|
ITEM 6.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
|
The following management’s
discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements
and notes thereto contained elsewhere in this report.
Results of Operations
General
Although it is seeking
business opportunities, the Company did not engage in any business operations that generated revenue in year 2013 or 2012.
Comparison of Year Ended December
31, 2013 to Year Ended December 31, 2012
During the years ended
December 31, 2013 and December 31, 2012 we generated no revenue.
Total expenses for
the year ended December 31, 2013 were $217,000 and were $638,000, for the year ended December 31, 2012, all of which were general
corporate and administrative expenses. Such amounts include accrued compensation due to our officers in the amount of approximately
$60,000 in year 2013 and $418,000 in year 2012.
The significant reduction
in general corporate administrative expenses in year 2013, as compared to 2012, were the result of the reduction of compensation
to our officers from approximately $418,000 in year 2012 to $60,000 in year 2013, as well as the elimination in 2013 of all expenses
related to consulting services provided to us by Royal HTM Group, Inc., our majority shareholder, which totaled approximately $50,000
in 2012.
As a result of the
foregoing, we had a net loss from operations in 2013 of $217,000 and in 2012 we had a net loss of approximately $638,000
Liquidity & Capital Resources
We have no operations
that generate revenue, and have had no operations that generate revenues since 2006. At December 31, 2013 our cash balance was
approximately $12,000 which is not sufficient to fund our operating expenses for the foreseeable future.
Since 2006, we have
funded our operating expenses from loans and advances provided by our Chairman of the Board and Royal HTM Group, Inc., our majority
shareholder, a company owned and controlled by the two members of our Board of Directors. We are dependent upon these loans to
fund our future operating expenses. None of our officers, directors or shareholders are under any obligation to provide us with
any future loans or advances. However, if they do not loan us funds at a time when funds are necessary, we may be forced to suspend
our operations.
Our assets are nominal
and our liabilities currently exceed our assets by approximately $7,299,000. These circumstances, among others, raise substantial
doubt about our ability to continue operations.
We will need to pursue
future business opportunities in order to sustain continued operations.
Forward Looking Statements
Certain
statements contained in this Annual Report, including, without limitation, statements containing the words “believes,”
“anticipates,” “estimates,” “expects,” “projections,” and words of similar import,
constitute “forward-looking statements.” You should not place undue reliance on these forward-looking statements. Our
actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including risks
faced by us which are described in this Report and the other documents we file with the Securities and Exchange Commission (“SEC”).
Available Information
We are subject to the
informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, in accordance
therewith, file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy and information
statements and other information with the SEC.
All reports filed by
us with the SEC are available free of charge via the SEC web site at
www.sec.gov
. In addition, the public may read and copy
materials we file with the SEC at the public reference facilities maintained by the SEC at its public reference room located at
100 F Street, N.E. Washington, D.C. 20549. We will also provide copies of such material to investors upon written request.
No person has been
authorized to give any information or to make any representation other than as contained or incorporated by reference in this Annual
Report and, if given or made, such information or representation must not be relied upon as having been authorized by us.
|
ITEM 7
|
FINANCIAL STATEMENTS
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Trimol Group, Inc.
We have audited the accompanying consolidated
balance sheets of Trimol Group, Inc. and its subsidiary (the “Company") as of December 31, 2013 and 2012 and the related
consolidated statements of operations, changes in shareholders' deficiency and cash flows for the years 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
the standards of the Public Company Accounting Oversight Board (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. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting, accordingly we express no such opinion. 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.
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the
Company has not generated any revenue since April 2006 and, as shown on the accompanying balance sheet, the Company’s liabilities
exceeded its assets by $7,229,000 at December 31, 2013. These circumstances, among others, raise substantial doubt about its ability
to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
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,
2013 and 2012 and the results of its operations and cash flows for each of the two years in the period ended December 31, 2013
in conformity with accounting principles generally accepted in the United States of America.
Hackensack, New Jersey
Date:
April 10, 2014
TRIMOL GROUP, INC.
|
|
CONSOLIDATED BALANCE SHEETS
|
|
|
DECEMBER 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
12,000
|
|
|
$
|
15,000
|
|
Total current assets
|
|
|
12,000
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
12,000
|
|
|
$
|
15,000
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Related parties
|
|
$
|
6,405,000
|
|
|
$
|
6,194,000
|
|
Accrued expenses
|
|
|
836,000
|
|
|
|
833,000
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
7,241,000
|
|
|
|
7,027,000
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS DEFICIENCY
|
|
|
|
|
|
|
|
|
Preferred Stock; $1.00 par value, 10,000 shares authorized, no shares issued and outstanding
|
|
|
|
|
|
|
|
|
Common Stock; $0.01 par value, 130,000,000 shares authorized 100,472,328 issued and outstanding at December 31, 2013 and December 31, 2012, respectively
|
|
|
1,005,000
|
|
|
|
1,005,000
|
|
Additional Paid In Capital
|
|
|
5,739,000
|
|
|
|
5,739,000
|
|
Accumulated Deficit
|
|
|
(13,973,000
|
)
|
|
|
(13,756,000
|
)
|
TOTAL SHAREHOLDERS’ DEFICIENCY
|
|
|
(7,229,000
|
)
|
|
|
(7,012,000
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
|
|
$
|
12,000
|
|
|
$
|
15,000
|
|
The accompanying notes are an integral part
of the financial statements.
TRIMOL GROUP, INC.
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
YEAR ENDED DECEMBER 31,
|
|
|
|
2013
|
|
|
2012
|
|
REVENUES
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
217,000
|
|
|
|
638,000
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(217,000
|
)
|
|
$
|
(638,000
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share (Basic and Diluted)
|
|
$
|
(.00
|
)
|
|
$
|
(.01
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING-BASIC AND DILUTED
|
|
|
100,472,328
|
|
|
|
100,472,328
|
|
The accompanying notes are an integral part
of the financial statements
TRIMOL GROUP, INC.
|
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ DEFICIENCY
|
|
|
COMMON STOCK SHARES
OUTSTANDING AMOUNT
|
|
|
ADDITIONAL
PAID-IN CAPITAL
|
|
|
DEFICIT
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE- JANUARY 1, 2012
|
|
|
100,472,328
|
|
|
$
|
1,005,000
|
|
|
$
|
5,739,000
|
|
|
$
|
(13,118,000
|
)
|
|
$
|
(6,374,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(638,000
|
)
|
|
|
(638,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE - DECEMBER 31, 2012
|
|
|
100,472,328
|
|
|
|
1,005,000
|
|
|
|
5,739,000
|
|
|
|
(13,756,000
|
)
|
|
|
(7,012,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(217,000
|
)
|
|
|
(217,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE - DECEMBER 31, 2013
|
|
|
100,472,328
|
|
|
$
|
1,005,000
|
|
|
$
|
5,739,000
|
|
|
$
|
(13,973,000
|
)
|
|
$
|
(7,229,000
|
)
|
The accompanying notes are an integral part of the financial
statements
TRIMOL GROUP, INC.
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
YEAR ENDED DECEMBER 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(217,000
|
)
|
|
$
|
(638,000
|
)
|
ADJUSTMENTS TO RECONCILE NET LOSS TO
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Accrued expenses to related parties
|
|
|
60,000
|
|
|
|
467,000
|
|
CHANGES IN OPERATING ASSETS AND LIABILITIES
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
|
3,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(154,000
|
)
|
|
|
(171,000
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from related parties
|
|
|
151,000
|
|
|
|
174,000
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
151,000
|
|
|
|
174,000
|
|
|
|
|
|
|
|
|
|
|
(DECREASE) INCREASE IN CASH
|
|
|
(3,000
|
)
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
CASH - BEGINNING OF YEAR
|
|
|
15,000
|
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
CASH - END OF YEAR
|
|
$
|
12,000
|
|
|
$
|
15,000
|
|
The accompanying notes are an integral part of the financial
statements.
TRIMOL GROUP, INC.
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 1 – DESCRIPTION OF BUSINESS
Trimol Group, Inc. (the “Company”)
was incorporated in 1953 in Delaware. Although the Company is seeking business opportunities, as of December 31, 2013, and for
the past seven years, it did not have any operations other than administrative operations and did not have any business operations
that generated revenue.
The Company owns all of the outstanding
shares of Intercomsoft Limited (“Intercomsoft”), a company which, until April 2006, was engaged in the operation of
a computerized photo identification and database management system utilized in the production of secure essential government identification
documents such as passports, drivers’ licenses, national identification documents and other forms of essential personal government
identification. As more detailed in Note 4, the Company is pursuing legal actions related to the prior operations of Intercomsoft.
NOTE 2 - GOING CONCERN
The accompanying consolidated financial
statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which
contemplate our continuation as a going concern. However, the Company does not have any current operations that generate revenue
and did not generate any revenue in year 2013 or in 2012, nor has it generated any revenue since April 2006. Further, as shown
on the accompanying balance sheet, the Company has a shareholder’s deficiency of $7,229,000. These circumstances, among others,
raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial
statements of the Company include the accounts of the Company and its wholly-owned subsidiary, Intercomsoft. Intercompany transactions
and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements
in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
Historically, revenue from Intercomsoft
was recognized upon the quantity of product (number of computerized documents) produced during the period reported. However, Intercomsoft
did not generate any revenue in year 2013 or in year 2012, nor has it generated revenue since April 2006.
Income Taxes
The Company uses the asset and liability
method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax
expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences
of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is
provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it
is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740.10.30 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold
and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken
in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods
presented.
Income (Loss) Per Share
Income (loss) per share of common stock
has been computed on the basis of the weighted average number of shares of common stock outstanding. Diluted earnings per share
are based on the weighted average number of shares and common stock equivalents outstanding. The Company had no common stock equivalents
outstanding during the periods presented.
Fair Value Measurements
The Company adopted the provisions of ASC
Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting
pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial
instruments, including cash and cash equivalents, payables to related parties, and accounts payable and accrued expenses are carried
at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
ASC 820 defines fair value as the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes
a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical
assets or liabilities
Level 2 — quoted prices for similar assets and liabilities
in active markets or inputs that are observable
Level 3 — inputs that are unobservable (for example cash
flow modeling inputs based on assumptions)
New Accounting Pronouncements
From time to time, new accounting pronouncements
are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s
accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance
for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact
will not be material to its financial position, results of operations, and cash flows when implemented.
NOTE 4 - LEGAL PROCEEDINGS
In the normal course of business, the Company
may become subject to lawsuits and other claims and proceedings. Such matters are subject to uncertainty and outcomes are not predictable
with assurance. Management is not aware of any pending or threatened lawsuits or proceedings which would have a material effect
on the Company’s financial position, liquidity, or results of operations other than as follows:
The Swiss Proceeding
In March 2009, Intercomsoft commenced an
action in the court of first instance in Geneva Switzerland for the appointment of an arbitration tribunal in connection with its
claims against the Ministry of Economics of the Republic of Moldova and the Government of the Republic of Moldova (the “Moldovan
Defendants”) seeking damages for breach of contract and an injunction to prohibit Moldova from further producing essential
government documents for the Republic of Moldova including passports, driver’s licenses, permits and national identification
documents which Intercomsoft had produced from 1996 – 2006, pursuant to the terms of the ten year Supply Agreement (the “Swiss
Proceeding”). The Swiss court granted Intercomsoft’s request to establish an ad hoc arbitration panel to hear the merits
of its claims in such proceeding. Such action is pending and there can be no assurances as to its outcome.
The Moldovan Proceeding
In November 2010, the Moldovan Defendants commenced an action
before the courts of Moldova claiming that the Supply Agreement was properly terminated on April 29, 2006 and seeking reimbursement
of legal costs (the “Moldovan Proceeding”). Intercomsoft asserted a counterclaim seeking redress for various claims
and damages, including interest and penalties which continue to accrue pursuant to the terms of the Supply Agreement. In July 2011,
the District Court in Chisinau, Moldova issued a Judgment rejecting the Moldovan Defendants’ claim for reimbursement of legal
costs as unfounded, and awarded approximately $35.6 million in damages to Intercomsoft. The Moldovan Defendants appealed the decision
of the Moldovan District Court to the Economic Appeal Court in Chisinau, Moldova and in December 2011 the Appeal Court partially
upheld the Judgment of the District Court, similarly rejecting the Moldovan Defendants’ claim, and reduced the damage award
to Intercomsoft to approximately $20.75 million. The Moldovan Defendants further appealed the decision of the Appeal Court to the
Supreme Court of Justice in Moldova. In September 2012, the Supreme Court of Justice partially upheld the judgment of the Economic
Appeal Court rejecting the Moldovan Defendants’ claim and further reduced the damage award to Intercomsoft to approximately
$4 million. The Moldovan Defendants further appealed such judgment and the reduced damage award and as a consequence of such appeal,
the Supreme Court of Moldova annulled the $4 million damage award and remanded the case back to the Chamber of Appeal Chisinau
for reexamination. A hearing before that court was scheduled for March 13, 2014, but has been adjourned. There can be no
assurance as to the outcome of such legal action.
NOTE 5 - SHAREHOLDERS’ EQUITY
The Company has authorized 130,000,000
shares of $0.01 par value common stock, 100,472,328 of which were issued and outstanding as of December 31, 2013 and 2012.
The Company has authorized 10,000 shares
of $1.00 par value shares of Preferred Stock, none of which were issued and outstanding as of December 31, 2013 and 2012.
NOTE 6 - RELATED PARTY TRANSACTIONS
AND BALANCES
The following schedule sets forth various
obligations of the Company to related parties.
Transactions
|
|
2013
|
|
|
2012
|
|
Compensation and related expenses of the Company’s Chairman of the Board and Chief Executive Officer (1)
|
|
$
|
30,000
|
|
|
$
|
298,000
|
|
|
|
|
|
|
|
|
|
|
Compensation of the Company’s Chief Financial Officer (2)
|
|
|
30,000
|
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
Cash advances from Royal HTM Group, Inc. (3)
|
|
|
151,000
|
|
|
|
174,000
|
|
|
|
|
|
|
|
|
|
|
Business development services provided by Royal HTM Group. Inc. (4)
|
|
|
-
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
Royal HTM Group, Inc. expense allowance (4)
|
|
|
-
|
|
|
|
20,000
|
|
|
|
$
|
211,000
|
|
|
$
|
642,000
|
|
|
1)
|
Boris Birshtein serves as the Company’s Chairman of the Board of Directors and its Chief
Executive Officer on a month-to-month basis. Mr. Birshtein owns 50% of Royal HTM Group, Inc. our majority shareholder.
|
|
2)
|
Jack Braverman serves as a member of the Company’s Board of Directors and as the Company’s
Chief Financial Officer on a month-to-month basis. Mr. Braverman owns 50% of Royal HTM Group, Inc., our majority shareholder.
|
|
3)
|
Royal HTM Group, Inc., a Canadian company owned and controlled by the Company’s two members
of its Board of Directors, renders certain business development services to the Company. Royal HTM Group has also advanced money
to the Company to fund its expenses, and is the Company’s majority shareholder.
|
|
4)
|
Royal HTM Group, Inc. renders certain business development services to the Company. Beginning as
of January 1, 2012, the monthly rate for such services was $2,500 and it was entitled to a quarterly expense allowance of $5,000
for expenses incurred in connection with its business development services rendered to the Company. As of January 1, 2013, the
expenses for all of such business development services were terminated.
|
Balances
Payables to related
parties consist of the following:
|
|
DECEMBER 31,
|
|
|
|
2013
|
|
|
2012
|
|
Amount due to Royal HTM Group, Inc.
|
|
$
|
3,778,000
|
|
|
$
|
3,627,000
|
|
|
|
|
|
|
|
|
|
|
Accrued compensation due to the Company’s Chief Financial Officer
|
|
|
510,000
|
|
|
|
480,000
|
|
|
|
|
|
|
|
|
|
|
Accrued compensation due to the Company’s Chairman of the Board
|
|
|
2,117,000
|
|
|
|
2,087,000
|
|
|
|
$
|
6,405,000
|
|
|
$
|
6,194,000
|
|
These amounts are non-interest bearing and due on demand.
NOTE 7 - STOCK COMPENSATION PLANS
Pursuant to the Company’s 2001 Omnibus
Plan, as amended, eligible persons, as defined therein, may be granted (a) stock options which may be designated as nonqualified
stock options or incentive stock options, (b) stock appreciation rights, (c) restricted stock awards, (d) performance awards, or
(e) other forms of stock-based incentive awards.
The maximum number of shares with respect
to which the awards may be granted under the 2001 Omnibus Plan, as amended, is 10,000,000 shares of common stock; provided, however,
that such number of shares of common stock may also be subject to adjustment, from time to time, at the discretion of the Board
of Directors of the Company.
As of December 31, 2013 and 2012, there
are no options issued and outstanding under the Company’s 2001 Omnibus Plan, as amended.
NOTE 8 - INCOME TAX
The Company’s income tax benefit differs from the expected
income tax benefit by applying the U.S. Federal statutory rate of 34% to net income (loss) as follows:
|
|
DECEMBER 31,
|
|
|
|
2013
|
|
|
2012
|
|
Income tax benefit at statutory rate of 34%
|
|
$
|
74,000
|
|
|
$
|
216,000
|
|
Change in valuation allowance
|
|
|
(74,000
|
)
|
|
|
(216,000
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred tax assets consist of:
|
|
DECEMBER 31,
|
|
|
|
2013
|
|
|
2012
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
|
7,576,000
|
|
|
|
7,502,000
|
|
|
|
|
7,576,000
|
|
|
|
7,502,000
|
|
Valuation allowance (see Note 2)
|
|
|
(7,576,000
|
)
|
|
|
(7,502,000
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
As of December 31, 2013, the Company had
approximately $21,500,000 of federal and state net operating loss carryovers (“NOLs”) which begin to expire in 2026.
The NOLs may be subject to limitation under Internal Revenue Code Section 382 should there be a greater than 50% ownership change
as determined under regulations.
In assessing the realization of deferred
tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be
realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, the Company has
established a full valuation allowance against all of the deferred tax assets for every period because it is more likely than not
that all of the deferred tax assets will not be realized.
The Company is currently open to audit
for all years ended December 31, 2001 to present because of its large NOL carryforwards. However, The Company is only open to additional
tax assessments under the Internal Revenue Code statute of limitations for the years ended December 31, 2010 to present; however,
it does not currently have any ongoing tax examinations.
NOTE 9 - SUBSEQUENT EVENTS
The Company evaluated all events or transactions
that occurred subsequent to December 31, 2013 to the date these financial statements were issued and has determined that there
are no material subsequent events or transactions which would require recognition or disclosure in the financial statements.
|
ITEM 8 A.
|
CONTROLS AND PROCEDURES
|
Evaluation of Disclosure Controls and
Procedures
Our management is responsible
for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be
disclosed in our reports, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934 (the “Exchange Act”)
is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such
information is accumulated and communicated to our management to allow timely decisions regarding required disclosure based closely
on the definition of “disclosure controls and procedures” in Rule 15d-15(e) under the Exchange Act. In designing and
evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of the end of the
period covered by this Annual Report, the Company carried out, under the supervision and with the participation of the Company’s
management, including its Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design
and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) in ensuring that information required to be disclosed by the Company in its reports is recorded, processed,
summarized and reported within the required time periods. In carrying out that evaluation, management identified a material
weakness (as defined in Public Company Accounting Oversight Board Standard No. 2) in our internal control over financial reporting
regarding a lack of adequate segregation of duties. Accordingly, based on their evaluation of our disclosure controls
and procedures as of December 31, 2013, the Company’s Chief Executive Officer and its Chief Financial Officer have concluded
that, as of that date, the Company’s controls and procedures were not effective for the purposes described above.
There was no change
in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934) during the period ended December 31, 2013 that has materially affected or is reasonably likely to materially
affect the Company’s internal control over financial reporting.
Management’s Report on Internal
Control over Financial Reporting
Management of the Company
is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f)
under the Securities Exchange Act of 1934. We have assessed the effectiveness of those internal controls as of December
31, 2013, using the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)
Internal Control –
Intergrated Framework
as a basis for our assessment.
Because of inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies and procedures may deteriorate. All internal control systems, no
matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide
only reasonable assurance with respect to financial statement preparation and presentation.
A material weakness
in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects the Company’s
ability to initiate, authorize, record, process, or report external financial data reliably in accordance with accounting principles
generally accepted in the United States of America such that there is more than a remote likelihood that a material misstatement
of the Company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected. In
the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified a material
weakness in our internal control over financial reporting. This material weakness consisted of inadequate staffing and
supervision within the bookkeeping and accounting operations of our company. The relatively small number of individuals
who have bookkeeping and accounting functions prevents us from segregating duties within our internal control system. The
inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting
and disclosure matters or could lead to a failure to perform timely and effective reviews.
As we are not aware
of any instance in which the Company failed to identify or resolve a disclosure matter or failed to perform a timely and effective
review, we determined that the addition of personnel to our bookkeeping and accounting operations is not an efficient use of our
very limited resources at this time and not in the interest of our shareholders.
This Annual Report
does not include an attestation report of the Company’s registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the Company’s registered public
accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s
report in this Annual Report.