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| FCPN.OB > SEC Filings for FCPN.OB > Form 10-K on 31-Mar-2009 | All Recent SEC Filings |
31-Mar-2009
Annual Report
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. These estimates and assumptions provide a basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and these differences may be material.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
REVENUE RECOGNITION
The Company enters into two types of sales of VIP Systems: sales to end-users and sales to resellers. Revenue on sales to end-users is recognized upon completion of installation and testing of the system. Revenue on sales to resellers is recognized upon delivery of systems or for major long-term projects, recognized upon completion of each phase of installation.
The company entered into consulting services for power plant projects in Russia in 2007. Revenue from these services were billed and recognized monthly.
Payments and advances received for future sales or installation of systems are deferred until the delivery and/or installation is complete. For major long-term projects, revenue is recognized upon completion of each phase of installation.
STOCK-BASED COMPENSATION
Until December 31, 2005, we accounted for employee stock options using the intrinsic value method in accordance with Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and had adopted the disclosure-only alternative of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure. Under the intrinsic value method, we only recorded stock-based compensation resulting from options granted at below fair market value. Effective January 1, 2006, we adopted SFAS No. 123R, "Share Based Payments", which requires that we measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, and recognize that cost over the vesting period.
Valuation and Amortization Method - We estimate the fair value of stock options granted using the Black-Scholes option-pricing formula and a single option award approach. This fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.
Expected Term - The expected term represents the period that our stock-based awards are expected to be outstanding and is determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its stock-based awards.
Expected Volatility - Stock-based payments made prior to January 1, 2006 were accounted for using the intrinsic value method under APB 25. The fair value of stock based payments made subsequent to December 31, 2005 is valued using the Black-Scholes valuation method with a volatility factor based on our historical stock trading history.
Risk-Free Interest Rate - We base the risk-free interest rate used in the Black-Scholes valuation method on the implied yield currently available on U.S. Treasury securities with an equivalent term.
Estimated Forfeitures - When estimating forfeitures, we consider voluntary termination behavior as well as analysis of actual option forfeitures.
Compensation expenses for Restricted Stocks issued to employees and others are calculated based on the fair market value on the grant date. We recognized $22,201 stock-based compensation cost in the year ended December 31, 2008 for the options and restricted stock issued to employees and others.
The following description of business, our financial position and our results of operations should be read in conjunction with our Financial Statements and the Notes to Financial Statements contained in this report on Form 10-K.
ANALYSIS OF FINANCIAL CONDITION
In case of expansion we plan to increase the number of our employees. Expansion of our work force and support of our current operations will be financed from sale of our common stock. Accordingly, we expect that our existing stockholders will suffer significant dilution in per share book value.
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RESULTS OF OPERATIONS
We are developing new application of our technology and continue development and installation of home automation and video observation systems. Currently, we focus our efforts on building alliances with real estate development and property management companies that are interested in improving security and value of the property.
YEAR ENDED DECEMBER 31, 2008 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 2007
During the year ended December 31, 2008, our revenue from continuing operations was $895,146 as compared to $590,540 for the year ended December 31, 2007. Our revenue increase was attributable primarily to our marketing activities.
During the year ended December 31, 2008, cost of system sales increased by $186,875 to $465,820. Operating and general expenses decreased to $708,721 from $742,635 as compared to the year ended December 31, 2007 due to decreases in payroll expense and business development partially offset by increases in contracted services and rent expense.
During the year ended December 31, 2008 and 2007 we recognized stock and share based compensation of $22,202 and $406,210, respectively. The issuance of common stock and share based compensation to employees and officers significantly decreased in 2008.
During the year ended December 31, 2008, we had a net loss of $383,789 as compared to a net loss of $905,601 in the year ended December 31, 2007. The decrease primarily relates to the expansion of our business operations.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2008, we had cash resources of $3,938. We estimate that during the year 2009, our cash requirements will be approximately $720,000, or $180,000 per quarter. We believe that we will have positive cash flow from operations in 2009 and our revenue-producing operations will expand significantly. Such an expansion of operations would require that we raise a substantial amount of capital (cash) through the sale of our stock or through borrowing. Although we plan to obtain additional financing through the sale of our common stock and by obtaining debt financing, there is no assurance that capital will be available from any source, or, if available, upon terms and conditions acceptable to us.
During 2008, an investor made two separate short term loans to us for a total principal amount of $55,235 bearing 5% interest and which are due in August and September 2009. These loans are not collateralized.
During the year 2008, we raised $56,600 in cash from the sale of our securities and received $6,265 in subscription receivables. We will ultimately need to produce enough positive cash flows from operations to meet our long-term capital needs.
We currently have no material commitments for capital expenditures for our U.S. operations. We anticipate that the following expenditures will be made in 2009 if funds are available: $100,000 for continued development of our automation business; and $250,000 for marketing expenses.
During 2008 and 2007 the Company obtained loans (Note 4 of our Financial Statements) from Alex Genin, Eastern Credit Limited, Inc., and corporations, Mr. Genin controls. Mr. Genin is a significant stockholder of the Company and its Chief Executive Officer. During 2008 and 2007, interest charged on notes payable to related parties were $63,353 and $52,636 respectively.
During 2008, Alex Genin, our chief executive officer, made several loans to us under six separate promissory notes for a total principal amount of $44,000 which bear interest at the rate between 0% and 8% and which are due between January 2010 and April 2011. No interest has been imputed due to the immateriality of the amount. Five of these notes with a total principal amount of $39,000 have been paid off. Four promissory notes originally due in 2008 bearing interest between 6% and 7% for a total principal amount of $108,000 were extended between three and five years. Seven promissory notes due between February 2008 and October 2008 were offset by an option Mr. Genin exercised in January 2008. The total principal and interest paid on these notes are $43,790 and $10,210 respectively. Five promissory notes with a total principal amount of 32,200 were paid off. None of these notes are collateralized. As of December 31, 2008, the total principal amount due on all notes to Alex Genin is $193,400.
During 2008, Eastern Credit Limited, Inc., a company controlled by Alex Genin, our chief executive officer, made a loan to us under an $18,000 promissory note which bear interest at the rate of 8% and which is due February 2011. During the same period, eleven notes maturing between January 2008 and December 2008 for a total principal amount of $104,000 which bear interest at the rate ranging between 6% and 7% were extended between three and four years. Three promissory notes originally made in 2004 and 2006 bearing interest between 6% and 8% for a total principal amount of $4,500 were paid off. A promissory note bearing 8% interest for a total principal amount of $18,000 to First National Energy Corporation, a company controlled by Alex Genin, was re-assigned to Eastern Credit Limited, Inc. in July 2008. None of these notes are collateralized. As of December 31, 2008, the total principal amount due on all notes to Eastern Credit Limited is $243,800.
During 2008, ECL Trading Co, Inc., a company controlled by Alex Genin, our chief executive officer, made a loan to us under a $14,500 promissory note bearing 8% interest and which is due February 2011. A partial payment in the amount of $6,500 was made on this note. This note is not collateralized. As of December 31, 2008, the total principal amount due on all notes to ECL Trading is $8,000.
During 2005, First National Petroleum, Inc., a company controlled by Alex Genin, the company's chief executive officer, made several loans under two separate promissory notes for a total principal amount of $14,500 which bear interest at the rate of 8% and which were due in April 2007 and June 2007. These notes were extended to April 2009 and June 2010 respectively. None of these notes are collateralized. As of December 31, 2008, total principal amount due on all notes to First National Petroleum is $14,500.
During 2008, First National Energy Corporation, a company controlled by Alex Genin, our chief executive officer, made a loan to us under a $20,000 promissory note bearing 8% interest and which is due February 2010. A partial payment in the amount of $2,000 was made on this note. The remaining principal balance of $18,000 was re-assigned to Eastern Credit Limited in July 2008.
During 2008, Pacific Commercial Credit, Ltd., a company controlled by Alex Genin, our chief executive officer, made loans to us under five separate promissory notes for a total principal amount of 41,500 bearing 8% interest and which are due between March and May 2011. These notes are not collateralized. As of December 31, 2008, the total principal amount due on all notes to Pacific Commercial Credit, Ltd. is $87,400.
During 2008, Stromberg Development, Inc., a company owned by Alex Genin, our chief executive officer, made two separate loans for a total principal amount of $9,000 which bear interest at the rate of 8% and are due in three years November and December 2011. During the same period, three promissory notes for a total principal amount of $9,300 were paid off. None of these notes were collateralized. As of December 31, 2008, the total principal amount due on all notes to Stromberg Development, Inc., is $42,000.
During 2005, United Capital Group, a company controlled by Alex Genin, our chief executive officer, made several loans to the Company under 13 separate promissory notes bearing interest of 8%. The notes which were due in 2007 were extended three years. One of these promissory notes maturing in November 2008 was extended three years. A loan made in March 2004 with a remaining balance of $67,983 which was due in March 2009 was also extended three years. None of these notes are collateralized. As of December 31, 2008, total principal amount due on all notes to United Capital Group is $198,983.
In May 2008, one other director made a short term loan to us for a total principal amount of $18,000 bearing 6% interest and which is due in May 2009. This loan is not collateralized.
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