FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended: June 30, 1997
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 number: 33-31639
Finca Consulting, Inc.
(Exact name of registrant as specified in its Charter)
Colorado 84-1121635
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Koenigsallee 106, 40215 Duesseldorf, Germany
(Address of principal executive offices) (Zip Code)
(011-49-211) 384860
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to filed such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Not applicable.
As of June 30, 1997, 10,558,531 shares of Registrant's Common Stock,
$.01 par value, were issued and outstanding.
Finca Consulting, Inc.
Index
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations
Part II OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote
of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
PART I FINANCIAL INFORMATION
ITEM 1
Finca Consulting, Inc. and Subsidiaries
Index to the Consolidated Financial Statements
June 30, 1997
Financial Statements
Consolidated Balance Sheets................................................
Consolidated Statements of Operations......................................
Consolidated Statements of Cash Flows......................................
Notes to the Consolidated Financial Statements.............................
Finca Consulting, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, December 31,
1997 1996
------------ ------------
(Unaudited)
Assets
Current Assets
Cash ........................................................................ $ 886,066 $ 4,928,557
Other current assets ........................................................ 86,589 111,245
------------ ------------
Total Current Assets ................................................... 972,655 5,039,802
------------ ------------
Property and Equipment, at cost
Land ........................................................................ 115,560 115,560
Buildings ................................................................... 462,257 462,257
Office furniture and equipment .............................................. 367,952 364,486
------------ ------------
945,769 942,303
Less: accumulated depreciation .............................................. 343,610 312,477
------------ ------------
Net Property and Equipment ............................................. 602,159 629,826
------------ ------------
Other Assets
Receivables due from related parties ........................................ 4,028,777 1,846,167
Other assets ................................................................ 229,234 251,875
------------ ------------
Total Other Assets ..................................................... 4,258,011 2,098,042
------------ ------------
Total Assets ........................................................... 5,832,825 7,767,670
============ ============
Finca Consulting, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, December 31,
1997 1996
------------ ------------
(Unaudited)
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses ....................................... 80,875 283,249
Customer credit balances .................................................... 1,246,589 3,023,484
------------ ------------
Total Current Liabilities .............................................. 1,327,464 3,306,733
------------ ------------
Minority interest in subsidiary ............................................. 45,632 45,632
------------ ------------
Stockholders' Equity
Common stock, $.01 par value, 20,000,000 shares authorized, 10,558,531 and
10,300,322 shares issued and outstanding,
respectively ............................................................. 105,585 103,003
Capital in excess of par value .............................................. 14,538,170 13,510,301
Accumulated deficit ......................................................... (10,248,834) (9,203,652)
Cumulative translation adjustment ........................................... 64,808 5,653
------------ ------------
Total Stockholders' Equity ............................................. 4,459,729 4,415,305
------------ ------------
Total Liabilities and Stockholders' Equity ............................. $ 5,832,825 $ 7,767,670
============ ============
See notes to the consolidated financial statements.
Finca Consulting, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------- --------------------------------------------
1997 1996 1995 1997 1996 1995
------------ ------------ ------------ ------------ ------------ ------------
Revenues ........................... $ 20,869,512 $ 27,905,151 $ 6,483,022 $ 42,939,448 $ 46,266,748 $ 10,493,688
Cost of Shares and Options ......... 19,525,615 21,709,038 5,370,575 38,088,890 35,778,034 9,421,036
------------ ------------ ------------ ------------ ------------ ------------
Gross Profit ....................... 1,343,897 6,196,113 1,112,447 4,850,558 10,488,714 1,072,652
------------ ------------ ------------ ------------ ------------ ------------
Selling, general and administrative
expenses ........................ 2,302,865 4,606,399 2,595,526 5,913,863 9,118,708 4,447,823
------------ ------------ ------------ ------------ ------------ ------------
Income (Loss) From Operations ... (958,968) 1,589,714 (1,483,079) (1,063,305) 1,370,006 (3,375,171)
------------ ------------ ------------ ------------ ------------ ------------
Other Income (Expense)
Interest Income ................. 2,136 -- -- 18,123 -- --
Loss on Disposition of Subsidiary -- (440,217) -- -- (440,217) --
------------ ------------ ------------ ------------ ------------ ------------
Total Other Income (Expense) 2,136 (440,217) -- 18,123 (440,217) --
------------ ------------ ------------ ------------ ------------ ------------
Net Income (Loss) Before Taxes ..... (956,832) 1,149,497 (1,483,079) (1,045,182) 929,789 (3,375,171)
Provision For Income Taxes ......... -- 278,937 -- -- 278,937 --
------------ ------------ ------------ ------------ ------------ ------------
Net Income (Loss) .................. $ (956,832) $ 870,560 $ (1,483,079) $ (1,045,182) $ 650,852 $ (3,375,171)
============ ============ ============ ============ ============ ============
Net Income (Loss) Per Share ........ $ (0.09) $ 0.41 $ (0.69) $ (0.10) $ 0.30 $ (1.57)
============ ============ ============ ============ ============ ============
Weighted Average Number of Common
Shares Outstanding ................. 10,429,426 2,146,633 2,146,633 10,429,426 2,146,633 2,146,633
============ ============ ============ ============ ============ ============
See notes to the consolidated financial statements.
Finca Consulting, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
-----------------------------------------------
1997 1996 1995
----------- ----------- -----------
Cash Flows From Operating Activities
Net Income (Loss) ......................................................... $(1,045,182) $ 650,852 $(3,375,171)
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used in) Operating Activities:
Depreciation and amortization .......................................... 53,869 52,342 133,828
(Increase) in marketable securities .................................... -- -- (8,068)
(Increase) decrease in receivable due from related parties ............. (2,182,610) 410,037 (312,961)
(Increase) in accounts receivable ...................................... -- -- (1,262)
(Increase) decrease in other current assets ............................ 24,656 100,547 (21,119)
(Increase) decrease in other assets .................................... 22,641 (544,685) (130,112)
Decrease in deposits ................................................... -- -- 1,162
(Decrease) in accounts payable and accrued expenses .................... (202,374) (198,646) 61,438
Increase (decrease) in customer credit balances ........................ (1,776,895) 1,551,675 623,238
Increase in income taxes payable ....................................... -- 278,937 --
----------- ----------- -----------
Net Cash Provided by (Used in) Operating Activities ................. (5,105,895) 2,301,059 (3,029,027)
----------- ----------- -----------
Cash Flows From Investing Activities
(Purchase) of property and equipment ...................................... (26,202) (96,351) (2,971)
Investment in subsidiary .................................................. -- -- (180,800)
----------- ----------- -----------
Net Cash Provided by (Used in) Investing Activities .................. (26,202) (96,351) (183,771)
----------- ----------- -----------
Cash Flows From Financing Activities
(Redemption) of preferred shares .......................................... -- (1,017,315) 6,097,017
Issuance of common shares ................................................. 1,030,451 -- --
Acquisition of treasury shares ............................................ -- -- (268,136)
----------- ----------- -----------
Net Cash Provided by (Used in) Financing Activities ................ 1,030,451 (1,017,315) 5,828,881
----------- ----------- -----------
Effect on Exchange Rate Changes on Cash ...................................... 59,155 (156,462) (356,171)
----------- ----------- -----------
Net Increase (Decrease) in Cash .............................................. (4,042,491) 1,030,931 2,259,912
Cash at Beginning of the Period .............................................. 4,928,557 6,004,844 953,633
----------- ----------- -----------
Cash at the End of the Period ................................................ $ 886,066 $ 7,035,775 $ 3,213,545
=========== =========== ===========
See notes to the consolidated financial statements.
Finca Consulting, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited)
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the six month period ended June 30, 1997 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1996. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant Company and Subsidiaries' annual
report on Form 10-K for the year ended December 31, 1996.
The balance sheet at December 31, 1996 has been derived from the audited
financial statements of that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
Finca Consulting, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements and Notes thereto included herein.
Fiscal Year 1997 vs. Fiscal Year 1996
Results of Operations
Substantially all of the Company's revenues during the quarter ended June 30,
1997, were generated by its subsidiary Prime Core AG through its retail
securities brokerage activities. Revenues for the quarter totaled $20,869,512 as
compared to $27,905,151 during the second quarter a year ago. Revenues for the
six months ended June 30, 1997, amounted to $42,939,448 compared to $46,266,748
for the same period last year. The low gross margin of 6.4% for the quarter as
opposed to margins that ranged between 15% and 25 % during the last year
reflects the increasingly competitive environment in the Company's traditional
German market, which during this quarter was exacerbated by unfavorable price
developments in the securities purchased by the Company's operating subsidiary.
Selling, general and administrative expenses for the quarter totaled $2,302,865
which is in line with the changes in revenues.
For the quarter ended June 30, 1997, the Company suffered a net loss of
$956,832 compared to a profit of $870,560 during the second quarter last year.
The six months' results were losses of $1,045,182 and profits of $650,852 for
1997 and 1996, respectively.
Liquidity and Capital Resources
The Company had total assets at June 30, 1997 of $5,832,825, of which
$972,655 were current assets. Working capital showed a deficit of $354,809, due
to negative cash flow from operations of $3,931,240. During the quarter, the
Company continued its capital raising program pursuant to which Prime Core AG
sold a total of 258,209 shares of the Company's common stock through private
placements with European investors pursuant to Regulation S promulgated under
the Securities Act of 1933, as amended. The net proceeds of these sales totaled
$1,030,451.
Fiscal Year 1996 vs. Fiscal Year 1995
Results of Operations
Substantially all of the Company's revenues during the quarter ended June 30,
1994, were generated by its subsidiary, Prime Core AG ("PC-AG") through its
retail securities brokerage activities. Revenues for the quarter totaled
$27,905,151 as compared to $6,483,022 during the second quarter a year ago and
$18,361,597 for the preceeding quarter. Revenues for the six months ended June
30, 1996, amounted to $46,266,748 compared to $10,493,688 for the same period
last year. Selling, general and administrative expenses for the quarter totaled
$4,606,399. The rapid growth of revenues reflects a very dynamic and favorable
investment climate in the Company's marketplace, Germany, which shows inceasing
market acceptance for the Company's products.
For the quarter ended June 30, 1996, the Company achieved a net profit of
$870,560 compared to a loss of $1,483,079 during the second quarter last year.
The six months' results were a profit of $650,852 and a loss of $3,375,171 for
1996 and 1995, respectively. Management is unable to predict with accuracy the
future profitability, because of market forces beyond the Company's control.
On April 2, 1996, the Company sold its interest in Finca Consulting GmbH, a
subsidiary incorporated in Germany, for the amount of DM100,000. The removal of
Finca Consulting GmbH from the Company's consolidated financial statements will
not have any material effect, either on historical or expected future
performance.
Liquidity and Capital Resources
The Company had total assets as of June 30, 1996 of $9,469,227, of which
$7,183,465 were current assets. The current assets include a cash position of
$7,035,775 .
During the quarter, the Company redeemed 159,624 shares of its preferred
stock, for an aggregate $538,287.
PART II, OTHER INFORMATION
ITEM 1.Legal Proceedings.
Many aspects of the Company's business involve risks of liability. The
Company has been named as a defendant in civil actions arising in the
ordinary course of business out its activities in securities and futures
options contracts. In the opinion of management of the Company, however,
the Company is not involved in any litigation or legal proceedings that
would have a material effect upon its financial condition, except as may
be indicated below.
Regulatory Matters
Securities regulations in Germany are enforced by the German Banking
Authorities (the "Bundesaufsichtsamt fuer das Kreditwesen", or the "BAK").
The BAK administers and enforces the German banking act (the "Gesetz fur
das Kreditwesen", or the "KWG"). The Company's brokerage business in the
past and as currently operated utilizes the services of independent
brokers in Germany to solicit German customers who are referred to the
Company's Swiss-based subsidiary, Prime Core AG, which maintains
dministrative offices in Zug,Switzerland.
Previously, the KWG or German banking laws, loosely defined brokers and
financial services activities and operations. The mainstream securities
brokerage business in Germany was and continues to be performed by German
banks or firms which are members of recognized stock exchanges. Because of
the loosely defined terms and regulations of the "BAK", many firms conduct
securities brokerage and financial services businesses without being
members of established stock exchanges nor in association with an
established German bank. The Corporation's securities brokerage business
operations, similarly situated and not conducted as a bank or stock
exchange member, has operated in what is called in Germany the "gray
market".
As of January 1, 1998, Germany has adopted new regulations that will
require entities who conduct any financial services business of any kind,
including securities brokerage and investment services, to register with
the German authorities in order to conduct and, in the Company's case, to
continue performing securities brokerage business in Germany. If the
Company does not comply with these new German regulations, the
continuation of its securities business in Germany could be subject to
enforcement proceedings which could have a material advers effect on the
Company's financial condition. The Company, however, fully intends to
comply with the new German legal requirements and is now taking all
measures necessary for its securities brokerage business to be in full
compliance. It is unclear, however and notwithstanding the Company's
current efforts to comply, whether the Company will be in full compliance
with the new regulations on or shortly after January 1, 1998. The
Company's German- based advisors have informed the Company that it will
be, perhaps, six months before the Company's securities brokerage business
is in full compliance with the new regulations. Under these circumstances,
if the German banking regulators, or the "BAK", were to institute
enforcement proceedings against the Company in Germany, it could have
material adverse effects on the financial condition of the Company.
ITEM 2.Changes In Securities.
During the quarter, the Company's subsidiary Prime Core AG sold a total of
258,209 shares of the Company's common stock through private placements
with European investors pursuant to Regulation S promulgated under the
Securities Act of 1933, as amended. The net proceeds of these sales
totaled $1,030,451.
ITEM 3.Defaults Upon Senior Securities.
Not Applicable.
ITEM 4.Submission of Matters to a Vote of Securities.
Not Applicable.
ITEM 5.Other Information
Not Applicable.
ITEM 6.Exhibits and Reports on Form 8-K
(a) (3)(i) Articles of Incorporation: incorporated by reference to the
Company's Form S-18 Registration Statement, filed with the Securities and
Exchange Commission on October 17, 1989, and declared effective on June 29,
1990.
(3)(i) Articles of Amendment to Articles of Incorporation: incorporated
by reference to the Exhibit to the Company's Form 10-K for the fiscal year ended
December 31, 1991 filed on June 4, 1992 with the Securities and Exchange
Commission.
(3)(ii) Bylaws:incorporated by reference to the Company's Form S-18
Registration Statement, filed with the Securities and Exchange Commission on
October 17, 1989, and declared effective on June 29, 1990.
(21) Subsidiaries of the Company:
(i) Finca Consulting Costa Brava, S.A.
- is a corporation formed under the laws of the Country of Spain and is
the name under which it conducts business.
(ii) Prime Core AG
- is a corporation formed under the laws of the Country of Switzerland and
conducts its retail securities and options business in Germany.
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the period covered by this
report on Form 10-Q.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
FINCA CONSULTING, INC.
(Registrant)
Date: December 25, 1997 By: /s/Volker Montag
----------------
Volker Montag, President
Principal Financial Officer