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: September 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.
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of September 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
September 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
September 30, December 31,
1997 1996
------------ ------------
(Unaudited)
Assets
Current Assets
Cash ........................................... $ 1,293,360 $ 4,928,557
Other current assets ........................... 88,933 111,245
------------ ------------
Total Current Assets ...................... 1,382,293 5,039,802
------------ ------------
Property and Equipment, at cost
Land ........................................... 115,560 115,560
Buildings ...................................... 462,257 462,257
Office furniture and equipment ................. 368,490 364,486
------------ ------------
946,307 942,303
Less: accumulated depreciation and amortization (368,663) (312,477)
------------ ------------
Net Property and Equipment ................ 577,644 629,826
------------ ------------
Other Assets
Receivables due from related parties ........... 2,396,407 1,846,167
Other assets ................................... 149,238 251,875
------------ ------------
Total Other Assets ........................ 2,545,645 2,098,042
------------ ------------
Total Assets .............................. 4,505,582 7,767,670
============ ============
Finca Consulting, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30, December 31,
1997 1996
------------ ------------
(Unaudited)
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses .......... 84,259 283,249
Customer credit balances ....................... 1,912,973 3,023,484
------------ ------------
Total Current Liabilities ................. 1,997,232 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 ............................ (12,227,032) (9,203,652)
Cumulative translation adjustment .............. 45,995 5,653
------------ ------------
Total Stockholders' Equity ................ 2,462,718 4,415,305
------------ ------------
Total Liabilities and Stockholders' Equity $ 4,505,582 $ 7,767,670
============ ============
See notes to the consolidated financial statements.
Finca Consulting, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Nine Months Ended
Three Months Ended September 30, September 30,
-------------------------------------------- ---------------------------------------------
1997 1996 1995 1997 1996 1995
------------ ------------ ------------ ------------ ------------ ------------
Revenues ............................ $ 22,464,020 $ 20,785,667 $ 11,974,528 $ 65,403,468 $ 67,052,415 $ 22,468,216
Cost of Shares and Options .......... 20,165,500 17,065,996 7,800,454 58,254,390 53,352,077 17,221,490
------------ ------------ ------------ ------------ ------------ ------------
Gross Profit ........................ 2,298,520 3,719,671 4,174,074 7,149,078 13,700,338 5,246,726
Selling, general and administrative
expenses ......................... 4,277,191 6,754,214 3,388,198 10,191,854 15,872,922 7,836,021
------------ ------------ ------------ ------------ ------------ ------------
Income (Loss) From Operations (1,978,671) (3,034,543) 785,876 (3,042,776) (2,172,584) (2,589,295)
------------ ------------ ------------ ------------ ------------ ------------
Other Income (Expense)
Interest Income .................. 1,273 77,928 -- 19,396 77,928 --
Loss on disposition of subsidiary -- (440,217) -- -- (440,217) --
------------ ------------ ------------ ------------ ------------ ------------
Total Other Income (Expense) 1,273 (362,289) -- 19,396 (362,289) --
------------ ------------ ------------ ------------ ------------ ------------
Net Income (Loss) Before Taxes ...... (1,977,398) (3,396,832) 785,876 (3,023,380) (2,534,873) (2,589,295)
Provision for (benefit from) income
taxes ............................ -- (211,107) -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Net Income (Loss) ................... $ (1,977,398) $ (3,185,725) $ 785,876 $ (3,023,380) $ (2,534,873) $ (2,589,295)
============ ============ ============ ============ ============ ============
Net Income (Loss) Per Share ......... $ (.19) $ (1.44) $ 0.37 $ (.29) $ (1.15) $ (1.21)
============ ============ ============ ============ ============ ============
Weighted Average Number of
Common Shares Outstanding ........... 10,558,531 2,210,296 2,146,633 10,472,461 2,210,296 2,146,633
============ ============ ============ ============ ============ ============
See notes to the consolidated financial statements.
Finca Consulting, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
-------------------------------------------------
1997 1996 1995
----------- ----------- -----------
Cash Flows From Operating Activities
Net (Loss) ............................................................. $(3,023,380) $(2,534,873) $(2,589,295)
Adjustments to Reconcile Net Loss to Net Cash Provided by
(Used in) Operating Activities:
Adjustment for accumulated deficit of former subsidiary ............. -- 1,833,125 --
Depreciation and amortization ....................................... 78,645 59,611 155,299
(Increase) in accounts receivable ................................... -- -- (1,002)
Decrease in other current assets .................................... 22,312 105,306 (87,063)
(Increase) in marketable securities ................................. -- -- (1,612,351)
(Increase) in receivable due from related parties ................... (550,240) (736,645) (695,034)
(Increase) decrease in other assets ................................. 102,637 (117,256) (4,342)
Decrease in deposits ................................................ -- -- 1,120
Increase (decrease) in accounts payable and accrued
expenses .......................................................... (198,990) (57,147) (4,628)
Increase (decrease) in customer credit balances ..................... (1,110,511) 3,110,991 1,068,719
----------- ----------- -----------
Net Cash Provided by (Used in) Operating Activities ............... (4,679,527) 1,663,112 (3,768,577)
----------- ----------- -----------
Cash Flows From Investing Activities
(Purchase) of property and equipment ................................... (26,463) (92,519) (44,672)
----------- ----------- -----------
Investment in subsidiary ............................................... -- -- (180,000)
----------- ----------- -----------
Net Cash (Used in) Investing Activities ........................... (26,463) (92,519) (224,672)
----------- ----------- -----------
Cash Flows From Financing Activities
Issuance (Redemption) of preferred shares .............................. -- (1,075,857) 6,097,017
Issuance of common shares .............................................. 1,030,451 559,854 --
----------- ----------- -----------
Acquisition of treasury shares ......................................... -- -- (268,136)
----------- ----------- -----------
Net Cash Provided by (Used in) Financing Activities ............... 1,030,451 (516,003) 5,828,881
----------- ----------- -----------
Effect on Exchange Rate Changes on Cash ................................... 40,342 (27,070) 1,835
----------- ----------- -----------
Net Increase (Decrease) in Cash ........................................... (3,635,197) 1,027,520 1,837,467
Cash at Beginning of the Period ........................................... 4,928,557 6,004,844 953,633
----------- ----------- -----------
Cash at the End of the Period ............................................. $ 1,293,360 $ 7,032,364 $ 2,791,100
=========== =========== ===========
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 three and nine month periods ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year ended December
31, 1997. 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 in Item 1 above.
Fiscal Year 1997 vs. Fiscal Year 1996
Results of Operations
Substantially all of the Company's revenues during the quarter were generated
by its subsidiary, Prime Core AG through its retail securities brokerage
activities.
Revenues increased from $20,869,512 in the prior quarter and $20,785,667 in
the third quarter of 1996, to $22,464,020 in the third quarter this year, for a
nine months' total of $65,403,468 compared to $67,052,415 for the first nine
months in 1996. Gross margins in the quarter recovered somewhat from the low
level in the second quarter, to 10.2% of revenues which, however, is still well
below the margins achieved in 1996. Selling, general and administrative expenses
during the quarter amounted to $4,277,191, higher than in the preceding quarter
but significantly less than in the corresponding quarter last year, reflecting
efforts by management to control costs. The Company sustained a net loss for the
quarter in the amount of $1,977,398 for a year-to-date total of minus
$3,023,380, compared to losses of $3,185,725 and $2,534,873 for the same quarter
and nine months period last year.
Liquidity and Capital Resources
The Company had total assets as of September 30, 1997 of $4,505,582, of which
$1,382,293 were current assets. Working capital at the end of the quarter showed
a deficit of $614,939. Management is reviewing its cost structure, especially
with regard to its network of independent brokers, in an effort to streamline
operations and thereby improve profitability and cash flow.
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, Opti-Wert-Interest AG ("OWI-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.
Not Applicable.
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
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