UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 000-26271
FIRST CAPITAL INTERNATIONAL, INC.
(Exact name of registrant as specified in its Charter)
Delaware | 76-0582435 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
5120 Woodway | |
Suite 9024 | |
Houston, Texas | 77056 |
(Address of principal executive offices) | (Zip Code) |
(713) 629-4866 |
(Issuer’s Telephone Number, Including Area Code) |
Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchanged Act of 1934 during the preceding 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 No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | |
Non-accelerated filer (Do not check if a smaller reporting company) | Smaller reporting company ý |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No ý
SEC 1296 (02-08) | Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. |
Number of shares outstanding as of the close of business on May 9, 2008:
TITLE OF CLASS | NUMBER OF SHARES OUTSTANDING | |||
Common Stock, $0.001 par value. | 36,292,005 |
PART I - FINANCIAL INFORMATION | |
F-1 | |
1 | |
7 | |
PART II - OTHER INFORMATION | |
8 | |
8 | |
9 | |
9 |
FIRST CAPITAL INTERNATIONAL, INC.
__________
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FIRST CAPITAL INTERNATIONAL, INC.
TABLE OF CONTENTS
__________
Page | |
Unaudited Consolidated Financial Statements: | |
Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007 | F-3 |
Unaudited Consolidated Statements of Operations for the three months ended March 31, 2008 and 2007 | F-4 |
Unaudited Consolidated Statement of Stockholders’ Deficit for the three months ended March 31, 2008 | F-5 |
Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007 | F-6 |
Notes to Unaudited Consolidated Financial Statements | F-7 |
FIRST CAPITAL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 2008 and December 31, 2007
__________
March 31, | December 31, | |||||||
2008 | 2007 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 7,772 | $ | 3,972 | ||||
Accounts receivable | 31,209 | 54,823 | ||||||
Employee receivables | 29,976 | 25,978 | ||||||
Due from related parties | 5,622 | 3,892 | ||||||
Total assets | $ | 74,579 | $ | 88,665 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities: | ||||||||
Credit card obligations and line of credit | $ | 152,574 | $ | 133,469 | ||||
Accounts payable and accrued liabilities | 72,323 | 113,150 | ||||||
Accrued interest payable to related parties | 131,775 | 127,336 | ||||||
Current portion of notes payable to related parties | 285,083 | 274,600 | ||||||
Convertible notes payable to related parties | 50,000 | 50,000 | ||||||
Convertible notes payable | 500,000 | 500,000 | ||||||
Deferred revenue | 152,587 | 128,687 | ||||||
Total current liabilities | 1,344,342 | 1,327,242 | ||||||
Notes payable to related parties, non-current | 545,000 | 503,773 | ||||||
Total liabilities | 1,889,342 | 1,831,015 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ deficit: | ||||||||
Preferred stock, $0.001 par value; 20,000,000 shares authorized; 4,500,000 shares issued and outstanding | 4,500 | 4,500 | ||||||
Common stock, $0.001 par value; 200,000,000 shares authorized; 36,262,005 and 35,337,005 shares issued and outstanding at March 31, 2008 and December 31, 2007, respectively | 36,262 | 35,337 | ||||||
Additional paid-in capital | 9,395,801 | 9,337,726 | ||||||
Accumulated deficit | (11,245,061 | ) | (11,113,648 | ) | ||||
Subscription receivable | (6,265 | ) | (6,265 | ) | ||||
Total stockholders’ deficit | (1,814,763 | ) | (1,742,350 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 74,579 | $ | 88,665 |
The accompanying notes are an integral part of these
unaudited consolidated financial statements.
FIRST CAPITAL INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2008 and 2007
__________
March 31, | March 31, | |||||||
2008 | 2007 | |||||||
Revenue: | ||||||||
System sales | $ | 76,687 | $ | 136,788 | ||||
Consulting Services | 14,000 | - | ||||||
Total revenue | 90,687 | 136,788 | ||||||
Costs of sales: | ||||||||
Cost of systems | 37,548 | 79,635 | ||||||
Cost of consulting services | 2,800 | - | ||||||
Total cost of sales | 40,348 | 79,635 | ||||||
Gross Margin | 50,339 | 57,153 | ||||||
Selling, general and administrative expenses | 162,535 | 355,409 | ||||||
Loss from operations | (112,196 | ) | (298,256 | ) | ||||
Other expense: | ||||||||
Interest expense | (19,217 | ) | (15,413 | ) | ||||
Net loss | $ | (131,413 | ) | $ | (313,669 | ) | ||
Basic and diluted net loss per common share | $ | (0.00 | ) | $ | (0.01 | ) | ||
Weighted average shares outstanding | 35,947,994 | 32,863,115 |
The accompanying notes are an integral part of these
unaudited consolidated financial statements.
FIRST CAPITAL INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
For the Three Months Ended March 31, 2008
__________
Preferred Stock | Common Stock | Total | ||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Additional Paid-In Capital | Subscription Receivable | Accumulated Deficit | Stock- Holders’ Deficit | |||||||||||||||||||||||||
Balance at December 31, 2007 | 4,500,000 | $ | 4,500 | 35,337,005 | $ | 35,337 | $ | 9,337,726 | $ | (6,265 | ) | $ | (11,113,648 | ) | $ | (1,742,350 | ) | |||||||||||||||
Common stock issued for cash | - | - | 25,000 | 25 | 4,975 | - | - | 5,000 | ||||||||||||||||||||||||
Common stock issued as repayment of loan | - | - | 900,000 | 900 | 53,100 | - | - | 54,000 | ||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | (131,413 | ) | (131,413 | ) | ||||||||||||||||||||||
Balance at March 31, 2008 | 4,500,000 | $ | 4,500 | 36,262,005 | $ | 36,262 | $ | 9,395,801 | $ | (6,265 | ) | $ | (11,245,061 | ) | $ | (1,814,763 | ) |
The accompanying notes are an integral part of these
unaudited consolidated financial statements.
FIRST CAPITAL INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2008 and 2007
__________
March 31, | March 31, | |||||||
2008 | 2007 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (131,413 | ) | $ | (313,669 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Stock based compensation | - | 213,824 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 23,614 | (32,102 | ) | |||||
Employee receivables | (3,998 | ) | - | |||||
Inventory | - | 2,254 | ||||||
Other current assets | (1,730 | ) | - | |||||
Accounts payable and accrued liabilities | (7,073 | ) | 28,827 | |||||
Deferred Income | 23,900 | - | ||||||
Net cash used in operating activities | (96,700 | ) | (100,866 | ) | ||||
Cash flows from financing activities: | ||||||||
Payments of notes payable and long-term debt to related party | (7,000 | ) | - | |||||
Proceeds from notes payable and long-term debt to related party | 102,500 | 23,000 | ||||||
Proceeds from sale of common stock | 5,000 | 10,260 | ||||||
Net cash provided by financing activities | 100,500 | 33,260 | ||||||
Net increase/(decrease) in cash and cash equivalents | 3,800 | (67,606 | ) | |||||
Cash and cash equivalents, beginning of period | 3,972 | 95,138 | ||||||
Cash and cash equivalents, end of period | $ | 7,772 | $ | 27,532 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 14,779 | $ | 3,473 | ||||
Cash paid for taxes | $ | - | $ | - | ||||
Supplemental disclosure of non cash investing and financing activities: | ||||||||
Cashless exercise of options | $ | 54,000 | $ | - | ||||
Reduction of related party note in connection with option exercise | $ | 43,790 | $ | - | ||||
Reduction of accrued interest in connection with option exercise | $ | 10,210 | $ | - |
The accompanying notes are an integral part of these
unaudited consolidated financial statements.
FIRST CAPITAL INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
__________
1. | Basis of Presentation and Critical Accounting Policies |
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.
The unaudited consolidated condensed financial statements included herein have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, pursuant to such rules and regulations. These unaudited consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto of First Capital International, Inc. (the "Company") included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2007.
In the opinion of management, the unaudited consolidated condensed financial information included herein reflect all adjustments, consisting only of normal, recurring adjustments, which are necessary for a fair presentation of the Company's financial position, results of operations and cash flows for the interim periods presented. The results of operations for the interim periods presented herein are not necessarily indicative of the results to be expected for a full year or any other interim period.
Use Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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 periods. Actual results could differ from those estimates and assumptions.
Principles of Consolidation
The consolidated condensed financial statements include the accounts of the Company and its wholly owned subsidiary VIP Systems, Inc. after elimination of all significant intercompany accounts and transactions.
2. | Going Concern |
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company suffered losses of $131,413 for the three months ended March 31, 2008, has an accumulated deficit of $11,245,061 and a working capital deficit of $1,269,763 at March 31, 2008. These conditions raise substantial doubt as to the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Management intends to finance these deficits by selling its common stock.
3. | Convertible Note Payable |
On March 24, 2006, the Company issued 2,500,000 restricted common shares at $0.20 per share (or 833,334 shares of restricted common stock at $0.60 after a 1-for-3 reverse split) to a sophisticated investor as collateral for note payable bearing 0% interest due on May 30, 2007. The agreement allowed the investor to dispose of the shares, in part or full, prior to May 30, 2007. The proceeds from any such disposal would reduce the principal balance of $500,000. The promissory note is also secured by all assets of the Company. In accordance with APB Opinion 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants, this instrument is accounted for as a liability in the financial statements. The note expired on May 30, 2007. We are in default of this Note and an extension is under negotiation as of March 31, 2008.
4. | Notes Payable to Related Parties |
During the three months ended March 31, 2008, the Company issued the following notes to related parties:
During 2008, Alex Genin, our chief executive officer, made several loans to us under four separate promissory notes for a total principal amount of $35,000 which bear interest at the rate between 0% and 8% and which are due between January 2010 and February 2011. No interest has been imputed due to the immateriality of the amount. Three promissory notes originally due March 2008 bearing 7% interest for a total principal amount of $8,000 were extended three 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. A $9,000 note originally made in October 2007 was partially paid. The remaining balance on this note is $2,000. None of these notes were collateralized.
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 7% and which is due February 2011. During the same period, five notes maturing between January 2008 and March 2008 for a total principal amount of $68,000 which bear interest at the rate ranging between 6% and 7% were extended three years. None of these notes were collateralized.
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. This note was not collateralized.
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. This note was not collateralized.
During 2008, Pacific Commercial Credit, Ltd., a company controlled by Alex Genin, our chief executive officer, made a loan to us under a $15,000 promissory note bearing 8% interest and which is due March 2011. The notes to Pacific Commercial Credit were not collateralized.
5. | Stock and Option Transactions |
During the three months ended March 31, 2008, the company sold 25,000 shares of restricted common stock to an investor for $5,000 based on the trading value of the stock on the date of sale. An option to purchase 900,000 shares was exercised by one of its directors for the value of the stock on the date of issue for proceeds of $54,000. The proceeds were then used to pay down the note payable and accrued interest to the director. The company did not recognize any stock-based compensation and there were no options granted during the same period.
PART I - FINANCIAL INFORMATION
Item 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Please see financial statements beginning on page F-1
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
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-KSB for the year ended December 31, 2007. 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.
The company entered into consulting services for power plant projects in Russia in 2007. Revenue from these services are 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 $0 stock-based compensation cost in the three months ended March 31, 2008 for the options and 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, 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 system 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.
In January 2004, we filed an application for a patent with the U.S. Patent Office for use of our technology in a manner that addresses issues of the new Air Sea Ground Defense System ("ASGDS") with Active Control Link. This new ASGDS technology allows an air/sea and/or ground control center to actually see inside an aircraft or ship when it is still in the air/open sea and allow the ground center to take control of the respective aircraft/ship in the event of a hijacking attempt or other terrorist attempts to take over an airplane/ship. In cooperation with the US Coast Guard and the Port of Houston Authorities, we successfully completed the pilot project and installed a Marine Security System on one of the MARAD’s military vessels at the Port of Houston. The presentation of this technology was held on October 12, 2004 at the Port of Houston facilities.
Our second demonstration of our ASGDS was on May 11, 2006. This event was hosted by the Port of Houston Authority and US Department of Homeland Security. At this event, we demonstrated our technology, fully integrated with the satellite broadband service and the new DefendIR camera system, manufactured by ICX, Inc. In June 2006, we signed an exclusive two year contract to market ICX cameras in the former Soviet Union countries.
In the first and second quarters of 2006, we had several meetings with the representatives of Russian Government regarding our ASGDS and believe that good opportunities exist in Russia for our security solutions, due to rapidly growing business of LNG export from Russia to USA.
During 2007, we were acting as a consultant for URS Washington Group International to develop power energy business opportunities in the Russian Federation. Currently, we continue developing market strategies for URS Washington Group International in this area.
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 Hotels allowed us to secure contracts to install video surveillance systems in several Marriott Hotels in Florida and Texas. We are now working on much larger proposals for their new “under construction” hotels.
Projects in Florida
We are also working with KOR Group Developers in Florida at their Tides Hotel properties in Miami, Florida working on several security solutions including structure wiring, video surveillance and sound systems.
In March 2005, we signed a contract with the Dinerstein Companies, a large real estate developer, to provide basic home automation/security package for their mid-rise project in Florida. We have completed the installation of our home automation equipment in the Dinerstein’s model condo unit in the second quarter of 2005 and have started the first phase of the installation in the fourth quarter of 2007 and will continue with second phase in the second quarter of 2008.
During 2007, we invested in our Florida operation and hired additional sales force in Florida. As a result, we have ongoing negotiations with several hi-rise condo developers in Miami, Florida to market our technology solutions to new hi-rise condo communities in Florida. We also received contracts to install home automation systems in high-end homes in the area and we will continue to work on installation projects with several hotels in the area.
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. We believe our Florida operations are positioned to bring substantial revenue for the company.
Projects in Texas
We are bidding on several high-rise condominium projects in the Houston and Miami area. As a result, we signed an initial contract in August 2007 with a new luxury high-rise complex in Houston to install security solution as well as to design for the owners a new state-of-the-art “Concierge” Digital Living Automation software. This has created new opportunities for our home automation solutions. We are currently working on the software design and planning to invest in marketing the “Concierge” concept into other regions.
We are also actively involved in Houston hotels installation projects, predominantly Marriott Hotels as well as upscale residential projects in Houston.
Projects in Russia
In May 2007, we signed an agreement with a major Russian electronic defense contractor, OAO Ruselectronics. Under this agreement, we will develop a marketing strategy to sell our products for the Russian market and Ruselectronics will provide the resources to complete the developed projects in Russia. We believe this forthcoming demonstration and support from Ruselectronics and the recent interest in this technology from the members of the Russian Congress and Senate will give us opportunities to implement this technology jointly with Ruselectronics in the Russian Federation.
Since December 2006, we have been working with URS, Washington Group Division, a U.S. construction/defense company, to bring them opportunities for large projects in Russia. Washington Group is in the final negotiation stage with First National Energy Corporation to build two new power plants in St. Petersburg, Russia as well as several other gas generation and electrical power plants in the Moscow region. In May 2007, we signed a teaming agreement with URS, Washington Group Division specifying that, if such contracts are obtained, we will have exclusive rights to provide the design and installation of video security systems, fire security systems and IT systems for these projects.
In September 2007, we have signed a joint working agreement with Decisive Analytics Corporation, a US defense system integrator. We are working with them on possibilities of implementing some of our technologies into their current research product. We are also working with them on possibilities on designing complex security solutions for potential power plant projects in Russia currently under development with URS, Washington Group Division.
We are also currently considering a teaming agreement with Worley Parsons Energy Company, a leading Australian engineering construction conglomerate, to be involved with our company in the construction and development of our potential Russian power plant projects.
Our teaming agreement with OAO Ruselectronics to provide all the necessary manpower and resources and the necessary permits for the above-referenced projects will secure execution of these projects.
Other International Projects
We are currently bidding on a full security solution project in Equatorial Guinea for Marathon Oil Company. During 2007, we visited Equatorial Guinea and surveyed a future job site. As a result, we became very familiar with the project and believe we can complete should we be awarded the project. We are also currently considering alliances with several companies in the Middle East to capitalize on the rapid growth in the region.
Trade Shows
To build awareness and demand for our VIP Systems, we have participated in a number of key trade shows, including:
· | International Security Conference in Brussels, Belgium in February 2007; |
· | International Anti-Terrorist Security Conference in Moscow, Russia in November 2006; |
· | Port of Houston Homeland Security Demonstration event using US Merchant Fleet ship – “New challenges for Port Security” in Houston, Texas in May 2006; |
· | Houston Apartment Association Show in Houston, Texas in April 2006; |
· | International Security Conference in Brussels, Belgium in February 2006; |
· | US Department of Homeland Security Exhibit in Washington, DC in March 2005; |
· | US Trade Mission and exhibit in Moscow, Russia in February 2005; |
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 incurred net losses of $131,413during the three months ended March 31, 2008. We also had negative cash flows from operations of $106,910 during the three months ended March 31, 2008. These factors and our history of recurring losses 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, 2007 and 2006, 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 for the foreseeable future due to the significant costs associated with home automation and video security technology operations.
Recurring losses have resulted in an accumulated deficit of $11,245,061 on March 31, 2008. Revenues for the three months ended March 31, 2008 were $90,687 compared to revenues of $136,788 for the three months ended March 31, 2007. The decrease in revenue is mainly because at the end of the quarter, we were not able to recognize revenues on uncompleted major long term projects.
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) that we feel will improve our operating results. Although we believe that our revenues will increase, and that we will ultimately be profitable, we can provide no assurance that profitability will occur.
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 can not give any assurances that we will be able to successfully compete in this market.
THE THREE MONTHS ENDED MARCH 31, 2008 AS COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2007
During the three months ended March 31, 2008, our revenues were $90,687 as compared to $136,788 for the three months ended March 31, 2007 because we were unable to recognize revenues on uncompleted major long term projects.
During the three months ended March 31, 2008, selling, general and administrative expenses decreased by $192,874 or 54% to $162,535 as compared to the three months ended March 31, 2007. This decrease was mainly attributable to decreased issuance of stock options which resulted in decreased charges to stock and option compensation expense, a decrease in travel and entertainment expense partially offset by an increase in rent and personnel related expenses.
During the three months ended March 31, 2008, we had a net loss of $131,413 as compared to a net loss of $313,669 in the three months ended March 31, 2007.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2008, we had cash resources of $7,772. We estimate that during the three months ending June 30, 2008, our cash requirements will be approximately $180,000 (or approximately $60,000 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 2008 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 three months ended March 31, 2008, we received $5,000 cash from the sale of our securities and $54,000 on exercise of option to purchase 900,000 shares offset by reduction of principal and interest on promissory notes to Mr. Genin, our chief executive officer.
During 2008, we obtained loans from 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 March 31, 2008
United Capital Group, a company controlled by Alex Genin, our chief executive officer has several loans outstanding under 14 separate promissory notes bearing 8% interest rate and maturing between March 2009 and December 2010. None of these notes were collateralized. As of March 31, 2008, the total principal amount due on all notes to United Capital Group is $198,983.
During 2008, Alex Genin, our chief executive officer, made several loans to us under four separate promissory notes for a total principal amount of $35,000 which bear interest at the rate between 0% and 8% and which are due between January 2010 and February 2011. No interest has been imputed due to the immateriality of the amount. Three promissory notes originally due March 2008 bearing 7% interest for a total principal amount of $8,000 were extended three 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. A $9,000 note originally made in October 2007 was partially paid. The remaining balance on this note is $2,000. None of these notes were collateralized. As of March 31, 2008, the total principal amount due on all notes to Alex Genin is $248,600.
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 7% and which is due February 2011. During the same period, five notes maturing between January 2008 and March 2008 for a total principal amount of $68,000 which bear interest at the rate ranging between 6% and 7% were extended three years. None of these notes were collateralized. As of March 31, 2008, the total principal amount due on all notes to Eastern Credit Limited is $230,300.
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. This note was not collateralized. As of March 31, 2008, the total principal amount due on all notes to ECL Trading 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. This note was not collateralized. As of March 31, 2008, the total principal amount due on all notes to First National Energy Corporation is $20,000.
First National Petroleum, Inc., a company controlled by Alex Genin, our chief executive officer, has two outstanding promissory notes which bear interest at the rate of 8% and are due April 2009 and June 2010. None of these notes were collateralized. As of March 31, 2008, the total principal amount due on all notes to First National Petroleum is $14,500.
During 2008, Pacific Commercial Credit, Ltd., a company controlled by Alex Genin, our chief executive officer, made a loan to us under a $15,000 promissory note bearing 8% interest and which is due March 2011. The notes to Pacific Commercial Credit were not collateralized. As of March 31, 2008, the total principal amount due on all notes to Pacific Commercial Credit, Ltd. is $60,900.
Stromberg Development, Inc., a company owned by Alex Genin, our chief executive officer, has eight outstanding promissory notes made during 2007 which bear interest at the rate of 8% and are due in three years between April 2010 and September 2010. None of these notes were collateralized. As of March 31, 2008, the total principal amount due on all notes to Stromberg Development, Inc. is $42,300.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report on Form 10-Q, our Chief Executive Officer and our Chief Financial Officer performed an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that as of the end of the period covered by this report on Form 10-Q, our disclosure controls and procedures were effective in timely recording, processing, summarizing and reporting material information required to be included in our Exchange Act filings.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting for that period.
PART II - OTHER INFORMATION
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 2008, we effected the following transactions in reliance upon exemptions from registration under the Securities Act of 1933 as amended as provided in Section 4(2) thereof. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Act and setting forth the restrictions on the transferability and the sale of the securities. No underwriter participated in, nor did we pay any commissions or fees to any underwriter in connection with any of these transactions. None of the transactions involved a public offering. We believe that each of these persons had knowledge and experience in financial and business matters which allowed them to evaluate the merits and risk of the purchase or receipt of these securities of the Company. We believe that each of these persons was knowledgeable about our operations and financial condition.
1. During the three months ended March 31, 2008, we received $5,000 cash from an investor for a total sale of 25,000 shares of our restricted common stock. An option to buy 900,000 shares was exercised by Alex Genin, our chief executive officer, at $0.06 for a total of $54,000. This was applied towards principal and interest, $43,790 and $10,210 respectively, on notes to Mr. Genin. The market value of these issuances ranged from $0.18 to $0.20 per share.
2. During the three months ended March 31, 2008, we did not grant any options to purchase shares of common stock to employees. An option to purchase up to 20,000 shares expired in the same period,
Item 3. DEFAULT UPON SENIOR SECURITIES
On March 24, 2006, we issued 2,500,000 restricted common shares at $0.20 per share (or 833,334 shares of restricted common stock at $0.60 after a 1-for-3 reverse split) to a sophisticated investor as a collateral for a note payable bearing interest of 0% and due on May 30, 2007. The agreement allows the disposal of the shares by the investor, in part or full, prior to May 30, 2007; and the proceeds from such disposal would reduce the principal balance of $500,000. The promissory note is also secured by all assets of the Company. In accordance with APB Opinion 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants, this instrument is accounted for as a liability in the financial statements. The note expired on May 30, 2007. We are in default of this Note and an extension is under negotiation as of March 31, 2008.
Item 6. EXHIBITS
Exhibit 31.1 - Certification of Chief Executive Officer and Acting Chief Financial Officer of First Capital International, Inc. required by Rule 13a - 14(1) or Rule 15d - 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 - Certification of Chief Executive Officer and Acting Chief Financial Officer of First Capital International, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
First Capital International, Inc. | |
Date: May 20 2008 | By: /s/ Alex Genin |
Alex Genin | |
Chief Executive Officer and | |
Acting Chief Financial Officer |
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