Government of the Republic
of Moldova does not recognize the renewal of the Supply Agreement, such event
will have a material adverse effect on Intercomsoft and the Company.
The
Company has commenced a legal action against the Government of Moldova.
On June 27, 2006, the
Company and Intercomsoft commenced an action in the United States District
Court for the Southern District of New York against the Ministry of Economics
of the Republic of Moldova and the Government of the Republic of Moldova
seeking damages of approximately $41,000,000 for breach of contract and an
injunction prohibiting Moldova from producing further essential government
documents in accordance with the terms of the Supply Agreement. Additionally,
the Company has contested Moldovas notice of non-renewal of the Supply
Agreement. The action was withdrawn in August 2006, without prejudice. On
September 20, 2006, Intercomsoft filed a Demand for Arbitration with the
International Chamber of Commerce, International Court of Arbitration, in
Geneva, Switzerland. The Demand repeats and incorporates the claims that were
set forth in the Complaint in the withdrawn prior action noted above.
The action has not yet
progressed beyond the pleading stage. The Republic of Moldova and the other
respondents have interposed counterclaims against the Company and Intercomsoft
in amounts totaling $30,000,000. The counterclaims contain allegations of fraud
and misrepresentation claimed to have occurred during the performance of the
Supply Agreement. The Company and Intercomsoft deny any wrongdoing, are
vigorously contesting the counterclaims and have replied with opposition to
such counterclaims in the arbitration.
Among the Companys claims
against Moldova is a claim for non-payment for all of the essential government
documents produced under the Supply Agreement during the four month period
commencing January 2006 and ending in April 2006. Based, in part, upon records
issued by Moldova, the Company believes the uncollected amount due for this
period for services rendered, together with contractually agreed upon interest
for late payments, is in excess of $2,500,000, which amount is not included in
the accompanying financial statement. Such amount is the subject of a legal
action as more detailed in Note 2. The Company is still pursuing such amount
and believes it to be a legally valid receivable.
There can be no assurance as
to the outcome of such arbitration proceedings.
The
Company has terminated its agreement with Supercom Limited.
Pursuant to a Sales
Agreement between Intercomsoft and Supercom Limited (Supercom) dated August
25, 1995, as amended, Supercom supplied the equipment, software, technology and
consumables utilized by Intercomsoft for the production of computerized
documents under the Supply Agreement. Pursuant to this agreement, Intercomsoft
is provided with the guidance and support required for the installation and
operation of the equipment, as well as the materials required for its
maintenance.
On March 24, 2005,
Intercomsoft and Supercom entered into a Termination Agreement, terminating the
Sales Agreement. Notwithstanding, pursuant to the terms of the Termination
Agreement, Supercom, in consideration of certain payments to be made to it,
agreed to continue to supply Moldova with such equipment, consumables, software
and technology during the remaining term of the Supply Agreement, pursuant to
the requirements of the Supply Agreement. Supercom agreed not to take any
action, directly or indirectly, to interfere with Intercomsofts contractual
rights with Moldova or to, in any way, cause Moldova to terminate or not renew
the Supply Agreement and agreed to pay to Intercomsoft certain amounts
specified in the Termination Agreement as liquidated damages in the event of
any breach or default by Supercom thereunder. Except and as to the extent
provided under the Termination Agreement, Intercomsoft has no other rights to
Supercoms proprietary technology as referred to above.
10
The
Company is not pursuing development of its aluminum-air fuel cell technology
.
Through a
joint venture with Aluminum-Power, Inc., the Companys majority shareholder,
the Company pursued research and development of its aluminum-air fuel cell
technology it acquired in the first quarter of 2001. Such research and
development was suspended in the second quarter of 2003. The Company does not
intend to pursue the development of such technology in the future.
The Company has no current business activities that generate
revenue.
Although the Company is
currently exploring opportunities, it is not currently engaged in any business
activities that generate revenue.
NOTE 4 -
RELATED PARTY TRANSACTIONS AND BALANCES
Boris Birshtein serves as
the Companys Chairman of the Board of Directors (the Chairman) on a
month-to-month basis. During the three and nine months ended September 30,
2007, the Company accrued $69,000 and $207,000 ($23,000 per month),
respectively, in compensation due to him and accrued $5,400 and $16,200 ($1,800
per month), respectively, in expenses related to his performance as the
Chairman.
The Company has engaged
Royal HTM Group, Inc., a Canadian company beneficially owned and controlled by
the Chairman, to render certain business development services to the Company.
During the three and nine months ended September 30, 2007 the Company accrued
$30,000 and $90,000 ($10,000 per month), respectively, to Royal HTM Group for
such services.
During the three and nine
months ended September 30, 2007 Royal HTM Group lent the Company $247,000 and
$519,000, respectively, to cover operating expenses for the period then ended.
Payables to related parties
consist of the following:
|
|
|
|
|
Amount due to the Chairman and a
company owned and controlled by such individual.
|
|
$
|
1,394,000
|
|
|
|
|
|
|
Accrued compensation due to the
Chairman.
|
|
|
461,000
|
|
|
|
|
|
|
|
|
$
|
1,855,000
|
|
|
|
|
|
|
These amounts are
non-interest bearing and due on demand.
NOTE 5 - STOCK
COMPENSATION PLANS
During the
three and nine months ended September 30, 2007, the Company did not issue any
options to purchase its common stock. As of September 30, 2007, the total
options outstanding were 7,620,000, of which 3,870,000 were issued pursuant to
the 2001 Omnibus Plan, as amended.
NOTE 6 -
SEGMENT INFORMATION
The Companys
operations are classified into two reportable segments consisting of
Intercomsoft, which produces secure essential government identification documents,
and general and administrative expenses incurred for corporate purposes.
11
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercomsoft
|
|
Corporate and
Administrative
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
NINE MONTHS
ENDED SEPTEMBER 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Operating
expenses
|
|
|
|
24,000
|
|
|
|
|
899,000
|
|
|
|
923,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
|
$
|
(24,000
|
)
|
|
|
$
|
(899,000
|
)
|
|
$
|
(923,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NINE MONTHS
ENDED SEPTEMBER 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$
|
2,211,000
|
|
|
|
$
|
|
|
|
$
|
2,211,000
|
|
Operating
expenses
|
|
|
|
1,650,000
|
|
|
|
|
1,052,000
|
|
|
|
2,702,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
|
$
|
561,000
|
|
|
|
$
|
(1,052,000
|
)
|
|
$
|
(491,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS
ENDED SEPTEMBER 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Operating
expenses
|
|
|
|
8,000
|
|
|
|
|
391,000
|
|
|
|
399,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
|
$
|
(8,000
|
)
|
|
|
$
|
(391,000
|
)
|
|
$
|
(399,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS
ENDED SEPTEMBER 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
215,000
|
|
|
|
215,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
|
$
|
|
|
|
|
$
|
(215,000
|
)
|
|
$
|
(215,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12