<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the Nine Months Ended September 30, 1999
Commission File Number: 33-1507-NY
AMERICAN CORPORATE INVESTORS, INC.
(Name Of Small Business Issuer In Its Charter)
Delaware 13-3437739
(State Or Other Jurisdiction Of Incorporation (IRS Employer Ident. No.)
or Organization)
2424 North Federal Highway, Suite 350, Boca Raton, FL 33431
(Address Of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number: (561) 338-5611
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 preceding 12
months (or 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___
Indicate the number of Shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date. As of November 30, 1999, there
were outstanding 5,643,017 shares of Common Stock.
1
<PAGE>
INDEX
Part I. Financial information
Item 1. Condensed consolidated financial statements:
<TABLE>
<S> <C>
Balance sheet as of September 30, 1999 and
December 31, 1998 3
Consolidated Statement of Operations for the nine
months ended September 30, 1999 and 1998 4
Consolidated Statement of cash flows for the nine months
ended September 30, 1999 and 1998 5
Notes to consolidated condensed financial statements 6
Item 2. Management's discussion and analysis of financial
Condition 19
Part II. Other information
Signatures 20
</TABLE>
2
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AMERICAN CORPORATE INVESTORS, INC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS 09/30/99 12/31/98
<S> <C> <C>
Current assets:
Cash on deposit $ 86,260 $ 5,681
Trade accounts receivable 2,240,829 556,972
Inventories 818,868 250,175
Other accounts receivable 0 89,423
------------ ------------
Total current assets 3,145,957 902,251
Other assets:
Due from affiliates 437,397 671,140
Taxes receivable 0 280,466
Other assets 297,047 164,874
Note receivable 2,000,000 2,000,000
Property and equipment (net of accumulated depreciation) 7,530,475 5,439,647
Goodwill (net of accumulated ammortization) 206,669 242,306
------------ ------------
Total assets $ 13,617,545 $ 9,700,684
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,940,303 $ 1,385,609
Other current liabilities 55,284 336,704
------------ ------------
Total current liabilities 3,995,587 1,722,313
Long term liabilities:
Notes payable 4,216,936 1,175,130
Pensions and benefits payable 15,479 385,845
Common Stock, par value $.0001 per share, 300,000,000
shares authorized: 5,643,017 shares issued and outstanding 564 564
Contributed Capital in excess of stated value 12,396,495 12,396,495
Other comprehensive income-currency translation 4,597 42,852
Accumulated deficit (7,012,113) (6,022,515)
------------ ------------
Total Liabilities & Shareholders' Equity $ 13,617,545 $ 9,700,684
============ ============
</TABLE>
Please see accompanying notes to these financial statements.
3
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AMERICAN CORPORATE INVESTORS, INC
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE AND THREE MONTHS ENDING
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Nine months ending Three months ending
09/30/99 09/30/98 09/30/99 09/30/98
<S> <C> <C> <C> <C>
Revenues:
Gross Sales $1,747,388 $1,680,247 $320,091 $734,640
Less cost of sales (1,100,443) (1,025,623) (242,627) (456,775)
---------- ---------- ---------- ----------
Gross profit on sales 646,945 654,624 77,464 277,865
Less general and administrative:
Operating expenses 1,290,039 1,179,780 622,430 375,457
Depreciation and ammortization 153,038 93,575 113,952 31,192
---------- ---------- ---------- ----------
Total costs and operating expenses 1,443,077 1,273,355 736,382 406,649
Net income (loss) from operations (796,132) (618,731) (658,918) (128,784)
Other revenues and expenses:
Interest income 0 5,667 0 1,637
Gain on disposal of fixed assets 0 3,052 0 0
Bad debt expense 0 0 0 0
Interest expense (193,467) (18,672) (26,630) (3,585)
---------- ---------- ---------- ----------
Net income (loss) before tax (989,599) (628,684) (685,548) (130,732)
Provision for income taxes 0 0 0 0
---------- ---------- ---------- ----------
Net income (loss) ($989,599) ($628,684) ($685,548) ($130,732)
========== ========== ========== ==========
Earnings per share:
Basic ($0.18) ($0.14) ($0.12) ($0.03)
Weighted average of Common Shares:
Basic 5,643,017 4,562,699 5,643,017 4,562,699
</TABLE>
Please see accompanying notes to these financial statements.
4
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AMERICAN CORPORATE INVESTORS, INC
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDING SEPTEMBER 30th
<TABLE>
<CAPTION>
09/30/99 09/30/98
<S> <C> <C>
Operating Activities:
Net income (loss) ($989,599) $121,316
Adjustments to reconcile net income items
not requiring the use of cash:
Depreciation and amortization 153,038 93,575
Changes in other operating assets and
liabilities:
Trade accounts receivable (1,683,857) 302,210
Inventories (568,693) 44,384
Other accounts receivable 89,423 (633,702)
Taxes receivable 280,466 0
Other assets (132,173) 6,151
Accounts payable and accrued expenses 2,554,694 (171,955)
Deferred sales revenue 0 (506,550)
Other current liabilities (281,420) 265,322
Pensions and benefits payable (370,366) 0
--------- --------
Net cash used by operations (948,487) (479,249)
Investing Activities:
Purchase of property and equipment (2,208,228) (1,638,050)
---------- ----------
Net cash used by investing activities (2,208,228) (1,638,050)
Financing Activities:
Proceeds from issuance of common stock 0 320,000
Conversion of shareholder loan to common stock 0 24,999
Change in foreign currency valuation (38,255) (153,597)
Increase in borrowing from banks 3,041,806 (131,347)
Increase in receivable from shareholder 233,743 1,854,578
---------- ---------
Net cash provided by financing activities 3,237,294 1,914,633
---------- ---------
Net increase (decrease) in cash during fiscal year 80,579 (202,666)
Cash balance at beginning of fiscal year 5,681 252,379
---------- ---------
Cash balance at end of the period $86,260 $49,713
========== =========
Supplemental disclosures of cash flow information:
Interest paid during the fiscal year $193,467 $18,672
Income taxes paid during the fiscal year $0 $0
</TABLE>
Please see accompanying notes to these financial statements.
5
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AMERICAN CORPORATE INVESTORS, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 1- GENERAL DESCRIPTION AND NATURE OF BUSINESS
Outstanding Common Stock
American Corporate Investors, Inc. (the Company) is a Delaware corporation
organized on December 30, 1986 for the purpose of engaging in and acquiring
profitable business opportunities in the United States and overseas. On June 10,
1996, the Company effected a 1-for-10 reverse split of its issued common stock
reducing its outstanding common shares from 16,670,000 to 166,700.
Simultaneously, the Company acquired 100% of the outstanding shares of Ramoil
Management Company, Inc.(RMC) in exchange for 3,135,000 newly issued shares of
the Company's stock.
Simultaneous to this transaction, the Company issued common stock warrants where
each warrant entitled the holder to purchase one share of common stock. A total
of 800,000 warrants were issued with an exercise price of $2.50 and 450,000
warrants were issued with an exercise price of $5.00. The warrants expired in
July 1998. During the exercise period of the warrants, 450,000 of the $2.50
warrants had been exercised.
In September 1998, the two majority shareholders of the Company elected to
convert outstanding loans to RMC amounting to $5,667,217 into 1,889,771 shares
of common stock. In addition, 37,000 shares were issued, as a result of warrants
exercised at $2.50 prior to the warrants expiration date.
As a result of the above transactions, the Company has 5,643,017 issued and
outstanding shares at September 30, 1999.
Company Holdings
Ramoil Management Company, (RMC) was incorporated in 1992 in Boca Raton, Florida
and is in the business of providing consulting and managerial services to its
subsidiary companies, Ramoil Engineering S.P.A.(RME) and City Mix Concrete Inc.
(CMIX) and, until December 31, 1997, to its affiliate, Ramoil Holdings, Inc.
(RMH). In late 1996, RMC opened a branch office in Abu Dhabi, United Arab
Emirates (UAE) in order to manage the various projects that RMC was engaged in.
Ramoil Engineering S.P.A. (RME) was established in 1993 under Italian law and
provides construction supplies and services. Its principal line of business
consists of the manufacture and sale of commercial furniture and aluminum frames
for windows, doors, and other uses. RME is also involved in providing
engineering services for various construction projects in Italy.
6
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AMERICAN CORPORATE INVESTORS, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
City Mix Concrete, (CMIX) was established in 1998 in Abu Dhabi, United Arab
Emirates and will process and sell concrete to various building projects in the
UAE. Although not yet active, the plant project is under construction and
management expects the plant to be on line in November 1999. CMIX is owned by
RMC through a consulting agreement with its majority shareholder, Rodoljub
Radulovic.
In September 1999, Ramoil Middle East Acquisitions Inc. (RMEA) was incorporated
as a wholly owned subsidiary of the Company. RMEA was formed to hold the stock
that will be issued to the Company upon the initial public offering of stock of
the Sadyaat Free Trade Zone.
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements included the accounts of RMC, RME, and
CMIX. All significant inter-company accounts have been eliminated in these
consolidated financial statements.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates that affect
the reported amount of assets and liabilities and the reported amount of revenue
and expenses during the period reported. Actual results could differ from those
estimates.
Revenue Recognition
RME recognizes revenue upon shipment of the related goods or performance of
services.
Inventories
Inventories are stated at lower of cost or market. Cost is determined by using
the first-in, first-out method ("FIFO") or by the specific identification method
where feasible. As of March 31, 1999, inventory detailed as follows:
7
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AMERICAN CORPORATE INVESTORS, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
<TABLE>
<S> <C>
Work in process $-0-
Finished goods $818,868
--------
Ending inventory $818,868
</TABLE>
Property, Plant, and Equipment
Property, plant and equipment are recorded at cost. Depreciation and
amortization are calculated on the straight-line method based upon the following
estimated useful lives:
<TABLE>
<S> <C>
Buildings and Plant 33 years
Leasehold improvements Lease term
Machinery and equipment 7-9 years
Furniture and fixtures 5-8 years
Office equipment 3-5 years
Vehicles 4-5 years
</TABLE>
At September 30, 1999, the property, plant, and equipment account details as
follows:
<TABLE>
<S> <C>
Property and equipment $1,576,145
Leasehold improvements 438,152
Furniture and fixtures 331,127
City Mix plant project 5,705,238
Vehicles 198,320
Towers project 416,354
Accumulated depreciation (1,134,861)
-----------
Total property, plant, and equipment $7,530,475
</TABLE>
Goodwill is the excess of funds paid over cost by RME to purchase Artifex Inc in
1995. The goodwill account is being amortized over a forty-year period on a
straight-line basis.
Other assets
Other assets include prepaid rent and sponsorship fees in the Company's Abu
Dhabi branch.
8
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AMERICAN CORPORATE INVESTORS, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
Income taxes
The Company utilizes Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", which requires the Company to compute deferred
income taxes based upon the difference between the financial statement and tax
bases of the assets and liabilities using the tax rates in effect for the year
in which the differences are expected to reverse.
Foreign Currency Translation
The financial statements of RME are prepared in Italian lire and the financial
statements of CMIX are prepared in Arabian dirhams. Assets and liabilities are
converted at the exchange rate in effect as of the balance sheet date. Income
and expense items are translated at the average rate in effect over the time
period reported. The capital accounts of RME and CMIX are translated at the rate
prevailing at inception. The resulting differences caused by these translation
adjustments have been accumulated in a separate component of stockholders equity
called the "cumulative translation adjustment".
NOTE 3- RELATED PARTY TRANSACTIONS
The Company had provided management services to Ramoil Holding Co. LTD (RHC); a
company affiliated through common ownership by the Company's majority
shareholder. Under the terms of the management agreement, the Company received a
minimum annual fee of $1,000,000 with additional amounts due based on other
services. The Company has accounted for these fees as "Due from Affiliates".
Funds that were subsequently remitted by the majority shareholder directly to
the Company or to third parties on behalf of the Company were then netted
against this receivable balance.
During fiscal 1998, management had decided to cancel this consulting agreement
for fiscal 1997 and 1998. The majority shareholder has agreed to a formal
payment plan where the balance of this account will be received over a
three-year period with interest compounded monthly at the floating prime rate.
As of September 30, 1999, RHC had an outstanding receivable balance owed to the
Company of $437,397.
9
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AMERICAN CORPORATE INVESTORS, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 4- NOTE RECEIVABLE
RMC had entered into an agreement in 1998 to provide financing for the
construction of 83 apartment and villa units in Al Ain City, Abu Dhabi, United
Emirates with the licensed owner of the land being developed. Under the terms of
the agreement, RMC was obligated to finance the total construction costs of the
project, including licensing fees, while in return receiving a mortgage on the
property developed. The contracted cost of the project was $11,475,410. The
Company provided $2,000,000 in funding for this project through December 31,
1998.
On April 20, 1999, the parties mutually agreed to cancel this agreement whereby
the Company was relieved of its financing obligation and has received an
unsecured promissory note for $2,000,000 that is receivable at 12/31/2001 from
the owner of the land being developed.
NOTE 5- CONTINGENCIES
Substantially all the operations of the Company are conducted in Italy and the
United Arab Emirates. Such operations are affected by the domestic and political
developments occurring there. The degree of theses occurrences and their overall
affect on the Company cannot be predicted but could be material in nature.
In addition, all business activity of a foreign corporation in Abu Dhabi
requires the corporation to be sponsored by an Abu Dhabi national. The Company's
sponsorship agreements in effect will expire in late 1999 and early 2000.
Normally, the sponsorship agreement provides for an annual fee to be prepaid to
the sponsor and for the sponsor to share in the proceeds of a completed project
on a percentage basis. The agreements are cancelable, at will, by the sponsor.
Cancellation of the sponsorship agreements could have a material adverse affect
on the Company's ability to operate as a going concern in the United Arab
Emirates.
NOTE 6- CITY MIX PROJECT
City Mix Concrete Inc.(CMIX) is a UAE corporation registered for the purpose of
constructing and operating a concrete plant in the UAE. CMIX, a subsidiary of
RMC, has been granted a license that will permit it to construct a concrete
plant and sell concrete for a twenty-year period in the UAE. All equipment,
including the plant itself, will remain the property of the Company at the
conclusion of the license period. The license is transferable to third parties
at the Company's discretion. Under this agreement, CMIX will be obligated to pay
a 12% royalty on net profits generated from this operation for the use of this
license.
10
<PAGE>
AMERICAN CORPORATE INVESTORS, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
As of September 30, 1999, the Company has invested $5,705,238 towards the
construction and assembly of this plant detailed as follows:
<TABLE>
<S> <C>
Plant parts and assembly $2,025,489
Trucks and equipment 2,775,756
Engineering costs 903,993
----------
Total project investment $5,705,238
</TABLE>
Management's estimate for the purchase, equipping, and assembly of this plant is
$7,325,000. During the first quarter of 1999, management postponed the estimated
completion date for this plant from July 1999 to November 1999. Management
expects the November completion estimate to accurate as of September 30, 1999
contingent on securing additional funding of approximately $600,000.
Assembly of the plant has been ongoing and when completed, the plant will have
the capacity to produce 3,000 cubic meters of concrete per day. Through the
efforts of the Company's sponsor, CMIX has received preliminary approval as the
exclusive concrete supplier for a new port and free trade zone development
project in the UAE. Of course, finalizing this contract must await completion of
the plant to be certain that CMIX will be able to fulfill its obligations
thereunder.
NOTE 7- LEGAL MATTERS
In May 1996, legal actions were filed against the Company and its principal
stockholder. A Russian entity has alleged that it is owed $12 million from a
former affiliated entity's failure to comply with the terms of an oil-trading
contract. The Company has vigorously defended itself against this action and it
is management's position that the eventual disposition of this matter will not
have a material adverse affect on the Company's financial position. Accordingly,
no provision for any loss as a result from the resolution of this matter has
been made.
11
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AMERICAN CORPORATE INVESTORS, INC.
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 8: SEGMENT INFORMATION
The Company's business operations are divided into two principal business
segments: the Italy operations which include the operations of RME and the
United Arab Emirate operations which include the development stage activities of
CMIX and the corporate management operations of RMC located in Boca Raton. The
operating results and total assets of the two business segments for the nine
months ending September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Italy UAE Consolidated
<S> <C> <C> <C>
Gross sales $1,747,388 $ 0 $1,747,388
Less cost of sales (1,100,443) 0 (1,100,443)
----------- ----------- -----------
Gross profit 646,945 0 646,945
Less operating expense (183,483) (1,106,556) (1,290,039)
Less depreciation (98,899) (54,139) (153,038)
----------- ----------- -----------
Income (loss) from operations 364,563 (1,160,695) (796,132)
Other income (expense):
Interest expense (189,919) (3,548) (193,467)
----------- ----------- -----------
Net income (loss) before tax 174,644 (1,164,243) (989,599)
Provision for tax 0 0 0
----------- ----------- -----------
Net income (loss) $174,644 ($1,164,243) ($989,599)
=========== =========== ===========
Total Assets: $5,750,085 $7,867,460 $13,617,545
=========== =========== ===========
</TABLE>
12
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL - FORWARD LOOKING STATEMENTS.
Certain statements made in this report on form 10Q are "forward looking'
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements involve known and unknown risks, uncertainties, and other
factors that may cause actual results, performance, or achievements of the
Company to be materially different from any future results implied by such
forward looking statements. Although the Company believes that the expectations
reflected in such forward looking statements are based upon reasonable
assumptions, the Company's actual results could differ materially from those set
in the forward-looking statements. Certain factors that might cause such a
difference might include the following: the securing of additional or the
renewal of existing construction contracts, the growth of the market for the
Company's services, the effects of the European economic unification upon the
Company's ability to secure additional business, the ability of the Company to
secure significant additional financing to meet the Company's financing
obligations of various real estate and construction projects the Company has
entered into in the UAE.
RESULTS OF OPERATIONS
Gross sales for the first nine months of fiscal 1999 were slightly higher than
the comparable period for 1998 ($1,747,388 as compared to $1,680,247), or an
increase of slightly more than 3.8%. Sales consist of a mix of engineering
services performed by, and the sale of construction goods by, Ramoil Engineering
S.p.a. (RME), Registrant's wholly owned Italian subsidiary. Corresponding costs
of sales increased more significantly ($1,100,443 in the current period of
fiscal 1999, as compared to $1,025,623 in the same period in fiscal 1998) by
almost 7.3%, with gross profits remaining virtually unchanged at $646,945 in the
first nine months of fiscal 1999 compared to $654,624 in the prior year.
Expressed as a percentage of gross sales, gross profits dropped to just over 37%
in the first half of fiscal 1999, compared to just under 39% in the same period
last year. The decrease in gross margins is due primarily to the elimination of
management fees that had, in prior years, been charged to Ramoil Holding Corp.,
an affiliated company coupled with the slightly higher cost of sales during the
current period. Without including management fees in the first half of fiscal
1998, gross sales figure and gross profit percentage for the first nine months
of both fiscal 1998 and 1999 are roughly equal. The increase in gross sales
during this period is due to increased sales of both engineering services and
construction goods rather than to increases in prices.
Total operating expenses were $1,290,039 during the first nine months of fiscal
1999, compared to $1,179,780 during the same period last year. The increase in
operating expenses is attributable to salaries of $121,000 paid to the Company's
CEO and President that were not paid in the prior year. Further, during this
period the Company incurred $92,000 in engineering salary expense for its Citi
Mix Cement project which were expense was not present last year. Without these
salary payments operating expenses for the current period would have continued
to decrease over the prior year primarily due to the continued effects of the
significant cuts in staff and overhead expenses made by the Company according to
its restructuring plan implemented in 1997. In addition, Ramoil Engineering's
management plan has, and continues to call for emphasizing
13
<PAGE>
engineering services as opposed to manufacturing of finished goods. This has
resulted in lower overhead costs and greater flexibility of operation.
As previously reported, in September 1996, the Company opened a branch office in
Abu Dhabi, United Arab Emirates in order to conduct business and explore new
markets in the region. In early 1997 Registrant entered into a sponsorship
agreement with Ayuco International, an Abu Dhabi entity owned by Sheikh Hazza
Bin Zayed Al-Nahyan, Chairman of National Security for the UAE and Chairman of
Saadiyat Free Zone. Under its terms, the sponsor provides consulting and
mediation services in the emerging markets of Abu Dhabi. The salaries and
overhead of the branch office are funded by the Company on a monthly basis. The
total cost of the Abu Dhabi branch office was $335,950 for the nine months ended
September 30, 1999, an increase over the cost of $240,278 for the nine months
ended September 30, 1998. The cost of this branch office was significantly
higher than the in the same period in fiscal 1998 as the branch office was still
in the developmental stage for most of fiscal 1998. The office consists of two
engineers and support staff. Management's original budget of $135,000 for the
overhead cost of this branch office for fiscal 1999 have been exceeded due
primarily to the expenses incurred in connection with the Company's various
projects in Abu Dhabi and the delay in completion of the City Mix plant.
During the first nine months of 1999, the Company received non interest bearing
advances from two investors in the amount of $2,850,000 that was used to fund
further construction of the City Mix plant which are recorded in the financial
statements as "Equipment loans & notes payable." These loans are expected to be
converted into common shares upon completion of the City Mix project.
DISCUSSION OF FINANCIAL CONDITION
On a consolidated basis, as of September 30, 1999 the Company had total assets
of $13,617,545, as compared with $9,700,684 at December 31, 1999, with total
liabilities of $8,228,002, compared to $3,283,288 for December 31, 1998. Of the
Company's assets at September 30, 1999, cash and cash equivalent accounted for
$86,260 and $2,240,829 represents trade accounts receivable (compared to $5,681
and $556,972 respectively at December 31, 1998). The increase in the Company's
current assets at September 30, 1999 was principally due to the increases in
cash, trade accounts receivable, and inventory. However, also contributing to
the overall increase in total assets was a significant increase in property,
plant and equipment attributable to City Mix project. Of the Company other
assets, it should be noted that the item listed as "taxes receivable" represents
government incentives received from the Italian government due to the Company's
investment in a depressed area. This amount, which is accrued over the course of
the year, represents an incentive payment that is later credited by the Company
against taxes owed. As of September 30, 1999, this item was $297,047.
At September 30, 1999, the Company reflected an increase in current liabilities,
attributable primarily to increases in accounts payable and accrued expenses, as
compared to December 31, 1998. Further, long term liabilities also increases due
principally to increases in notes payable, including the interest free advances
discussed above.
At September 30, 1999, the Company's total stockholders' equity decreased to
$10,779,086, as compared to $12,834,792 at December 31, 1998, due to the
Company's continued operating
14
<PAGE>
losses, which increased to $989,599 in the first nine months of fiscal 1999
compared to an operating loss of $628,684 in the same period last year. This
resulted in the Company's accumulated deficit increasing to $7,012,113 as
compared to $6,022,515 at the end of 1998. The principal source of funds for the
Company's operations have been, and continue to be, revenues earned by
Engineering and the continued financial support of the Company's major
shareholders, both of which factors are essential to the Company ability to
continue operations.
During the fiscal year ending December 31, 1999, the Company will face
substantial expenditures in connection with the projects now committed to in the
UAE. In addition, the Company will require approximately $210 Million in order
to pay for the shares of EGCC, including appropriate allocations for related
costs and fees associated with the contemplated financing of the share purchase.
In addition, the Company has substantial financial commitments in connection
with the Company's other pending commercial projects in the UAE. See "BUSINESS
MATTERS - FINANCING COMMITMENTS AND RELATED MATTERS" below.
Based upon available cash on hand and expected revenues from the operations of
Engineering, management is of the opinion that it will not have adequate
available funds to meet its anticipated capital expenditures and cash needs for
fiscal 1999. Therefore, unless adequate funding is secured in a timely fashion,
of which there can be no assurance, it is likely that the Company will not be
able to meet its funding commitments for the projects now under way in the UAE,
except, in management's opinion, the funding needs for the City Mix Project
which is expected to be completed in the fourth quarter of fiscal 1999. However,
it is uncertain as to what effect a default in any of its funding commitments in
the UAE will have. It is possible that the Company's sponsor will terminate its
sponsorship and support of the Company, in which event the Company will be
required to locate a new sponsor in order to conduct any operations in the UAE.
BUSINESS MATTERS - GENERAL
In September 1996, Ramoil Management Company ("RMC") terminated all pending
contracts relating to its international trade operations with Russia due to the
failure of the Russian companies involved to make certain payment requirements.
At the same time, Ramoil Engineering also terminated all existing supply
contracts with Russian entities for similar reasons. These decisions eliminated
much of the revenue producing operations for RME and all of the revenue
producing operations for RMC.
Following the termination of its business operations in Russia, management
decided to concentrate on establishing a new business plan centered around
operations in the Middle East and in the United Arab Emirates (UAE) in
particular. Pursuant to local regulations, any foreign corporation that desires
to engage in business in the UAE is required to have a local sponsor. Through
its former business contacts, the Company was able to enter into a sponsorship
agreement with a company owned by Sheik Hazza Bin Zayed Al-Nahyan, Chairman of
National Security for the UAE and Chairman of Saadiyat Free Zone. Pursuant to
this agreement, the Company has been introduced to various projects throughout
the UAE. Under the terms of the agreement, the sponsor will assist the Company
with all aspects of doing business in the UAE including assistance in compliance
with local registration requirements under UAE law. Although not obligated to do
so, the Company's sponsor has provided the Company with virtually all of the
business opportunities being presently developed. In consideration of bringing
these projects to the Company, the
15
<PAGE>
Company is obligated to pay a base annual fee to the Sponsor and a percentage
commission on all business generated by projects introduced. As required by UAE
law, Ramoil has established a registered branch office in Abu Dhabi.
To date, the Company has secured several contracts for diverse projects in the
UAE. The following is a discussion of these projects:
A. HOTEL AND OFFICE COMPLEX. The Company has entered into a contract to serve
as developer for the construction of a hotel and office complex in the UAE.
To date, initial architectural plans have been completed and, although
formal contracts have not yet been entered into, negotiations with the Ritz
Carlton Corp. have been completed. Under the agreement in principal reached
by the parties, Ritz Carlton would operate the hotel portion of the project
upon completion. In 1998, the Company entered into an agreement with the
owner of the land site whereby it has received a concession to the land
site to be developed for a twenty-year period. The concession right
includes the right to mortgage the land but not the right to sell the land.
The fair market value of this land site at December 31, 1998 was estimated
to be $36,800,000. The agreement provides that the Company will retain
title to the assets developed on this land site during the concession
period. At the end of the twenty-year concession period, the Company has
agreed to pass the title of all assets and improvements on the land
developed to the original owner.
The net profits from this project will be divided 80% to the Company and
20% to the landowner. Current revised estimates indicate that this project
will require approximately $85 million to complete. As of the date of this
Report, construction has begun on this project. Engineering and
pre-development costs of approximately $800,000 have been capitalized as of
September 30, 1999. The Company continues its negotiations to secure
suitable funding to undertake construction of this project. See, " -
FINANCING COMMITMENTS AND RELATED MATTERS" below.
B. CITY MIX CONCRETE. City Mix Concrete LLC is a UAE limited liability company
registered for the purpose of constructing and operating a concrete plant
in the UAE. The Company has been granted an assignment of this UAE company,
together with its operating licenses, which will operate under a license
that will permit it to construct a concrete plant and sell concrete for a
twenty-year period in the UAE. All equipment, including the plant itself,
will remain the property of the Company at the conclusion of the license
period. The license is transferable to third parties at the Company's
discretion. Under this agreement, the Company will be obligated to pay a
12% royalty on net profits generated from this operation for the use of
this license. As of June 30, 1999, the Company has invested $5,705,238
towards the construction and assembly of this plant detailed as follows:
<TABLE>
<S> <C>
Plant parts and assembly $2,025,489
Trucks and equipment 2,775,756
Engineering costs 903,993
----------
Total project investment $5,705,238
</TABLE>
Management's estimate for completing the purchase, equipping, and assembly
of this plant is approximately $7.325 Million, including approximately $4
Million in working capital
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<PAGE>
reserves. Management postponed the estimated completion date for this
plant from July 199 to November 1999 contingent upon securing additional
funding of approximately $600,000. However, as of the date of this report
such financing has not been secured by the Company and management now
expects the plant to be completed in early 2000. When completed, the plant
will have the capacity to produce 3,000 cubic meters of concrete per day.
Through the efforts of the Company's sponsor, the Company has received
preliminary approval as the exclusive concrete supplier for a new port and
free trade zone development project in the UAE. Of course, finalizing this
contract must await completion of the plant and there is no assurance that
the Company will be able to fulfill its obligations thereunder.
C. SAADIYAT FREE TRADE ZONE. The UAE is currently completing plans for the
construction of a new port facility and free trade zone. This project,
known as the Saadiyat Free Trade Zone Authority (SFTZA) is scheduled to be
constructed on Saadiyat Island in Abu Dhabi and is estimated to require
approximately $3.3 billion to complete. Final approval for the project was
given by the UAE Executive Council earlier this year. Plans to raise the
necessary capital required for construction are now under way. It is
planned that this financing will be completed through a combination of
private placement and institutional offerings in the UAE and a global
public offering of shares. Through the efforts of its sponsor, the Company
has been offered an opportunity to purchase shares as a "founder" along
with six other major participants. In connection with its role as a
founder, the Company will be required to invest $165 million to purchase
60,625,000 Shares of Emirates Global Capital Corporation, Ltd. (EGCC) which
is the corporation formed for the purpose of development of the Saadiyat
project. Upon purchasing the Shares, the Company will have the right to one
seat on the Board of Directors of EGCC and will be pre-qualified to tender
as a "main contractor" for various projects in connection with development
of the Saadiyat Project. Although no assurances can be given, management
believes that the Company will win the tender for a portion of these
project, and in particular for the delivery of cement, and will derive
substantial revenues therefrom.
Finally, in evaluating the Company's ability to establish viable commercial
operations, it must be remembered that, at present, the only revenue generating
operation of the Company is those of Ramoil Engineering. However, in terms of
the future growth of this segment of the Company's operations, great emphasis
has been placed on the future success of the Company's projects in the UAE.
- FINANCING COMMITMENTS AND RELATED MATTERS
In discussing its financing needs with American Pastime Holdings, Inc., a firm
that represented a potential lender, it became apparent that as a result of
Ramoil's uncertain financial condition, ongoing operating losses and pending
lawsuits of a potentially material nature, it would be impossible for the Ramoil
to secure commitments for the necessary funding. In order to overcome the
objections of potential lenders and secure in a timely manner the financing
needed to complete the purchase of the EGCC Shares, the Company formed a new,
wholly owned subsidiary, Ramoil Middle East Acquisitions, Inc. (Acquisitions),
under the laws of Delaware, through which the acquisition of the EGCC Shares is
now planned to proceed. In connection with this change, the original
subscription to purchase the Shares by Ramoil was cancelled and a new
subscription in favor of Acquisitions was granted by EGCC.
17
<PAGE>
As previously reported, on August 6, 1999, Acquisition signed a formal Agreement
with American Pastime Holdings, Inc. (APH) pursuant to which APH was engaged to
arrange financing for the purchase of the EGCC Shares in the principal amount of
$210 Million, which included the share purchase price of approximately $165
Million and $25 Million estimated for related costs, interest expense during the
18 months of the contemplated loan and other commitment and transactional costs.
A preliminary understanding had been reached with a lender identified by APH.
However, as the lender began its due diligence procedures it became apparent
that satisfaction of certain conditions precedent to the loan could not be met.
Consequently, discussions with that lender terminated. EGCC has since extended
the Company's option to acquire the Shares and the Company is presently engaged
in negotiations with several other parties in order to raise the funds necessary
to complete the purchase of the EGCC Shares. Of course, no commitment has yet
been received and no assurance can be given that such financing will in fact be
secured by the Company or that the purchase of the EGCC Shares will be
completed.
As of the date of this Report, the Company is continuing discussion with APH to
provide the required financing in connection with its hotel and office complex
project discussed above. Although serious interest has been expressed by both
APH and several other parties introduced by APH, no final understanding has yet
been reached. At present, a number of issues relating to the provisions of UAE
law as they pertain to securing any financing for this project must be resolved.
Management is unable to predict when, if ever, these issues will be resolved or
when funding will be4 available.
TRENDS AFFECTING LIQUIDITY, CAPITAL RESOURCES AND OPERATIONS
Over the past decade, economic conditions worldwide have favored the development
of business oriented projects designed to meet the needs of developing business
and financial interests in many developing areas. Among the fastest growing
areas in the world is the Middle East. Combining the great wealth that come from
extensive oil-related interests with diminished threats of war and terrorist
activities, the UAE has emerged as a leader in this region. Management believes
this trend, coupled with the support of the Company's sponsor, who himself is a
recognized leader in the region, has situated the Company in a position to
participate in the growth of the UAE. Provided the Company can meet its
financial obligations under the various projects discussed above, management
believes it can be an integral part of the growth being experienced in the UAE
and that the benefits to the Company will be a major factor in its growth over
the foreseeable future.
With the collapse of traditional political and ideological barriers, the demand
for products from all parts of the world has increased perceptibly with many
developing and third world nations now looking for products from many different
countries. This has been particularly true of countries with "soft" currencies
(i.e. currencies not readily exchangeable into established currencies such as
British pounds, US dollars, etc.), which at present are unable to pay for their
purchases in US dollars. Management believes that the greatest demand for all
kinds of foreign products will come from these new developing third world
countries over the foreseeable future. This is but one factor that favors the
development of a free trade zone in the Middle East, such as the Saadiyat Free
Trade Zone proposed by the UAE.
18
<PAGE>
Management knows of no other trends reasonably expected to have a material
impact upon the Company's operations or liquidity in the foreseeable future.
INFLATION.
During the past few years inflation worldwide has been relatively stable which,
coupled with the relative strength of the economic conditions in the Middle
East, including the UAE, discussed above, is expected to have a beneficial
effect upon the Company's planned operations in the UAE. In management's
opinion, these favorable conditions are expected to continue for the foreseeable
future and management does not anticipate that inflation will have an adverse
impact upon its operations in the foreseeable future.
YEAR 2000 COMPLIANCE.
The Year 2000 issue is the result of computer programs being written using two
digits, rather than four to define the applicable year. Any of the Company's
computer programs that have data-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Based upon an assessment made during fiscal 1998, the Company has begun to
updated all versions of operations and financial software so that all of its
systems will utilize dates beyond December 31, 1999 properly. In addition, the
Company is evaluating its auxiliary computer application systems for Year 2000
compliance, a process which is expected to be completed during the first half of
1999. The Company believes that the planned modifications and conversions will
allow it to mitigate the Year 2000 issue.
The Company also is in the process of contacting its significant suppliers,
financial institutions and major customers to determine the extent to which the
Company may be vulnerable to any third parties' failure to remediate their own
Year 2000 issues. The financial impact to the Company of bringing its equipment
and systems into Year 2000 compliance is not anticipated to be material to its
financial position or results of operations.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
None during this period.
19
<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 thereunto duly authorized.
Dated: December 6, 1999
AMERICAN CORPORATE INVESTORS, INC.
BY: /s/ Aleksandr Taflevich
----------------------------
President
20
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