UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q





(Mark one)


TQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended March 31, 2010





OR





o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the transition period from                 to





Commission File No. 000-26271





FIRST CAPITAL INTERNATIONAL, INC.


(Exact name of registrant as specified in its charter)





Delaware
76-0582435(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)5120 Woodway

Suite 9024

Houston, Texas
77056(Address of principal executive offices)
(Zip Code)





(713) 629-4866


(Issuer’s Telephone Number, Including Area Code)





Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchanged Act of 1934 during the preceding 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 T   No o





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filer  o

Accelerated filer  oNon-accelerated filer  o
(Do not check if a smaller reporting company)
Smaller reporting company  T





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).           Yes oNo T




Number of shares outstanding as of the close of business on June 22, 2010:





TITLE OF CLASS

NUMBER OF SHARES OUTSTANDINGCommon Stock, $0.001 par value.

36,809,671













TABLE OF CONTENTS








PART I - FINANCIAL INFORMATION





Item 1.
Unaudited Consolidated Financial Statements
F-1Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
1Item 4.
Controls and Procedures
6PART II - OTHER INFORMATIONItem 1.
Legal Proceedings
7Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
8Item 3.
Default Upon Senior Securities
8Item 6.
Exhibits
9SIGNATURES
9


Table of Contents




FIRST CAPITAL INTERNATIONAL, INC.
 __________
 
 
 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  F-1
 Table of Contents
 
 FIRST CAPITAL INTERNATIONAL, INC.
 TABLE OF CONTENTS
 __________
 
 
 PageUnaudited Consolidated Financial Statements:Consolidated Balance Sheets as of March 31, 2010 (Unaudited) and December 31, 2009
F-3Unaudited Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009
F-4Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009
F-5Notes to Unaudited Consolidated Financial Statements
F-6
  F-2
 Table of Contents
  
 FIRST CAPITAL INTERNATIONAL, INC.
 CONSOLIDATED BALANCE SHEETS
 March 31, 2010 and December 31, 2009
 __________
 
 March 31,


December 31,2010


2009(Unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
5,079


$
4,442Accounts receivable


26,862



59,289Employee receivables


2,185



2,385Due from related parties


1,013



681Total assets

$
35,139


$
66,797LIABILITIES AND STOCKHOLDERS’ DEFICITCurrent liabilities:Credit cards obligations and line of credit

$
110,383


$
113,574Accounts payable and accrued liabilities


108,095



110,178Accrued interest payable to related parties


247,290



228,662Current portion of notes payable to related parties


367,771



281,344Convertible notes payable to related parties


50,000



50,000Convertible notes payable


500,000



500,000Deferred revenue


198,374



196,525Total current liabilities


1,581,913



1,480,283Long term liabilities:Notes payable


38,126



38,126Notes payable to related parties, non-current


622,283



636,783Total long term liabilities


660,409



674,909Total liabilities


2,242,322



2,155,192Stockholders’ deficit:Preferred stock, $0.001 par value; 20,000,000 shares authorized;4,500,000 shares issued and outstanding


4,500



4,500Common stock, $0.001 par value; 200,000,000 shares authorized;36,809,671 and 36,809,671 shares issued and outstanding, respectively


36,810



36,810Additional paid-in capital


9,693,253



9,587,680Accumulated deficit


(11,941,746
)


(11,717,385
)Total stockholders’ deficit


(2,207,183
)


(2,088,395
)Total liabilities and stockholders’ deficit

$
35,139


$
66,797
 
 The accompanying notes are an integral part of these unaudited consolidated financial statements.
  F-3
 Table of Contents
 
 FIRST CAPITAL INTERNATIONAL, INC.
 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three Months Ended March 31, 2010 and 2009
 (unaudited)
 
 March 31,


March 31,2010


2009Revenue:System sales

$
55,021


$
403,511Total revenue


55,021



403,511Costs of sales:Cost of systems


19,729



128,879Total cost of sales


19,729



128,879Gross Margin


35,292



274,632Selling, general and administrative expenses


238,091



165,513Income/(loss) from operations


(202,799
)


109,119Other expense:Interest expense


(21,562
)


(19,761
)Net income/(loss)

$
(224,361
)

$
89,358Basic and diluted net income/(loss) per common share

$
( 0.01
)

$
0.00Weighted average shares outstanding


36,809,671



36,809,671
 
 The accompanying notes are an integral part of these
 unaudited consolidated financial statements.
  F-4
 Table of Contents
  FIRST CAPITAL INTERNATIONAL, INC.
 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Three Months Ended March 31, 2010 and 2009
 (unaudited)
 
 March 31,


March 31,2010


2009Cash flows from operating activities:Net income/(loss)

$
(224,361
)

$
89,358Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Stock based compensation


105,574



15,347Changes in operating assets and liabilities:Accounts receivable


32,427



(152,272
)Employee receivables


200



7,015Other current assets


-



139Credit Card Obligations


(3,191
)


(10,878
)Accounts payable and accrued liabilities


(2,009
)


(5,172
)Accrued Interest


18,628



11,598Deferred Income


1,849



75,910Net cash provided by (used in) operating activities


(70,883
)


31,045Cash flows from financing activities:Payments of notes payable and long-term debt to related party


(14,833
)


(15,773
)Proceeds from notes payable and long-term debt to related party


86,353



2,500Net cash provided by (used in) financing activities


71,520



(13,273
)Net increase in cash and cash equivalents


637



17,772Cash and cash equivalents, beginning of period


4,442



3,938Cash and cash equivalents, end of period

$
5,079


$
21,710Supplemental disclosure of cash flow information:Cash paid for interest

$
2,935


$
8,164Cash paid for taxes

$
-


$
-Supplemental disclosure of non cash investing and financing activities:
 
 The accompanying notes are an integral part of these
 unaudited consolidated financial statements.
  F-5
 Table of Contents
 
 FIRST CAPITAL INTERNATIONAL, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 
 1.
Basis of Presentation and Critical Accounting Policies
 
 First Capital International, Inc. (the “Company”), formerly Ranger/USA, Inc., incorporated as a Delaware Corporation on April 21, 1994 and assumed its current name in August 1998 when new management took over the Company.
 
 The unaudited consolidated condensed financial statements included herein have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, pursuant to such rules and regulations. These unaudited consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto of First Capital International, Inc. (the "Company") included in the Company's Annual Report on Form 10-K for the year ended December 31, 2009.
 
 In the opinion of management, the unaudited consolidated condensed financial information included herein reflect all adjustments, consisting only of normal, recurring adjustments, which are necessary for a fair presentation of the Company's financial position, results of operations and cash flows for the interim periods presented. The results of operations for the interim periods presented herein are not necessarily indicative of the results to be expected for a full year or any other interim period.
 
 Use Estimates
 
 The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and assumptions.
 
 Principles of Consolidation
 
 The consolidated condensed financial statements include the accounts of the Company and its wholly owned subsidiary VIP Systems, Inc. after elimination of all significant intercompany accounts and transactions.
 
 Recent Accounting Pronouncements
 
 In March 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-11 (ASU 2010-11), “Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives.”  The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010.  Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update.  The Company does not expect the provisions of ASU 2010-11 to have a material effect on the financial position, results of operations or cash flows of the Company.
 
 In February 2010, the FASB Accounting Standards Update 2010-10 (ASU 2010-10), “Consolidation (Topic 810): Amendments for Certain Investment Funds.”  The amendments in this Update are effective as of the beginning of a reporting entity’s first annual period that begins after November 15, 2009 and for interim periods within that first reporting period. Early application is not permitted.  The Company’s adoption of provisions of ASU 2010-10 did not have a material effect on the financial position, results of operations or cash flows.
  F-6
 Table of Contents
 
 In February 2010, the FASB issued ASU No. 2010-09 “Subsequent Events (ASC Topic 855) “Amendments to Certain Recognition and Disclosure Requirements” (“ASU No. 2010-09”). ASU No. 2010-09 requires an entity that is an SEC filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirement for an SEC filer to disclose a date, in both issued and revised financial statements, through which the filer had evaluated subsequent events. The adoption did not have an impact on the Company’s financial position and results of operations.
  In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-06, “Improving Disclosures about Fair Value Measurements.” ASU No. 2010-06 amends FASB Accounting Standards Codification (“ASC”) 820 and clarifies and provides additional disclosure requirements related to recurring and non-recurring fair value measurements and employers’ disclosures about postretirement benefit plan assets. This ASU is effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of ASU 2010-06 did not have a material impact on the Company’s financial statements.
 
 2.
Going Concern
 
 The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company, incurred net losses of $224,361 for the three months ended March 31, 2010 and has an accumulated deficit of $11,941,746 and a working capital deficit of $1,046,774 at March 31, 2010. These conditions raise substantial doubt as to the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Management intends to finance these deficits by selling its common stock.
 
 
 3.
Convertible Note Payable
 
 On March 24, 2006, the Company issued 2,500,000 restricted common shares at $0.20 per share (or 833,334 shares of restricted common stock at $0.60 after a 1-for-3 reverse split) to a sophisticated investor as collateral for note payable bearing 0% interest due on May 30, 2007.
 
 The agreement allowed the investor to dispose of the shares, in part or full, prior to May 30, 2007.  The proceeds from any such disposal would reduce the principal balance of $500,000. The promissory note is also secured by all assets of the Company. This instrument was accounted for as a liability in the financial statements.  The note expired on May 30, 2007.  We were in default of this Note and lawsuit was filed in May 2008.  The lawsuit was subsequently dismissed in March 2010 and the appeal period expired on April 19, 2010 without further action from the other party.
 
 
 4.
Notes Payable to Related Parties
 
 During the three months ended March 31, 2010, the Company had the following notes payable to related parties transactions:
 
 During 2010, Alex Genin, our Chief Executive Officer, made loans to us under 2 promissory notes for a total principal amount of $14,000 which bear interest at the rate of 0% and 8% and which are due January 2013. One of these notes was partially paid.  The total principal paid on this note was $6,000 and $0 interest.  None of the notes to Alex Genin were collateralized.  As of March 31, 2010 the total principal amount due on all notes to Alex Genin, individually, is $174,000.
 
 During 2010, Eastern Credit Limited, Inc., a company controlled by Alex Genin, extended three years a loan to us under a $5,000 promissory note originally due April 2010 which bear interest at the rate of 8%. None of the notes to Eastern Credit Limited were collateralized.  As of March 31, 2010 the total principal amount due on all notes to Eastern Credit Limited, Inc. is $243,300.
  F-7
 Table of Contents
 
 During 2010, we paid off the balance on a promissory note to ECL Trading, a company controlled by Alex Genin,. The total principal and interest paid on this note is $500 and $120 respectively.  As of March 31, 2010 there is $0 balance on notes to ECL Trading.
 
 During 2010, First National Petroleum, Corp., a company controlled by Alex Genin, made several loans to us under 17 promissory notes for a total principal amount of $72,500 of which 16 notes bear interest at the rate of 8% and one note for $12,000 bears interest at 0%. These notes are due in three years ranging from January 2013 thru March 2013. None of the notes to First National Petroleum were collateralized.  As of March 31, 2010 the total principal amount due on all notes to First National Petroleum is $232,500.
 
 During 2010, two promissory notes to Pacific Commercial Credit, Ltd., a company controlled by Alex Genin, were extended three years which notes were originally due April and May 2010.  None of the notes to Pacific Commercial Credit were collateralized.  As of March 31, 2010 the total principal amount due on all notes to Pacific Commercial Credit is $85,000.
 
 During 2010, a promissory note to Stromberg Development, Inc., a company owned by Alex Genin, was extended three years which note was originally due April 2010  None of the notes to Stromberg Development were collateralized.  As of March 31, 2010 the total principal amount due on all notes to Stromberg Development is $36,800.
 
 In 2010, United Capital Group, Ltd., a company controlled by Alex Genin, has 14 outstanding promissory notes. None of the notes to United Capital Group were collateralized.  As of March 31, 2010 the total principal amount due on all notes to United Capital Group is $198,983.
 
 In 2010, Cathy George, a director of the Company, has one outstanding promissory note and one convertible note. None of these notes were collateralized.  As of March 31, 2010 the total principal amount due on all notes to Cathy George is $68,000.
 
 
 5.
Stock and Option Transactions
 
 During the three months ended March 31, 2010, the company sold 0 shares of restricted common stock. Ten options to purchase up to 3,620,000 shares of our common stock, which are immediately exercisable, were granted at exercise price ranging from $0.025to $0.03 per share and four options to purchase up to 90,000 shares expired in the same period. The company recognized $105,574 in stock-based compensation. 1,020,000 options granted during the year end 2008, vest in May 2010 thus the compensation expense is recognized over the 24 month service period. As of March 31, 2010, the Company had stock-based compensation expense of $105,574 consisting of a one-time expense of $90,500 and an amortization of $15,074.
 
 Fair value of the Company’s stock options was determined based upon the Black-Scholes option pricing model.  The following assumptions were used to calculate fair value using the Black Scholes option pricing model for the period ended March 31, 2010: (i) average dividend yield of 0.00%; (ii) expected volatility of 409%,; (iii) expected life of 2 years; and (iv) estimated risk-free interest rate of 1.46%.
 
 
 6.
Legal Proceedings
 
 On May 27, 2008, a lawsuit was filed against us by Virage Consulting at the US Southern District Court of New York.  The issue arises from a promissory note collateralized by an option to purchase 2,500,000 shares (or 833,334 shares after a 1-for-3 reverse split) of our company for $500,000 by Virage Consulting in 2006 to expire in May, 2007.  However, Virage Consulting decided to exercise its option to convert and purchased the shares.  The shares were issued and delivered to Virage Consulting at their request.  The agreement allowed the investor to dispose of the shares, in part or in full prior to May, 2007.  The proceeds from any such disposal would have reduced the principal balance of $500,000.  We believe the note effectively became null and void when Virage Consulting accepted the shares in April 2006. The lawsuit was dismissed in March and the appeal period expired on April 19, 2010 without further action from the other party.
  F-8
 Table of Contents
 
 On October 8, 2008 J.W. Rogers, an investor, named the Company and Alex Genin, our Chief Executive Officer, parties to a lawsuit filed in the 295th Judicial District Court of Harris County, Texas alleging impropriety and fraud in a recent stock purchase.  We are settling the lawsuit for $10,000.   The settlement agreement is in process as of March 31, 2010.
 
 On December 19, 2008 a lawsuit was filed against VIP Systems and Alex Genin, our Chief Executive Officer, by Brodson Construction for breach of contract as a sub-contractor for approximately $34,000 including damages.  We consider this to be a frivolous lawsuit and have retained an attorney to counter sue.  The lawsuit is still in process with no probable outcome.  As such, no accrual is recorded as of March 31, 2010.
 
 On August 21, 2009, a lawsuit was filed by Carnes Engineering, Inc. against the Company and Alex Genin, our Chief Executive Officer filed in the County Civil Court at Law No. 1 of Harris County, Texas, alleging non-payment for services performed in the Company’s main office amounting to approximately $19,000.  Management has agreed to settle the case for $10,500.  The settlement agreement is still in process as of March 31, 2010.  The accrual of $19,000 at December 31, 2009 was reduced to $10,500 at March 31, 2010.
 
 On February 25, 2010, a lawsuit was filed by Federal Fence against the Company in Justice Court, Precinct 1, Place 2 of Harris County, Texas for unpaid invoices totaling $4,809 plus attorneys fees of $3,400.  An accrual for $3,400 attorneys fees was made.  The invoice and the accrual for attorneys fees is part of the total accounts payable and accrued liabilities.


F-9
 Table of Contents





PART I - FINANCIAL INFORMATION








Item 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





Please see financial statements beginning on page F-1








Item2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS





FORWARD-LOOKING STATEMENT AND INFORMATION





We are including the following cautionary statement in this Form 10-Q to make applicable and take advantage of the safe harbor provision of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf of First Capital International, Inc. (the “Company”). Forward-looking statements include statements concerning plans, objectives, goals, strategies, expectations, future events or performance and underlying assumptions and other statements which are other than statements of historical facts. Certain statements contained herein are forward-looking statements and, accordingly, involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.





Our expectations, beliefs and projections are expressed in good faith and we believe that they have a reasonable basis, including without limitations, management's examination of historical operating trends, data contained in our records and other data available from third parties, but there can be no assurance that our expectations, beliefs or projections will result or be achieved or accomplished. In addition to other factors and matters discussed elsewhere herein, the following are important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements: our ability to operate on a global basis; our ability to effectuate and successfully operate acquisitions, and new operations; our ability to obtain acceptable forms and amounts of financing to fund current operations and planned acquisitions; the political, economic and military climate in nations where we may have interests and operations; the ability to engage the services of suitable consultants or employees in foreign countries; and competition and the ever-changing nature of the technology industry. We have no obligation to update or revise these forward-looking statements to reflect the occurrence of future events or circumstances.





The following discussion should be read in conjunction with our unaudited consolidated interim financial statements and related notes thereto included in this quarterly report and in our audited consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") contained in our Form 10-K for the year ended December 31, 2009. Certain statements in the following MD&A are forward looking statements. Words such as "expects," "anticipates," "estimates" and similar expressions are intended to identify forward looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected.





CRITICAL ACCOUNTING POLICIES AND ESTIMATES





The Company's discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States.





The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.  On an ongoing basis, we evaluate our estimates.  We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.  These estimates and assumptions provide a basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates making it reasonably possible that a change in the estimates could occur in the near term.


1
 Table of Contents





REVENUE RECOGNITION





The Company enters into two types of sales of VIP Systems: sales to end-users and sales to resellers. Revenue on sales to end-users is recognized upon completion of installation and testing of the system. Revenue on sales to resellers is recognized either upon delivery of systems or for major long-term projects, recognized upon completion of each phase of installation.





Payments and advances received for future sales or installation of systems are deferred until the delivery and/or installation is complete.  For major long-term projects, revenue is recognized upon completion of each phase of installation.





STOCK-BASED COMPENSATION





Beginning January 1, 2006, the Company adopted current accounting guidance which requires all share-based payments to employees (which includes non-employee Board of Directors), including employee stock options, warrants and restricted stock, be measured at the fair value of the award and expensed over the requisite service period (generally the vesting period). The fair value of common stock options or warrants granted to employees is estimated at the date of grant using the Black-Scholes option pricing model by using the historical volatility of comparable public companies. The calculation also takes into account the common stock fair market value at the grant date, the exercise price, the expected life of the common stock option or warrant, the dividend yield and the risk-free interest rate.





The Company from time to time may issue stock options, warrants and restricted stock to acquire goods or services from third parties. Restricted stock, options or warrants issued to other than employees or directors are recorded on the basis of their fair value, which is measured as of the date required by current accounting guidance. In accordance with current accounting guidance, the options or warrants are valued using the Black-Scholes option pricing model on the basis of the market price of the underlying equity instrument on the “valuation date,” which for options and warrants related to contracts that have substantial disincentives to non-performance, is the date of the contract, and for all other contracts is the vesting date. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the vesting period.





Valuation and Amortization Method— We estimate the fair value of stock options granted using the Black-Scholes option-pricing formula and a single option award approach.  This fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.





Expected Term— The expected term represents the period that our stock-based awards are expected to be outstanding and is determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its stock-based awards.





Expected Volatility —The fair value of stock based payments is valued using the Black-Scholes valuation method with a volatility factor based on our historical stock trading history.





Risk-Free Interest Rate— We base the risk-free interest rate used in the Black-Scholes valuation method on the implied yield currently available on U.S. Treasury securities with an equivalent term.





Estimated Forfeitures— When estimating forfeitures, we consider voluntary termination behavior as well as analysis of actual option forfeitures.





Compensation expenses for Restricted Stocks issued to employees and others are calculated based on the fair market value on the grant date.  We recognized $105,574 stock-based compensation cost in the three months ended March 31, 2010 for the options granted and there were no shares of restricted stock issued to employees and others.





The following description of our business, our financial position and results of operations should be read in conjunction with our Unaudited Consolidated Condensed Financial Statements and the Notes to Financial Statements contained in this report on Form 10-Q.





RECENT ACCOUNTING PRONOUNCEMENTS





In March 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-11 (ASU 2010-11), “Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives.”  The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010.  Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update.  The Company does not expect the provisions of ASU 2010-11 to have a material effect on the financial position, results of operations or cash flows of the Company.


2
 Table of Contents





In February 2010, the FASB Accounting Standards Update 2010-10 (ASU 2010-10), “Consolidation (Topic 810): Amendments for Certain Investment Funds.”  The amendments in this Update are effective as of the beginning of a reporting entity’s first annual period that begins after November 15, 2009 and for interim periods within that first reporting period. Early application is not permitted.  The Company’s adoption of provisions of ASU 2010-10 did not have a material effect on the financial position, results of operations or cash flows.





In February 2010, the FASB issued ASU No. 2010-09 “Subsequent Events (ASC Topic 855) “Amendments to Certain Recognition and Disclosure Requirements” (“ASU No. 2010-09”). ASU No. 2010-09 requires an entity that is an SEC filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirement for an SEC filer to disclose a date, in both issued and revised financial statements, through which the filer had evaluated subsequent events. The adoption did not have an impact on the Company’s financial position and results of operations.


In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-06, “Improving Disclosures about Fair Value Measurements.” ASU No. 2010-06 amends FASB Accounting Standards Codification (“ASC”) 820 and clarifies and provides additional disclosure requirements related to recurring and non-recurring fair value measurements and employers’ disclosures about postretirement benefit plan assets. This ASU is effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of ASU 2010-06 did not have a material impact on the Company’s financial statements.





INTRODUCTION





First Capital International, Inc. (the “Company”), formerly Ranger/USA, Inc., incorporated as a Delaware Corporation on April 21, 1994, assumed its current name in August 1998 when new management took over the Company.  At the time new management assumed control, the Company had no existing operations, and began implementation of a new business plan.  Beginning in 1998, the Company’s original focus was the identification, acquisition and operation of businesses serving or focused on Central and Eastern European markets.  Since 2001, the Company has focused its operations on the development of its “smart house” technology and markets for the Company’s new home command center.





References to First Capital International, Inc. in this Form 10-Q include First Capital International, Inc. and our wholly-owned subsidiary VIP Systems, Inc., which is a home automation and video surveillance solutions firm.





At the annual meeting of the stockholders held on July 14, 2006, the stockholders approved a 1-for-3 reverse split.  The effect of our reverse split is reflected in all references to the price of our common stock and the audited financial statements herein.





Our principal executive offices are located at 5120 Woodway, Suite 9024, Houston, Texas 77056; voice: (713) 629-4866 fax: (713) 629-4913. Our corporate web site is at www.FirstCap.net.





We are engaged in the design, production and sale of security system for homeland security applications as well as home automation and video surveillance systems, including highly sophisticated marine video surveillance applications.  It is our intent to grow through the continued development and marketing of this new and innovative technology.





Patents





In October 2001, we filed a US patent application for our VIP Systems(TM) with fully integrated software/hardware and began assembling units for Beta testing. On September 30, 2003, we received Patent # US 6,628,510 for our VIP Systems(TM).





We developed an Industrial Security Solution (“Solution”) for complex industrial projects including projects related to the oil and gas industry. This Solution allows a client to monitor remote sites, record events on video and exercise full control over any power units at the industrial site remotely. This system can also be used as an anti-terrorist device to preclude unauthorized use of important industrial equipments in case of a takeover attempt. We believe that this Solution can be marketed through governmental agencies, as well as major industrial companies. At the present time, we are looking into possible alliances in order to market this product worldwide.


3
 Table of Contents





PROJECTS





During 2009, we completed several security installations at Marriott Hotel Group properties in Texas, Florida and Louisiana.   Our marketing efforts with the Marriott Hotel Group allowed us to secure contracts to install video surveillance systems in several Marriott Hotels in Florida, Texas and Louisiana.





Projects in Florida





We are focusing on video surveillance business opportunities in Florida and are currently in negotiation to install security systems with several large properties including a Four Season Hotel and the Beach Club condominium complex in Miami.





Despite the real estate downturn, we are bidding on several hi-rise commercial building projects in Florida and believe that our efforts will bring contracts to provide CCTV/automation solutions for these projects.





Projects in Texas





We are renewing our marketing efforts for our products and capabilities to various government entities and are currently bidding on large security projects with several Houston area school districts and various government entities.  We are also planning to bid on several RFP’s (Requests for Proposal) for Homeland Security projects in Texas.





We are also actively involved in several Houston hotels’ installation projects, predominantly Marriott and Hilton Hotels, as well as upscale residential projects in Houston.





New Developments





Due to the current economic crisis, we foresee instabilities and a rise of domestic terrorism throughout the United States.  As a countermeasure company, we are developing a threat evaluation program for owners of condominium properties, commercial malls, office buildings and municipal facilities.  We are working on a pilot project and have developed several proposals for this program.  Upon successful testing, we are planning to launch this program nationwide.





We have also developed applications jointly with Bravo Zulu, LLC, allowing detection of homemade explosives throughout buildings, malls and hotels.





We believe this new technology will augment the Company’s current security system and video surveillance product line and will greatly enhance our marketing position.





We also have recently become an authorized dealer of FLIR Systems, Inc., a leading world leader in infrared cameras and thermal imaging equipment supplier to the US government  We believe this will give our company to an opportunity to provide integration services for Homeland Security projects in the US.





Due to the current energy crises and significant rise in alternative energy projects worldwide, we are also working on the development of a security concept for wind power and solar farm projects.  We believe we can market this alternative energy security concept worldwide.





GOING CONCERN CONSIDERATION





Since we began operations, we have been dependent on debt and equity raised from individual investors and related parties to sustain our operations. We incurred net losses of $224,361 during the three months ended March 31, 2010. We also had negative cash flows from operations of $70,883 during the three months ended March 31, 2010. Our history of recurring losses raises substantial doubt about our ability to continue as a going concern. Our long-term viability as a going concern is dependent upon three key factors as follows:


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·
Our ability to obtain adequate sources of debt or equity funding to meet current commitments and fund the continuation of our business operations;





·
Our ability to acquire or internally develop viable businesses; and





·
Our ability to continue to achieve profitability and cash flows from operations in amounts that would sustain our operations.





As a result of potential liquidity problems, our auditors have added an explanatory paragraph in their opinion on our financial statements for the years ended December 31, 2009 and 2008, indicating that substantial doubt exists concerning our ability to continue as a going concern.





Our ability to achieve profitability depends on our ability to successfully develop and market home automation and video security technology. We can give no assurance that we will be able to achieve commercial success. We are subject to all risks inherent in a growing venture, including the need to develop marketing expertise and produce significant revenue. We may incur losses due to the significant costs associated with home automation and video security technology operations.





Recurring losses had resulted in an accumulated deficit of $11,941,746 as of March 31, 2010. Revenues for the three months ended March 31, 2010 were $55,021 compared to revenues of $403,511 for the three months ended March 31, 2009. The decrease in revenue is mainly attributable to lack of new major projects due to the downturn in our economy.





We will continue to focus on the further development of VIP Systems(TM) which, we believe, will substantially improve our operating results.  We can provide no assurance that we will attain sustainable profitability.





COMPETITION





There are presently several major competitors in the home automation industry as well as in video surveillance industry. Many of our competitors are more established companies with substantially greater capital resources and substantially greater marketing capabilities than us. We can not give any assurances that we will be able to successfully compete in this market.





THE THREE MONTHS ENDED MARCH 31, 2010 AS COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2009





During the three months ended March 31, 2010, our revenues were $55,021 as compared to $403,511 for the three months ended March 31, 2009.  This decrease is attributable to our inability to acquire new major projects to generate substantial revenue for the three months ended March 31, 2010.





During the three months ended March 31, 2010, selling, general and administrative expenses increased by $72,578 or 44% to $238,091 from $165,513 as compared to the three months ended March 31, 2009. This increase was mainly attributable to an increase in stock option compensation and provisions for lawsuit settlement partially offset by decreases in personnel related expenses.





During the three months ended March 31, 2010, we had a net loss of $224,361 as compared to a net profit of $89,358 in the three months ended March 31, 2009.





LIQUIDITY AND CAPITAL RESOURCES





As of March 31, 2010, we had cash resources of $5,079. We estimate that during the three months ending June 30, 2010, our cash requirements will be approximately $180,000 (or approximately $60,000 per month). We believe that our revenue-producing operations will expand. Such an expansion of operations will require funding for pending contracts.  We anticipate raising additional capital through the sale of our stock or through borrowing.  Although we plan to obtain additional financing through the sale of our common stock and/or by obtaining debt financing, there is no assurance that capital will be available from any source, or, if available, upon terms and conditions acceptable to us.


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We currently have no material commitments for capital expenditures for our operations. We anticipate that the following expenditures will be made in 2010 if funds are available: $100,000 for continued development of our home automation and video security business and $250,000 for marketing expenses.





During the three months ended March 31, 2010, we received $0 cash from the sale of our securities and $0 on the exercise of options to purchase our shares.





During 2010, we had several loan transactions with Alex Genin, our Chief Executive Officer and Acting Chief Financial Officer and companies controlled or related to him.  Mr. Genin is a significant stockholder of the company.  The following is a summary of all the loan transactions through March 31, 2010





During 2010, Alex Genin made loans to us under 2 promissory notes for a total principal amount of $14,000 which bear interest at the rate of 0% and 8% and which are due January 2013. One of these notes was partially paid.  The total principal paid on this note was $6,000 and $0 interest.  None of the notes to Alex Genin were collateralized.  As of March 31, 2010 the total principal amount due on all notes to Alex Genin, individually, is $174,000.





During 2010, Eastern Credit Limited, Inc., a company controlled by Alex Genin, extended three years a loan to us under a $5,000 promissory note originally due April 2010 which bear interest at the rate of 8%. None of the notes to Eastern Credit Limited were collateralized.  As of March 31, 2010 the total principal amount due on all notes to Eastern Credit Limited, Inc. is $243,300.





During 2010, we paid off the balance on a promissory note to ECL Trading, a company controlled by Alex Genin. The total principal and interest paid on this note is $500 and $120 respectively.  As of March 31, 2010 there is $0 balance on notes to ECL Trading.





During 2010, First National Petroleum, Corp., a company controlled by Alex Genin, made several loans to us under 17 promissory notes for a total principal amount of $72,500 of which 16 notes bear interest at the rate of 8% and one note for $12,000 bears interest at 0%. These notes are due in three years ranging from January 2013 thru March 2013. None of the notes to First National Petroleum were collateralized.  As of March 31, 2010 the total principal amount due on all notes to First National Petroleum is $232,500.





During 2010, two promissory notes to Pacific Commercial Credit, Ltd., a company controlled by Alex Genin, were extended three years which notes were originally due April and May 2010.  None of the notes to Pacific Commercial Credit were collateralized.  As of March 31, 2010 the total principal amount due on all notes to Pacific Commercial Credit is $85,000.





During 2010, a promissory note to Stromberg Development, Inc., a company owned by Alex Genin, was extended three years which note was originally due April 2010  None of the notes to Stromberg Development were collateralized.  As of March 31, 2010 the total principal amount due on all notes to Stromberg Development is $36,800.





In 2010, United Capital Group, Ltd., a company controlled by Alex Genin, has 14 outstanding promissory notes. None of the notes to United Capital Group were collateralized.  As of March 31, 2010 the total principal amount due on all notes to United Capital Group is $198,983.





In 2010, Cathy George, a director of the Company, has one outstanding promissory note and one convertible note. None of these notes were collateralized.  As of March 31, 2010 the total principal amount due on all notes to Cathy George is $68,000.








Item4.CONTROLS AND PROCEDURES





Evaluation of Disclosure Controls and Procedures





As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer (who is also our principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures, or “disclosure controls,” pursuant to Exchange Act Rule 13a-15(e). Disclosure controls are controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this quarterly report, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms. Disclosure controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.


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Based on that evaluation, our principal executive officer has concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are not effective in ensuring that information required to be disclosed in our Exchange Act reports is recorded, processed, and summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms to allow timely decisions regarding required disclosure.





Because of the limited personnel and lack of segregation of duties, management determined that a material weakness existed in the processes, procedures and controls related to the preparation of our quarterly financial statements.  This material weakness could result in the reporting of financial information and disclosures in future consolidated annual and interim financial statements that are not in accordance with generally accepted accounting principles.





Management is currently addressing the material weaknesses identified in its internal controls over financial reporting.





Changes in Internal Control Over Financial Reporting





There were no changes in the Company’s internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting for that period.








PART II - OTHER INFORMATION





Item 1.LEGAL PROCEEDINGS





On May 27, 2008, a lawsuit was filed against us by Virage Consulting at the US Southern District Court of New York.  The issue arises from a promissory note collateralized by an option to purchase 2,500,000 shares (or 833,334 shares after a 1-for-3 reverse split) of our company for $500,000 by Virage Consulting in 2006 to expire in May, 2007.  However, Virage Consulting decided to exercise its option to convert and purchased the shares.  The shares were issued and delivered to Virage Consulting at their request.  The agreement allowed the investor to dispose of the shares, in part or in full prior to May, 2007.  The proceeds from any such disposal would have reduced the principal balance of $500,000.  We believe the note effectively became null and void when Virage Consulting accepted the shares in April 2006. The lawsuit was dismissed in March and the appeal period expired on April 19, 2010 without further action from the other party.





On October 8, 2008 J.W. Rogers, an investor, named the Company and Alex Genin, our Chief Executive Officer, parties to a lawsuit filed in the 295th Judicial District Court of Harris County, Texas alleging impropriety and fraud in a recent stock purchase.  We are settling the lawsuit for $10,000.   The settlement agreement is in process as of March 31, 2010.





On December 19, 2008 a lawsuit was filed against VIP Systems and Alex Genin, our Chief Executive Officer, by Brodson Construction for breach of contract as a sub-contractor for approximately $34,000 including damages.  We consider this to be a frivolous lawsuit and have retained an attorney to counter sue.  The lawsuit is still in process with no probable outcome.  As such, no accrual is recorded as of March 31, 2010.





On August 21, 2009, a lawsuit was filed by Carnes Engineering, Inc. against the Company and Alex Genin, our Chief Executive Officer filed in the County Civil Court at Law No. 1 of Harris County, Texas, alleging non-payment for services performed in the Company’s main office amounting to approximately $19,000.  Management has agreed to settle the case for $10,500.  The settlement agreement is still in process as of March 31, 2010.  The accrual of $19,000 at December 31, 2009 was reduced to $10,500 at March 31, 2010.





On February 25, 2010, a lawsuit was filed by Federal Fence against the Company in Justice Court, Precinct 1, Place 2 of Harris County, Texas for unpaid invoices totaling $4,809 plus attorneys fees of $3,400.  An accrual for $3,400 attorneys fees was made.  The invoice and the accrual for attorneys fees is part of the total accounts payable and accrued liabilities.


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Item 2. UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS





During the three months ended March 31, 2010, we effected the following transactions 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 we pay any commissions or fees to any underwriter in connection with any of these transactions. None of the transactions involved a public offering. We believe 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.  We believe that each of these persons was knowledgeable about our operations and financial condition.





1.  On January 27, 2010, the Company granted to its officers and employees ten options to purchase up to 3,620,000 shares of our common stock, which are immediately exercisable at exercise prices ranging from $0.025 to $0.03 per share.  Also, four options to purchase up to 90,000 shares expired in the same period. The Company recognized $105,574 in stock-based compensation.








Item3. DEFAULTUPON SENIOR SECURITIES





On March 24, 2006, the Company signed a promissory note bearing interest of 0% due on May 30, 2007 to a sophisticated investor and issued 2,500,000 restricted common shares at $0.20 per share (or 833,334 shares of restricted common stock at $0.60 after a 1-for-3 reverse split) as collateral. The agreement allows the disposal of the shares by the investor, in part or full, prior to May 30, 2007; and the proceeds from such disposal would reduce the principal balance of $500,000. The promissory note is also secured by all assets of the Company. In accordance with APB Opinion 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants, this instrument is accounted for as a liability in the financial statements.  The note expired on May 30, 2007.  We were in default of this Note and lawsuit was filed in May 2008.  The lawsuit was subsequently dismissed in March 2010 and the appeal period expired on April 19, 2010 without further action from the other party.





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Item6.EXHIBITS




Exhibit 31.1 and 31.2 – Certification of Chief Executive Officer and Acting Chief Financial Officer of First Capital International, Inc. required by Rule 13a - 14(1) or Rule 15d - 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.





Exhibit 32.1 and 32.2 - Certification of Chief Executive Officer and Acting Chief Financial Officer of First Capital International, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63.






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.








First Capital International, Inc.Date:  June 23, 2010
By: /s/ Alex GeninAlex GeninChief Executive Officer andActing Chief Financial Officer(Principal Financial Officer)







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