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| FCPN.OB > SEC Filings for FCPN.OB > Form 10-Q on 7-Aug-2009 | All Recent SEC Filings |
7-Aug-2009
Quarterly Report
FORWARD-LOOKING STATEMENT AND INFORMATION
We are including the following cautionary statement in this Form 10-Q to make applicable and take advantage of the safe harbor provision of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf of First Capital International, Inc. (the "Company"). Forward-looking statements include statements concerning plans, objectives, goals, strategies, expectations, future events or performance and underlying assumptions and other statements which are other than statements of historical facts. Certain statements contained herein are forward-looking statements and, accordingly, involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.
Our expectations, beliefs and projections are expressed in good faith and we believe that they have a reasonable basis, including without limitations, management's examination of historical operating trends, data contained in our records and other data available from third parties, but there can be no assurance that our expectations, beliefs or projections will result or be achieved or accomplished. In addition to other factors and matters discussed elsewhere herein, the following are important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements: our ability to operate on a global basis; our ability to effectuate and successfully operate acquisitions, and new operations; our ability to obtain acceptable forms and amounts of financing to fund current operations and planned acquisitions; the political, economic and military climate in nations where we may have interests and operations; the ability to engage the services of suitable consultants or employees in foreign countries; and competition and the ever-changing nature of the technology industry. We have no obligation to update or revise these forward-looking statements to reflect the occurrence of future events or circumstances.
The following discussion should be read in conjunction with our unaudited consolidated interim financial statements and related notes thereto included in this quarterly report and in our audited consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") contained in our Form 10-K for the year ended December 31, 2008. Certain statements in the following MD&A are forward looking statements. Words such as "expects", "anticipates", "estimates" and similar expressions are intended to identify forward looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected.
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 us 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, we evaluate our estimates. We base our 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 making it reasonably possible that a change in the estimates could occur in the near term.
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 either upon delivery of systems or for major long-term projects, recognized upon completion of each phase of installation.
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 $52,450 stock-based compensation cost in the six months ended June 30, 2009 for the options and there were 0 shares of restricted stock issued to employees and others.
The following description of our business, our financial position and results of operations should be read in conjunction with our Unaudited Consolidated Condensed Financial Statements and the Notes to Financial Statements contained in this report on Form 10-Q.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on its results of operations, financial position or cash flow.
INTRODUCTION
First Capital International, Inc. (the "Company"), formerly Ranger/USA, Inc., incorporated as a Delaware Corporation on April 21, 1994 and assumed its current name in August 1998 when new management took over the Company. At the time new management assumed control, the Company had no existing operations, and began implementation of a new business plan. Beginning in 1998, the Company's original focus was the identification, acquisition and operation of businesses serving or focused on Central and Eastern European markets. Since 2001, the Company has focused its operations on the development of its "smart house" technology and markets for the Company's new home command center.
References to First Capital International, Inc. in this Form 10-Q include First Capital International, Inc. and our wholly-owned subsidiary VIP Systems, Inc., which is a home automation and video surveillance solutions firm.
At the annual meeting of the stockholders held on July 14, 2006, the stockholders approved a 1-for-3 reverse split. The effect of our reverse split is reflected in all references to the price of our common stock and the audited financial statements herein.
Our principal executive offices are located at 5120 Woodway, Suite 9024, Houston, Texas 77056; voice: (713) 629-4866 fax: (713) 629-4913. Our corporate web site is at www.FirstCap.net.
We are engaged in the design, production and sale of security systems for homeland security applications as well as home automation and video surveillance systems, including highly sophisticated marine video surveillance applications. It is our intent to grow through the continued development and marketing of this new and innovative technology.
Patents
In October 2001, we filed a US patent application for our VIP Systems(TM) with fully integrated software/hardware and began assembling units for Beta testing. On September 30, 2003, we received Patent # US 6,628,510 for our VIP Systems(TM).
We developed an Industrial Security Solution ("Solution") for complex industrial projects including projects related to the oil and gas industry. This Solution allows a client to monitor remote sites, record events on video and exercise full control over any power units at the industrial site remotely. This system can also be used as an anti-terrorist device to preclude unauthorized use of important industrial equipments in case of a takeover attempt. We believe that this Solution can be marketed through governmental agencies, as well as major industrial companies. At the present time, we are looking into possible alliances in order to market this product worldwide.
PROJECTS
During 2005-2006, we completed several security installations at Marriott Hotel Group properties in Texas, Florida and Louisiana. Our marketing efforts with the Marriott Hotel Group allowed us to secure contracts to install video surveillance systems in several Marriott Hotels in Florida and Texas. We are currently working on much larger proposals for their new "under construction" hotels.
Projects in Florida
In March 2005, we signed a contract with the Dinerstein Companies, a large real estate developer, to provide a basic home automation/security package for their mid-rise project in Florida. We are currently conducting upsell marketing efforts and have been able to secure an upsell option for 40% of the development.
Despite the real estate downturn, we are bidding on several hi-rise commercial building projects in Florida and believe that our efforts will bring contracts to provide CCTV/automation solutions for these projects.
Projects in Texas
We are bidding on large security projects with several Houston area school districts and are planning on marketing our products and capabilities to various government entities.
We are bidding on several high-rise condominium projects in the Houston area. The current economic conditions have hindered our efforts in successfully closing new deals with new luxury high-rise complexes in Houston to install a security solution as well as to design for the owners a new state-of-the-art "Concierge" Digital Living Automation software. We believe are new opportunities for our home automation solutions. We anticipate the hi-rise condo project will be a good source for the Company's revenue through upsell activities, of which there can be no assurances.
We are also actively involved in several Houston hotels' installation projects, predominantly Marriott and Hilton Hotels, as well as upscale residential projects in Houston.
We are considering launching our "Concierge" software platform nationwide. We have had numerous discussions with integrators and hi-rise management companies that showed interest in purchasing our concierge platform. As a result, we are developing strategies for selling and marketing the "Concierge" platform nationwide. However, we are anticipating a market slowdown in home automation due to the current national economic crisis.
New Developments
Due to the current economic crisis, we foresee instabilities and a rise of domestic terrorism throughout the United States. As a countermeasure company, we are developing a threat evaluation program for owners of condominium properties, commercial malls, office buildings and municipal facilities.
We have also developed applications jointly with ZuluBravo, LLC, allowing detection of homemade explosives throughout buildings, malls and hotels.
We believe this new technology will augment the Company's current security system and video surveillance product line and will greatly enhance our marketing position.
GOING CONCERN CONSIDERATION
Since we began operations, we have been dependent on debt and equity raised from individual investors and related parties to sustain our operations. We had a profit of $37,745 during the six months ended June 30, 2009. We also had positive cash flows from operations of $49,839 during the six months ended June 30, 2009. However, we had an accumulated deficit of $(11,459,691) and a working capital deficit of $(1,233,393) at June 30, 2009. These conditions raise substantial doubt about our ability to continue as a going concern. Our long-term viability as a going concern is dependent upon three key factors as follows:
· Our ability to obtain adequate sources of debt or equity funding to meet current commitments and fund the continuation of our business operations;
· Our ability to acquire or internally develop viable businesses; and
· Our ability to ultimately achieve profitability and cash flows from operations in amounts that would sustain our operations.
As a result of potential liquidity problems, our auditors have added an explanatory paragraph in their opinion on our financial statements for the years ended December 31, 2008 and 2007, indicating that substantial doubt exists concerning our ability to continue as a going concern.
Our ability to achieve profitability depends on our ability to successfully develop and market home automation and video security technology. We can give no assurance that we will be able to achieve commercial success. We are subject to all risks inherent in a growing venture, including the need to develop marketing expertise and produce significant revenue. We may incur losses due to the significant costs associated with home automation and video security technology operations.
Recurring losses resulted in the accumulated deficit of $(11,459,691) at June 30, 2009. Revenues for the six months ended June 30, 2009 were $663,977 compared to revenues of $300,472 for the six months ended June 30, 2008. The increase in revenue is mainly attributable to our success in acquiring major projects as a result of our marketing efforts.
Our losses were attributable primarily to the developmental stage of our business. Our new focus has resulted in our further development of VIP Systems(TM) which has substantially improved our operating results. Our revenues have significantly increased and we have shown a profit for the six months ended June 30, 2009. However, we can provide no assurance that profitability will be sustainable.
COMPETITION
There are presently several major competitors in the home automation industry. Many of our competitors are more established companies with substantially greater capital resources and substantially greater marketing capabilities than us. We cannot give any assurances that we will be able to successfully compete in this market.
RESULTS OF OPERATION FOR THE THREE MONTHS ENDED JUNE 30, 2009 AS COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2008
During the three months ended June 30, 2009, our revenues were $260,466 as compared to $209,785 for the three months ended June 30, 2008, which increase in revenues is attributable to our success in completing major projects.
During the three months ended June 30, 2009, selling, general and administrative expenses increased slightly by $3,246 or 2% to $185,054, from $181,918, as compared to the three months ended June 30, 2008. This is mainly attributable to increases in payroll and stock and option compensation expenses offset by decreases in contracted and professional services.
During the three months ended June 30, 2009, we had a net loss of $51,612 as compared to a net loss of $136,743 in the three months ended June 30, 2008.
RESULTS OF OPERATION FOR THE SIX MONTHS ENDED JUNE 30, 2009 AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2008
During the six months ended June 30, 2009, our revenues were $663,977 as compared to $300,472 for the six months ended June 30, 2008, which increase in revenues is primarily due to our marketing activities.
During the six months ended June 30, 2009, selling, general and administrative expenses increased slightly by $6,115 or 2% to $350,568, from $344,455, as compared to the six months ended June 30, 2008. The net increase is mainly attributable to increased charges to stock and option compensation and rent expenses offset by decreases in charges to contracted and professional services.
During the six months ended June 30, 2009, we had a net profit of $37,745 as compared to a net loss of $268,158 in the six months ended June 30, 2008.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2009, we had cash resources of $19,904. We estimate that during the three months ending September 30, 2009, our cash requirements will be approximately $270,000 (or approximately $90,000 per month). We believe that our revenue-producing operations will expand. Such an expansion of operations will require funding for pending contracts. We anticipate raising additional capital 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.
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 home automation and video security business and $250,000 for marketing expenses.
During the six months ended June 30, 2009, we received $0 cash from the sale of our securities and $0 on exercise of options to purchase our shares.
During 2009, we had several loan transactions with Alex Genin, our Chief Executive Officer and Acting Chief Financial Officer and companies controlled or related to him. Mr. Genin is a significant stockholder of the company. The following is a summary of all the loan transactions through June 30, 2009
During 2009, ten promissory notes to Alex Genin, our Chief Executive Officer, were paid off. The total principal and interest paid on these notes were $18,400 and $5,360 respectively. Two promissory notes originally due in April and May 2009 bearing 8% interest for a total principal amount of $37,500 were extended three years. None of these notes were collateralized. As of June 30, 2009 the total principal amount due on all notes to Alex Genin is $175,000.
During 2009, Eastern Credit Limited, Inc., a company controlled by Alex Genin, our Chief Executive Officer, made a loan to us under a $2,500 promissory note which bear interest at the rate of 8% and which is due in February 2012. In the same period, one promissory note with principal and interest of $3,000 and $978, respectively, was paid off. None of these notes were collateralized. As of June 30, 2009 the total principal amount due on all notes to Eastern Credit Limited, Inc. is $243,300.
During 2009, one promissory note to ECL Trading Co., Inc., a company controlled by Alex Genin, our Chief Executive Officer, was partially paid. The total principal and interest paid on this note was $6,000 and $433, respectively. This note was not collateralized. As of June 30, 2009 the total principal amount due on notes to ECL Trading is $2,000.
During 2009, First National Petroleum, Corp., a company controlled by Alex Genin, our Chief Executive Officer, made a loan to us under a $2,000 promissory note which bears interest at the rate of 8% and which is due in April 2012. A note for $7,500 originally due in April 2009 which bears interest at the rate of 8% was extended three years. None of these notes were collateralized. As of June 30, 2009 the total principal amount due on all notes to First National Petroleum, Corp. is $16,500.
During 2009, a promissory note to Pacific Commercial Credit, Ltd., a company controlled by Alex Genin, our Chief Executive Officer, was partially paid. The total principal and interest paid on this note were $2,400 and $1,695 respectively. The remaining balance on this note is $7,000. None of these notes were collateralized. As of June 30, 2009, the total principal amount due on all notes to Pacific Commercial Credit, Ltd. is $85,000.
During 2009, a promissory note to Stromberg Development, Inc., a company owned by Alex Genin, our Chief Executive Officer, was partially paid. The total principal and interest paid on this note were $6,000 and $600 respectively. The remaining balance on this note is $4,000. None of the notes to Stromberg Development, Inc. were collateralized. As of June 30, 2009 the total principal amount due on all notes to Stromberg Development is $36,000.
During 2009, United Capital Group, Ltd., a company controlled by Alex Genin, our Chief Executive Officer, extended for three years a $67,983 promissory note originally due March 2009 which bears interest at the rate of 8%. None of the notes to United Capital Group, Ltd. were collateralized. As of June 30, 2009 the total principal amount due on all notes to United Capital Group, Ltd. is $198,983.
In May 2008, one of the directors of the Company made a short term loan to us for a total principal amount of $18,000, bearing 6% interest, which is due in 2009. This loan was not collateralized.
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