<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2000
/ / Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ______________ to _______________
Commission file number: 0-28144
TRIMOL GROUP, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 13-3859706
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1285 Avenue of the Americas, 35th Floor, New York, New York 10019
(Address of Principal Executive Offices)
(212) 554-4394
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
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 / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes / / No / /
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of August 14, 2000, 12,039,000
shares of Common Stock, par value $.01 per share.
Transitional Small Business Disclosure Format (check one): Yes / / No /X/
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
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Page Number
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Item 1. Financial Statements
Independent Accountant's Review Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheet as of June 30, 2000 (Unaudited) and December 31, 1999 (Audited). . . . . . . . . . . . F-2
Consolidated Statement of Operations for the six month period ended June 30, 2000 (Unaudited). . . . . . . . . . . F-3
Statement of Changes in Shareholders' Equity for the six month period ended June 30, 2000 (Unaudited). . . . . . . F-4
Consolidated Statement of Cash Flow for the six month period ended June 30, 2000 (Unaudited). . . . . . . . . . . F-5
Notes to the Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Item 2. Management's Discussion and Analysis and Results of Operations . . . . . . . . . . . . . . . . . . . . . 1
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To The Board of Directors and Shareholders
Trimol Group, Inc.
We have reviewed the accompanying consolidated balance sheet of Trimol
Group, Inc. (the "Company") as of June 30, 2000 and the related
consolidated statements of operations for the six and three month period
ended June 30, 2000, changes in stockholders' equity and cash flows for
the six month period ended June 30, 2000. These consolidated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting
principles.
PARITZ & COMPANY, P.A.
Hackensack, New Jersey
August 8, 2000
F-1
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TRIMOL GROUP, INC.
CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
June 30, 2000 December 31, 1999
(Unaudited) (Audited)
--------------------------------------------------------------------------------
(In Thousands of US Dollars)
ASSETS
Cash and cash equivalents 5,053 5,273
Held to maturity securities 1,214 545
Loans, net of allowance for possible loan losses
of $383 and $928, respectively 3,083 2,871
Reinsurance recoverable 263 157
Property, plant and equipment 5,588 5,836
Other assets 1,937 1,326
------ ------
TOTAL ASSETS 17,138 16,008
------ ------
Liabilities
Non interest bearing demand deposits 4,926 3,440
Interest bearing deposits 2,924 3,135
------ ------
Total deposits 7,850 6,575
Insurance policy and claim reserves 391 288
Other liabilities 2,261 2,348
------ ------
TOTAL LIABILITIES 10,502 9,211
MINORITY INTEREST 1,447 1,600
SHAREHOLDERS' EQUITY 5,189 5,197
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 17,138 16,008
--------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
F-2
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TRIMOL GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
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SIX MONTHS ENDED THREE MONTHS ENDED
--------------------------------- -------------------------------
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
--------------- ---------------- --------------- --------------
(In Thousands of US Dollars, except share and per share data)
<S> <C> <C> <C> <C>
REVENUES
Revenues from hotel operations 1,167 1,067 633 597
Revenues from document processing 1,380 1,565 697 648
Loan interest 324 501 141 230
Other interest 177 244 77 104
Insurance premiums 48 40 27 17
Commissions, fees and other revenues 537 591 269 272
---------- ---------- ---------- ----------
TOTAL REVENUES 3,633 4,008 1,844 1,868
Interest expense 247 391 123 158
---------- ---------- ---------- ----------
TOTAL REVENUES, NET OF INTEREST EXPENSE 3,386 3,617 1,721 1,710
========== ========== ========== ==========
PROVISION FOR BENEFITS, CLAIMS AND
CREDIT LOSSES
Provision for credit losses (gains) (491) 112 (292) 56
Provision for benefits and claims 17 -- 10 --
---------- ---------- ---------- ----------
(474) 112 (282) 56
========== ========== ========== ==========
OPERATING EXPENSES
Cost of revenues from hotel operations 502 533 284 241
Cost of revenues from document processing 472 443 233 188
Other operating expenses 2,650 1,736 1,332 1,037
---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES 3,624 2,712 1,849 1,466
========== ========== ========== ==========
INCOME FROM OPERATIONS BEFORE INCOME
TAXES AND MINORITY INTEREST 236 793 154 188
========== ========== ========== ==========
Provision (credit) for income taxes 43 51 25 (2)
Minority interest, net of income taxes 60 86 34 62
---------- ---------- ---------- ----------
NET INCOME 133 656 95 128
========== ========== ========== ==========
Net income per share (basic and diluted) 0.01 0.06 .008 0.01
---------- ---------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 12,039,000 12,039,000 12,039,000 12,039,000
</TABLE>
--------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
F-3
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TRIMOL GROUP, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (Unaudited)
Six Months Ended
----------------------------
June 30, 2000 June 30, 1999
----------------------------
(In Thousands of US Dollars)
COMMON STOCK
Balance, January 1 and June 30 120 120
====== ======
ADDITIONAL PAID-IN CAPITAL
Balance, January 1 and June 30 6,178 6,018
====== ======
DEFERRED COMPENSATION
Balance, January 1 (27) --
Deferred compensation 27 --
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Balance, June 30 -- --
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RETAINED EARNINGS
Balance, January 1 (1,074) 1,428
Net income 133 656
Other comprehensive (loss) (168) (2,178)
------ ------
Balance, June 30 (1,109) (94)
====== ======
TOTAL SHAREHOLDERS' EQUITY 5,189 6,044
====== ======
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance, January 1 (2,413) --
Foreign currency translations (168) (1,109)
------ ------
Balance, June 30 (2,581) (1,109)
--------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
F-4
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TRIMOL GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
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Six Months Ended
-----------------------------
June 30, 2000 June 30, 1999
-------------- -------------
(In Thousands of US Dollars)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income 134 656
------ ------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH USED
IN OPERATING ACTIVITIES
INCOME AND EXPENSES NOT INVOLVING
CASH FLOW
Depreciation and amortization 257 191
Provision for credit gains (491) (94)
Provision for benefits and claims (17) --
Minority interest 60 (458)
Stock based compensation 27 --
------ ------
(164) (361)
------ ------
CHANGES IN ASSETS AND LIABILITIES
Net (increase) in other assets (706) (365)
Net increase (decrease) in other liabilities 70 (538)
Net decrease in reinsurance recoverable 118 79
------ ------
(518) (824)
------ ------
TOTAL ADJUSTMENTS (682) (1,185)
------ ------
NET CASH USED IN OPERATING ACTIVITIES (548) (529)
====== ======
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from redemptions of securities held to 2,229 5,497
maturity
Purchase of securities held to maturity (2,814) (4,970)
Purchase of equipment (437) (61)
Net decrease in loans 66 1,248
------ ------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (956) 1,714
====== ======
CASH FLOW FROM FINANCING ACTIVITIES
Net increase in deposits 1,764 (588)
------ ------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,764 (588)
====== ======
Effect of exchange rate on cash (480) (277)
------ ------
Increase (decrease) in cash and cash equivalents (220) 320
Cash and cash equivalents at beginning of period 5,273 4,173
------ ------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD 5,053 4,493
====== ======
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Interest paid 207 316
Income taxes paid 33 82
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
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TRIMOL GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements of Trimol Group, Inc. (the
"Company") as of June 30, 2000 and for the six and three month periods ended
June 30, 2000 and 1999 included herein have been prepared on the same basis as
those in the Annual Report on Form 10-KSB for the year ended December 31, 1999.
In the opinion of management, all adjustments (consisting only of those which
are normal and recurring) necessary for a fair presentation have been included.
The results of operations for interim periods are not necessarily indicative of
the results to be expected for a full fiscal year.
Certain financial information that is normally included in annual financial
statements prepared in accordance with generally accepted accounting principles,
but is not required for interim reporting purposes, has been condensed or
omitted.
The accompanying unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999.
The consolidated statements of the Company include the accounts of the Company
and its operating subsidiaries and their holding companies.
Inter-company balances have been eliminated in consolidation.
NOTE 2 - OPERATIONS
The Company owns all of the shares of four holding corporations that own capital
stock of four companies with business operations in the Republic of Moldova
("Moldova"). The capital stock of such companies are comprised of 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"), 65% of the issued and outstanding shares of a hotel, the Jolly Alon
Limited (the "Hotel"), and all of the issued and outstanding shares of
Intercomsoft Limited ("Intercomsoft"), a document production company.
The Insurance Company began operations at the beginning of 1995 and is active in
the general insurance sector providing 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 receipt of monetary
deposits, granting credit, transacting in foreign currency, financing
international trade, 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 executives and international diplomats from all
over the world. The tourism sector with respect to Hotel guests is marginal and,
accordingly, seasonability is not a factor.
F-6
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TRIMOL GROUP, INC. (CONT.)
Intercomsoft was incorporated in February 1995 as a non-resident Irish
registered company. Intercomsoft supplies the technology and consumables
required to produce secure essential documents (passports, drivers' licenses,
car licenses and ID cards) to the government of the Republic of Moldova.
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 could also have a material adverse effect on the future
revenue and income of the Company and its subsidiaries.
(b) The Moldovan Ministry of Economics 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. 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 $3.8 Million U.S.
Dollars at the exchange rate in effect at June 30, 2000. The Bank met this
requirement and maintains its B-License issued by the NBM. 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; approximately $6
Million U.S. Dollars based upon the exchange rate in effect on June 30, 2000.
The Bank's shareholders' equity as of June 30, 2000 was 48.2 Million MDL;
approximately $3.85 Million U.S. Dollars. As a result, the Bank must increase
its shareholder equity by approximately 27.8 Million MDL; approximately $2.2
Million U.S. Dollars, using the exchange rate in effect on June 30, 2000, by
January 1, 2001 in order to maintain its current banking license in Moldova.
Should the Bank be unable to meet this capitalization requirement, it may lose
its B-License to operate as a bank in Moldova, which would have a material
adverse effect on the Company.
NOTE 4 - FOREIGN CURRENCY TRANSLATION
The Moldovan Leu (MDL) is the functional currency of the Company's subsidiaries,
all of which are
F-7
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TRIMOL GROUP, INC. (CONT.)
either located in, or derive their revenue from, the Republic of Moldova.
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.
During the six months ended June 30, 2000 and 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 "Accumulated Other Comprehensive Loss", as a
component of Shareholders' Equity.
NOTE 5 - SHAREHOLDERS' EQUITY
(a) 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 and an aggregate of $650,000 in the second 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 June 30, 2000, no Incentive Warrants were outstanding.
(b) In May 1999 the Company issued warrants to purchase 1,400,000 shares
of its Common Stock 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 with substantially 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 former members of the Company's Board of Directors.
As of June 30, 2000, warrants to purchase 1,460,000 shares of Common Stock
were issued and outstanding.
NOTE 6 - 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.
Pursuant to a resolution of the Company's Board of Directors on March 31, 2000,
the Company repaid its debt to a company owned by the Company's majority
stockholder of the principal balance of $1,162,000 plus interest from January 6,
1998 to the date of payment (April 5, 2000) in the amount of $187,000. Prior to
this resolution, the liability had been deemed non-interest bearing.
On June 27, 2000, the Company borrowed $797,000 (the "Loan") from a company
controlled by the Company's majority stockholder ("Stockholder") and invested
the Loan proceeds in the Bank to meet the capital requirements referred to in
Note 3(d). The Loan bears interest at 2% per annum above the prime rate and
matures on December 31, 2000. If the Loan is not repaid by its due date, the
F-8
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TRIMOL GROUP, INC. (CONT.)
Stockholder can elect to convert the Loan into a 22% equity interest in two of
the Company's subsidiaries that own all the issued and outstanding shares of the
Bank. On June 28, 2000, the Company repaid $74,000 of the Loan leaving a balance
of $723,000 at June 30, 2000. This amount is included in other liabilities on
the accompanying June 30, 2000 balance sheet.
NOTE 7 - MINORITY INTEREST
The minority interest comprises a 35% interest by the Government of the Republic
of Moldova in the Hotel.
F-9
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's consolidated 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 Jolly Alon Limited, a Moldovan
corporation ("Hotel"), that operates and manages the Jolly Alon Hotel in
Chisinau, Moldova 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 Banca Commerciala pe Actiuni "Export-Import," a Moldovan corporation
("Bank"), which owns a commercial bank in Moldova; 100% of the issued and
outstanding shares of capital stock of Exim Asint, S.A., a Moldovan corporation
("Insurance Company") which owns a property and casualty insurance business in
Moldova; and 100% of the issued and outstanding shares of capital stock of
Intercomsoft, Ltd., an Irish corporation ("Intercomsoft"), which is the
exclusive supplier to the Government of the Republic of Moldova of the
technology and equipment required to manufacture secure 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.
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.
The functional currency in the Republic of Moldova is the Moldovan
Leu. References herein to $ or U. S. $ are to the United States Dollar.
References herein to MDL are to the Moldovan Leu.
1
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COMPARISON OF 2nd QUARTER 2000 TO 2nd QUARTER 1999
The Company (As Consolidated)
The Company's total revenues for 2nd Quarter 2000 were $1,844,000, a
decline of $24,000 from 2nd Quarter 1999 total revenues or approximately 1.3%.
Operating expense were approximately $1,849,000 and $1,466,000, in 2nd
Quarter 2000 and 2nd Quarter 1999, respectively. Measured as a percentage of
revenues, total operating expenses were approximately 100% and 78% for 2nd
Quarter 2000 and 2nd Quarter 1999.
In 2nd Quarter 2000, the Company had net income of approximately $95,000,
or 5% of revenues. In 2nd Quarter 2000, net income declined by $33,000 from the
net income of $128,000 in 2nd Quarter 1999, or 26%.
The significant increase in the Company's operating expenses had a
material adverse impact on the Company's consolidated net income.
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 Company's subsidiaries and, therefore, on the Company. Such
slowdown may continue to have an adverse impact. In addition, the Moldovan Leu,
the currency of the Republic of Moldova, has undergone significant and adverse
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 an adverse impact.
The Bank
The Bank generates its revenue from charging fees for its services,
interest charged on loans, interest earned from funds deposited from
correspondent banks and investing in securities issued by the Moldovan
Government.
During 2nd Quarter 2000, the Bank earned interest income of approximately
$224,000, which was a decline from the results of 2nd Quarter 1999 interest
income of $303,000 by approximately $79,000 or 26%. The largest component of the
Bank's total interest income was interest earned on loans, which was
approximately $141,000 and $230,000, or approximately 62% and 76% of the Bank's
total interest income earned during the 2nd Quarter 2000 and 1999 respectively.
The decrease both in dollars and as a percentage of interest income of interest
earned on loans was the result of decline of the Moldovan economy.
The remaining components of the Bank's interest income were interest
earned on securities and interest earned on deposits with correspondent banks.
During 2nd Quarter 2000 interest earned on securities was approximately $11,000
or 5% of the Bank's total interest income and interest earned on deposits with
correspondent banks was approximately $72,000 or 32% of the total interest
income. During 2nd Quarter 1999 interest earned on securities was approximately
$45,000 or 15% of the Bank's total interest income and interest earned on
deposits with correspondent banks was approximately
2
<PAGE>
$28,000 or 9% of the total interest income. This was the result of the Bank's
focus on commercial loans which have a greater return than securities, due to a
decline in interest earned on securities. The decision to focus more on
commercial loans was also based on the fact that interest on the securities
issued by Moldovan Government has been significantly reduced and therefore it
has lost its appeal as an investment vehicle by the Bank. The increase in the
interest income on the deposits with the correspondent banks was a result of an
increase of the daily closing balances on Nostro accounts (accounts at
correspondent banks over which the Bank has control) since January 1, 2000.
In addition to the interest income, the Bank also earned non-interest
income of approximately $255,000 in 2nd Quarter 2000 as compared to
approximately $255,000 in 2nd Quarter 1999. The principal component of
non-interest income was financial service fees of approximately $193,000 and
$212,000 for 2nd Quarter 2000 and 1999 respectively, decreasing in 2nd Quarter
2000 by approximately $19,000 or 9%. Financial service fees include commissions
charged for transactions on cash transfers and cash exchange in foreign
currency, as well as commissions on Western Union transactions performed for
individuals. Another principal component of non-interest income is foreign
exchange trading profit and commissions of approximately $73,000 and $175,000,
in 2nd Quarter 2000 and 1999 respectively, which was a decrease in 2nd Quarter
2000 by approximately $57,000 or 32%. The decrease is a result of a slight
fluctuation in the exchange rate in comparison to the previous period.
Offsetting the Bank's total interest income during 2nd Quarter 2000 was
interest expense of approximately $107,000, or 48% of interest income, comprised
principally of interest paid on deposits. During 2nd Quarter 1999 total interest
expense was approximately $158,000, or 52% of total interest income.
During 2nd Quarter 2000, the Bank had a gain resulting from a reduction in
its allowance for possible loan losses of $292,000. In comparison, in 2nd
Quarter 1999, the Bank recognized a loss from allowance of possible loans losses
of $56,000.
Offsetting the Bank's total non-interest income earned during 2nd Quarter
2000 and 1999 were total non-interest expenses of approximately $491,000 and
$318,000 respectively, including salaries and related costs of approximately
$125,000 and $97,000, outside services and processing expenses of approximately
$117,000 and $64,000 and marketing and development costs of approximately
$73,000 and $17,000, respectively. Salaries and related costs incurred during
the 2nd Quarter 2000 increased in comparison to 2nd Quarter 1999 as a result of
increased Bank's staffing levels. The increase in outside services and
processing expenses resulted from an increased need for use of alternative
information agencies and additional work with consulting and audit companies.
The increase in marketing and development costs resulted from increased
competition in the financial services market.
The Bank's net income was $173,000 for 2nd Quarter 2000, an increase of
$122,000 over the net income for 2nd Quarter 1999.
The Hotel
The Hotel derives its revenues principally from rental of guest
accommodations, restaurant operations and leasing of stores and offices.
During 2nd quarter 2000 the Hotel's revenues of $633,000 were principally
derived from (a) rental of guest accommodations ($440,000 or 70% of the Hotel's
revenue); (b) restaurant operations
3
<PAGE>
($87,000 or 14% of the Hotel's revenue); and (c) leasing of stores and offices
($80,000 or 13% of the Hotel's revenue). Revenue for 2nd Quarter 2000 increased
from 2nd Quarter 1999 from approximately $597,000, an increase of $36,000 or 6%.
Total cost of revenue for the Hotel was approximately $284,000 and
$241,000 or approximately 45% and 40% of Hotel's revenue, for the 2nd quarter
2000 and 1999, respectively. The increase in percentage ratio results from
additional expenses for room renovation which began in January 2000.
The gross profit (revenue minus cost of revenue) for 2nd Quarter 2000 and
1999 was $349,000 (55% of revenue) and $356,000 (60% of revenue), respectively,
decreasing in 2nd Quarter 2000 by $7,000. The foregoing dollar amounts are
stated before giving effect to the minority (35%) interest of he government of
the Republic of Moldova.
The net income of the Hotel for 6 months 2000 was $97,000 a decrease of
$81,000 from 6 months 1999 of $178,000.
Intercomsoft
Intercomsoft derives its revenue from being the exclusive supplier of the
technology, equipment and consumables required to produce secure essential
documents (e.g., passports, driving licenses, etc.), to the Government of the
Republic of Moldova.
During 2nd quarter 2000 and 1999 Intercomsoft had revenues from operations
of approximately $697,000 and $648,000, respectively. Management attributes this
approximate 8% increase in revenues to a higher number of documents processed
during the 2nd quarter 2000.
Intercomsoft's increase in operating expenses from 27% of total revenue,
or $173,000 in 2nd Quarter 1999 to 50%, or $351,406, in 2nd Quarter 2000 is due
to additional marketing and promotion costs resulting from a contract entered
into in 1st quarter 2000. Accordingly, the income from operating activities
declined from $474,000, or 73% in 2nd Quarter 1999 to $346,584, or 50% in 2nd
Quarter 2000.
Intercomsoft's net income for 2nd Quarter 2000 was $342,000, a decrease of
$132,000 from 2nd Quarter 1999 of $474,000.
The Insurance Company
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 $50,000 and $45,000 in
gross premiums during 2nd Quarter 2000 and 1999 respectively, earned premiums
ceded to reinsures approximated $23,000 and $28,000 respectively resulting in
approximately $27,000 and $17,000 in net premiums earned of the Insurance
Company's total revenues of approximately $43,000 and $22,000 for 2nd Quarter
2000 and 1999 respectively. During 2nd Quarter 2000 and 2nd Quarter 1999, the
Insurance Company also received net interest income of approximately $2,000 and
$5,000 respectively.
4
<PAGE>
Reinsurance commissions earned during 2nd Quarter 2000 and 2nd Quarter
1999 were $14,000 and $6,000, respectively. The Insurance Company's total
expenses of approximately $35,000 incurred during 2nd quarter 2000 resulted in a
net income before taxes of approximately $8,000 compared to a net loss of
approximately $9,000 in 2nd Quarter 1999 after total expenses of $31,000.
Business segment information for three months ended June 30, 2000
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Bank Hotel Insur- Docu- Holding Elimina- Consolidated
Opera- Opera- ance ment Activities tions
tions tions opera- proces-
tions sing
----------------------------------------------------------------------------------------------------------------------------------
(In thousands of USD)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue 479 633 43 697 (8) -- 1,844
Interest expense (107) -- -- -- (16) -- (123)
Total revenue net of
interest expense 372 633 43 697 (24) -- 1,721
Provision for benefits,
claims and credit gains 292 -- (10) -- -- -- 282
Operating expenses (491) (512) (25) (355) (466) -- (1,849)
Income (loss) from
operations before income
taxes and minority interest 173 121 8 342 (490) -- 154
Provision for income taxes -- (24) (1) -- -- -- (25)
Minority interest, net of taxes -- (34) -- -- -- -- (34)
Net income (loss) 173 63 7 342 (490) -- 95
Fixed assets 1,686 3,875 27 -- -- -- 5,588
Total assets 11,650 4,387 598 358 145 -- 17,138
==================================================================================================================================
</TABLE>
5
<PAGE>
Business segment information for three months ended June 30, 1999
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Bank Hotel Insur- Docu- Holding Elimina- Consolidated
Opera- Opera- ance ment Activities tions
tions tions opera- proces-
tions sing
-------------------------------------------------------------------------------------------------------------------------------
(In thousands of USD)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue 602 597 22 647 -- -- 1,868
Interest expense (158) -- -- -- -- -- (158)
Total revenue net of
interest expense 400 597 22 647 -- -- 1,666
Provision for benefits,
claims and credit losses (56) -- -- -- -- -- (56)
Operating expenses (318) (396) (31) (173) (548) -- (1,466)
Income (loss) from
operations before income
taxes and minority interest
26 201 (9) 474 (548) -- 144
Provision for income taxes
25 (23) -- -- -- -- 2
Minority interest, net of
taxes -- -- -- -- -- (62) (62)
Net income (loss) 51 178 (9) 474 (548) (62) 84
Fixed assets 710 4,323 71 -- 211 (43) 5,104
Total assets 9,147 4,769 376 1,566 211 (43) 16,016
==================================================================================================================================
</TABLE>
6
<PAGE>
COMPARISON OF 6 MONTHS 2000 TO 6 MONTHS 1999
The Company (As Consolidated)
The Company's total revenues declined by approximately $315,000 or 9% from
$4,008,000 to $3,633,000 in 6 months 2000 and compared to 6 months 1999. Total
operating expenses increased by $912,000 to approximately $3,624,000 for 6
months 2000 from $2,712,000 for 6 months 1999. Measured as a percentage of total
revenues, total operating expenses were approximately 99% and 68% for 6 months
2000 and 6 months 1999, respectively. The Company was unable to reduce total
operating expenses in proportion to reduced total revenues.
For 6 months 2000, the Company had net income of approximately $133,000,
or approximately 36% of total revenues. For 6 months 2000, net income declined
from 6 months 1999 by approximately $523,000, or approximately 14% of total
revenues in 6 months 2000.
The Bank
During 6 months 2000, the Bank earned interest income of approximately
$474,000, which is a decline from the results of 6 months 1999 of $695,000 by
approximately $221,000, or 31%. The largest component of the Bank's total
interest income was interest earned on loans which was approximately $324,000
and $501,000, or approximately 68% and 72% of the Bank's total interest income
earned during 6 months 2000 and 6 months 1999 respectively. The decrease was the
result of the economic crisis in Moldova.
The remaining components of the Bank's interest income were interest
earned on securities and interest earned on deposits with correspondent banks.
During 6 months 2000 interest earned on securities was approximately $30,000 or
6% of the Bank's total interest income and interest earned on deposits with
correspondent banks of approximately $120,000 or 25% of the total interest
income. During 6 months 1999 interest earned on securities was approximately
$132,000 or 19% of the Bank's total interest income and interest earned on
deposits with correspondent banks of approximately $62,000 or 9% of the total
interest income. The reason for the foregoing decline in interest earned on
securities was the Bank's greater focus on commercial loans, which have greater
return than securities, thus management allocated less funds to securities
investments. In addition, interest on the securities issued by Moldovan
Government was reduced significantly and at present holds no appeal for the Bank
as an investment vehicle. The increase in the interest income on the deposits
with the correspondent banks was the increase of the daily closing balances on
Nostro accounts (accounts at corresponding bank's over which the Bank has
control) during 6 months 2000.
In addition to interest income, the Bank also earned non-interest income,
which for 6 months 2000 was approximately $497,000, a decrease of approximately
$68,000, or 12%, in comparison to the income earned during 6 months 1999 of
approximately $565,000. The principal component of non-interest income was
financial service fees of approximately $384,000 and approximately $360,000 for
6 months 2000 and 1999 respectively, increasing in 2000 by approximately
$24,000, or 7%. Financial service fees include commissions charged for
transactions on cash transfers and cash exchange of foreign currency, as well as
commissions on Western Union transactions performed for individuals. Another
component of non-interest income was foreign exchange trading profit and
commissions of
7
<PAGE>
approximately $144,000 and approximately $324,000 earned during 6 months 2000
and 1999 respectively, a decrease in 2000 of approximately $180,000, or 55%.
Offsetting the Bank's total interest income during 6 months 2000 was
interest expense of approximately $210,000, or 41% of interest income, comprised
principally of interest paid on deposits. During 6 months 1999 total interest
expense amounted to approximately $391,000 or 56% of total interest income.
In 6 months 2000, the Bank had a gain resulting from a reduction in its
allowances for possible loan losses of $491,000 compared to the recognition by
the Bank of a loss from allowance for possible loan losses of $112,000 in 6
month 1999.
Offsetting the Bank's total non-interest income earned during 6 months
2000 and 1999 were total non-interest expenses of approximately $944,000 and
$576,000 respectively, including salaries and related costs of approximately
$227,000 and $205,000, outside services and processing expenses of approximately
$250,000 and $110,000 and marketing and development costs of approximately
$107,000 and $32,000 respectively. Salaries and related costs incurred during 6
months 2000 increased in comparison to months 1999 resulting from an increase in
the Bank's staffing levels. The increase in outside services and processing
expenses resulted from the use of alternatives information agencies and
additional consulting and audit expenses. The increase in marketing and
development costs was due to increased competition in the financial services
market.
The Bank's net income for 6 months 2000 was $309,000, an increase of
$128,000 over the net income for 6 months 1999 of $181,000.
The Hotel
During 6 months 2000, the Hotel's revenue of $1,167,000 was principally
derived from (a) rental of guest accommodations ($779,000 or 67% of the Hotel's
revenue); (b) restaurant operations ($164,000 or 14% of the Hotel's revenue);
and (c) leasing of stores and offices ($161,000 or 14% of the Hotel's revenue).
Revenue earned during 6 months 2000 compared to the results of 6 months 1999 of
$1,067,000 increased by $100,000 or 9%.
Total cost of revenue was $502,000 and $533,000 or approximately 50% and
43% of Hotel's revenue, for 6 months 2000 and 1999, respectively. This decline
in the Hotel's costs of revenues resulted from new management's budget cutting
measures resulting in more efficient Hotel operations and more efficient
management of labor and related expenses. Operating equipment purchases and
maintenance costs all declined and the reduced demand and cost cutting measures
reduced the selling, general and administrative expenses.
The gross profit (revenue minus cost of revenue) for 6 months 2000 and
1999 was $665,000, or 57% of revenue, and $534,000, or 50% of revenue,
respectively, increasing in 2000 by $131,000. The foregoing dollar amounts are
stated before giving effect to the minority (35%) interest of the government of
the Republic of Moldova.
The net income of the Hotel for 6 months 2000 was $170,000 a decrease of
$77,000 from 6 months 1999 of $247,000.
8
<PAGE>
Intercomsoft
During 6 months 2000 and 6 months 1999 Intercomsoft had revenues from
operations of approximately $1,380,000 and $1,565,000 respectively.
An increase in operating expenses from 29% of total revenue from $453,000
for 6 months 1999 to 52% of total revenue, or $725,000, for 6 months 2000 is due
to additional marketing and promotion costs resulting from a contract entered
into in 1st Quarter 2000. Accordingly, the income from operations declined from
$1,112,000, or 71% for 6 months 1999 to $675,000, or 48% for 6 months 2000.
Intercomsoft's net income was $675,000 for 6 months 2000, a decrease of
$437,000 from 6 months 1999 of $1,112,000.
The Insurance Company
Although the Insurance Company earned approximately $97,000 and $76,000 in
gross premiums during 6 months 2000 and 6 months 1999, respectively, earned
premiums ceded to reinsures approximated $49,000 and $36,000 in those years
resulting in approximately $48,000 and $40,000 in net premiums earned of the
Insurance Company's total revenues of approximately $94,000 and $73,000 6 months
2000 and 6 months 1999 respectively. During 6 months 2000 and 6 months 1999, the
Insurance Company also received net interest income of approximately $6,000 and
$24,000. During 6 months 2000 the Insurance Company also had approximately
$25,000 of other income. Reinsurance commissions earned during 6 months 2000 and
1999 were approximately $14,000 and $9,000, respectively. The Insurance
Company's total expenses of approximately $60,000 for 6 months 2000 resulted in
a net income before taxes of approximately $34,000 compared to a net loss of
approximately $5,000 in 6 months 1999 after total expenses of $78,000.
9
<PAGE>
Business segment information for six months ended June 30, 2000
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Bank Hotel Insur- Docu- Holding Elimina- Consolidated
Opera- Opera- ance ment Activities tions
tions tions opera- proces-
tions sing
-------------------------------------------------------------------------------------------------------------------------------
(In thousands of USD)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue 971 1,167 94 1,401 -- -- 3,633
Interest expense (210) -- -- -- (37) -- (247)
Total revenue net of
interest expense 761 1,167 94 1,401 (37) -- 3,386
Provision for
benefits, claims and 491 -- (17) -- -- -- 474
credit gains
Operating expenses (943) (957) (43) (726) (955) -- (3,624)
Income (loss) from
operations before
income taxes and
minority interest 309 210 34 675 (992) -- 236
Provision for income
taxes -- (40) (3) -- -- -- (43)
Minority interest, net
of taxes -- (60) -- -- -- -- (60)
Net income (loss) 309 110 31 675 (992) -- 133
Fixed assets 1,686 3,875 27 -- -- -- 5,588
Total assets 11,650 4,387 598 358 145 -- 17,138
==================================================================================================================================
</TABLE>
10
<PAGE>
Business segment information for six months ended June 30, 1999
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Bank Hotel Insur- Docu- Holding Elimina- Consolidated
Opera- Opera- ance ment Activities tions
tions tions opera- proces-
tions sing
-------------------------------------------------------------------------------------------------------------------------------
(In thousands of USD)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue 1,303 1,067 73 1,565 -- -- 4,008
Interest expense (391) -- -- -- -- -- (391)
Total revenue net of
interest expense 869 1,067 73 1,565 -- -- 3,574
Provision for
benefits, claims and (112) -- -- -- -- -- (112)
credit losses
Operating expenses (576) (772) (78) (453) (833) -- (2,712)
Income (loss) from
operations before
income taxes and
minority interest 181 295 (5) 1,112 (833) -- 750
Provision for income
taxes (3) (48) -- -- -- -- (51)
Minority interest, net
of taxes -- -- -- -- -- (86) (86)
Net income (loss) 178 247 (5) 1,112 (833) (86) 613
Fixed assets 710 4,323 71 -- -- -- 5,104
Total assets 9,147 4,769 376 1,566 211 (43) 16,016
==================================================================================================================================
</TABLE>
11
<PAGE>
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
additional capitalization of no less than $2,200,000 by January 1, 2001 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.
Recent Developments
The Company learned in November 1999 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. A loss, or a
substantial change in the terms of such contract could, however, have a material
adverse affect on Intercomsoft and the Company.
On May 1, 2000, Alexander M. Gordin and Gary Shokin were appointed to
serve as members of the Company's Board of Directors to fill the vacancies in
the Board resulting from the resignations of Abdallah S. Mishrick and Jay J.
Miller on February 7, 200 and February 11, 2000, respectively.
Further, on May 1, 2000, Alexander A. Gordin was appointed as the
Company's President and Gary Shokin was appointed as the Company's Vice
President. Ted Shapiro simultaneously resigned as President of the Company, but
remains as its Chief Executive Officer and a member of its Board of Directors.
Related Party Transactions
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. Pursuant a resolution of the Company's Board of
Director's, the Company repaid its debt to Magnum in the principal balance of
$1,162,000, plus interest from January 6, 1998 in the amount of $187,000 on
April 5, 2000 in response to such demand. The Company utilized substantially
all of its available cash to make such payment.
On June 27, 2000, the Company borrowed $797,000 from Magnum (the "Loan")
and invested the proceeds from the Loan in the Bank in order to meet the Bank's
capital requirements as of July 1, 2000. The Loan bears interest at a rate
12
<PAGE>
of 2% per annum above prime rate and matures on December 31, 2000. If the
Loan is not repaid by its due date, Magnum can elect to convert the Loan into
a 22% equity interest in the two Company subsidiaries which own all of the
issued and outstanding shares of the Bank. On June 28, 2000, the Company
repaid $74,000 on the principal of the Loan leaving a balance of $723,000 at
June 30, 2000.
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.
The foregoing discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and notes thereto appearing
elsewhere in this report.
13
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits 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)
2A Registrant's Certificate of Incorporation(2)
3 By-Laws(2)
4 Specimen of Certificate of Common Stock(2)
21 List of Subsidiaries(3)
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
No Current Report on Form 8-K was filed during the Quarter ended June 30,
2000.
----------
(1) Incorporated by reference to the Company's Report on Form 8-K, filed on
January 6, 1998, as amended by the Company's Form 8-KA on March 6, 1998.
(2) Incorporated by reference to the Company's Registration Statement on Form
10-SB.
(3) Incorporated by reference to the Company's Report on Form 10-KSB
for its fiscal year ended December 31, 1999.
14
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TRIMOL GROUP, INC.
Dated: August 14, 2000 By: /s/ Ted Shapiro
-----------------------------------------
Ted Shapiro, Chief Executive Officer
Dated: August 14, 2000 By: /s/ Shmuel Gurfinkel
-----------------------------------------
Shmuel Gurfinkel, Chief Financial Officer
15
