest in Intercomsoft was acquired on May 6, 1998. The Company's subsidiaries operate in the Republic of Moldova and the currency in which the Company transacts most of its operations is the Moldovan Leu. At January 1, 1998, the three year accumulated rate of inflation in the Republic of Moldova was approximately 80%. A country is generally considered to be in hyperinflation if the three year accumulated rate of inflation is 100% or more. During 1998, the Company's consolidated financial statements were prepared assuming that the Moldovan economy remained highly inflationary as the inflation rate had historically been volatile and had just declined to a rate below 100%. Accordingly, the United State Dollar was used as the Company's functional currency during 1998. In the quarter ended June 30, 1999, it was determined that at January 1, 1999, the three year accumulated rate of inflation in the Republic of Moldova was approximately 42.4% Accordingly, the Company's management concluded that the Republic of Moldova was no longer in an hyperinflationary economy and that the Company's functional currency should revert to the Moldovan Leu from the United States Dollar as of from that date. As a result, the consolidated financial statements of the Company for such period were prepared on a non-hyperinflationary basis. Further, the Company restated its unaudited consolidated financial statements for the three (3) month period ending March 31, 1999 using a non-hyperinflationary basis so that all of the consolidated financial statements for the Company for the 1999 fiscal year have been prepared on a non-hyperinflationary basis. 26 As the Company's subsidiaries all operate in, or derive its revenues from, the Republic of Moldova, the current (and future) economic situation, and the political uncertainty and instability, in the Republic of Moldova and in Russia could have a material adverse effect on the Company and its subsidiaries. COMPARISON OF YEAR END 1999 TO YEAR END 1998 As the consolidated financial statements for the 1998 fiscal year end were prepared assuming a hyperinflationary economy and the 1999 fiscal year end was prepared assuming a non-hyperinflationary economy, there result is a number of wide swings in the year end to year end comparisons attributable to the devaluation of the Moldovan Leu. THE BANK During the year ended December 31, 1999 ("1999"), the Bank had interest income of approximately $1,437,000 compared to $2,546,000 for the year ended December 31, 1998 ("1998")a decrease of 44% or approximately $1,109,000. The largest component of the Bank's interest income for 1999 was interest earned on loans which was approximately $1,074,000, or approximately 75% percent of the Bank's total interest income during 1999 and for 1998 was approximately $1,978,000 or 77%, a decrease of approximately 2%. The remaining components of the Bank's interest income were interest earned on securities and interest earned on deposits with correspondent banks. During 1999, the Bank earned approximately $215,000 in interest on securities, representing approximately 15% of the Bank's total interest income in 1999 and approximately $148,000 or approximately 10% percent of its interest income from interest earned on deposits with correspondent banks in 1999 as compared to $386,000 in interest on securities in 1998, representing approximately 15% of the Bank's total interest income in 1998 and approximately $181,000, or approximately 7% percent of its interest income from interest earned on securities. In addition to interest income, the Bank also had non-interest income of approximately $1,308,000 in 1999 as compared to $1,766,000 during 1998. A principal component of the Bank's non-interest income was exchange trading and commissions of approximately $593,000 in 1999 as compared to $1,019,000 in 1998 which represents approximately 45% and 59% respectively of the Bank's non-interest income. Another component of the Bank's non-interest income consisted of financial service fees of approximately $715,000 in 1999 and $515,000 in 1998 or approximately 55% percent and 29% of the Bank's non-interest income respectively. 27 Offsetting the Bank's interest income during 1999 was interest expense of approximately $554,000 as compared to $895,000 in 1998, comprised principally of approximately $543,000 and $879,000 respectively of interest paid on deposits or approximately 98% of total interest income for both 1999 and 1998. Also offsetting the Bank's interest income for 1999 was interest due to other banks on their time deposits with the Bank of approximately $11,000, as compared to $98,000 in 1998 or approximately 1% and 3% of the Bank's interest income during 1999 and 1998 respectively. Offsetting the Bank's non-interest income during 1999 was non-interest expenses of approximately $1,446,000 as compared to $1,539,000 in 1998, comprised principally of salaries and related costs of approximately $406,000 in 1999 and $724,000 in 1998 including equipment and depreciation of approximately $93,000 in 1999 and $144,000 in 1998, communication and transportation expenses of approximately $37,000 in 1999 and $153,000 in 1998, approximately $210,000 in 1999 compared to $100,000 of outside services in 1998 and processing costs and approximately $150,000 in 1999 as compared to $115,000 of marketing and development costs in 1998. The Bank's net interest income after allowance for possible loan losses of approximately $679,000 in 1999 and $773,000 in 1998 was approximately $204,000 and $875,000 with non-interest income of approximately $1,308,000 and $1,766,000, respectively for 1999 and 1998. Both were offset by non-interest expenses of $1,446,000 in 1999 and $1,621,000 in 1998 thereby reducing income before taxes to approximately $66,000 in 1999 compared to $1,023,000 in 1998 with income taxes of approximately $9,000 in 1999 and $130,000 in 1998 resulting in net income of approximately $57,000 in 1999 compared to $893,000 from the Bank's business in 1998. Net income for the Bank was approximately 2% of the Bank's aggregated total non-interest income and interest income for 1999 and approximately 21% in 1998. The Company believes that the economic crisis in Russia, which caused an economic slowdown in the Republic of Moldova, resulting in less disposable income to the Moldovan population, had an adverse impact on the revenues and income of the Bank, and subsequently, the Company. Such slowdown may continue to have such adverse impact. In addition, the Moldovan Leu, the currency of the Republic of Moldova, has undergone significant devaluation, which has also had a significant and adverse impact on the revenue and income of the Company. Additional devaluation of the currency may continue to such an adverse impact. 28 THE INSURANCE COMPANY Although the Insurance Company began operations in 1995 it is still in a expansion phase. The Insurance Company derives its revenues from premium payments from its insureds and from the investment of its insurance reserves. Although the Insurance Company earned approximately $152,000 in gross earned premiums during 1999 and approximately $240,000 in 1998, earned premiums ceded to reinsurers approximated $84,000 in 1999 and $139,000 in 1998 resulting in approximately $68,000 and $101,000 in net premiums earned of the Insurance Company's total revenues of approximately $174,000 and $270,000 for 1999 and 1998 respectively. During 1999, the Insurance Company also received net interest income of approximately $35,000 compared to $72,000 in 1998 and commissions earned from reinsurance of approximately $25,000 in 1999 as compared to $42,000 in 1998. During 1999, the Insurance Company also had approximately $46,000 of other income as compared to $55,000 in 1998. The Insurance Company's total expenses of approximately $152,000 in 1999 resulted in net income of approximately $21,000 (after a provision for taxes of $1,000) during 1999 as compared to total expenses in 1998 of $290,000 which resulted in a net loss of ($20,000.) The Company believes that the economic crisis in Russia, which caused an economic slowdown in the Republic of Moldova, resulting in less disposable income to the Moldovan population, had an adverse impact on the revenues and income of the Bank and, therefore, the Company. Such slowdown may continue to have such adverse impact. In addition, the Moldovan Leu, the currency of the Republic of Moldova, has undergone significant devaluation, which has also had a significant and adverse impact on the revenue and income of the Company. Additional devaluation of the currency may continue to have such an adverse impact. HOTEL During 1999 the Hotel derived revenues of approximately $2,148,000 as compared to $2,587,000 in 1998 from room rentals of guest accommodations, leasing of office space, and restaurant operations. The Hotel's approximate $1,136,000 in cost of revenue during 1999 represented approximately 53% of the Hotel's revenues, leaving a gross profit of approximately $1,012,000 for 1999 as compared to the Hotel's $1,607,000 in cost of revenue during 1998 which represented approximately 62% of the Hotel's revenues, leaving a gross profit of approximately $980,000. Selling, administrative and general expenses of the Hotel for 1999 were approximately $623,000 or 29% as compared to $484,000 or 18% of the Hotel's revenues for 1998. Principal deductions from revenues before net income for such periods were (a) the above noted revenue costs, (b) the above selling, administrative and general expenses and (c) income taxes of approximately $67,000 or 3% of revenue in 1999 and $166,000 or 6% of revenues in 1998. 29 The Hotel's net income for 1999 was approximately $355,000 (of which $33,000 was interest income) or approximately 17% of its revenues as compared to approximately $408,000 (of which $78,000 was interest income) or approximately 15% of its revenues for 1998. The Company believes that the economic crisis in Russia, which caused an economic slowdown in the Republic of Moldova, resulting in less disposable income to the Moldovan population, had an adverse impact on the revenues and income of the Hotel and, therfeore, of the Company. Such slowdown may continue to have such adverse impact. In addition, the Moldovan Leu, the currency of the Republic of Moldova, has undergone significant devaluation, which has also had a significant and adverse impact on the revenue and income of the Company. Additional devaluation of the currency may continue to have such an adverse impact. INTERCOMSOFT Intercomsoft derives its revenues from being the exclusive supplier of proprietary technology, equipment and consumables required to produce secure essential government documents (e.g. passports, drivers' licenses etc.), to the Government of the Republic of Moldova pursuant to the Supply Agreement. During 1999, Intercomsoft had revenues of approximately $2,837,000 as compared to $4,154,000 in 1998. During 1999, Intercomsoft's cost of revenues was approximately $1,031,000 or 36% as compared to $1,662,000 or 40% in 1998. This resulted in gross profits for Intercomsoft of approximately $1,806,000 and $2,492,000 for 1999 and 1998 respectively. Selling, general and administrative expenses for Intercomsoft in 1999 were approximately $79,000 or approximately 3% of its revenues as compared to $130,000 or approximately 3% of its revenues in 1998. Intercomsoft had net income of approximately $1,781,000 (of which $54,000 was interest income) and $2,362,000 for 1999 and 1998 respectively. Intercomsoft derives all of its revenues and income pursuant to the Supply Contract. If for any reason (or for no reason) the Supply Contract were terminated, the terms were materially or adversely amended, or business reduced, such event would have a material adverse effect on Intercomsoft as well as the Company. The Company believes that the economic crisis in Russia, which caused an economic slowdown in the Republic of Moldova, resulting in less disposable income to the Moldovan population, had an adverse impact on the revenues and income of Intercomsoft and, therefore, of the Company. Such slowdown may continue to have such adverse impact. In addition, the Moldovan Leu, the currency of the Republic of Moldova, has undergone significant devaluation, which has also had a significant and adverse impact on the revenue and income of the Company. Additional devaluation of the currency may continue to such an adverse impact. 30 THE COMPANY (AS CONSOLIDATED) The Company's consolidated revenues in 1999 were $7,981,000 as compared to $11,273,000 in 1998. Its consolidated cost of revenue and operating expenses in 1999 were $7,745,000 as compared to $7,959,000 in 1998. In 1999, the Company's consolidated income from operations before income tax and minority interest was $236,000, from which was deducted approximately $77,000 for income taxes and $124,000 for the Government of Moldova's 35% interest in the Hotel as compared to $3,314,000 in 1998 from which was deducted approximately $221,000 for income taxes and $143,000 for the Government of Moldova's 35% interest in the Hotel. Accordingly, the Company's resulting consolidated net income was ($89,000) for 1999 as compared to $2,950,000 for 1998. The Company's consolidated net earnings per share were ($.007) for 1999 as compared to $.25 for 1998. On April 3, 2000, Magnum Associates Limited ("Magnum"), a controlling stockholder of the Company beneficially owned by the Company's Chairman of the Board, demanded payment to it of the indebtedness of the Company owed to it in the principal amount of $1,162,000, together with interest thereon through the date of payment. The Company paid the sum of $1,349,000 to Magnum on April 5, 2000 pursuant to such demand. The Company utilized substantially all of its available cash to make such payment. (See Item 9 "Directors, Executive Officers, Promoters and Control Persons"). The Company believes that the economic crisis in Russia, which caused an economic slowdown in the Republic of Moldova, resulting in less disposable income to the Moldovan population, had an adverse impact on the revenues and income of Intercomsoft and, therefore, of the Company. Such slowdown may continue to have such adverse impact. In addition, the Moldovan Leu, the currency of the Republic of Moldova, has undergone significant devaluation, which has also had a significant and adverse impact on the revenue and income of the Company. Additional devaluation of the currency may continue to have such an adverse impact. Further, the significant increase of the Company's expenses from 1998 to 1999 had a material adverse impact on the Company's consolidated income. 31 Liquidity & Capital Resources The Company believes that its existing source of liquidity and its current revenues and cash flow, will be adequate to sustain its current operations and to satisfy its current working capital and capital expenditure requirements for the next twelve (12) months, with the exception of the Bank, which requires capitalization of no less then $1.1 million prior to July 1, 2000 to maintain its status as a bank in Moldova. The Company plans to continue seeking other acquisition candidates, both domestically and internationally, which may be acquired through the issuance of securities and/or the payment of available cash. Year 2000 Compliance The Company believes it is Year 2000 compliant and experienced no difficulties associated with the rollover of the latter two digit year value to 00. ITEM 7. FINANCIAL STATEMENTS The consolidated financial statements for the Company for the year ended December 31, 1998 have all have been examined to the extent indicated in their report by KPMG Netherlands N.V., an affiliate of KPMG International, independent certified public accountants, and have been prepared in accordance with generally accepted accounting principles and pursuant to Regulation S-B, as promulgated by the Securities and Exchange Commission. The aforementioned financial statements are included herein in response to Item 7 of this Form 10-KSB. The consolidated financial statements for the Company for the year ended December 31, 1999 have all been examined to the extent indicated in their report, by Paritz & Company, PA, independent certified accountants, and have been prepared in accordance with generally accepted accounting principles and pursuant to Regulation S-B as promulgated by the Securities and Exchange Commission. The aforementioned financial statements are included herein in response to Item 7 of this Form 10-KSB. 32 ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Effective January 26, 1999, the Company engaged KPMG Netherlands, N.V. ("KPMG") as its principal independent auditors. Effective January 4, 2000, the Company released KPMG as its principal independent auditors. The decision to change accountants was approved by the Company's Board of Directors. KPMG's report on the Company's financial statements, for the year ended December 31, 1998 did not contain an adverse opinion or disclaimer of opinion. From the dates of the foregoing audit to the date hereof, there were no disagreements between the Company and KPMG on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG, would have caused it to make a reference to the subject matter of the disagreements in connection with its reports. Effective January 18, 2000, the Company engaged the services of Paritz & Co, PA as its principal independent auditors. 33 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT The directors and executive officers of the Company are as follows:
NAME AGE POSITION ---- --- -------- Boris Birshtein 52 Chairman of the Board Ted Shapiro 64 Chief Executive Officer, President and Director Shmuel Gurfinkel 53 Chief Financial Officer and Director Robert L. Blessey 54 Secretary and Director
The biographical information concerning the directors and executive officers of the Company, as supplied to the Company by them, is as follows: MR. BIRSHTEIN has been the Chairman of the Board of Directors of the Company since January 1998, and since 1994 Mr. Birshtein has also been the Chairman of the Board of Directors of the Bank. From 1997 to the present Mr. Birshtein has been the Chairman and principal shareholder of Royal HTM Group, a Canadian company that owns Dufermol,a chain of duty free shops in Moldova. From 1994 to the present, Mr. Birshtein also has been a principal shareholder of various corporations conducting business in Moldova, including Media Group, a Moldovan corporation that operates a television station, a radio station, news agency and three newspapers in Moldova. From 1981 to 1996, Mr. Birshtein was the Chairman of the Board of Directors of Seabeco Group, a Swiss corporation which he founded in 1981 ("Seabeco"). Seabeco specialized in trading fertilizers and metals in Eastern Europe. In 1992, Mr. Birshtein became a full member of the International Information Academy, which has a general consultive status with the Economic and Social Counsel of the United Nations. In 1999, The Order of St. Stanislas was bestowed upon Mr. Birshtein in honor of his services to mankind. In 1999, Mr. Birshtein also received a gold medal from the International Information Academy (for merits in informationology) and was elected as Head of the North American Branch of the International Information Academy. Mr. Birshtein previously served as the Chairman of the Supreme Economic Council under the President of the Republic of Moldova. In 1997, Mr. Birshtein received his Ph.D. in Philosophy and was confirmed as a full Professor at the International Information Academy. In 2000 he received a Ph.D. in Economics from 34 the International Information Academy. Mr. Birshtein is the author of three books, REFORM -- PROBLEMS OF MARKET ECONOMY REGULATIONS IN THE CIS COUNTRIES, which was published in 1997, MOLDOVA UNDISCOVERED, which was published in 1998 and WORLD FOOD CRISIS, PROBLEMS AND PERSPECTIVES which was published in 1999. In addition, Mr. Birshtein authored THE SHADOW ECONOMY, a treatise on the Moldovan economy after its declaration of independence from the Soviet Union, for which he was honored with the prestigious International Information Academy Silver Stylus Award. MR. SHAPIRO has been the Chief Executive Officer, President and a Director of the Company since January 1998. From 1992 to 1997, Mr. Shapiro was the Vice-Chairman of the Board of Directors of EMX Corporation ("EMX"), a research and development technology firm, which is the exclusive worldwide licensee of numerous patents relating to an international biotechnology. From 1981 to 1992, Mr. Shapiro was the Chairman of the Board of Directors of the Patrician Group, Inc. and certain of its affiliated entities ("Patrician"). Patrician was a national privately held real estate firm engaged in acquiring, selling and managing shopping centers. Patrician owned 71 shopping centers in 38 states with a gross leasable area in excess of 12 million square feet. MR. GURFINKEL has been the Chief Financial Officer and a Director of the Company since January 1998. Since 1996, Mr. Gurfinkel also has been a Director of the Bank. For at least the last six years, Mr. Gurfinkel has been the owner of the Shmuel Gurfinkel accounting firm in Ramat-Gan, Israel which has 12 employees. He has been a member of the Board of Directors of Beken Metals, Ltd., a subsidiary of Africa Israel Investments Ltd., since 1997. MR. BLESSEY has been a Director and Secretary of the Company since January 1998. Since 1997, Mr. Blessey has been Of-Counsel to the law firm of Gusrae, Kaplan & Bruno. From 1990 to 1996, he was Of-Counsel to the law firm of Gold & Wachtel and from 1974 to 1989, Mr. Blessey was the President and principal shareholder of the law firm of Doros & Blessey, P.C. From 1990 to the present, Mr. Blessey has been General Counsel to EMX and served as a member of its Board of Directors from 1990 to 1994; from 1991 to the present, Mr. Blessey has been General Counsel, Secretary and member of the Board of Directors of Aldine Metal Products Corp., a privately held, family owned steel manufacturing company; and from 1964 to the present, Mr. Blessey has been a Partner in Forar Realty Co., a family owned real estate partnership. 35 ITEM 10. EXECUTIVE COMPENSATION On February 25, 1999, the Company entered into Employment Agreements with Boris Birshtein, Chairman of the Board (the "Birshtein Employment Agreement") and Ted Shapiro and Robert L. Blessey, President and Chief Executive Officer and Secretary, respectively (the "Shapiro Employment Agreement" and the "Blessey Employment Agreement", respectively). Each of such Employment Agreements are for a term of five years commencing January 1, 1999 (the "Term") and provide for annual salaries of $120,000 in the first year of the Term thereof (subject to increase to $250,000 per year with respect to the Birshtein Employment Agreement and $200,000 per year with respect to the Shapiro and Blessey Employment Agreements, in the event that the Company consummates an acquisition of a business with net pre-tax profits (as defined therein) of $3,000,000 or more in such year) and, in each of the remaining years of the Term thereof. The Employment Agreements require each of such individuals to spend a substantial portion of their time in the performance of their duties thereunder, and provide for certain other specified fringe benefits and change of control severance payments. In addition, the Employment Agreements provide for incentive warrants ("Incentive Warrants") to be issued to each of such individuals based upon Excess Net Pre-Tax Profits (as defined below) in each year of the Term of such Employment Agreements (100,000 of such Incentive Warrants for each $1,000,000 of Excess Net Pre-Tax Profits in the case of the Birshtein Employment Agreement and 50,000 Incentive Warrants for each $1,000,000 of Excess Net Pre-Tax Profits in the case of the Shapiro Employment Agreement and the Blessey Employment Agreement), up to a maximum of 1,000,000 of such Incentive Warrants in each such year of the Term. Any such Incentive Warrants will have a five year term and will be exercisable at the market price of the Common Stock on the date of issuance. Each of such Employment Agreements also provide for annual bonuses based upon Excess Net Pre-Tax Profits in each year of the term of the Employment Agreements (10% thereof in the case of the Birshtein Employment Agreement and 5% thereof in the case of the Shapiro Employment Agreement and the Blessey Employment Agreement). Excess Net Pre-Tax Profits being defined in such Agreements as the amount by which net pre-tax profits in each year exceed the net pre-tax profits in the immediately preceding year. On February 28, 2000 the Company issued warrants to purchase 600,000, 400,000 and 400,000 shares of Common Stock to each of Messrs. Birshtein, Shapiro and Blessey, respectively in consideration of the significant time and effort expended by such individuals on the Company's behalf for which they were not compensated. The warrants have an exercise period of five years from the date of issuance at an exercise price of $0.50 per share. Simultaneously with the issuance of such warrants, the Company canceled the warrants previously issued to such individuals for a like number of shares of Common Stock, such warrants being exercisable during the term thereof at a purchase price of $11.50 per share. On March 3, 1999, the Company entered into a consulting agreement with Y.U.D. Consulting, Ltd. ("Y.U.D."), a non-affiliated entity. In consideration of the services to be performed under such consulting agreement, the Company issued 16,000 shares of its restricted Common Stock to Y.U.D. 36 On May 21, 1999, the Company appointed Jay J. Miller and Abdallah S. Mishrick to its Board of Directors and established an Audit Committee of the Board consisting of Messrs. Miller, Mishrick and Shapiro. Messrs. Miller and Mishrick were each granted five year warrants to purchase 30,000 shares of the Company's Common Stock, 15,000 of which vested on the date of grant at an exercise price of $11.00 per share and 15,000 of which vested on December 31, 1999 at an exercise price of $0.75. Abdallah S. Mishrick and Jay J. Miller resigned as a members of the Board of Directors on February 7, 2000 and February 11, 2000 respectively. Effective upon their resignation, the Audit Committee was dissolved. On March 17, 2000 the Company entered into an agreement with Shmuel Gurfinkel, to pay him $5,000 per month, beginning February 1, 2000 for services to be rendered by him in his capacity as the Company's Chief Financial Officer. As of December 31, 1999 1,460,000 warrants were issued, none of which were Incentive Warrants. All employees of the Bank, the Hotel and the Insurance Company in Moldova are subject to government-mandated one-year employment agreements. Employers may terminate employees only for good cause, such as incompetence. Employees may be required to remain as employees for several weeks after providing notice of an intention to resign, if needed by the employer. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information, to the best knowledge of the Company as of March 31, 2000, with respect to each person known by the Company to own beneficially more than 5% of the Company's outstanding Common Stock, each director and all directors and officers as a group. 37
APPROXIMATE BENEFICIAL OWNER(1) # OF SHARES(2) % OWNERSHIP(2) - ------------------- -------------- -------------- Boris Birshtein(3) 8,795,000 69.6% Ted Shapiro(4) 1,786,800 14.4% Shmuel Gurfinkel(5) -- -- Robert L. Blessey(6) 400,000 3.2% ========= ====== All executive officers and directors 10,981,800 81.7% as a group (4 persons)(7) ===========================================================================
- -------- (1) Beneficial ownership information is based on information provided to the Company, and the beneficial owner has no obligation to inform the Company of or otherwise report any changes in beneficial ownership. Except as indicated, and subject to community property laws when applicable, the persons names in the table above have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owner by them. Each of such persons may be reached through the Company's offices at 1285 Avenue of the Americas, 35th Floor, New York, New York 10019. (2) The percentages shown are calculated based on 12,039,000 shares of Common Stock outstanding on March 31, 2000. The numbers and percentages shown includes the shares of Common Stock actually owned as of March 31, 2000 and the shares of Common Stock that the person or group had the right to acquire with sixty (60) days of March 31, 2000. In calculating the percentage of ownership, all shares of Common Stock that the identified person or group had the right to acquire within sixty (60) days of March 31, 2000 upon the exercise of options and warrants are deemed to be outstanding for the purpose of computing the percentage of the shares of Common Stock owned by such person or group, but are not deemed to be outstanding for the purpose of computing the percentage of the shares of Common Stock owned by any other person. (3) Mr. Birshtein is the Chairman of the Board and a Director of the Company. Such shares are owned of record by Magnum Associates Ltd. ("Magnum") and Starbeam Ltd. ("Starbeam"). Magnum and Starbeam are corporations organized under the laws of Ireland. The capital stock of such entities is owned by Mr. Birshtein. Include warrants to purchase 600,000 shares of Common Stock. (4) Mr. Shapiro is the Chief Executive Officer, President and a Director of the Company. Includes warrants to purchase 400,000 shares of Common Stock. (5) Mr. Gurfinkel is the Chief Financial Officer and a Director of the Company. (6) Mr. Blessey is the Secretary and a Director of the Company. Consists of warrants to purchase 400,000 shares of Common Stock. (7) See Footnotes (3) - (6). 38 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Two loans were made by the Bank to Dufermol, a chain of duty free shops in the Republic of Moldova whose principal shareholder is the Chairman of the Board of the Company. The first loan is an $83,0000 principal amount loan, bears interest at the rate of 35% per annum, was made on February 9, 1999 and matures on February 9, 2001. The second loan is a $60,000 principal amount loan, bears interest at the rate of 35% per annum, was made November 16, 1999 and matures on May 16, 2000. It should be noted that 35% per annum was the rate in effect in Moldova at the time such loans were made. The Bank also made a $72,000 principal amount loan bearing interest at the rate of 35% per annum to NIT, a television station in the Republic of Moldova whose principal shareholder is the Chairman of the Board of the Company. The loan was made on August 4, 1999 and matures on February 4, 2001. Both of the aforementioned loans are current and are not in default. The Bank also made a $500,000 principal amount loan to Polen S.R.L., an entity doing business in the Republic of Moldova, whose beneficial owner is the Company's Chairman of the Board. The loan was not paid when it matured. As a result of non-payment of such loan when it matured in 1999, the Bank foreclosed on the building held as collateral for such loan, which is valued at $682,000, based on an independent appraisal from Pricewaterhouse Coopers dated February 25, 2000. The Bank intends to use this property (which is located a few doors away from its main facility in Chisinau) as a client services annex to the Bank and for other expanded banking services. Several other entities in Moldova, which are affiliates of the Company's Chairman of the Board, are customers of the Bank and borrow funds from the Bank on an arm's length basis. On March 23, 1999 the Insurance Company made a $88,000 principal amount loan to Dufermol, a chain of duty free stores in the Republic of Moldova whose principal shareholder is the Chairman of the Board of the Company. The loan was made on March 23, 1999 and matures on March 22, 2001. The loan is current and is not in default. During the period April 1, 1999 to June 30, 1999 ("3rd Quarter 1999"), the Hotel acquired ownership of a television series that was filmed on its premises for approximately $58,000. The television series was produced by NIT, a company controlled by the Company's Chairman of the Board. The Hotel intends to display the television series on its internal television network and attempt to sell the rights, in part, to other hotels in Russian speaking countries. The cost of the rights to the television series is amortized over a period of five years. 39 The Insurance Company has issued to the Hotel a $7 million comprehensive liability policy and received premiums of approximately $54,000 from the Hotel in 1999. The Insurance Company maintains a current account and deposit accounts with the Bank. The Insurance Company insures the property of the Bank. On April 3, 2000, Magnum Associates Limited ("Magnum"), a controlling stockholder of the Company beneficially owned by the Company's Chairman of the Board, demanded payment to it of the indebtedness of the Company owed to it in the principal amount of $1,162,000, together with interest thereon through the date of payment. The Company paid the sum of $1,349,000 to Magnum on April 5, 2000 pursuant to such demand. The Company utilized substantially all of its available cash to make such payment. The Company believes all transactions conducted with affiliates are on terms that could be obtained from non-affiliated independent third parties on an arms length basis. 40 ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K a. EXHIBITS EXHIBIT NO. DESCRIPTION OF DOCUMENT 2 Agreement and Plan of Reorganization, effective January 6, 1998, by and among the Company, Edward F. Cowle, H. DeWorth Williams, Gold Hill Mines, Inc., Magnum Associates Ltd. and Starbeam, Ltd.(1) 3 By-Laws(2) 4 Specimen of Certificate of Common Stock(2) 16.3 Letter dated January 18, 2000 from KPMG Netherlands, N.V., an affiliate of KPMG International(3) 21 List of Subsidiaries(4) 23.1 Consent of KPMG Netherlands, N.V., an affiliate of KPMG International(4) 23.2 Consent of Paritz & Company, PA.(4) 23.3 Letter dated April 13, 2000 from KPMG Netherlands, N.V., an affiliate of KPMG International to SEC.(4) 27 Financial Data Schedule(4) b. REPORTS ON FORM 8-K A Current Report on Form 8-K was filed on June 24, 1999 by the Company. - -------- (1) Incorporated by reference to the Company's Report on Form 8-K, filed on January 6, 1998 and as amended on March 5, 1998 and as amended as of March 27, 1998. (2) Incorporated by reference to the Company's Registration Statement on Form 10-SB. (3) Incorporated by reference to the Company's Current Report on Form 8-K dated Janury 25, 2000. (4) Filed herewith. 41 TRIMOL GROUP, INC. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 TRIMOL GROUP, INC.
CONTENTS Page Numbers Report of the Independent Auditors (F-i) and (F-ii) Consolidated Balance Sheet F-1 Consolidated Statement of Operations F-2 Statement of Changes in Shareholders' Equity F-3 Consolidated Statement of Cash Flows F-4 to F-5 Notes to the Consolidated Financial Statements F-6 to F-22
REPORT OF THE INDEPENDENT AUDITORS To the Board of Directors and Shareholders of Trimol Group, Inc. We have audited the accompanying consolidated balance sheet of Trimol Group, Inc. and subsidiaries (the "Company") as of December 31, 1999 and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1999 and the results of its operations and cash flows for the year then ended, in conformity with generally accepted accounting principles in the United States. Paritz & Company, P.A. Hackensack, New Jersey February 24, 2000 (F-i) REPORT OF THE INDEPENDENT AUDITORS To the Board of Directors and Shareholders of Trimol Group, Inc. We have audited the accompanying consolidated balance sheet of Trimol Group, Inc. and subsidiaries (the "Company") as of December 31, 1998 and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1998 and the results of its operations and cash flows for the year then ended, in conformity with generally accepted accounting principles in the United States. KPMG Accountants N.V. Certified Public Accountants (Netherlands) A Member of KPMG International Amstelveen, The Netherlands April 11, 2000 (F-ii) TRIMOL GROUP, INC. CONSOLIDATED BALANCE SHEET
- -------------------------------------------------------------------------------- December December 31, 1999 31, 1998 - -------------------------------------------------------------------------------- (In Thousands of US Dollars) ASSETS Cash and cash equivalents 5,273 4,173 Interest bearing deposit -- 215 Held to maturity securities 545 1,136 Loans, net of allowance for possible loan losses 2,871 5,431 Reinsurance recoverable 157 148 Property, plant and equipment 5,836 7,165 Other assets 1,326 1,123 ------ ------ TOTAL ASSETS 16,008 19,391 ====== ====== LIABILITIES Non interest bearing demand deposits 3,440 2,330 Interest bearing deposits 3,135 4,532 ------ ------ Total deposits 6,575 6,862 Acceptances outstanding -- 264 Insurance policy and claim reserves 288 274 Other liabilities 2,348 2,226 ------ ------ TOTAL LIABILITIES 9,211 9,626 MINORITY INTEREST 1,600 2,199 SHAREHOLDERS' EQUITY 5,197 7,566 ------ ------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 16,008 19,391 ==================================================================
The accompanying notes are an integral part of the financial statements. F-1 TRIMOL GROUP, INC. CONSOLIDATED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------------------- Year Ended Year Ended December 31, 1999 December 31, 1998 - --------------------------------------------------------------------------------------------- (In Thousands of US Dollars, except share and per share data) REVENUES Revenues from hotel 2,148 2,545 Revenues from document processing 2,837 4,154 Loan interest 1,074 1,978 Other interest 485 632 Insurance premiums 68 70 Commissions and fees 1,333 1,721 Other revenues 36 173 ---------- ---------- TOTAL REVENUES 7,981 11,273 Interest expense 720 895 ---------- ---------- TOTAL REVENUES, NET OF INTEREST EXPENSE 7,261 10,378 ========== ========== PROVISION FOR BENEFITS, CLAIMS AND CREDIT LOSSES Provision for credit losses 679 773 Provision for benefits and claims 39 23 ---------- ---------- 718 796 ========== ========== OPERATING EXPENSES Cost of revenues from hotel 1,136 2,042 Cost of revenues from document processing 1,031 1,792 Other operating expenses 4,306 2,434 ---------- ---------- TOTAL OPERATING EXPENSES 6,473 6,268 ========== ========== INCOME FROM OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST 70 3,314 ========== ========== Provision for income taxes 35 221 Minority interest, net of income taxes 124 143 ---------- ---------- NET INCOME (LOSS) (89) 2,950 ========== ========== Net income (loss) per share (basic and diluted) (.007) 0.25 ========== ========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 12,034,485 12,000,953 ====================================================================================
The accompanying notes are an integral part of the financial statements. F-2 TRIMOL GROUP, INC. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------- Year Ended Year Ended December 31, 1999 December 31, 1998 - -------------------------------------------------------------------------------- (In Thousands of US Dollars) COMMON STOCK Balance, January 1 120 110 Issue of common stock -- 10 ------- ------ Balance, December 31 120 120 ======= ====== ADDITIONAL PAID-IN CAPITAL Balance, January 1 6,018 5,934 Issue of common stock 160 84 ------- ------ Balance, December 31 6,178 6,018 ======= ====== DEFERRED COMPENSATION Balance, January 1 -- -- Deferred compensation (27) -- ------- ------ Balance, December 31 (27) -- ------- ------ RETAINED EARNINGS Balance, January 1 1,428 (338) Net income (loss) (89) 2,950 Dividend paid to outside shareholders -- (1,184) Other comprehensive (loss) (2,413) -- ------- ------ Balance, December 31 (1,074) 1,428 ------- ------ TOTAL SHAREHOLDERS' EQUITY 5,197 7,566 ------- ------ ACCUMULATED OTHER COMPREHENSIVE LOSS Balance, January 1 -- -- Foreign currency translations (2,413) -- ------- ------ Balance, December 31 (2,413) -- - --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. F-3 TRIMOL GROUP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
- ------------------------------------------------------------------------------------------------ Year Ended Year Ended December 31, 1999 December 31, 1998 - ------------------------------------------------------------------------------------------------ (In Thousands of US Dollars) CASH FLOW FROM OPERATING ACTIVITIES Net income (loss) (89) 2,950 ------ ------- ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES INCOME AND EXPENSES NOT INVOLVING CASH FLOW Depreciation and amortization 439 656 Provision for credit losses 679 773 Provision for benefits and claims 39 23 Minority interest 124 143 Stock based compensation 133 -- ------ ------- 1,414 1,595 ------ ------- CHANGES IN ASSETS AND LIABILITIES Net (increase) decrease in other assets (505) 527 Net increase (decrease ) in other liabilities 612 (1,324) Net increase in reinsurance recoverable (51) (26) ------ ------- 56 (823) ------ ------- TOTAL ADJUSTMENTS 1,470 772 ------ ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,381 3,722 ====== ======= CASH FLOW FROM INVESTING ACTIVITIES Proceeds from redemptions of securities held to maturity 9,973 14,246 Purchase of securities held to maturity (9,702) (13,354) Proceeds from sale of equipment -- 163 Purchase of equipment (1,121) (517) Net (increase) decrease in loans 350 (1,912) ------ ------- NET CASH USED FOR INVESTING ACTIVITIES (500) (1,374) ------ ------- CASH FLOW FROM FINANCING ACTIVITIES Net increase (decrease) in deposits 1,648 (1,070) Payment of dividends -- (1,184) ------ ------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 1,648 (2,254) ------ ------- Effect of exchange rate on cash (1,429) -- ------ -------
F-4
Year Ended Year Ended December 31, 1999 December 31, 1998 - ----------------------------------------------------------------------------------- (In Thousands of US Dollars) Increase in cash and cash equivalents 1,100 94 Cash and cash equivalents at beginning of period 4,173 4,079 ----- CASH AND CASH EQUIVALENTS AT END PERIOD 5,273 4,173 ----- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid 596 882 Income taxes paid 419 161 - -----------------------------------------------------------------------------------
Refer to Note 2 for the non-cash investing and financing transactions related to the Company's acquisition of its subsidiaries. The accompanying notes are an integral part of the financial statements. F-5 TRIMOL GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION The audited consolidated financial statements of Trimol Group, Inc. (the "Company") included herein have been prepared in accordance with generally accepted accounting principles in the United States of America. NOTE 2 - ACQUISITIONS (a) GENERAL On January 6, 1998 the Company, which had not engaged in any significant operations for at least the three previous years, acquired all of the shares of four holding corporations that own capital stock of three companies with business operations in the Republic of Moldova ("Moldova"). The capital stock of such three companies comprises all of the issued and outstanding shares of an insurance company, Exim Asint S.A. (the "Insurance Company"), a bank, Banca Comerciala pe Actiuni "Export - Import" (the "Bank"), and 65% of the issued and outstanding shares of the Jolly Alon Limited (the "Hotel"), a hotel. The shares in the four holding corporations were acquired by the Company in exchange for an aggregate of 10,000,000 shares of the Company's common stock with a par value of U.S. $0.01 per share. These four companies were acquired from corporations owned by the principal stockholder of the Company. Furthermore, on May 6, 1998, the Company acquired all of the issued and outstanding shares of Intercomsoft Limited ("Intercomsoft"), an Irish corporation, in exchange for 1,000,000 shares of the Company's common stock. (b) ACCOUNTING FOR THE ACQUISITIONS As a result of the January 6, 1998 acquisitions, the new shareholders retained a controlling interest in the combined group. For this reason, the business combination was accounted for using the reverse purchase method. The Company had no significant net assets as at January 6, 1998. The acquisition of Intercomsoft has been accounted for in a manner similar to a pooling of interest, since the Company and Intercomsoft were enterprises under common control. The Company's financial statements include the results of operation, financial position and cash flow of Intercomsoft as though it had been a part of the Company for the whole year of 1998. (c) THE OPERATING COMPANIES The Insurance Company began operations at the beginning of 1995 and is active in the general insurance sector and provides property and liability coverage to the Moldovan market. Commencing in the last quarter of 1997, the Insurance Company also provides reinsurance services to the Moldovan insurance market. The Bank was established on April 26, 1994, received its General Banking License from the National Bank of Moldova on April 29, 1994 and began activity as a new bank on June 1, 1994. The Bank's activities include, inter alia, receipt of monetary deposits, granting credit, transacting in foreign currency, financing international trade, issuing credit cards, investment in securities, retaining and managing marketable documents and other assets for other parties, and managing payments. The Hotel was established on October 15, 1991 and operates and manages the Jolly Alon Hotel and rents stores and offices located on Hotel property. The principal guests of the Hotel are business persons from all over the world and diplomats. The tourism sector with respect to Hotel guests is marginal and, accordingly, seasonability is not a factor. F-6 Intercomsoft was incorporated in February, 1995 as a non resident Irish registered company. Intercomsoft supplies equipment and auxiliary materials intended for production of computerized documents (passports, drivers' licenses, car licenses and ID cards), and the software that is necessary for the operation of this equipment, and provides it to the Moldovan Ministry of Economics (see Note 3). NOTE 3 - RISKS AND UNCERTAINTIES The following factors relating to the Company and its business should be carefully considered: (a) The Company's subsidiaries operate in Moldova, a former Republic of the Soviet Union, and are heavily dependent on Russia and on a number of former Republics of the Soviet Union. Accordingly, the current political and economic situation in Moldova, Russia and the former Republics of the Soviet Union which have historically been unstable, could have a material adverse effect on the Company and its subsidiaries. Political uncertainty and instability in the Republic of Moldova may also play a roll in the future revenue and income of the Company and its subsidiaries. (b) The Moldovan Ministry of Economics ("Ministry") is Intercomsoft's only customer. In November 1999, the Company learned that the Ministry of Economy Affairs and Reform of the Republic of Moldova was soliciting bids to select an audit company to review the contract between Intercomsoft and the Government of the Republic of Moldova ("GRM"), pursuant to which Intercomsoft is granted the right to act as the exclusive supplier of the technology required to produce secure essential documents to GRM. The Company believes that the review will involve the assessment of such contract comparing it with international norms for prices charged for the services performed. No assurances can be given when, if ever, such a review shall begin or the results therefrom. A loss, or a substantial change in the terms of such contract could, however, have a material adverse effect on Intercomsoft and the Company (c) The Insurance Company cedes insurance to other companies, the major one being Munchener Ruckversicherungs Gesellschaft (Munich Re). These reinsurance contracts do not relieve the Insurance Company from its primary obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Insurance Company. In order to reduce its credit risk, the Insurance Company seeks to do business only with financially sound reinsurance companies and regularly reviews the financial strength of reinsurers used. No provision for uncollectible amounts has been made since none of the receivables is deemed to be uncollectible. (d) The Bank currently operates under a B-License issued by the National Bank of Moldova ("NBM"). NBM regularly revises the capital requirements for the banks. In accordance with current regulations, banks operating under a B-License must maintain a shareholders' equity of no less than 48 Million Moldovan Leu ("MDL") as of July 1, 2000, which amount equals approximately $4.1 Million U.S. Dollars at the exchange rate in effect at December 31, 1999. The Bank's shareholders' equity as of December 31, 1999 amounts to approximately 35 Million MDL; approximately $3 Million U.S. Dollars. Therefore, the Bank must increase its shareholders' equity by approximately 13 Million MDL, or approximately $1.1 Million U.S. Dollars, by July 1, 2000 in order to maintain its current banking license in Moldova. In addition, NBM has advised the Company that as of January 1, 2001, banks with a B-License will be required to increase its equity to a minimum of 76 Million MDL, or approximately $6.5 Million U.S. Dollars Should the Bank be unable to meet these capitalization requirements, it may lose its license to operate. Although the Company believes that the Bank will increase its shareholders' equity to the required amounts, in the event that the Bank is not able to do so, the Bank's ability to operate as a bank in Moldova could be terminated, which would have a material adverse effect on the Company. F-7 NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) FOREIGN CURRENCY TRANSLATION 1. The Company operates in Moldova, and the currency in which the Company transacts most of its operations is the MDL. At January 1, 1998 the three year accumulated rate of inflation was approximately 80%. A country is generally considered to be in hyperinflation if the three year accumulated rate of inflation is 100% or more. During 1998, the Company's consolidated financial statements were prepared assuming that the Moldovan economy remained highly inflationary, as the inflation rate had historically been volatile and had just declined to a rate below 100%. The United States Dollar was used as the Company's functional currency during 1988. In the second quarter of 1999, it was determined that, as of January 1, 1999, the three year accumulated rate of inflation was approximately 42.4%. Accordingly, management concluded that the Company's functional currency should revert to the Moldovan Leu from the United States Dollar as from that date. During the year ended December 31, 1999 fluctuations in the MDL and the United States Dollar reduced the Company's net income in the amounts reflected in the Company's Consolidated Statement of Changes in Shareholders' Equity under the line item "Other Comprehensive Loss", as a component of Shareholders' Equity. During the same period in 1998, such fluctuations were not included in the Company's financial statements as the matter was not material to the presentation of the Company's financial condition. 2. YEAR ENDED DECEMBER 31, 1999 The Company has determined that effective January 1, 1999 the MDL is the functional currency. Accordingly, the assets and liabilities denominated in foreign currency are translated into U.S. Dollars at the current rate of exchange existing at period-end and revenues and expenses are translated at average monthly exchange rates. Related translation adjustments are reported as a separate component of shareholders' equity, whereas, gains or losses resulting from foreign currency transactions are included in results of operations. 3. YEAR ENDED DECEMBER 31, 1998 The Company's foreign subsidiaries have the U.S. Dollar designated as their functional currency for the year ended December 31, 1998. Financial statements of these foreign subsidiaries are translated to U.S. Dollars for consolidation purposes using current rates of exchange for monetary assets and liabilities and historical rates of exchange for non-monetary assets and related elements of expense. Revenue and other expense elements are translated at rates that approximate the rates in effect on the transaction dates. Translation gains and losses are included in the Company's Consolidated Statement of Operations. 4. EXCHANGE RATE OF THE DOLLAR The exchange rate of the MDL to the U.S. Dollar was 8.3226 to 1.00 as of December 31, 1998 and 11.5902 to 1.00 as of December 31, 1999, resulting in a devaluation of the MDL of 39.26% for the year ended December 31, 1999. F-8 (b) PRINCIPLES OF CONSOLIDATION The consolidated financial statements of the Company include the accounts of the Company and its operating subsidiaries and their holding companies. Intercompany balances have been eliminated in the consolidation. (c) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. (d) CASH AND CASH EQUIVALENTS Cash and cash equivalents are defined as cash on hand, cash items in the process of collection and amounts due from correspondent banks and the National Bank of Moldova. With respect to the Hotel, the Bank, and Intercomsoft, the Company regards all its liquid investments, whose maturity as of the date of the investment is less than three months, as cash equivalents. With respect to the Insurance Company, cash equivalents consist of short term highly liquid investments that are both (a) readily convertible to known amounts of cash and (b) so near to maturity that they present an insignificant risk of changes in value due to changing interest rates. (e) PROVISION FOR DOUBTFUL ACCOUNTS Provisions for doubtful accounts are made on the basis of identification of specific accounts whose collection is in doubt. (f) SECURITIES Investments in fixed maturity and equity securities are accounted for under the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires management to classify its investment portfolio into three categories: (i) held to maturity, (ii) available for sale, and (iii) trading securities. Specific criteria are set forth for determining these classifications. SFAS No. 115 requires unrealized gains and losses for trading securities to be included in net income while unrealized gains and losses for securities available for sale are to be reported as a separate component of shareholders' equity, net of related income tax, until realized. Held-to-maturity securities are recorded at their amortized cost. Declines in the fair value of individual held-to-maturity securities below their cost that are other than temporary have resulted in write-downs of the individual securities to their fair value. The related write-downs are included in earnings as realized losses. All investments in securities are classified as held-to-maturity, since the Company has the intent and ability to hold the securities to maturity. (g) LOANS Loans are stated at the principal amount outstanding, net of any unearned income. Interest on loans is recognized on the accrual basis and is credited to interest income based upon the principal amount outstanding. Loans are considered impaired and are placed on nonaccrual status when collection of all or a portion of principal or interest in accordance with contractual terms, is in doubt. Interest on nonaccrual loans is credited to principal or recognized as income on a cash basis. F-9 (h) ALLOWANCE FOR POSSIBLE LOAN LOSSES The allowance for possible loan losses is established through provisions for possible loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for possible loan losses, and subsequent recoveries, if any, are credited to the allowance. The allowance for possible loan losses is based upon management's estimate of the amount necessary to maintain the allowance at a level adequate to absorb estimated potential loan losses. The determination of the adequacy of the allowance for possible loan losses hinges upon various judgments and assumptions, including but not necessarily limited to, management's assessment of potential losses on individual loans, Moldovan and international economic conditions, loan portfolio composition, transfer risks, and prior loan loss experience. (i) PROPERTY, PLANT AND EQUIPMENT Buildings, equipment and improvements are stated at cost less accumulated depreciation computed on a straight-line basis. The useful life of the premises and equipment is based on management's estimate of the period during which economic benefits can be derived from these assets. In accordance with the Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of", the Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. Property received in full satisfaction of loans is valued at the lesser of the fair market value of the property received or the carrying value of the loan. The excess of the recorded investment in the loan satisfied over the fair value of assets received is reported as a current loss in the period of satisfaction. (j) INVENTORIES Inventories, consisting of merchandise purchased for resale by the Hotel, are valued at the lower of cost (determined on the first-in, first-out basis) or market, and are classified as other assets on the Consolidated Balance Sheet. (k) INCOME TAXES Pursuant to SFAS No. 109, "Accounting for Income Taxes", deferred tax assets or liabilities are recognized for the future tax consequences attributable to differences between the accounting basis and the tax basis of the Company's assets and liabilities. 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 realized or settled. The Company's deferred tax asset is reviewed periodically and adjustments to such assets are recognized as deferred income tax expense or benefit based on management's judgments relating to the realizability of such asset. A valuation allowance related to deferred tax assets is recognized when, in management's judgment, it is more likely than not that all, or a portion of such deferred assets, will not be realized. (l) FINANCIAL INSTRUMENTS In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit, commercial letters of credit, and guarantees. Such financial instruments are recorded in the financial statements when they are funded or when related fees are incurred or received. F-10 (m) FOREIGN EXCHANGE CONTRACTS Foreign exchange contracts which qualify under applicable accounting guidelines as hedges of foreign currency exposures are revalued at the spot rate with any forward premium or discount recognized over the life of the contract in net interest revenue. Gains and losses on foreign exchange contracts which qualify as a hedge of a firm commitment are deferred and recognized as part of the measurement of the related transaction, unless deferral of a loss would lead to recognizing losses on the transaction in later periods. (n) GROSS PREMIUMS WRITTEN All insurance premiums due with respect to insurance contracts entered into in the period, are included in gross written premiums irrespective of whether they relate in whole or in part to a later period. Gross reinsurance ceded and unearned premiums are included within gross written premiums, outwards reinsurance premiums and unearned premiums, respectively. Gross premiums are net of premium reimbursements. The insurance premiums are both direct and assumed premiums. (o) RECOGNITION OF PREMIUM REVENUE Property, liability and assumed premiums are generally recognized as revenue on a pro rata basis over the policy term. The portion of the premiums that will be earned in the future is deferred and reported as unearned premiums. (p) REINSURANCE Reinsurance is accounted for depending on whether the "reinsurance risk" is received or transferred. In the normal course of business, the Insurance Company seeks to reduce the loss that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. (q) DEFERRED POLICY ACQUISITION COSTS Commissions and other costs of acquiring insurance that vary with and are primarily related to the production of new and renewal business, are deferred and amortized over the terms of the policies or reinsurance treaties to which they relate. (r) LOSSES AND LOSS ADJUSTMENT RESERVE The liability for losses and loss adjustment expenses includes an amount determined for losses incurred but not yet reported, which is the Insurance Company's best estimate and is based on the instructions prescribed by the insurance supervisor of Moldova and the regulations thereunder. In terms of these regulations, the Insurance Company is required to maintain a reserve at specific rates of net premiums earned. These required reserves are based on estimates and market experience as a whole and are intended to cover future claims lodged with the Insurance Company. In addition, individual claims known but not paid are provided for. Management believes that the loss and loss adjustment reserves established for unpaid claims are adequate. While management utilizes available information on unpaid claims to establish these reserves, unanticipated changes may occur. F-11 (s) EMPLOYEES' BENEFITS Contributions are made by the Company to the Government's health, retirement benefit and unemployment accounts at the statutory rates in force during the period, based on gross salary payments. The cost of these payments is charged to the statement of income in the same period as the related salary cost. (t) INCOME PER SHARE Income per share of common stock have been computed on the basis of the weighted average number of shares of common stock outstanding. Diluted earnings per share is based on the weighted average number of shares and common stock equivalents outstanding. The Company had no common stock equivalents during the periods presented. (u) COMPREHENSIVE INCOME The Company adopted the provisions of the SFAS No. 130, "Reporting Comprehensive Income". Comprehensive income is defined as any change in equity from transactions and other events originating from nonowner sources, and is displayed as accumulated comprehensive income in the Statements of Changes in Shareholders' Equity at December 31, 1999. NOTE 5 - BUSINESS SEGMENT INFORMATION Business segment information for the year ended December 31, 1999 is as follows:
- --------------------------------------------------------------------------------------------------------------------- Bank Hotel Insurance Document Holding operations operations operations processing activities Eliminations Consolidated - --------------------------------------------------------------------------------------------------------------------- (In Thousands of US Dollars) Total revenues 2,745 2,181 174 2,891 -- (10) 7,981 Interest expense 554 -- -- -- 166 -- 720 ------- ------- ------- ------- ------- ------- ------- Total revenues, net of interest expense 2,191 2,181 174 2,891 (166) (10) 7,261 Provision for benefits, claims and credit losses 679 -- 39 -- -- -- 718 Operating expenses 1,446 1,759 113 1,110 2,055 (10) 6,473 ------- ------- ------- ------- ------- ------- ------- Income from operations before income taxes and minority 66 422 22 1,781 (2,221) -- 70 interest Provision for income taxes 9 67 1 -- (42) -- (35) Minority interest, net of taxes -- 124 -- -- -- -- (124) ------- ------- ------- ------- ------- ------- ------- Net loss for the year 57 231 21 1,781 (2,179) -- (89) ======= ======= ======= ======= ======= ======= ======= Fixed assets 1,524 4,277 35 -- -- -- 5,836 Other assets 7,512 417 439 1,604 200 -- 10,172 ------- ------- ------- ------- ------- ------- ------- Total assets 9,036 4,694 474 1,604 200 -- 16,008 ------- ------- ------- ------- ------- ------- -------
F-12 Business segment information for the year ended December 31, 1998 is as follows:
- ------------------------------------------------------------------------------------------------------------ Bank Hotel Insurance Document Holding Eliminations Consolidated operations operations operations processing activities - ------------------------------------------------------------------------------------------------------------ (In Thousands of US Dollars) Total revenues 4,312 2,665 270 4,154 -- (128) 11,273 Interest expense 895 -- -- -- -- -- 895 ------- ------- ------- ------- ------- ------- ------- Total revenues, net of interest expense 3,417 2,665 270 4,154 -- (128) 10,378 Provision for benefits, claims and credit losses 773 -- 23 -- -- -- 796 Operating expenses 1,621 2,166 267 1,792 550 (128) 6,268 ------- ------- ------- ------- ------- ------- ------- Income from operations before income taxes and minority interest 1,023 499 (20) 2,362 (550) -- 3,314 Provision for income taxes (130) (91) -- -- -- -- (221) Minority interest, net of taxes -- (143) -- -- -- -- (143) ------- ------- ------- ------- ------- ------- ------- Net income (loss) for the year 893 265 (20) 2,362 (550) -- 2,950 ======= ======= ======= ======= ======= ======= ======= Fixed assets 954 6,095 116 -- -- -- 7,165 Other assets 9,828 447 441 1,618 231 (339) 12,226 ------- ------- ------- ------- ------- ------- ------- Total assets 10,782 6,542 557 1,618 231 (339) 19,391 ======= ======= ======= ======= ======= ======= =======
SEGMENTAL INFORMATION The Company has five reportable segments: (1) banking, (2) hotel, (3) insurance, (4) document processing and (5) holding activities. The accounting policies of the segments are the same as those described in the "Significant Accounting Policies." Segment data includes inter-segments transactions. The Company accounts for inter-segment revenues and transfers as if the revenues or transfers were to third parties, that is, at current market prices. All revenues are derived from operations and long-lived assets that are located in Moldova. NOTE 6 - HELD TO MATURITY SECURITIES All securities in the portfolio held by the Bank at December 31, 1999 are Moldovan Government securities issued for periods of time between 7 and 112 days and are held to maturity. The yield of the Moldovan Government securities in 1999 was between 17% and 27%. Amortized cost of these securities approximates market value. F-13 NOTE 7 - LOANS (a) Composition of loans:
- ----------------------------------------------------------------- December 31, December 31, 1999 1998 - ----------------------------------------------------------------- (In Thousands of US Dollars) Commercial, financial and agricultural 1,978 5,693 Real estate, mortgage 1,817 591 Installment loans to individuals 4 59 ----- ----- 3,799 6,343 Less: Allowance for possible loan losses (928) (912) ----- ----- 2,871 5,431 - -----------------------------------------------------------------
The interest on loans in MDL in 1999 was between 18% and 65%. The interest on loans in other currencies in 1999 was between 10% and 32%. (b) Impaired loan information:
- ------------------------------------------------------------------------------------- December 31, December 31, 1999 1998 - ------------------------------------------------------------------------------------- (In Thousands of US Dollars) Impaired loans (all carrying an allowance for loan losses) 1,291 605 Allowance for impaired loans (770) (307) ------ ------ 521 298 ------ ------ Average impaired loans during the year 948 700 - -------------------------------------------------------------------------------------
No interest was recognized on impaired loans on a cash basis for the above year. (c) Analysis of the change in the allowance for possible loan losses:
- ----------------------------------------------------- December 31, December 31, 1999 1998 - ----------------------------------------------------- (In Thousands of US Dollars) Balance as of January 1 912 572 Provisions during the year 679 773 Write-offs (663) (433) Balance as of December 31 928 912 - -----------------------------------------------------
F-14 NOTE 8 - REINSURANCE RECOVERABLE Composition of balance of reinsurance recoverable:
- ------------------------------------------------------------- December 31, December 31, 1999 1998 - -------------------------------------------------------------- (In Thousands of US Dollars) Provision for unearned premiums 43 26 Losses and loss adjustment reserves 114 122 --- --- 157 148 - --------------------------------------------------------------
NOTE 9 - PROPERTY, PLANT AND EQUIPMENT
- ----------------------------------------------------------------------------------------------------------- Period of depreciation December 31, December 31, (in years) 1999 1998 - ----------------------------------------------------------------------------------------------------------- (In Thousands of US Dollars) Buildings 40 5,055 5,463 Vehicles, machinery and improvements 5 1,454 2,032 Furniture and equipment 10 1,052 1,553 ------- ------- 7,561 9,048 Less: Accumulated depreciation and amortization (1,725) (1,883) ------- ------- 5,836 7,165 - -----------------------------------------------------------------------------------------------------------
Included in the cost of the building is the right to use the land including the land on which the Hotel is located and its immediate surroundings, for a term of 50 years. NOTE 10 - INSURANCE POLICY AND CLAIM RESERVES
- ----------------------------------------------------------------------------------------------------------- December 31, December 31, 1999 1998 - ----------------------------------------------------------------------------------------------------------- (In Thousands of US Dollars) Losses and loss adjustment reserves 215 230 Provision for unearned premiums 73 44 ------ ------ 288 274 - -----------------------------------------------------------------------------------------------------------
F-15 Movements in losses and loss adjustment reserve:
- ----------------------------------------------------------------------------------------------------------- December 31, December 31, 1999 1998 - ----------------------------------------------------------------------------------------------------------- (In Thousands of US Dollars) Balance as of January 1, 230 207 Less reinsurance recoverable 122 113 ------ ------ Net balance as of January 1, 108 94 ------ ------ INCURRED RELATED TO: Current period 46 22 Prior years 4 1 ------ ------ Total incurred 50 23 ------ ------ PAID RELATED TO: Current period (22) (8) Prior years (5) (1) ------ ------ Total paid (27) (9) Translation difference (30) - ------ ------ (57) (9) ------ ------ Net balance as of end of the year 101 108 Add: net recoverable from reinsurance 114 122 ------ ------ Net balance as of December 31, 215 230 - -----------------------------------------------------------------------------------------------------------
See Note 4(r) F-16 NOTE 11 - MINORITY INTEREST The minority interest comprises the 35% interest of the Government of Moldova in the Hotel. NOTE 12 - REVENUES FROM HOTEL BUSINESS
- ----------------------------------------------------------------------------------------------------------------- December December 31, 1999 31, 1998 - ----------------------------------------------------------------------------------------------------------------- (In Thousands of US Dollars) Room rental 1,325 1,689 Restaurant 310 464 Stores and offices 313 325 Other 200 67 ----- ----- 2,148 2,545 - -----------------------------------------------------------------------------------------------------------------
NOTE 13 - GROSS WRITTEN AND EARNED PREMIUMS
- -------------------------------------------------------------------------------------------------------------------- For the year ended December 31, 1999 - -------------------------------------------------------------------------------------------------------------------- Kind of Insurance Gross Change in Insurance Reinsurance Change in Reinsurance Net premiums UPR gross premiums ceded UPR premiums premiums reinsurance - -------------------------------------------------------------------------------------------------------------------- (In Thousands of US Dollars) Cargo 3 1 2 - - - 2 Property 91 20 71 63 15 48 23 Medical 33 7 26 13 3 10 16 Compulsory car 12 3 9 6 1 5 4 Employee's accident 13 3 10 1 - 1 9 Car 28 6 22 11 3 8 14 Reinsurance 15 3 12 15 3 12 - --- -- --- --- -- -- -- 195 43 152 109 25 84 68 - --------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------- For the year ended December 31, 1998 - -------------------------------------------------------------------------------------------------------------------- Kind of Insurance Gross Change in Insurance Reinsurance Change in Reinsurance Net premiums UPR gross premiums ceded UPR premiums premiums reinsurance - -------------------------------------------------------------------------------------------------------------------- (In Thousands of US Dollars) Cargo 2 - 2 - - - 2 Property 142 52 90 102 13 89 1 Medical 51 7 44 20 3 17 27 Compulsory car 18 2 16 9 1 8 8 Employee's accident 17 2 15 3 - 3 12 Car 38 5 33 15 2 13 20 Reinsurance 10 1 9 10 1 9 - --- -- --- --- -- -- -- 278 69 209 159 20 139 70 - --------------------------------------------------------------------------------------------------------------------
F-17 NOTE 14 - SHAREHOLDERS' EQUITY (a) Details of the Company's common stock and preferred stock are as follows:
-------------------------------------------------------------------------------------------- Preferred Stock Common Stock -------------------------------------------------------------------------------------------- Par value per share $1.00 $0.01 Shares authorized 10,000 30,000,000 Shares issued and outstanding: 1999 -- 12,039,000 1998 -- 12,023,000 --------------------------------------------------------------------------------------------
(b) On February 25, 1999, the Company entered into employment agreements (collectively the "Employment Agreements") with three of its executives (the "Executives") each of which is for a term of five years commencing January 1, 1999 and provide for aggregate annual compensation of $360,000 in the first year of the Employment Agreement, subject to increase to an aggregate of $650,000 in the event that the Company consummates an acquisition of a business with pre-tax profits of $3,000,000 or more in such year. In addition, the Employment Agreements provide that for every $1,000,000 of the Company's excess net pre-tax profits, as defined, generated by the Company in the determining year, the Executives will receive incentive warrants ("Incentive Warrants") to purchase an aggregate of 200,000 shares of the Company's common stock (the "Common Stock") up to a maximum of 3,000,000 shares of Common Stock per year at an exercise price equal to the closing price of Common Stock on the issue date. As of December 31, 1999, no Incentive Warrants were outstanding. (c) In March 1999, the Company entered into a consulting agreement pursuant to which the Company issued 16,000 of its restricted shares of Common Stock valued at $10 per share in consideration of the services to be performed under such consulting agreement. Such shares of Common Stock are restricted under the meaning of Securities and Exchange Commission Rule 144. (d) In May, 1999 the Company issued warrants to purchase 1,400,000 shares of its Common Stock ("the Warrants") to the Executives. The Warrants may be exercised for a period of five years at an exercise price of $11.50 per share. Effective February 28, 2000 the Company canceled these warrants and issued 1,400,000 warrants on the same terms, at an exercise price of $.50 per share. During 1999, the Company granted five year warrants to purchase up to 60,000 shares of the Company's Common Stock, 30,000 of which are at an exercise price of $11.50 per share and 30,000 of which are at an exercise price of $.75 per share, to certain members of the Audit Committee of the Company's Board of Directors. As of December 31, 1999, Warrants to purchase 1,460,000 shares of Common Stock were issued and outstanding. NOTE 15 - INCOME TAX Income taxes for the years ended December 31, 1999 and 1998 consist of the following:
- --------------------------------------------------------------------------------------------------------- December 31, 1999 December 31, 1998 - --------------------------------------------------------------------------------------------------------- (In Thousands of US Dollars) Current 35 221 Deferred -- -- --- --- Income taxes, before minority interest 35 221 Income tax on minority interest (23) (31) --- --- Total income taxes 12 190 - ---------------------------------------------------------------------------------------------------------
F-18 The reconciliation of the statutory income tax rate to the Company's effective income tax rate is as follows:
- -------------------------------------------------------------------------------------------------------------- December 31, December 31, 1999 1998 - -------------------------------------------------------------------------------------------------------------- U.S. statutory tax rate 34% 32% Not subject to taxation -- (22%) Operating loss not carry forward 37% 5% Benefits under the Foreign Investment Law and tax rate reduction (21%) (7%) Other, net -- (1%) ----- ----- Effective income tax rate 50% 7% - --------------------------------------------------------------------------------------------------------------
Deferred income taxes as at December 31, 1999 and 1998 can be analyzed as follows:
- -------------------------------------------------------------------------------------------------------------- December 31, December 31, 1999 1998 - -------------------------------------------------------------------------------------------------------------- (In Thousands of US Dollars) DEFERRED TAX ASSETS Net operating loss carry forwards -- 199 ------ ------ Property plant and equipment, principally due to differences in depreciation -- 29 ------ ------ Gross deferred tax assets -- 228 Valuation allowance -- (228) ------ ------ Deferred tax assets after valuation allowance -- -- DEFERRED TAX LIABILITY -- -- NET DEFERRED TAX LIABILITY -- -- - --------------------------------------------------------------------------------------------------------------
F-19 NOTE 16 - RELATED PARTY TRANSACTIONS The Company transacts business at times with related parties while conducting its commercial activities. The Company believes such transactions are on substantially the same terms as those prevailing at the time for comparable transactions with unrelated parties. A summary of related party transactions and balances as of and for the years ended December 31, 1999 and 1998 is as follows:
- -------------------------------------------------------------------------------------------------------------- December 31, December 31, 1999 1998 - -------------------------------------------------------------------------------------------------------------- (In Thousands of US Dollars) Liability to a company owned by the majority stockholder (A) 1,328 1,162 Loans from the bank to related parties 215 -- Loan from the insurance company to a related party 88 -- Purchases of equipment of the hotel from a related party 79 160 Payment for consulting fees 21 -- - --------------------------------------------------------------------------------------------------------------
(A) Pursuant to a resolution of the Company's Board of Directors on March 31, 2000, the Company approved payment of the principal balance of $1,162,000 plus interest from January 6, 1998 to the date of payment (April 5, 2000). Prior to this resolution, the liability had been deemed non-interest bearing. As of December 31, 1999, the Company accrued $166,000 representing interest from January 6, 1998 to December 31, 1999, which amount is included in other liabilities on the accompanying 1999 Balance Sheet. F-20 During 1999, the Bank loaned $500,000 to a corporation whose beneficial owner is the Chairman of the Board of the Company. As a result of non-payment, the Bank foreclosed on the building which was held as collateral. The Bank intends to use the building, which is included in property and equipment in the financial statements, as an additional banking facility. In addition, during 1999 the Hotel acquired ownership of a television series that was produced by a company controlled by the Chairman of the Board of the Company for approximately $58,000. The Hotel intends to display the television series on its internal television network and attempt to sell rights, in part, to other hotels in the Russian speaking countries. NOTE 17 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK In the normal course of business, the Company is party to financial instruments with off-balance sheet risk, including commitments to purchase foreign exchange contracts, guarantees, letters of credit, and unutilized credit lines. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in these particular classes of financial instruments. The Company's exposure to credit loss in the event of nonperformance by the other party with respect to unused credit lines and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. For forward commitments, the contract or notional amounts exceed the Company's exposure to credit loss. Unused credit lines are agreements to lend to a customer, provided the customer meet all conditions established in the contract. Commitments have fixed expiration dates and may require payment of a fee. The total commitment amounts do not necessarily represent total future cash requirements, since many commitments are not expected to be drawn down. Letters of credit are conditional commitments issued by the Company to guarantee the performance by a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Amounts of the Bank's financial instruments with off-balance sheet risk are as follows:
- ------------------------------------------------------------------------------------- December 31, December 31, 1999 1998 - ------------------------------------------------------------------------------------- (In Thousands of US Dollars) Foreign exchange contracts 748 618 Guarantees 728 352 Letters of credit 36 51 Unutilized credit lines - 268 - -------------------------------------------------------------------------------------
NOTE 18 - REGULATORY MATTERS (a) The Bank maintains at all times a level of reserves in MDL equal to 15% of the amount of the total attracted funds in MDL and hard currency. At least 30% of the total amount of reserves must be kept in MDL at a correspondent account with the National Bank of Moldova. The Bank may conduct operations that will reduce its balance in the account below the level of the required reserves. In such case until the end of the report period the Bank must increase the amount of the required reserves so that the average amount of MDL for the report period meets the required level. F-21 The NBM may change at its discretion the norm of the level of the required reserves in conformity with the monetary and currency policy of the Republic of Moldova. (b) The maximum foreign currency exchange exposure (the difference in MDL between the total assets and the total liabilities, including off balance sheet items, for each currency divided by the total normative capital) that is authorized by the National Bank of Moldova is 10% for each currency or 20% for all the foreign currencies taken together. (c) See Note 4 relating to the capitalization requirements of the Bank. NOTE 19 - FINANCIAL INSTRUMENTS FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of short-term financial instruments, among which the foreign exchange contracts, as well as receivables and payables arising in the ordinary course of business, approximates fair value because of the relatively short period of time between their origination and expected realization. Quoted market prices are used for most investments and for loans where available. For performing loans where no quoted market prices are available, contractual cash flows are discounted at quoted secondary market rates or estimated market rates if available. Otherwise, sales of comparable loan portfolios or current market origination rates for loans with similar terms and risk characteristics are used. For loans with doubt as to collectibility, expected cash flows are discounted using an appropriate rate considering time of collection and a premium for the uncertainty of the flows. The value of the collateral is also considered. F-22 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRIMOL GROUP, INC. Dated: April 14, 2000 By: /S/TED SHAPIRO ------------------------------------ Ted Shapiro, President In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Dated: April 14, 2000 By: /S/BORIS BIRSHTEIN ------------------------------------ Boris Birshtein, Chairman of the Board Dated: April 14, 2000 By: /S/TED SHAPIRO ------------------------------------ Ted Shapiro, President, Chief Executive Officer and Director Dated: April 14, 2000 By: /S/SHMUEL GURFINKEL ------------------------------------ Shmuel Gurfinkel, Chief Financial Officer and Director (Principal Accounting Officer) Dated: April 14, 2000 By: /S/ROBERT L. BLESSEY ------------------------------------ Robert L. Blessey, Secretary and Director TRIMOL GROUP, INC. INDEX OF EXHIBITS Exhibit No. Description of Document ----------- ----------------------- 2 Agreement and Plan of Reorganization, effective January 6, 1998, by and among the Company, Edward F. Cowle, H. DeWorth Williams, Gold Hill Mines, Inc., Magnum Associates Ltd. and Starbeam, Ltd.(1) 3 By-Laws(2) 4 Specimen of Certificate of Common Stock(2) 16.3 Letter dated January 18, 2000 from KPMG Netherlands, N.V., an affiliate of KPMG International(3) 21 List of Subsidiaries(4) 23.1 Consent of KPMG Netherlands, N.V., an affiliate of KPMG International(4) 23.2 Consent of Paritz & Company, PA.(4) 23.3 Letter dated April 13, 2000 from KPMG Netherlands, N.V., an affiliate of KPMG International to SEC(4). 27 Financial Data Schedule(4) - ---------------- (1) Incorporated by reference to the Company's Report on Form 8-K, filed on January 6, 1998 and as amended on March 5, 1998 and as amended as of March 27, 1998. (2) Incorporated by reference to the Company's Registration Statement on Form 10-SB. (3) Incorporated by reference to the Company's Current Report on Form 8-K dated January 25, 2000. (4) Filed herewith. EX-21 2 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES The subsidiaries of the Company are as follows: Maximilia Ltd., an Irish corporation ("Maximilia") Sturge Ltd., an Irish corporation ("Sturge") Jolly LLC, a Wyoming corporation ("Jolly") Paul Garnier, an Irish corporation ("Garnier") Jolly Alon Limited, a Moldovan corporation ("Hotel") Banca Commerciala pe Actiuni "Export-Import", a Moldovan corporation ("Bank") Exim Asint S.A., a Moldovan corporation ("Insurance Company") Intercomsoft Limited, an Irish corporation ("Intercomsoft") EX-23.1 3 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS ------------------------------- [Letterhead of KPMG Accountants N.V., A Member of KPMG International] We have issued our report dated April 9, 1999, accompanying the financial statements of Trimol Group, Inc., for the year ended December 31, 1999, to be contained in the Annual Report on Form 10-KSB (the "10-KSB") for Trimol Group, Inc., a Delaware corporation (the "Company") for its fiscal year ended December 31, 1998. We consent to the use of the aforementioned report in the 10-KSB and to the use of our name as it appears therein. /s/ KPMG Accountants N.V. --------------------------- April 11, 2000 EX-23.2 4 EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS [Letterhead of Paritz & Company, PA] We have issued our report dated February 24, 2000, accompanying the financial statements of Trimol Group, Inc., to be contained in the Annual Report on Form 10-KSB (the "10-KSB") for Trimol Group, Inc., a Delaware corporation (the "Company") for its fiscal year ended December 31, 1999. We consent to the use of the aforementioned reports in the 10-KSB and to the use of our name as it appears therein. /s/ PARITZ & COMPANY, PA ------------------------------ April 10, 2000 EX-23.3 5 EXHIBIT 23.3 [KPMG Netherlands, N.V. - an Affiliate of KPMG International] Exhibit 23.3 April 13, 2000 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: TRIMOL GROUP, INC. Dear Ladies and Gentlemen: We have read Item 8 of Trimol Group, Inc.'s Form 10-KSB for its fiscal year ended December 31, 1999 and are in agreement with the statements contained therein regarding the undersigned. Sincerely, By: /s/ KPMG Netherlands, N.V. --------------------------- EX-27 6 EXHIBIT 27
5 0001011733 TRIMOL GROUP, INC. 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 5,273 545 3,799 928 0 8,846 5,836 0 16,008 9,211 0 0 0 120 6,178 16,008 7,981 7,981 2,167 4,306 124 718 720 (54) 35 0 0 0 0 (89) (0.007) (0.007)
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