U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
Amendment No. 1
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended September 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 [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of November 11, 1999: 68,561,142 shares of common stock.
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Condensed Balance Sheet as of
December 31, 1998 and September 30, 1999
Consolidated Condensed Statement of
Operations for the three and nine months
ended September 30, 1999
and 1998
Consolidated Condensed Statement of
Stockholders' Equity for the nine months
ended September 30, 1999
Consolidated Condensed Statement of Cash
Flows for the nine months ended September 30,
1999 and 1998
Selected Notes to Consolidated Financial
Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation
PART II - OTHER INFORMATION
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST CAPITAL INTERNATIONAL, INC.
__________
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
F-1
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<TABLE>
<CAPTION>
FIRST CAPITAL INTERNATIONAL, INC.
TABLE OF CONTENTS
__________
PAGE(S)
- -------------------------------------------------
<S> <C>
Unaudited Consolidated Condensed Financial
Statements:
Consolidated Condensed Balance Sheet as of
September 30, 1999 and December 31, 1998 F-3
Consolidated Condensed Statement of
Operations for the three and nine months
ended September 30, 1999 and 1998 F-4
Consolidated Condensed Statement of
Stockholders' Deficit for the nine months
ended September 30, 1999 and 1998 F-5
Consolidated Condensed Statement of Cash Flows
for the nine months ended September 30, 1999
and 1998 F-6
Selected Notes to Consolidated Condensed
Financial Statements F-7
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
FIRST CAPITAL INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
__________
SEPTEMBER 30, DECEMBER 31,
1999 1998
ASSETS (UNAUDITED) (NOTE)
- --------------------------------------------------- -------------- ------------
(RESTATED) (RESTATED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 269,334 $ 61,467
Short-term investments 25,000 -
Lease receivables, net 94,441 107,200
Other 20,732 34,794
-------------- ------------
Total current assets 409,507 203,461
Lease receivables 94,526 119,339
Accounts and notes receivable, net 4,225 3,082
Property and equipment, net 3,816 9,519
-------------- ------------
Total assets $ 512,074 $ 335,401
============== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
- ---------------------------------------------------
Current liabilities:
Note payable to a related party $ - $ 65,390
Accounts payable and accrued liabilities 4,954 26,501
-------------- ------------
Total current liabilities 4,954 91,891
Long-term debt to a related party 305,474 333,641
-------------- ------------
Total liabilities 310,428 425,532
-------------- ------------
Commitments and contingencies
Stockholders' deficit:
Common stock, $0.001 par value; 100,000,000
shares authorized; 68,538,142 and 55,751,142
shares issued and outstanding at September 30,
1999 and December 31, 1998, respectively 68,538 55,751
Additional paid-in capital 2,650,687 1,535,970
Accumulated deficit (2,516,712) (1,678,996)
Accumulated foreign currency translation
adjustments (867) (2,856)
-------------- ------------
Total stockholders' equity (deficit) 201,646 (90,131)
-------------- ------------
Total liabilities and stockholders'
equity (deficit) $ 512,074 $ 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-3
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<TABLE>
<CAPTION>
FIRST CAPITAL INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
__________
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
Revenue:
Interest income $ 9,559 $ 12,420 $ 28,977 $ 34,321
Other operating revenue 75,252 162 137,181 9,387
------------ ------------ ------------ ------------
Total revenue 84,811 12,582 166,158 43,708
------------ ------------ ------------ ------------
Costs and expenses:
Operating, general and admin-
istrative expenses 132,337 5,038 296,113 13,234
Stock and option based com-
pensation 17,500 - 416,210 -
Depreciation and amortization 1,529 2,171 5,523 6,341
Interest expense 27,310 8,098 267,758 23,411
Other expense, net 3,693 2,441 18,270 9,757
------------ ------------ ------------ ------------
Total costs and expenses 182,369 17,748 1,003,874 52,743
------------ ------------ ------------ ------------
Net loss $ (97,558) $ (5,166) $ (837,716) $ (9,035)
============ ============ ============ ============
Basic and dilutive net loss
per common share $ (0.00) $ (0.00) $ (0.01) $ (0.00)
============ ============ ============ ============
Weighted average shares
outstanding 66,558,479 46,651,142 64,287,809 46,651,142
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
FIRST CAPITAL INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 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,
as restated $55,751 $ 1,535,970 $ (1,678,996) $ (2,856) $(1,639,371)
------------
Net loss, as restated - - (837,716) - (837,716)
Other comprehensive income-
foreign currency transla-
tion adjustment - - - 1,989 1,989
------------
Comprehensive income, as
restated (835,727)
------------
Common stock issued, as re-
stated (12,787,000 shares) 12,787 904,027 - - -
Compensatory stock options,
as restated - 77,500 - - -
Value of conversion feature
on convertible debt, as
restated - 133,190 - - -
------- ----------- ------------- ------------- ------------
Balance at September 30,
1999, as restated $68,538 $ 2,650,687 $ (2,516,712) $ (867) $(2,475,098)
======= =========== ============= ============= ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
<TABLE>
<CAPTION>
FIRST CAPITAL INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
__________
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1999 1998
---------- ---------
(RESTATED)
<S> <C> <C>
Cash flows from operating activities: $(166,989) $(13,166)
---------- ---------
Cash flows from financing activities:
Proceeds from sale of common stock 278,139 21,378
Proceeds from notes payable to a
related party 133,190 -
Payments on long-term debt to a
related party (38,462) -
---------- ---------
Net cash provided by financing
activities 372,867 21,378
---------- ---------
Effects of exchange rate changes on cash 1,989 3,501
---------- ---------
Net increase in cash and cash equivalents 207,867 11,713
Cash and cash equivalents, beginning
of period 61,467 42,292
---------- ---------
Cash and cash equivalents, end of period $ 269,334 $ 54,005
========== =========
Non-cash investing and financing activities:
Conversion of note payable to a related
party to common stock $ 300,000 $ -
Short term investment received in payment
Of accounts receivable $ 44,951 $ -
</TABLE>
See accompanying notes.
F-6
<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 nine-month periods
ended September 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. RESTATEMENT OF FINANCIAL STATEMENTS
--------------------------------------
During the nine months ended September 30, 1999, the Company issued 22,000
shares of its common stock for services at prices representing a discount from
the quoted market price of the Company's common stock at the dates of issue.
The Company also issued 300,000 non-qualified compensatory stock options for
shares of its common stock and convertible debt with a beneficial conversion
feature. The stock options bear exercise prices that represent a discount from
the quoted market price of the Company's common stock at the date of issue. The
fair value of the Company's common stock, for purposes of determining
compensation expense associated with stock and stock options and the value of
the beneficial conversion feature associated with convertible debt, was
determined based upon quoted market prices in an inactive market with discounts
for trading restrictions on such shares and a thin market for the Company's
common stock. Generally accepted accounting principles do not allow for such
discounts from the quoted market price.
The effect of correcting this error in application of generally accepted
accounting principles on the Company's financial statements at September 30,
1999 and for the nine months then ended, is as follows:
F-7
<PAGE>
FIRST CAPITAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
2. RESTATEMENT OF FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Decrease in total assets $ -
===========
Decrease in total liabilities $ -
===========
Increase in common and preferred stock
and additional paid-in capital $1,258,873
===========
Increase in accumulated deficit $1,258,877
===========
Increase in net loss $ 445,217
===========
Increase in basic and dilutive net
loss per common share $ (0.00)
===========
</TABLE>
3. SHORT-TERM INVESTMENTS
-----------------------
Short-term investments at September 30, 1999 consist of marketable equity
securities that are considered trading securities. Accordingly, unrealized
gains and losses are included in net earnings. Short-term investments are
reported at market value based upon quoted market prices. The Company utilizes
the specific identification method in accounting for its short-term investments.
4. 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.
5. STOCKHOLDERS' EQUITY
---------------------
During the nine months ended September 30, 1999, the Company issued shares of
common stock and had other increases to stockholders' equity as follows:
F-8
<PAGE>
FIRST CAPITAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
5. STOCKHOLDERS' EQUITY, CONTINUED
---------------------------------
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN
STOCK CAPITAL TOTAL
-------- ----------- --------
<S> <C> <C> <C>
Common stock issued for cash
(3,045,000 shares) $ 3,045 $ 275,094 $278,139
Compensation recognized on
common stock issued to of-
ficers and employees at
below market value (22,000
shares) 22 338,653 338,675
Common stock issued in payment
of note payable to a related
party (9,720,000 shares) 9,720 290,280 300,000
-------- ----------- --------
12,787 $904,027 $916,814
======== =========== ========
</TABLE>
During the nine months ended September 30, 1999, the Company also issued
compensatory stock options to a consultant and to the Company's chief executive
officer to acquire a total of 300,000 shares of the Company's common stock.
Such options included exercise prices less than the fair value of the Company's
common stock at the date of grant and, accordingly, compensation expense
totaling $77,500 was recognized in connection with such options.
6. 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.
F-9
<PAGE>
FIRST CAPITAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
6. SEGMENT AND GEOGRAPHIC INFORMATION, CONTINUED
-------------------------------------------------
Following is a summary of segment information:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998 1999 1998
----------- -------- ----------- --------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
Net Revenue:
United States - Corporate $ - $ - $ - $ -
Estonia - Leasing 84,811 12,582 166,158 43,708
----------- -------- ----------- --------
Total net revenue $ 84,811 $12,582 $ 166,158 $43,708
=========== ======== =========== ========
Income (loss) from operations:
United States - Corporate $ (139,819) $ - $ (917,991) $ -
Estonia - Leasing 42,261 (5,166) 80,275 (9,035)
----------- -------- ----------- --------
Total loss from operations $ (97,558) $(5,166) $ (837,716) $(9,035)
=========== ======== =========== ========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------- -------------
<S> <C> <C>
Assets:
United States - Corporate $ 133,972 $ -
Estonia - Leasing 378,102 335,401
-------------- -------------
Total assets $ 512,074 $ 335,401
============== =============
</TABLE>
F-10
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following description of the Company's financial position and results
of operations should be read in conjunction with the Financial Statements and
the Notes to Financial Statements, contained in this report as set forth
beginning on page F-1.
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.
3
<PAGE>
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 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.
The Company presently believes that the development and expansion of its
e-commerce business web site, Plaza Royal.com, will require additional capital.
The Company will seek financing for Plaza Royal.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 purpose of increasing
the capital base of EIP or for financing the further development of Plaza
Royal.com.
PLAN OF OPERATION
The Company's current plan of operation involves the further development of
our 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
4
<PAGE>
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 would enable the Company to acquire additional assets and maintain its cash
flow as well. However, it may result in substantial dilution in per share net
tangible book value to existing shareholders.
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 clients of the PlazaRoyal.com portal. 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.
GOING CONCERN ISSUE
During 1998 and 1997, the Company has been dependent on debt and equity
raised from individual investors and related parties to sustain its operations
and has incurred net losses of $827,104 and $30,078, respectively. Also, during
the year ended December 31, 1998, the Company had negative cash flows from
operations of $190,567. These factors along with a stockholders' deficit of
$130,699 at December 31, 1998 raise substantial doubt about the Company's
ability to continue as a going concern.
During the nine months ended September 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 ($392,499) and ($827,104),
respectively. Additionally, the Company had negative cash flows from operations
during those periods of $122,240 and $190,567, respectively. These factors
along with am accumulated deficit of $1,257,839 at September 30, 1999 raise
substantial doubt about the Company's ability to continue as a going concern.
5
<PAGE>
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 near term, the Company recently became 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.
- --- 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 95% of the Company's total net loss
in 1998 and substantially all of the Company's total net loss for the nine
months ended September 30, 1999.
6
<PAGE>
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.
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.
FOREIGN CURRENCY TRANSLATION AND INFLATION ISSUES
Foreign Currency 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 value of the EEK generally reduce the value of certain
of EIP's assets and cause deterioration in the Company's overall financial
position. 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.
The local currency of Estonia is the Estonian kroon or EEK. Because the
EEK is the functional currency for its Estonian subsidiary under Financial
Accounting Standards Board Statement No. 52, "Foreign Currency Translation" (FAS
52), assets and liabilities denominated in foreign functional currencies are
generally translated at the exchange rate as of the balance sheet date.
Translation adjustments are recorded as a separate component of stockholders'
deficit. Revenues, costs and expenses denominated in foreign functional
currencies are translated at the weighted average exchange rate for the period.
Therefore, the Company has exposure to foreign currency fluctuations and foreign
government intervention such as a devaluation of the local currency, or a freeze
of international transfer of funds. The Estonian Central Bank does not have the
power to devalue the EEK, and technical fluctuations are restricted to 3%.
However, a devaluation of the German Mark (DM) or the Euro could occur, with a
resulting effect on the exchange rate of the EEK. The Estonian Central Bank has
officially pegged the EEK at 8 EEK = 1 DM. Therefore, the Company is also
subject to foreign currency risks related to the DM. Relative to the U.S.
dollar, a declining EEK or DM would negatively impact the value, in U.S.
dollars, of the Company's transactions in Estonia. The Estonian Central Bank
has also officially pegged to the Euro at 15.64 EEK = 1 Euro, which is
considered the equivalent of the DM peg. Therefore, the Company is also subject
to the same types of foreign currency risks related to the Euro Relative to the
U.S. dollar, a declining Euro would negatively impact the value, in U.S.
dollars, of the Company's transactions in Estonia.
7
<PAGE>
The Company's results of operations were improved when the Company's
functional currency changed from the U.S. dollar to the Estonian Kroon.
Estonia's economy has a historically higher inflation rate than the United
States economy and all currency losses associated with the translation of
financial statements where the U.S. dollar is considered the functional currency
are reflected as losses in operations rather than as charges against
stockholders' equity as is the case when the Estonian kroon is considered EIP's
functional currency.
Estonian Inflation Issues. Estonia does not have a highly inflationary
---------------------------
economy now, although in the recent past it did. Estonia has experienced a
great amount of political and economic instability and inflation increased, but
then stabilized 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. According to the July
12, 1999 "Quarterly Review-Estonia", a PricewaterhouseCoopers publication, the
Estonian inflation rate has been negative since December, 1998, and the Estonian
Consumer Price Index growth rate has fallen to 3.1% in June, 1999 from 10.2% in
June, 1998. The tight credit environment has led to a reduction in imports and
an increase in unemployment, both of which act to reduce inflationary tendencies
and to lower consumer prices. If Estonia experiences growing inflation, then
Estonia's economy could be classified as a highly inflationary economy under
generally accepted accounting principles. Under such circumstances, declines in
the value of the EEK would be reflected in operations and would 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. Substantially all leases entered into by EIP are finance leases and the
average dollar amount of each lease was approximately $14,630 in both 1998 and
1997. 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 experienced negative cash flows from operations of
approximately $7,000 during 1998, 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.
8
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 Compared to the Three Months Ended
September 30, 1998
During the three months ended September 30, 1999 the Company's revenues
increased approximately $72,000 or 570% as compared to the three months ended
September 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 September 30, 1999, EIP earned approximately $66,000 in
revenue for market research services provided to a related entity. These
revenues account for the overall increase.
During the three months ended September 30, 1999 the Company's operating,
general and administrative costs increased by approximately $70,000 as compared
to the three months ended September 30, 1998. This increase was made up of an
increase in personnel costs and in legal and other professional fees. The
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 September 30, 1999 depreciation and
amortization remained relatively constant as compared to the three months ended
September 30, 1998 due to similar levels of activity in EIP.
During the three months ended September 30, 1999 stock and option based
compensation was $14,375 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 September 30, 1998 there
were no similar sales of stock and options.
Interest expense increased from $8,098 during the three months ended
September 30, 1998 to $27,310 during the three months ended September 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
September 30, 1999.
During the three months ended September 30, 1999 the Company had a net loss
of $37,607 compared to a net loss of $5,166 in the three months ended September
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
$42,261 during the three months ended September 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.
9
<PAGE>
Nine Months Ended September 30, 1999 Compared to the Nine Months Ended September
30, 1998
During the nine months ended September 30, 1999 the Company's revenues
increased approximately $122,000 or 289% as compared to the nine months ended
September 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
nine months ended September 30, 1999, EIP earned approximately $116,268 in
revenue for marketing research services provided to a related entity. These
revenues account for the overall increase. The marketing research revenue
is not expected to continue.
During the nine months ended September 30, 1999 the Company's operating,
general and administrative costs increased by approximately $226,000 as compared
to the nine months ended September 30, 1998. This increase was made up of an
increase in personnel costs and in legal and other professional fees. The
increase was primarily attributable to the development of the Company's
PlazaRoyal.com Internet site and to general business development.
During the nine months ended September 30, 1999 depreciation and
amortization remained constant as compared to the nine months ended September
30, 1998 due to similar levels of activity in EIP.
During the nine months ended September 30, 1999 stock and option based
compensation was $163,879 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 nine months ended
September 30, 1998 there were no similar sales of stock and options.
Interest expense increased from $23,411 during the nine months ended
September 30, 1998 to $131,698 during the nine months ended September 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 nine months ended
September 30, 1999.
During the nine months ended September 30, 1999 the Company had a net loss
of $ 392,499 compared to a net loss of $9,035 in the nine months ended September
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
$80,275 during the nine months ended September 30, 1999 due not to leasing
operations, but to fees for market research provided to a related company. As
described in more detail 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.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had cash resources of approximately
$269,334. The Company's cash requirements for operations for the last quarter
of 1999 will be approximately $60,000. The Company estimates that during the
year 2000, its cash requirements will be approximately $150,000 per quarter.
Accordingly, the Company will require approximately $150,000 from outside
sources to fund its operations for each quarter of the year 2000. At October 1,
1999, the Company had on hand cash resources of approximately $120,000. To the
extent that the Company's cash on hand is otherwise fully allocated or disbursed
before the end of the last quarter of 1999, the Company plans to obtain
additional financing through the sale of its securities and by obtaining debt
financing. Further, the Company plans to sell its securities to obtain
financing in the year 2000, until cash flow from operations is adequate to fund
the Company's ongoing cash requirements. There is no assurance that capital
will be available from any of these sources, or, if available, upon terms and
conditions acceptable to the Company.
The Company has no material commitments for capital expenditures for its
U.S.A. operations, and anticipates future material capital commitments for its
1999 U.S.A. operations as follows, but only if funds become available: $20,000
for advertising the Plaza Royal web site, $30,000 for merchandise for resale by
Plaza Royal and $10,000 for Internet e-commerce operating expenses.
The Company does not currently have any commitments for capital
expenditures in EIP. 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 additional leases in 1999 (See Significant Trends
above). The Company has no anticipated capital commitments for EIP.
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.)
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.
11
<PAGE>
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.
In assessing the readiness of third parties, the Company has received
correspondence from Hagen & Associates ("Hagen"), the Company's Internet web
site host and service provider, dated September 28, 1999, stating that Hagen has
found its systems to be Year 2000 compliant.
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.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the quarter ended September 30, 1999, the following transactions
were effected by the Company 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 the Company pay any commissions or fees to
any underwriter in connection with any of these transactions. None of the
transactions involved a public offering. The Company believes 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. The Company believes that each of these
persons were knowledgeable about the Company's operations and financial
condition.
In July, 1999 one investor purchased 40,000 shares of common stock of the
Company for $.25 per share, or total consideration of $10,000.00.
In August, 1999, two employees received a total of 10,000 shares of common
stock of the Company as compensation for services rendered.
In August, 1999, one creditor of the Company received 2,280,000 shares of
common stock of the Company upon conversion of $114,000 of debt of the Company
at a conversion price of $.05 per share.
In August, 1999, the Company sold a total of 1,000,000 shares of common
stock to one investor for cash consideration of $200,000.
In September, 1999 the Company issued a total of 10,000 shares of common
stock to a vendor as compensation for services rendered.
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: November 30, 1999 By /s/ Alex Genin
------------------------------
Alex Genin
Chief Executive Officer
Date: November 30, 1999 By /s/ Joselito H. Sangel
------------------------------
Joselito H. Sangel
Vice President of Finance
****
14
<PAGE>
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