U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________________ to ____________________
Commission File Number: 000-26271
First Capital International, Inc.
(Name of small business issuer in its charter)
Delaware 76-0582435
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5120 Woodway, Suite 9004, Houston, Texas 77056
(address of principal executive offices)
Issuer's telephone number: (713) 629-4866
Issuer's fax number: (713) 629-4913
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 X
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of June 30, 1999: 65,196,142
----------
<PAGE>
FIRST CAPITAL INTERNATIONAL, INC.
TABLE OF CONTENTS
FORM 10-QSB FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Condensed Balance Sheet as of
December 31, 1998 and June 30, 1999 F-1
Consolidated Condensed Statement of
Operations for the three and six months
ended June 30, 1999
and 1998 F-2
Consolidated Condensed Statement of
Stockholders' Equity for the six months
ended June 30, 1999 F-3
Consolidated Condensed Statement of Cash
Flows for the six months ended June 30,
1999 and 1998 F-4
Selected Notes to Consolidated Financial
Statements F-5
Item 2. Management's Discussion and Analysis of 1
Financial Condition and Results of Operation
PART II - OTHER INFORMATION
Item 2. Changes in Securities 12
Item 6. Exhibits and Reports on Form 8K 13
SIGNATURES 14
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
FIRST CAPITAL INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 1999 AND DECEMBER 31, 1998
__________
JUNE 30, DECEMBER 31,
1999 1998
ASSETS (UNAUDITED) (NOTE)
- ------------------------------------------------ ------------ ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 92,692 $ 61,467
Short-term investments 44,951 -
Lease receivables, net 92,787 107,200
Other 25,365 34,794
------------ ----------
Total current assets 255,795 203,461
Lease receivables 77,348 119,339
Accounts and notes receivable, net 2,262 3,082
Property and equipment, net 6,043 9,519
------------ ----------
Total assets $ 341,448 $ 335,401
============ ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- ------------------------------------------------
Current liabilities:
Note payable to a related party $ 94,327 $ 105,958
Accounts payable and accrued liabilities 6,701 26,501
------------ ----------
Total current liabilities 101,028 132,459
Long-term debt to a related party 295,179 333,641
------------ ----------
Total liabilities 396,207 466,100
------------ ----------
Commitments and contingencies
Stockholders' deficit:
Common stock, $0.001 par value; 100,000,000
shares authorized; 65,196,142 and 55,751,142
shares issued and outstanding at June 30,
1999 and December 31, 1998, respectively 65,196 55,751
Additional paid-in capital 1,102,261 681,746
Accumulated deficit (1,220,232) (865,340)
Accumulated foreign currency translation
adjustments (1,984) (2,856)
------------ ----------
Total stockholders' deficit (54,759) (130,699)
------------ ----------
Total liabilities and stockholders'
deficit $ 341,448 $ 335,401
============ ==========
</TABLE>
Note: The consolidated balance sheet at December 31, 1998 has been derived from
the audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. See accompanying notes.
F-1
<PAGE>
<TABLE>
<CAPTION>
FIRST CAPITAL INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
___________
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Interest income $ 8,948 $ 11,201 $ 19,418 $ 21,901
Other operating revenue 59,453 7,120 61,929 9,225
------------ ------------ ------------ ------------
Total revenue 68,401 18,321 81,347 31,126
------------ ------------ ------------ ------------
Costs and expenses:
Operating, general and admin-
istrative expenses 98,120 4,044 163,776 8,196
Stock and option based com-
pensation 6,930 - 149,504 -
Depreciation and amortization 1,937 2,085 3,994 4,170
Interest expense 35,376 7,716 104,388 15,313
Other expense, net 11,714 5,284 14,577 7,316
------------ ------------ ------------ ------------
Total costs and expenses 154,077 19,129 436,239 34,995
------------ ------------ ------------ ------------
Net loss $ (85,676) $ (808) $ (354,892) $ (3,869)
============ ============ ============ ============
Basic and dilutive net loss
per common share $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============ ============ ============ ============
Weighted average shares
outstanding 65,137,977 46,651,142 63,133,639 46,651,142
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-2
<PAGE>
<TABLE>
<CAPTION>
FIRST CAPITAL INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1999
__________
(UNAUDITED)
FOREIGN COMPRE-
ADDITIONAL CURRENCY HENSIVE
COMMON PAID-IN ACCUMULATED TRANSLATION INCOME
STOCK CAPITAL DEFICIT ADJUSTMENT (LOSS)
------- ---------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $55,751 $ 681,746 $ (865,340) $ (2,856) $ (827,955)
Net loss - - (354,892) - (354,892)
Other comprehensive income-
foreign currency transla-
tion adjustment - - - 872 872
------------
Comprehensive income (loss) (354,020)
------------
Common stock issued
(9,445,000 shares) 9,445 394,198 - - -
Value of conversion feature
on convertible debt - 26,317 - - -
------- ---------- ------------- ------------- ------------
Balance at June 30, 1999 $65,196 $1,102,261 $ (1,220,232) $ (1,984) $(1,181,975)
======= ========== ============= ============= ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
<TABLE>
<CAPTION>
FIRST CAPITAL INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
__________
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-----------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities: $ (56,614) $ (7,122)
--------- ---------
Cash flows from investing activities:
Purchase of short-term investments (44,951) -
--------- ---------
Net cash used by investing
activities (44,951) -
--------- ---------
Cash flows from financing activities:
Proceeds from sale of common stock 68,139 19,706
Proceeds from notes payable to a
related party and conversion feature 113,441 -
Payments on long-term debt to a
related party (38,462) -
--------- ---------
Net cash provided by financing
activities 143,118 19,706
--------- ---------
Effects of exchange rate changes on cash (10,328) (781)
--------- ---------
Net increase in cash and cash equivalents 31,225 11,803
Cash and cash equivalents, beginning
of period 61,467 42,292
--------- ---------
Cash and cash equivalents, end of period $ 92,692 $ 54,095
========== =========
Non-cash investing and financing activities:
Conversion of note payable to a related
party to common stock $186,000 $ -
</TABLE>
See accompanying notes.
F-4
<PAGE>
FIRST CAPITAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
1. INTERIM FINANCIAL STATEMENTS
------------------------------
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-QSB and Article 10 of
Regulation S-B. 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-month and six-month periods
ended June 30, 1999 and 1998 are not necessarily indicative of the results that
may be expected for the respective full years.
A summary of the Company's significant accounting policies and other information
necessary to understand these consolidated interim financial statements is
presented in the Company's audited financial statements for the years ended
December 31, 1998 and 1997. Accordingly, the Company's audited financial
statements should be read in connection with these financial statements.
2. INCOME TAXES
-------------
The difference between the 34% federal statutory income tax rate shown in the
accompanying interim financial statements is primarily attributable to an
increase in the valuation allowance applied against the tax benefit from
utilization of net operating loss carryforwards.
3. STOCKHOLDERS' EQUITY
---------------------
During the six months ended June 30, 1999, the Company issued shares of common
stock and had other increases to stockholders' equity as follows:
F-5
<PAGE>
FIRST CAPITAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
3. STOCKHOLDERS' EQUITY, CONTINUED
---------------------------------
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN
STOCK CAPITAL TOTAL
-------- -------- ---------
<S> <C> <C> <C>
Common stock issued for cash $ 2,005 $ 66,134 $ 68,139
Compensation recognized on
common stock issued to of-
ficers and employees at
below market value - 149,504 149,504
Common stock issued in payment
of note payable to a related
party 7,440 178,560 186,000
-------- -------- --------
$ 9,445 $394,198 $403,643
======== ======== ========
</TABLE>
4. SEGMENT AND GEOGRAPHIC INFORMATION
-------------------------------------
The Company currently operates in the equipment and real estate direct financing
lease business but is actively seeking qualified businesses to acquire. The
Company's two reportable segments are based upon geographic area and type of
business. All of the Company's foreign operations are currently conducted by
EIP in Estonia. EIP operates with the Estonian kroon as its functional
currency.
The corporate component of operating loss represents corporate general and
administrative expenses and expenses incurred in developing the Company's
internet site. Corporate assets include cash and cash equivalents.
Following is a summary of segment information:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------- ----------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Revenue:
United States - Corporate $ - $ - $ - $ -
Estonia - Leasing 68,401 18,321 81,347 31,126
------- ------- ------- -------
Total net revenue $68,401 $18,321 $81,347 $31,126
======= ======= ======= =======
</TABLE>
F-6
<PAGE>
FIRST CAPITAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
4. SEGMENT AND GEOGRAPHIC INFORMATION, CONTINUED
-------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ --------------------------
1999 1998 1999 1998
---------- ------ ---------- --------------
<S> <C> <C> <C> <C>
Income (loss) from Operations:
United States - Corporate $(128,328) $ - $(392,996) $ -
Estonia - Leasing 42,652 (808) 38,104 (3,869)
---------- ------ ---------- --------------
Total loss from operations $ (85,676) $(808) $(354,892) $ (3,869)
========== ====== ========== ==============
JUNE 30, DECEMBER 31,
1999 1998
---------- --------------
Assets:
United States - Corporate $ 15,075 $ -
Estonia - Leasing 326,373 335,401
---------- --------------
Total assets $ 341,448 $ 335,401
========== ==============
</TABLE>
F-7
<PAGE>
FIRST CAPITAL INTERNATIONAL, INC.
FORM 10-QSB FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENT AND INFORMATION
The Company is including the following cautionary statement in this Form
10QSB 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, 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. The
Company's expectations, beliefs and projections are expressed in good faith and
are believed by the Company to have a reasonable basis, including without
limitations, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's 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 the view of the Company, could cause actual results to differ
materially from those discussed in the forward-looking statements: the ability
of the Company's management to operate on a global basis; the ability of the
Company to effectuate and successfully operate acquisitions, and new operations;
the ability of the Company to obtain acceptable forms and amounts of financing
to fund current operations and planned acquisitions; the political, economic and
military climate in nations where the Company 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 Internet
and e-commerce. The Company has no obligation to update or revise these
forward-looking statements to reflect the occurrence of future events or
circumstances.
The following description and analysis should be read in conjunction with
the Unaudited Consolidated Condensed Financial Statements of First Capital
International, Inc. (the "Company") as of June 30, 1999 and for the three and
six month periods ended June 30, 1999 and 1998, included elsewhere herein, and
with the Company's Form 10SB that includes the Company's audited financial
statements for the years ended December 31, 1998 and 1997 and the Notes
to Financial Statements, contained in this report as set forth beginning on page
F-1.
1
<PAGE>
FIRST CAPITAL INTERNATIONAL, INC.
FORM 10-QSB FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
INTRODUCTION
In August, 1998, upon appointment of its present officers and directors and
initiation of the recapitalization involving EIP, the Company began current
operations. Management has evaluated the operations of EIP and has determined
that it does not currently make economic sense to commit additional resources to
expand EIP's leasing operations in Estonia. It is management's current intent
to grow the Company through the continued development and commercialization of
its Internet based business, PlazaRoyal.com in both the United States and
Eastern Europe. The Company will also consider the acquisition of financial
services or Internet related businesses in the same markets.
The Company intends to make all of the acquisitions by issuing common stock
in exchange for the acquired businesses. However, the Company may need
additional capital to enter into acquisitions. In the event that capital is
needed to effectuate certain acquisitions, the Company will be required to raise
substantially all of the funds for such acquisitions. The Company anticipates
that most, if not all, of any acquisitions it may make during the next 12 months
will be of operating entities that have current management in place.
The Company's first acquisition occurred in September, 1998 when the
Company completed the acquisition of 100% of the stock of EIP from the
stockholders of EIP in exchange for a total of 34,000,000 shares of the
Company's common stock.
EIP operates in a part of the world which could be viewed as having a high
potential for political, economic and military instability. For example,
Estonia is near Russia. If the political situation in Russia worsened, a spill
over effect into Estonia could have adverse consequences for EIP. Some other
nations which gained independence after the fall of the Soviet Union have
experienced instability. If such instability were to occur in Estonia, the
Company's business could be adversely affected.
The operations of EIP are conducted in Estonia with transactions
denominated in the local currency of Estonia, the EEK. Therefore, the Company
has exposure to foreign currency fluctuations and foreign government
intervention such as a devaluation of the local currency. (See below for
discussion of Foreign Currency Translation and Inflation Issues)
The Company believes that EIP's existing cash flow is adequate to fund its
existing lease portfolio. The Company's future ability to enter into new leases
is dependent upon the availability of financing. The Company's main objective
for the next 12 months is to maintain the existing portfolio of leases.
2
<PAGE>
FIRST CAPITAL INTERNATIONAL, INC.
FORM 10-QSB FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
The Company presently believes that the development and expansion of its
e-commerce business website, PlazaRoyal.com, will require additional capital.
The Company will seek financing for PlazaRoyal.com through the sale of debt or
equity. In order to achieve these objectives, the Company will be required to
raise additional funds from the sale of equity or debt. The sale of equity
securities could dilute the Company's existing stockholders' interest, and
borrowings from third parties could result in restrictive loan terms which would
increase the Company's debt service requirements and could restrict the
Company's operations. It is unknown at this time whether the Company will be
successful in raising capital on reasonable terms for the further development of
PlazaRoyal.com.
During late 1998 through March 31, 1999, the Company, in private
transactions, raised approximately $65,000 in cash through the sale of its
common stock and options.
PLAN OF OPERATION
The Company's current plan of operation involves further development of its
main E-commerce Portal: PlazaRoyal.com. The Company originally developed this
portal in March and April of 1999. At the present time the Company is actively
in the process of signing on new merchants for the PlazaRoyal.com Mall. Among
those already signed are Dell Computers, CBS Sport Stores, Discover Nature
Stores, the Sharper Image, Omaha Steaks, the Swiss Army Depot, Office Max,
Hickory Farms and Amazon.com.
Additionally, the Company is working on the development of the new
cyberstore concept, which will allow merchants to operate their respective
stores on the Internet as a joint venture with our Company. Also, we are in the
process of developing a detailed marketing program, which will enable our
shopping mall to function in several languages in several different countries.
Various local Internet providers in several countries have expressed an active
interest in supporting these developments in Europe.
ANALYSIS OF FINANCIAL CONDITION
As of June 30, 1998, the Company has an unused amount of $19,672 on a
credit line which was in the original amount of $300,000. This credit line was
provided by United Capital Group, a major shareholder of the Company.
3
<PAGE>
FIRST CAPITAL INTERNATIONAL, INC.
FORM 10-QSB FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
The Company is actively seeking new acquisitions in the United States and
throughout Europe and currently negotiations are underway for the acquisition of
several E-commerce companies in the United States, as well as travel related
service companies with E-commerce features. The Company is pursuing several new
acquisition opportunities in Eastern Europe and is presently negotiating for the
acquisition of several Internet providers in the Baltic Region. The Company is
seeking to accomplish any further acquisition on a stock exchange basis only.
This method of acquisition will enable the Company to acquire additional assets
and maintain its cash flow; however, it may result in substantial dillution of
existing stockholders.
Further, the Company is in the process of actively developing a new
international legal directory portal under the name of "LegalClaims.com." This
portal will enable us to expand our E-commerce services into this new market
segment, as well as, generate new revenue(s) for the Company from the sale of
memberships to legal professionals, as well as, revenue from advertising and
other types of services to the global legal community.
The Company currently has plans to increase the number of its employees by
hiring a marketing manager and an operations manager. Also, the Company has
contracted with the E-commerce Solution Company in order to provide full
E-commerce services to the PlazaRoyal.com portal and to LegalClaims.com. The
Company intends to finance these respective expenditures from the sale of its
securities and the Company's existing stockholders could suffer significant
dilution in per share net tangible book value from such sales of securities by
the Company.
Since the Company emerged from dormancy it has been dependent on outside
financing from individuals and related parties to fund its Internet site
development and general corporate overhead. The Company is now in the phase of
building markets for PlazaRoyal.com and will continue to be dependent on outside
financing for the foreseeable future. If the Company is unable to successfully
transition from site development to commercial success for PlazaRoyal.com in a
reasonable time frame and/or is unable to acquire other commercially viable
businesses, the Company may be unable to obtain adequate sources of long-term
financing to continue operations.
4
<PAGE>
FIRST CAPITAL INTERNATIONAL, INC.
FORM 10-QSB FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
GOING CONCERN ISSUE
During the six months ended June 30, 1999 and the year ended December 31,
1998 the Company has been dependent on debt and equity raised from individual
investors and related parties to sustain its operations. During those periods
the Company has incurred net losses of ($354,892) and ($827,104), respectively.
Additionally, the Company had negative cash flows from operations of $56,614
and $190,567, respectively. These factors along with a stockholders' deficit of
$54,759 at June 30, 1999 raise substantial doubt about the Company's ability to
continue as a going concern. The Company's long-term viability as a going
concern is dependent upon three key factors as follows:
- - The Company's ability to obtain adequate sources of debt or equity funding
to meet current commitments and fund the continuation of its business
operations.
- - The ability of the Company to acquire or internally develop viable
businesses.
- - The ability of the Company to ultimately achieve adequate profitability and
cash flows from operations to sustain its operations.
As a result of potential liquidity problems that the Company faces, its
auditors, Ham, Langston & Brezina, L.L.P. have added an explanatory paragraph
in their opinion on the Company's financial statements for the year ended
December 31, 1998, indicating that substantial doubt exists about the Company's
ability to continue as a going concern.
- - Management has specific plans to address the financial situation as
follows:
- - In the near term the Company plans a private placement of its common stock
to qualified investors to fund its current operations.
- - In the intermediate term, the Company has filed a Form 10SB and is a
reporting company under the Securities and Exchange Act of 1934. Management
believes this step will provide a market for its common stock and provide
a means of obtaining future funds necessary to implement its business plan.
5
<PAGE>
FIRST CAPITAL INTERNATIONAL, INC.
FORM 10-QSB FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
- - In the long-term, the Company believes that cash flows from acquired
businesses and businesses that it is currently developing will provide
the resources for its continued operations. The Company has developed
PlazaRoyal.com, a virtual mall, for launch on the Internet. Management
Believes that revenues from this virtual mall, if successfully marketed,
will more than cover overhead at the corporate level. Acquisition
activities and development of the Company's Internet project resulted in
corporate headquarters accounting for substantially of the Company's total
net loss in the six months ended June 30, 1999.
COMPETITION
The Company believes that only a very limited number of sites on the
Internet offer the same type of 3-D shopping experience that PlazaRoyal.com
intends to offer. The Company also believes that as technology and related
Internet access speeds improve, that PlazaRoyal.com will attract both a greater
number of customers and more intense competition from other 3-D Internet
shopping sites. Such competition could ultimately make 3-D an ordinary feature
of Internet shopping malls. The Company has developed a normal 2-D version of
its site that requires less graphic data transfer and is better suited for
current technology. This 2-D Internet site is already subject to extreme
competition and an inability by the Company to properly target its customers and
differentiate its Internet site from the sites of its competitors could have a
significant adverse impact on the Company. The Company plans to target markets
in Eastern Europe that management believes are either undeveloped or are not
adequately served.
The Company believes that EIP, the Company's leasing operation in Estonia,
is not subject to severe competition in the markets it serves because the
leasing industry is relatively new to Estonia. However, the financial systems
in Estonia are not as well developed as those in the United States and the
Company intends to continue leasing operations in Estonia only to the extent
that they are supported by EIP's current cash flows from operations.
6
<PAGE>
FIRST CAPITAL INTERNATIONAL, INC.
FORM 10-QSB FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
FOREIGN CURRENCY TRANSLATION AND INFLATION ISSUES
EIP's functional currency is the Estonian Kroon ("EEK") and substantially
all business conducted by EIP is conducted within Estonia. Small changes in the
U.S. dollar/EEK exchange rate do not have a significant impact on EIP's
financial position or results of operations. However, declines in the EEK
generally reduce the value of certain of EIP's assets and cause deterioration in
the Company's overall financial position. If Estonia continues to experience
growing inflation, the Company could be classified as a highly inflationary
economy under generally accepted accounting principles. Under this
circumstance, declines in the EEK would be reflected in operations and would
negatively impact the Company's financial position and results of operations.
To stabilize its currency, the government of Estonia has enacted monetary policy
that "pegs" the exchange rate of the EEK to the German mark ("DEM") in the ratio
of 8 EEK = 1 DEM. Because the exchange rate of the DEM is relatively stable
against the U.S. dollar, the exchange rate of the EEK should also be expected to
be relatively stable against the U.S. dollar.
Estonia has experienced a great amount of political and economic
instability and inflation has increased in 1999. Accordingly, the government's
monetary policy could come under pressure. If inflation increases, both the
outlook for leasing operations and the effect of translation adjustments will
negatively impact the Company's financial position and results of operations.
SIGNIFICANT TRENDS
During 1998 EIP entered into 37 new finance leases as compared to 111 in
1997. The Company has entered into substantially no new leases in the six
months ended June 30, 1999. This trend highlights the fact that the Company's
leasing operations have been and are expected to continue to be adversely
impacted by underdeveloped Estonian financial markets and by managements
decision to employ substantially all new capital resources in funding the
Company's Internet site development and in building markets for its Internet
sites. The Company intends to continue servicing its existing lease portfolio
but intends to enter into new leases only to the extent that such new leases are
supported by EIP's cash flows from operations. Because EIP has experienced
negative cash flows from operations, the Company will fund few, if any, new
leases in 1999. The Company expects that negative cash flows from operations at
EIP during 1999 will meet or exceed those experienced in 1998 not only due to a
decline in leasing activity but also because the Company intends to use the EIP
employees to help in the development of markets for the Company's internet
sites and in fund raising efforts in Eastern Europe.
7
<PAGE>
FIRST CAPITAL INTERNATIONAL, INC.
FORM 10-QSB FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1998
During the three months ended June 30, 1999 the Company's revenues
increased approximately $50,000 or 161% as compared to the three months ended
June 30, 1998. Leasing revenues in EIP were consistent as a result of
consistently weak leasing activity in EIP caused by a deterioration of the
financial markets in Estonia and related limitations on the availability of
capital to enter into new leases. (See Significant Trends) However, during the
three months ended June 30, 1999, EIP earned approximately $50,000 in revenue
for market research services provided to a related entity. These revenues
account for the overall increase.
During the three months ended June 30, 1999 the Company's operating,
general and administrative costs increased by approximately $94,000 as compared
to the three months ended June 30, 1998. This increase was made up of an
increase in personnel costs and in legal and other professional fees. The
$94,000 increase was primarily attributable to the development of the Company's
PlazaRoyal.com internet site and to general business development.
During the three months ended June 30, 1999 depreciation and amortization
remained constant as compared to the three months ended June 30, 1998 due to
similar levels of activity in EIP.
During the three months ended June 30, 1999 stock and option based
compensation was $6,930 due to the sale of common stock to officers and
employees at below market prices. Such sales resulted in charges to
compensation expense for the difference between the market price and the sales
price at the date of sale. In the three months ended June 30, 1998 there were
no similar sales of stock and options.
Interest expense increased from $7,716 during the three months ended June
30, 1998 to $35,376 during the three months ended June 30, 1999. The increase
was the result of the Company issuing convertible debt with a below market
conversion rate during late 1998. The resulting discount on the debt has been
amortized to interest expense over the term of the debt and resulted in
substantially all of the increase in interest during the three months ended June
30, 1999.
8
<PAGE>
FIRST CAPITAL INTERNATIONAL, INC.
FORM 10-QSB FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
During the three months ended June 30, 1999 the Company had a net loss of
($85,676) compared to a net loss of ($808) in the three months ended June 30,
1998. The increased net loss was attributable to the operations in the United
States, as the Company's operations in Estonia produced net income of $38,104
during the three months ended June 30, 1999 due not to leasing operations, but
to fees for market research provided to a related company. As described in more
detail above, the primary reasons for the increased losses were stock and option
based compensation charges, increases in interest expense and increases in
personnel, legal and professional fees in 1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998
During the six months ended June 30, 1999 the Company's revenues increased
approximately $50,000 or 161% as compared to the six months ended June 30, 1998.
Leasing revenues in EIP were consistent as a result of consistently weak leasing
activity in EIP caused by a deterioration of the financial markets in Estonia
and related limitations on the availability of capital to enter into new leases.
(See Significant Trends) However, during the six months ended June 30, 1999,
EIP earned approximately $50,000 in revenue for marketing research services
provided to a related entity. These revenues account for the overall increase.
During the six months ended June 30, 1999 the Company's operating, general
and administrative costs increased by approximately $156,000 as compared to the
six months ended June 30, 1998. This increase was made up of an increase in
personnel costs and in legal and other professional fees. The $156,000 increase
was primarily attributable to the development of the Company's PlazaRoyal.com
internet site and to general business development.
During the six months ended June 30, 1999 depreciation and amortization
remained constant as compared to the six months ended June 30, 1998 due to
similar levels of activity in EIP.
During the six months ended June 30, 1999 stock and option based
compensation was $149,504 due to the sale of common stock to officers and
employees at below market prices and due to the issuance of options for purchase
of common stock with exercise prices below the current price of the Company's
common stock at the date of issue. Such sales resulted in charges to
compensation expense for the difference between the market price and the
exercise/sales price at the date of issue/sale. In the six months ended June
30, 1998 there were no similar sales of stock and options.
9
<PAGE>
FIRST CAPITAL INTERNATIONAL, INC.
FORM 10-QSB FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
Interest expense increased from $15,313 during the six months ended June
30, 1998 to $104,388 during the six months ended June 30, 1999. The increase
was the result of the Company issuing convertible debt with a below market
conversion rate during late 1998. The resulting discount on the debt has been
amortized to interest expense over the term of the debt and resulted in
substantially all of the increase in interest during the six months ended June
30, 1999.
During the six months ended June 30, 1999 the Company had a net loss of
($354,892) compared to a net loss of ($3,869) in the six months ended June 30,
1998. The increased net loss was attributable to the operations in the United
States as the from the Company's operations in Estonia produced net income of
$38,104 during the six months ended June 30, 1999 due not to leaseing
operations, but to fees for market research provided to a related company. As
described in more detai l above, the primary reasons for the increased losses
were stock and option based compensation charges, increases in interest expense
and increases in personnel, legal and professional fees in 1998.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company had cash resources of approximately $93,000
and believes that it can obtain additional convertible debt from an existing
related party lender of approximately $200,000 to fund its current operations.
The Company's capital requirements for operations currently average
approximately $150,000 per quarter and management does not expect cash
requirements for operations to improve until at least the first quarter of 2000.
Accordingly, the Company will require approximately a total of $300,000 from
outside sources to fund its remaining 1999 operations.
The Company does not currently have any commitments for capital
expenditures in EIP. As discussed under Significant Trends above, the Company
intends to continue servicing its existing lease portfolio but intends to enter
into new leases only to the extent that such leases are supported by EIP's cash
flows from operations. Those cash flows are not expected to allow the addition
of new leases in 1999.
The Company expects to be able to raise sufficient capital for 1999
operations but raising the capital may cause dilution in per share net tangible
book value to existing shareholders. The Company will ultimately need to
produce positive cash flows from operations to meet its long-term capital needs.
(See Going Concern Issue above.)
10
<PAGE>
FIRST CAPITAL INTERNATIONAL, INC.
FORM 10-QSB FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs and hardware with
embedded date technology using two digits to define the applicable year rather
than four. Any programs or hardware that are time sensitive and have not
been determined to be Year 2000 compliant may recognize a date using "00" as the
year 1900 rather than the year 2000. Such improper date recognition could, in
turn, result in erroneous processing of data, or, in extreme situations, system
failure.
The Company is currently implementing a Year 2000 program which encompasses
performing an inventory of information technology and non-information
technology systems, assessing the potential problem areas, testing the systems
for Year 2000 readiness, and modifying systems that are not Year 2000 compliant.
To date, inventory and assessment are in progress for all core systems that
are essential for business operations. The Company believes all of its core
systems are Year 2000 compliant. Because many of the Company's systems are new
and designed to be year 2000 compliant, the Company's management estimates that
the work they have completed represents more than seventy-five percent of the
work involved preparing the Company's systems for the Year 2000.
Although the Company expects to be ready to continue business activities
without interruption by a Year 2000 problem, Company management recognizes the
general uncertainty inherent in the Year 2000 issue, in part because of the
uncertainty about the Year 2000 readiness of third parties, particularly in
Estonia and other Eastern European countries. Under a "worst case Year 2000
scenario", it may be necessary for the Company to temporarily interrupt normal
business activities or operations and to seek outside financing for cash flow
problems brought on by customer payment problems. The Company believes that
such circumstances could result in a material adverse impact to its operations
and in its current financial position, threaten its continued existence. The
Company has begun, but not yet completed, development of a contingency plan to
deal with the most likely worst case Year 2000 scenario". The contingency plan
is expected to be completed during the fourth quarter of 1999.
Based on a current assessment, the Company's total cost of becoming Year
2000 compliant is not expected to be significant to its financial position,
results of operations or cash flows and is estimated to be less than $10,000.
11
<PAGE>
PART II - OTHER INFORMATION
- -------------------------------
ITEM 2. CHANGES IN SECURITIES
From April, 1999 through June, 1999, the Company sold a total of 175,000
shares of its common stock at prices ranging from $.05 per share to $.25 per
share to six persons for a total consideration of $26,000. These transactions
were effectuated by the company upon reliance upon exemptions from registration
under the Securities Act of 1933 as amended (the 'Act") as provided in section
4(2) thereof. The certificates issued for these 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 the Company
pay any commissions or fees to any underwriter in connection with the
transactions. The transactions did not involve a public offering. The
Company believes that each of the persons had knowledge and experience in
financial and business matters which allow them to evaluate the merits and
risks of these securities of the Company.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT NO. 27 - FINANCIAL DATA SCHEDULE
(B) REPORTS ON FORM 8-K
NONE
13
<PAGE>
SIGNATURES
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 hereunto duly authorized.
First Capital International, Inc.
Date: August 24, 1999 By /s/ Alex Genin
---------------- ----------------------------------
Alex Genin
Chief Executive Officer
Date: August 24, 1999 By /s/ Joselito H. Sangel
---------------- ----------------------------------
Joselito H. Sangel
Vice President of Finance
14
<PAGE>
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 92692
<SECURITIES> 44951
<RECEIVABLES> 92787
<ALLOWANCES> 0
<INVENTORY> 0
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<PP&E> 29045
<DEPRECIATION> 23002
<TOTAL-ASSETS> 341448
<CURRENT-LIABILITIES> 101028
<BONDS> 295179
<COMMON> 65196
0
0
<OTHER-SE> (119955)
<TOTAL-LIABILITY-AND-EQUITY> 341448
<SALES> 0
<TOTAL-REVENUES> 81347
<CGS> 0
<TOTAL-COSTS> 317274
<OTHER-EXPENSES> 14577
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (354892)
<INCOME-TAX> 0
<INCOME-CONTINUING> (354892)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<PAGE>
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