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FCCN booshing!
Has anyone on the board taken a look at FCCN and its action for the last six trading days? I believe it's set to run, even though it's had a good run already. Any thoughts?
FCCN is booshing as we speak. Chart looks good.
I afraid not. Not in that one. I picked up some more BESV Thursday. BESV and CPTC(CPTCQ) make up the majority of my holdings. The only publicly owned oil or gas companies I'm invested in is ERHE and NGSY. My little penny stock I'm in is Franchise Capital(FCCN). I have high hopes for all, but CPTC and BESV are my favorites.
I bought a little more BESV today at .45. Right after I bought the ask went to .50. It will be interesting to see what gives tomorrow with the closing bid and ask at .445 x .50 and a closing pps of .50. I hope we're ready for another burst upward.
I believe those that have kept up with CPTCQ would express the feeling that long term things have only just begun. Short term, I believe money is to be made between now and Sept. 8 as CTC is going to do their best to pull out all the stops to get the pps as high as possible so in the event they lose anything to the plaintiffs, it will be fewer shares because of higher pps. JMO.
Take a look at this. I think it bodes well for BESV:
Tapping Gushers Beneath The Gushers
Tuesday July 5, 8:07 am ET
By Otis Port in New York
Many people think of oil deposits as vast underground lakes, and oil wells as big straws that suck up the liquid gold. Eventually, the lake is drained, so the oil company packs up its gear and moves on. If this were really how things worked, the dwindling size of recent oil and natural gas discoveries would be alarming -- feeding gloomy predictions that crude oil production is approaching its peak.
In fact, when major oil outfits abandon wells, they usually leave a lot behind. The reservoirs under most U.S. wells drilled in the past century may still hold twice the amount of oil that has been sucked to the surface. The reason is Geology 101: Oil is locked in the pores of rock layers deep below ground. Sink a hole into such a layer, and the pressure of the earth above squeezes out the oil. But as it oozes out, pressure on the remaining oil diminishes. After three or four decades the flow of oil drops so low that big oil producers, such as Exxon Mobil Corp. (NYSE:XOM - News) or France's Total (OT.), no longer want to bother collecting it. So they sell the well to a smaller company, such as Anadarko Petroleum Corp. (NYSE:APC - News).
Now, many engineers are reassessing the riches that may lie hidden under such wells -- including the 400,000 U.S. wells that produce, on average, just 2.2 barrels a day. These still account for almost 15% of domestic U.S. oil production, or 7% of total U.S. consumption. Using new, enhanced recovery techniques, the output of some low-flow wells can be increased dramatically. It's even possible to revive old wells that aren't producing a drop.
In addition, new supercomputer systems are powerful enough to simulate not just individual wells but also entire oil fields. These improved models are revealing subterranean details that geologists and oil-field engineers have never seen before. They often spot isolated pockets of oil and gas that can be tapped by extending a nearby well. And with better models of the underground oil-bearing structures, simulations can help determine which of the new -- and expensive -- recovery methods would work best for a given deposit.
The oil barons of the early 20th century rarely pulled up more than 10% of a reservoir's bounty. Things got better after World War II, when the oil industry developed secondary "lifting" techniques. These restore underground pressure by pumping water back down into the earth or returning the natural gas that normally bubbles up with the oil. Secondary techniques enabled oil companies to withdraw 30% of the oil in deposits below.
More recently, engineers have unleashed a third, or tertiary, wave of recovery methods, using gas, chemicals, and even colonies of specially engineered microbes, to rejuvenate old wells. These approaches can double extraction potential, to 60% or 70%. Under ideal conditions, some companies claim they'll hit 80%. In other places tertiary methods may not work at all. But if 60% proves to be a rough average, that would "virtually double the known reserves of oil," says Olivier Le Peuch, president of Schlumberger Information Solutions, a unit of oil-services giant Schlumberger Ltd. (NYSE:SLB - News).
For now, such technologies aren't in widespread use. Tricks such as boosting underground pressure with down-the-hole injections of carbon dioxide don't come cheap -- some can easily double extraction costs. So in the 1990s, when oil prices were low, major producers had little incentive to adopt such methods. But the recent runup in oil prices has spurred smaller, independent producers to embrace high tech. Overall, though, the industry is still chugging along at "an average recovery of about 30%," says James "Jeb" Blackwell, manager of exploration at Chevron Energy Technology Co.
That may soon change. Tapping the "new" oil is a relative snap, notes William Bartling, head of market strategy for the oil and gas industry at Silicon Graphics Inc. (NYSE:SGI - News), which builds supercomputers for oil-field simulations. "You know where the oil is, the wells are already drilled, and the equipment is amortized," says Bartling. "So getting the extra oil is very margin-rich."
That's why Anadarko is budgeting $684 million for long-term operations at the Salt Creek oil field, which it bought for $265 million in 2003. Salt Creek, north of Casper, Wyo., is dotted with 4,000 wells that have pumped out some 700 million barrels of oil. But Anadarko thinks at least 150 million more barrels can be extracted. By injecting CO2, Anadarko expects to boost output to 28,000 barrels a day, from 2003's level of 5,000 barrels a day.
Obtaining CO2 isn't a major obstacle. About 125 miles away, in Shute Creek, Wyo., Exxon operates a natural gas processing plant that vents tons of CO2 annually. Some of it is now arriving at Salt Creek through a new $45 million pipeline. By 2008 all of Exxon's CO2, and then some, will be pumped down into the earth, permanently disposing of 2 million tons a year of greenhouse gas while unlocking acres of black gold for Anadarko.
Similar schemes are already working in the Southwest. "We have 1,000 miles of CO2 pipeline feeding enhanced-recovery oil wells," says David J. Borns, manager of geotechnology research at Sandia National Laboratories. Some 25 million tons a year of CO2 have helped boost the region's oil production by about 500,000 barrels a day.
The latest idea is called MEOR, for microbial enhanced oil recovery. Various labs around the world are engineering special bugs that generate CO2 biologically, along with detergent-like chemicals that help flush oil out of rocks. The microbes can be cultivated underground or in well-side vats. Because they grow explosively, the Energy Dept., which is funding several research projects, says MEOR technology may be the most cost-effective of all tertiary processes.
MEOR is already used in Venezuela, China, Indonesia, and the U.S. to treat deposits of heavy oil -- a molasses-thick form of oil. Researchers at Oak Ridge National Laboratory hope to develop new armies of bioengineered bugs that can infiltrate underground rocks and turn the gunky stuff into the sweet-flowing crude that erupts like the gushers in Hollywood movies.
Another technique involves injecting steam into wells to reduce the viscosity of heavy oil. This might also help unleash the energy trapped in Canada's famous tar sands. To get at these deposits without employing strip-mining methods, engineers need to predict how the thinned-down oil will flow underground. The software that simulates flow in regular oil reservoirs doesn't work well when sand granules are mixed in with the oil. But an upcoming software tool, dubbed Intersect, will handle oil-and-sand mixes. Development is being funded by Schlumberger, Total, and Chevron, which owns a large portfolio of heavy-oil deposits.
When a commercial version of Intersect is unveiled later this year, it could spur faster development of Canada's immense oil-sand deposits. These hold recoverable reserves estimated at around 179 billion barrels -- with the potential of topping even Saudi Arabia's proven reserves of 261 billion.
Since 1990, after the oil giants began selling off scads of low-flow wells, small and midsize companies have hit jackpots. Marathon Oil Corp. (NYSE:MRO - News) and Arco (now part of BP PLC (NYSE:BP - News)) used some of the world's fastest supercomputers to reanalyze old seismic survey data they bought from big producers. "Marathon and Arco were able to see a little more detail," says SGI's Bartling, "and they spotted oil in places where others hadn't."
Small outfits such as Devon Energy (VN.), Newfield Exploration (NYSE:NFX - News), and Spinnaker Exploration (NYSE:SKE - News) also pounced on advanced computer models and the new recovery options. "They worked hard to make $10 oil economic," Bartling says. "Now they're getting $60. It's the American dream -- with lots of new Ferraris in company parking lots." Playing this new high-tech oil game, he bets, will keep on paying off well beyond 2010.
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ERHE may be one to take a look at. There has been an article presented on the RB board that suggests that a more reputable company is interested in obtaining controlling interest in the company. This could have the potential for a boosh this week based on this speculation.
I just picked up a little more at .46. I can't believe we're still able to buy at these prices.
Plaitif, I like the Roto-Rooter comparison. If this rig pretty much becomes the oil industry standard, we will be in the huge money,IMO.
EP, If you have time, tell me what you think of the ANTS chart.
BESV- Take a look at the presentation on the drilling rig with pictures and specs at blastenergyservices.com.
I already familiar with IHUB but I did find out about this board from RB. My handle there is mbw1al1, or previously mbow1.
Plaintif, I first bought the $2 private placement in August 2003. Market price at the time was around $3. I rode it to $15+ making some open market buys and sells along the way. Of course, I couldn't sell the private placement shares as they were restricted. I'm not sure what my present average is but I think it to be in the .80 to .90 range, so I'm still in the red. I don't think it will be red for long, though.
I agree with you on the rigs. If they can get the money, the more rigs the better. Multiplication factor could carry us into some mega money. I'm ready to BLAST off!
plantif, I haven't heard of Alberta,but I heard Maxim Energy, a private company would possibly be doing business with Blast. BTW, I feel good about the million dollars, even if I have to wait two years. I have the same problem you do. I need something else to pop to free up some funds for more Blast. I'm in at a little over 50,000 shares.
Looks great. I'm just wondering how many shares I'll need to have a year from now to be worth $1 million.
VDYS has changed its name and symbol. The new name is Blast Energy Services and the symbol is BESV. The stock has risen from .38 to .51 in the last couple of days. They're expecting the first rig to be active later this summer with two more rigs in the near term plan. The company is under new management since the fall from $15 and with this advanced drilling technology may have the potential to be a huge winner.
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Press Release Source: SWISS MEDICA INC.
Swiss Medica Inc.: PMS Escape Product Launched With Large U.S. National Pharmacy Chain Purchase Order
Thursday May 26, 6:00 am ET
TORONTO--(BUSINESS WIRE)--May 26, 2005--Swiss Medica Inc. (OTCBB:SWME - News), is pleased to announce that it has received a purchase order from a large U.S. national pharmacy chain for its U.S.-patented, clinically tested PMS Escape product. PMS Escape will be available throughout the USA early this summer in that pharmacy chain. PMS Escape is the first product to achieve national pharmacy shelf space that was part of the acquisition of Anti-Depression BioHealth Solutions, which was announced in a series of news releases dated April 5, 6, 12 and 13.
"We are excited to launch PMS Escape in our first U.S. national pharmacy," said Wendy Kramer, Swiss Medica's Vice President. "Commencing with a national footprint provides PMS Escape with a strong presence in many of the country's largest markets. We believe this will offer millions of women the opportunity to purchase PMS Escape - a clinically studied, patented, safe and effective product for the normal mood and appetite symptoms associated with premenstrual syndrome."
Specific national pharmacy distribution details will be announced to coincide with the national U.S. advertising launch after the PMS Escape product is widely available on store shelves.
About Swiss Medica Inc.
Swiss Medica commercializes proprietary bioscience products that relieve chronic ailments. We increase our market share through focused distribution strategies in multiple sales channels. Swiss Medica's mission is to be a world leader in the commercialization of life enhancing bioscience products that improve quality of lives. Please visit our websites at www.swissmedica.com, www.O24zone.com and www.pmsescape.com.
Swiss Medica's flagship product, the O24 Essential Oil Pain Neutralizer, holds US Patent #6,444,238B1. The O24 pain relief solution has been used, recommended and praised for its fast-acting and long-lasting benefits by healthcare professionals in the United States, Canada and in Europe. O24 is widely available throughout Canada in leading pharmacies and natural food stores. It is currently sold in an increasing number of pharmacies throughout the United States. Customers can also visit www.O24zone.com, for ordering details and store locators for the nearest pharmacy.
Swiss Medica also manufactures PMSEscape which holds US Patent #'s 5760014 and 5612320. PMSEscape is a specially formulated group of carbohydrates, vitamins and minerals, clinically proven to reduce changes in mood and appetite that women experience during the premenstrual period. Customers can also visit www.pmsescape.com for additional information and ordering details.
Forward-looking statements in this news release are made pursuant to the "Safe Harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, including, without limitation, risks relating to the ability to close transactions being contemplated, risks related to international sales and potential foreign currency exchange fluctuations, continued acceptance of Swiss Medica's products, increased levels of competition, technological changes, dependence on intellectual property rights and other risks detailed from time to time in Swiss Medica's periodic reports filed with the United States Securities and Exchange Commission and other regulatory authorities.
SWISS MEDICA INC. (OTC Bulletin Board:SWME - News)
--------------------------------------------------------------------------------
Contact:
Swiss Medica Inc.
Investor Relations Contact:
David Jones
(866) 485-4243
OR
Blue Skye PR, Inc.
Product PR Contact:
Sky Wallen
(813) 732-6869
blueskyeinc@yahoo.com
www.blueskyeinc.com
OR
Stern & Co.
Financial Media Contact:
Stan Froelich
VP, Media Relations
(212) 888-0044
sfroelich@sternco.com
--------------------------------------------------------------------------------
Source: SWISS MEDICA INC.
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· SWISS MEDICA INC Files SEC form 10QSB, Quarterly Report - EDGAR Online (Mon May 16)
· Swiss Medica Issues Store Count Guidance for O24 Pain Neutralizer Product - Business Wire (Thu May 5)
· Swiss Medica Announces Six-Figure Mexican Distribution Agreement - Business Wire (Tue May 3)
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Press Release Source: SWISS MEDICA INC.
Swiss Medica Inc.: PMS Escape Product Launched With Large U.S. National Pharmacy Chain Purchase Order
Thursday May 26, 6:00 am ET
TORONTO--(BUSINESS WIRE)--May 26, 2005--Swiss Medica Inc. (OTCBB:SWME - News), is pleased to announce that it has received a purchase order from a large U.S. national pharmacy chain for its U.S.-patented, clinically tested PMS Escape product. PMS Escape will be available throughout the USA early this summer in that pharmacy chain. PMS Escape is the first product to achieve national pharmacy shelf space that was part of the acquisition of Anti-Depression BioHealth Solutions, which was announced in a series of news releases dated April 5, 6, 12 and 13.
"We are excited to launch PMS Escape in our first U.S. national pharmacy," said Wendy Kramer, Swiss Medica's Vice President. "Commencing with a national footprint provides PMS Escape with a strong presence in many of the country's largest markets. We believe this will offer millions of women the opportunity to purchase PMS Escape - a clinically studied, patented, safe and effective product for the normal mood and appetite symptoms associated with premenstrual syndrome."
Specific national pharmacy distribution details will be announced to coincide with the national U.S. advertising launch after the PMS Escape product is widely available on store shelves.
About Swiss Medica Inc.
Swiss Medica commercializes proprietary bioscience products that relieve chronic ailments. We increase our market share through focused distribution strategies in multiple sales channels. Swiss Medica's mission is to be a world leader in the commercialization of life enhancing bioscience products that improve quality of lives. Please visit our websites at www.swissmedica.com, www.O24zone.com and www.pmsescape.com.
Swiss Medica's flagship product, the O24 Essential Oil Pain Neutralizer, holds US Patent #6,444,238B1. The O24 pain relief solution has been used, recommended and praised for its fast-acting and long-lasting benefits by healthcare professionals in the United States, Canada and in Europe. O24 is widely available throughout Canada in leading pharmacies and natural food stores. It is currently sold in an increasing number of pharmacies throughout the United States. Customers can also visit www.O24zone.com, for ordering details and store locators for the nearest pharmacy.
Swiss Medica also manufactures PMSEscape which holds US Patent #'s 5760014 and 5612320. PMSEscape is a specially formulated group of carbohydrates, vitamins and minerals, clinically proven to reduce changes in mood and appetite that women experience during the premenstrual period. Customers can also visit www.pmsescape.com for additional information and ordering details.
Forward-looking statements in this news release are made pursuant to the "Safe Harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, including, without limitation, risks relating to the ability to close transactions being contemplated, risks related to international sales and potential foreign currency exchange fluctuations, continued acceptance of Swiss Medica's products, increased levels of competition, technological changes, dependence on intellectual property rights and other risks detailed from time to time in Swiss Medica's periodic reports filed with the United States Securities and Exchange Commission and other regulatory authorities.
SWISS MEDICA INC. (OTC Bulletin Board:SWME - News)
--------------------------------------------------------------------------------
Contact:
Swiss Medica Inc.
Investor Relations Contact:
David Jones
(866) 485-4243
OR
Blue Skye PR, Inc.
Product PR Contact:
Sky Wallen
(813) 732-6869
blueskyeinc@yahoo.com
www.blueskyeinc.com
OR
Stern & Co.
Financial Media Contact:
Stan Froelich
VP, Media Relations
(212) 888-0044
sfroelich@sternco.com
--------------------------------------------------------------------------------
Source: SWISS MEDICA INC.
Email Story
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Print Story
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Investing My Money: Oil and Natural Gas
Need some smart investing tips? Invest in Northstar Energy in Plano, TX. We are licensed to drill in the states of Texas and Louisiana. Contact us for great investment opportunities.
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SWME.OB 0.31 0.00 News
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Related News Stories
· Swiss Medica, Inc.: Large U.S. National Pharmacy Chain Purchase Order for O24 Pain Neutralizer Product Boosts Total Store Count Above 13,000 Level - Business Wire (Wed May 25)
· SWISS MEDICA INC Files SEC form 10QSB, Quarterly Report - EDGAR Online (Mon May 16)
· Swiss Medica Issues Store Count Guidance for O24 Pain Neutralizer Product - Business Wire (Thu May 5)
· Swiss Medica Announces Six-Figure Mexican Distribution Agreement - Business Wire (Tue May 3)
More...
--------------------------------------------------------------------------------
· By industry: Biotech, Health care, Medical/pharmaceutical
Top Stories
· Dow, Nasdaq Seen Opening Higher - AP (8:50 am)
· GDP Up 3.5 Percent; Jobless Claims Rise - AP (8:49 am)
· WTO Clears Iran to Start Membership Talks - AP (7:09 am)
· Costco 3Q Profit Up 6 Percent to $209.8M - AP (8:51 am)
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Copyright © 2005 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service - Copyright Policy - Ad Feedback
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Press Release Source: SWISS MEDICA INC.
Swiss Medica Inc.: PMS Escape Product Launched With Large U.S. National Pharmacy Chain Purchase Order
Thursday May 26, 6:00 am ET
TORONTO--(BUSINESS WIRE)--May 26, 2005--Swiss Medica Inc. (OTCBB:SWME - News), is pleased to announce that it has received a purchase order from a large U.S. national pharmacy chain for its U.S.-patented, clinically tested PMS Escape product. PMS Escape will be available throughout the USA early this summer in that pharmacy chain. PMS Escape is the first product to achieve national pharmacy shelf space that was part of the acquisition of Anti-Depression BioHealth Solutions, which was announced in a series of news releases dated April 5, 6, 12 and 13.
"We are excited to launch PMS Escape in our first U.S. national pharmacy," said Wendy Kramer, Swiss Medica's Vice President. "Commencing with a national footprint provides PMS Escape with a strong presence in many of the country's largest markets. We believe this will offer millions of women the opportunity to purchase PMS Escape - a clinically studied, patented, safe and effective product for the normal mood and appetite symptoms associated with premenstrual syndrome."
Specific national pharmacy distribution details will be announced to coincide with the national U.S. advertising launch after the PMS Escape product is widely available on store shelves.
About Swiss Medica Inc.
Swiss Medica commercializes proprietary bioscience products that relieve chronic ailments. We increase our market share through focused distribution strategies in multiple sales channels. Swiss Medica's mission is to be a world leader in the commercialization of life enhancing bioscience products that improve quality of lives. Please visit our websites at www.swissmedica.com, www.O24zone.com and www.pmsescape.com.
Swiss Medica's flagship product, the O24 Essential Oil Pain Neutralizer, holds US Patent #6,444,238B1. The O24 pain relief solution has been used, recommended and praised for its fast-acting and long-lasting benefits by healthcare professionals in the United States, Canada and in Europe. O24 is widely available throughout Canada in leading pharmacies and natural food stores. It is currently sold in an increasing number of pharmacies throughout the United States. Customers can also visit www.O24zone.com, for ordering details and store locators for the nearest pharmacy.
Swiss Medica also manufactures PMSEscape which holds US Patent #'s 5760014 and 5612320. PMSEscape is a specially formulated group of carbohydrates, vitamins and minerals, clinically proven to reduce changes in mood and appetite that women experience during the premenstrual period. Customers can also visit www.pmsescape.com for additional information and ordering details.
Forward-looking statements in this news release are made pursuant to the "Safe Harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, including, without limitation, risks relating to the ability to close transactions being contemplated, risks related to international sales and potential foreign currency exchange fluctuations, continued acceptance of Swiss Medica's products, increased levels of competition, technological changes, dependence on intellectual property rights and other risks detailed from time to time in Swiss Medica's periodic reports filed with the United States Securities and Exchange Commission and other regulatory authorities.
SWISS MEDICA INC. (OTC Bulletin Board:SWME - News)
--------------------------------------------------------------------------------
Contact:
Swiss Medica Inc.
Investor Relations Contact:
David Jones
(866) 485-4243
OR
Blue Skye PR, Inc.
Product PR Contact:
Sky Wallen
(813) 732-6869
blueskyeinc@yahoo.com
www.blueskyeinc.com
OR
Stern & Co.
Financial Media Contact:
Stan Froelich
VP, Media Relations
(212) 888-0044
sfroelich@sternco.com
--------------------------------------------------------------------------------
Source: SWISS MEDICA INC.
Email Story
Set News Alert
Print Story
Sponsor Results
Investing My Money: Oil and Natural Gas
Need some smart investing tips? Invest in Northstar Energy in Plano, TX. We are licensed to drill in the states of Texas and Louisiana. Contact us for great investment opportunities.
www.northstarenergyinc.com
Jim Cramer's Stock Investment Picks
Get Cramer's personal portfolio, e-mail alerts sent before he trades. Try it free.
www.thestreet.com
ING Direct - Save Your Money
Earn 3.00% annual percentage yield on an Orange Savings Account. A high-rate investment with no fees, no minimums and no need to change banks. Open online in less than five minutes.
home.ingdirect.com
(What's This?)
Related Quote
SWME.OB 0.31 0.00 News
View Detailed Quote
Delayed 20 mins
Providers - Disclaimer
Related News Stories
· Swiss Medica, Inc.: Large U.S. National Pharmacy Chain Purchase Order for O24 Pain Neutralizer Product Boosts Total Store Count Above 13,000 Level - Business Wire (Wed May 25)
· SWISS MEDICA INC Files SEC form 10QSB, Quarterly Report - EDGAR Online (Mon May 16)
· Swiss Medica Issues Store Count Guidance for O24 Pain Neutralizer Product - Business Wire (Thu May 5)
· Swiss Medica Announces Six-Figure Mexican Distribution Agreement - Business Wire (Tue May 3)
More...
--------------------------------------------------------------------------------
· By industry: Biotech, Health care, Medical/pharmaceutical
Top Stories
· Dow, Nasdaq Seen Opening Higher - AP (8:50 am)
· GDP Up 3.5 Percent; Jobless Claims Rise - AP (8:49 am)
· WTO Clears Iran to Start Membership Talks - AP (7:09 am)
· Costco 3Q Profit Up 6 Percent to $209.8M - AP (8:51 am)
More...
--------------------------------------------------------------------------------
· Most-emailed articles
· Most-viewed articles
Finance Spotlight
·
--------------------------------------------------------------------------------
Copyright © 2005 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service - Copyright Policy - Ad Feedback
Copyright © 2005 Business Wire. All rights reserved. All the news releases provided by Business Wire are copyrighted. Any forms of copying other than an individual user's personal reference without express written permission is prohibited. Further distribution of these materials by posting, archiving in a public web site or database, or redistribution in a computer network is strictly forbidden.
SWME is again looking very solid today. A breakout looks imminent with the strong volume and the gradual progress the stock has made the past couple of days. Improved revenues has helped fuel the rise, I feel sure.
SWME closed strong at HOD - .33, up .05!
SWME is in semi-boosh mode. It started yesterday.
FCCN has been on a slight rise from .018 to .045 and then closed yesterday at .032. This morning's 10q showed they had a net income last quarter of $117,826. This could be one to look at for a boosh. Here's the report:
Form 10QSB for FRANCHISE CAPITAL CORP.
--------------------------------------------------------------------------------
18-May-2005
Quarterly Report
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained in this section should be read in conjunction with the Selected Consolidated Financial and Other Data, the Selected Operating Data and our Consolidated Financial Statements and notes thereto appearing elsewhere in this Quarterly Report. This Quarterly Report, including the Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs, and our assumptions. Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", and "estimates" and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements including without limitation (1) any future economic downturn could impair our customers' ability to repay our loans and increase our non-performing assets, (2)economic downturns can disproportionately impact certain sectors in which we concentrate, and any future economic downturn could disproportionately impact the industries in which we concentrate causing us to suffer losses in our portfolio and experience diminished demand for capital in these industry sectors, (3) a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities, (4) interest rate volatility could adversely affect our results, (5) the risks associated with the possible disruption in the Company's operations due to terrorism and (6) the risks, uncertainties and other factors we identify from time to time in our filings with the Securities and Exchange Commission, including our Form 10-Ks, Form 10-Qs and Form 8-Ks. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be incorrect. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report.
OVERVIEW
Franchise Capital Corporation. is a solutions-focused financial services company providing financing and advisory services to small and medium-sized companies throughout the United States primarily in the restaurant franchising industry. Effective December 23, 2004, we became an internally managed, non-diversified, closed-end investment company that elected to be treated as a business development company under the Investment Company Act of 1940. Franchise Capital Corporation will not elect to be treated for federal income tax purposes as a regulated investment company under the Internal Revenue Code with the filing of its federal corporate income tax return for 2004.
PORTFOLIO COMPOSITION AND ASSET QUALITY
Our primary business is lending to and investing in businesses, primarily in the restaurant franchising industry, through investments in senior debt, subordinated debt and equity-based investments, including warrants and equity appreciation rights. Though we intend to increase our level of subordinated debt and equity-based investments, we expect a substantial majority of our portfolio will continue to consist of investments in portfolio companies. The total fair value of investments in non-publicly traded securities was $602,480 and $315,709 at March 31, 2005 and December 31, 2004, respectively (exclusive of unearned income).
The following table summarizes Franchise Capital Corporation's assets held and income from Majority Owned Companies, Controlled Companies and Other Affiliates:
March 31, December 31,
2005 2004
------- -------
ASSETS HELD:
Majority Owned Companies (a):
Investments in and advances to 799,244 619,099
Controlled Companies (b):
Other Affiliates (c):
Loans at fair value 0 0
Equity Investments at fair value 0 0
Nine Months Ended March 31,
2005 2004
------- -------
INCOME RECOGNIZED:
From Majority Owned Companies (a):
Interest and fee income $ 0 $ 0
From Controlled Companies (b):
From Other Affiliates (c): 1
Interest and fee income 0 0
Net change in unrealized appreciation
(depreciation) on investments 286,771 0
Realized losses on investments -- --
----------
(a) Majority owned companies are generally defined under the Investment Company Act of 1940 as companies in which Franchise Capital Corporation owns more than 50% of the voting securities of the company.
(b) Controlled companies are generally defined under the Investment Company Act of 1940 as companies in which Franchise Capital Corporation owns more than 25% but not more than 50% of the voting securities of the company.
(c) Other affiliates are generally defined under the Investment Company Act of 1940 as companies in which Franchise Capital Corporation owns at least 5% but not more than 25% of the voting securities of the company.
ASSET QUALITY
Asset quality is generally a function of our underwriting and ongoing management of our investment portfolio. As a business development company, our loans and equity investments are carried at market value or, in the absence of market value, at fair value as determined by our board of directors in good faith on a quarterly basis. As of March 31, 2005 and December 31, 2004, unrealized appreciation on investments totaled $259,758 and $0, respectively. For additional information on the change in unrealized depreciation on investments, see the section entitled "Reconciliation of Net Operating Income to Net Increase (Decrease) in Stockholders' Equity from Earnings".
We monitor loan concentrations in our portfolio, both on an individual loan basis and on a sector or industry basis, to manage overall portfolio performance due to specific customer issues or specific industry issues.
We monitor individual customer's financial trends in order to assess the appropriate course of action with respect to each customer and to evaluate overall portfolio quality. We closely monitor the status and performance of each individual investment on a quarterly and, in some cases, a monthly or more frequent basis. Because we are a provider of long-term privately negotiated investment capital to growth-oriented companies and we actively manage our investments through our contract structure, we do not believe that contract exceptions such as breaches of contractual covenants or late delivery of financial statements are necessarily an indication of deterioration in the credit quality or the need to pursue remedies or an active workout of a portfolio investment.
When a loan becomes 90 days or more past due, or if we otherwise do not expect the customer to be able to service its debt and other obligations, we will, as a general matter, place the loan on non-accrual status and cease recognizing interest income on that loan until all principal has been paid. However, we may make exceptions to this policy if the investment is well secured and in the process of collection.
As of March 31, 2005 and December 31, 2004, none of the loans to our other affiliates were on non-accrual status.
When principal and interest on a loan is not paid within the applicable grace period, we will contact the customer for collection. At that time, we will make a determination as to the extent of the problem, if any. We will then pursue a commitment for immediate payment and will begin to more actively monitor the investment. We will formulate strategies to optimize the resolution process and will begin the process of restructuring the investment to better reflect the current financial performance of the customer. Such a restructuring may involve deferring payments of principal and interest, adjusting interest rates or warrant positions, imposing additional fees, amending financial or operating covenants or converting debt to equity. In general, in order to compensate us for any enhanced risk, we receive appropriate compensation from the customer in connection with a restructuring. During the process of monitoring a loan that is out of compliance, we will in appropriate circumstances send a notice of non-compliance outlining the specific defaults that have occurred and preserving
our remedies, and initiate a review of the collateral. When a restructuring is not the most appropriate course of action, we may determine to pursue remedies available under our loan documents or at law to minimize any potential losses, including initiating foreclosure and/or liquidation proceedings.
OPERATING INCOME
Operating income includes interest income on commercial loans, advisory fees and other income. Interest income is comprised of commercial loan interest at contractual rates and upfront fees that are amortized into income over the life of the loan. Most of our loans contain lending features that adjust the rate margin based on the financial and operating performance of the borrower, which generally occurs quarterly.
The change in operating income from the nine months ended March 31, 2005 compared to the same period in 2004 is attributable to the following items: (Due to the conversion to a Business Development Company, effective December 23, 2005, the periods are not directly comparable.)
NINE MONTHS ENDED
MARCH 13, 2005
CHANGE DUE TO:
Asset growth $259,758
Increase in fee income 0
Interest and other income 8,881
Manufacturing income 0
--------
Total change in operating income $268,639
========
Total operating income for the nine months ended March 31, 2005 increased $268,639 to $308,284 from $39,645 for the nine months ended March 31, 2005. Operating income for the three months ended March 31, 2005 increased $841,381, to $154,063 from $(687,318) for the three months ended March 31, 2005.
OPERATING EXPENSES
Operating expenses include interest expense on borrowings, including amortization of deferred debt issuance costs, employee compensation, and general and administrative expenses.
The change in operating expenses from the nine months March 31, 2005 compared to the same period in 2004 is attributable to the following items:
NINE MONTHS ENDED
MARCH 31, 2005 VS. 2004
CHANGE DUE TO:
Advertising & Selling (0)
Interest Expense 88709
Depreciation & Amortization (-19)
Salaries and benefits 31,305
General and administrative expense (-420,952)
---------
Total change in operating expense $(300,957)
=========
Total operating expenses for the nine months ended March 31, 2005 decreased $300,957 to $800,192 from $1,101,149 for the nine months ended March 31, 2005. General and administrative expenses decreased $300,957 for the nine months ended March 31, 2005 as compared to the same period in 2004 primarily due to a decrease in the Company's reliance on outside consultants. Total operating expenses decreased $594,445 to $105,695 for the 3 months ended March 31, 2005, from $700,140 for the three months ended March 31, 2004.
NET OPERATING INCOME
Net operating income/loss before investment gains and losses (NOI) for the nine months ended March 31, 2005 totaled ($377,584) compared with a loss of $(1,084,895) for the nine months ended March 31, 2004.
NET INVESTMENT GAINS AND LOSSES
There were no realized gains or losses for the three and nine months ended March 31, 2005.
The net change in unrealized appreciation (depreciation) on investments of $259,758 for the nine months ended March 31, 2005 consisted of $259,758 of net appreciation less $0 advanced to controlled companies. The appreciation is related to additional equity interest granted an increase in the valuation of Kokopelli Franchise Company who commenced operations, and Fathom Business Systems, Inc., who continues to increase sales.
INCOME TAXES
We are taxed under Subchapter C of the Internal Revenue Code. We did not elect to be a regulated investment company under Subchapter M of the Internal Revenue Code with the filing of our federal corporate income tax return for 2004.
NET INCOME
Net income (loss) totaled $117,826 and $(619,919)for the three months and nine months ended March 31, 2005 compared to $(687,318) and ($1,084,895) for the three months and nine months ended March 31, 2005.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
CASH, CASH EQUIVALENTS AND CASH, SECURITIZATION ACCOUNTS
At March 31, 2005 and December 31, 2004, we had $15,836 and $2,213, respectively, in cash and cash equivalents. Our objective is to maintain sufficient cash on hand to cover current funding requirements and operations.
LIQUIDITY AND CAPITAL RESOURCES
We expect our cash on hand, future equity offerings, and cash generated from operations to be adequate to meet our cash needs at our current level of operations. We generally fund new originations using cash on hand, borrowings under our credit facilities and equity financings.
During the third quarter of 2005, the Company raised $165,500 by selling 8,573,231 shares of common stock issued under Regulation E.
BORROWINGS
At March 31, 2005, we had aggregate outstanding borrowings of $446,227.
At December 31, 2004, we had aggregate outstanding borrowings of $507,741.
See the Notes to the Financial Statements for further discussion of our borrowings.
CRITICAL ACCOUNTING POLICIES
The financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. We believe that the following are some of the more critical judgment areas in the application of our accounting policies that currently affect our financial condition and results of operations.
INCOME RECOGNITION
Interest on commercial loans is computed by methods that generally result in level rates of return on principal amounts outstanding. When a loan becomes 90 days or more past due, or if we otherwise do not expect the customer to be able to service its debt and other obligations, we will, as a general matter, place the loan on non-accrual status and cease recognizing interest income on that loan until all principal has been paid. However, we may make exceptions to this policy if the investment is well secured and in the process of collection.
In accordance with GAAP, we include in income certain amounts that we have not yet received in cash, such as contractual payment-in-kind (PIK) interest, which represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term. We currently do not have any interest income of this nature, but we may during future periods.
Loan origination fees are deferred and amortized as adjustments to the related loan's yield over the contractual life of the loan. In certain loan arrangements, warrants or other equity interests are received from the borrower as additional origination fees. The borrowers granting these interests are typically non-publicly traded companies. We record the financial instruments received at estimated fair value as determined by our board of directors. Fair values are determined using various valuation models which attempt to estimate the underlying value of the associated entity. These models are then applied to our ownership share considering any discounts for transfer restrictions or other terms which impact the value. Changes in these values are recorded through our statement of operations. Any resulting discount on the loan from recordation of warrant and other equity instruments are accreted into income over the term of the loan.
VALUATION OF INVESTMENTS
At March 31, 2005, approximately 98% of our total assets represented investments recorded at fair value. Value, as defined in Section 2(a)(41) of 1940 Act, is
(i) the market price for those securities for which a market quotation is readily available and (ii) for all other securities and assets, fair value is as determined in good faith by the board of directors. Since there is typically no readily ascertainable market value for the investments in our portfolio, we value substantially all of our investments at fair value as determined in good faith by the board of directors pursuant to a valuation policy and a consistent valuation process. Because of the inherent uncertainty of determining the fair value of investments that do not have a readily ascertainable market value, the fair value of our investments determined in good faith by the board of directors may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material.
There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment. Unlike banks, we are not permitted to provide a general reserve for anticipated loan losses. Instead, we must determine the fair value of each individual investment on a quarterly basis. We will record unrealized depreciation on investments when we believe that an investment has become impaired, including where collection of a loan or realization of an equity security is doubtful. Conversely, we will record unrealized appreciation if we believe that the underlying portfolio company has appreciated in value and, therefore, our investment has also appreciated in value, where appropriate.
As a business development company, we invest primarily in illiquid securities including debt and equity securities of private companies. The structure of each debt and equity security is specifically negotiated to enable us to protect our investment and maximize our returns. We generally include many terms governing interest rate, repayment terms, prepayment penalties, financial covenants, operating covenants, ownership parameters, dilution parameters, liquidation
preferences, voting rights, and put or call rights. Our investments are generally subject to some restrictions on resale and generally have no established trading market. Because of the type of investments that we make and the nature of our business, our valuation process requires an analysis of various factors. Our fair value methodology includes the examination of, among other things, the underlying investment performance, financial condition and market changing events that impact valuation.
AT DECEMBER 31, 2004, THE BOARD OF DIRECTORS ELECTED TO EMPLOY A VALUATION METHOD CONSISTING OF COST BASIS FOR THOSE PORTFOLIO COMPANIES THAT WERE NOT YET OPERATIONAL, AND A METHOD OF GROSS REVENUE, NET REVENE AND NET ASSETS FOR THOSE COMPANIES THAT ARE OPERATIONAL. THE COMPANY WILL EMPLOYE INDEPENDENT BUSINESS VALUATION CONSULTANTS TO PROVIDE A VALUATION OF OUR EXISTING PORTFOLIO COMPANIES AND CERTAIN OTHER INVESTMENTS FOR THE YEAR ENDED JUNE 30, 2005.
VALUATION OF LOANS AND DEBT SECURITIES
As a general rule, we do not value our loans or debt securities above cost, but loans and debt securities will be subject to fair value write-downs when the asset is considered impaired. In many cases, our loan agreements allow for increases in the spread to the base index rate if the financial or operational performance of the customer deteriorates or shows negative variances from the customer's business plan and, in some cases, allow for decreases in the spread if financial or operational performance improves or exceeds the customer's plan.
VALUATION OF EQUITY SECURITIES
With respect to private equity securities, each investment is valued using industry valuation benchmarks, and then the value is assigned a discount reflecting the illiquid nature of the investment, as well as our minority, non-control position. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing indicated by the external event will be used to corroborate our private equity valuation. Securities that are traded in the over-the-counter market or on a stock exchange generally will be valued at the prevailing bid price on the valuation date. However, restricted and unrestricted publicly traded securities may be valued at discounts from the public market value due to restrictions on sale, the size of our investment or market liquidity concerns.
RECENT DEVELOPMENT
Kokopelli Franchise Company, LLC, a portfolio company specializing in the franchising of fast, casual sonoran style food, opened its first franchised restaurant in April. As a result, our valuation of Kokopelli Franchise Company was based on the projected operations of the franchise. We anticipate receiving royalty fee income from this and each franchise location as they develop.
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Look for FCCN to break out since this morning's 10Q posted a net income of $117,826 and the stock closed yesterday at .032. Take a look:
Form 10QSB for FRANCHISE CAPITAL CORP.
--------------------------------------------------------------------------------
18-May-2005
Quarterly Report
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained in this section should be read in conjunction with the Selected Consolidated Financial and Other Data, the Selected Operating Data and our Consolidated Financial Statements and notes thereto appearing elsewhere in this Quarterly Report. This Quarterly Report, including the Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs, and our assumptions. Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", and "estimates" and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements including without limitation (1) any future economic downturn could impair our customers' ability to repay our loans and increase our non-performing assets, (2)economic downturns can disproportionately impact certain sectors in which we concentrate, and any future economic downturn could disproportionately impact the industries in which we concentrate causing us to suffer losses in our portfolio and experience diminished demand for capital in these industry sectors, (3) a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities, (4) interest rate volatility could adversely affect our results, (5) the risks associated with the possible disruption in the Company's operations due to terrorism and (6) the risks, uncertainties and other factors we identify from time to time in our filings with the Securities and Exchange Commission, including our Form 10-Ks, Form 10-Qs and Form 8-Ks. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be incorrect. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report.
OVERVIEW
Franchise Capital Corporation. is a solutions-focused financial services company providing financing and advisory services to small and medium-sized companies throughout the United States primarily in the restaurant franchising industry. Effective December 23, 2004, we became an internally managed, non-diversified, closed-end investment company that elected to be treated as a business development company under the Investment Company Act of 1940. Franchise Capital Corporation will not elect to be treated for federal income tax purposes as a regulated investment company under the Internal Revenue Code with the filing of its federal corporate income tax return for 2004.
PORTFOLIO COMPOSITION AND ASSET QUALITY
Our primary business is lending to and investing in businesses, primarily in the restaurant franchising industry, through investments in senior debt, subordinated debt and equity-based investments, including warrants and equity appreciation rights. Though we intend to increase our level of subordinated debt and equity-based investments, we expect a substantial majority of our portfolio will continue to consist of investments in portfolio companies. The total fair value of investments in non-publicly traded securities was $602,480 and $315,709 at March 31, 2005 and December 31, 2004, respectively (exclusive of unearned income).
The following table summarizes Franchise Capital Corporation's assets held and income from Majority Owned Companies, Controlled Companies and Other Affiliates:
March 31, December 31,
2005 2004
------- -------
ASSETS HELD:
Majority Owned Companies (a):
Investments in and advances to 799,244 619,099
Controlled Companies (b):
Other Affiliates (c):
Loans at fair value 0 0
Equity Investments at fair value 0 0
Nine Months Ended March 31,
2005 2004
------- -------
INCOME RECOGNIZED:
From Majority Owned Companies (a):
Interest and fee income $ 0 $ 0
From Controlled Companies (b):
From Other Affiliates (c): 1
Interest and fee income 0 0
Net change in unrealized appreciation
(depreciation) on investments 286,771 0
Realized losses on investments -- --
----------
(a) Majority owned companies are generally defined under the Investment Company Act of 1940 as companies in which Franchise Capital Corporation owns more than 50% of the voting securities of the company.
(b) Controlled companies are generally defined under the Investment Company Act of 1940 as companies in which Franchise Capital Corporation owns more than 25% but not more than 50% of the voting securities of the company.
(c) Other affiliates are generally defined under the Investment Company Act of 1940 as companies in which Franchise Capital Corporation owns at least 5% but not more than 25% of the voting securities of the company.
ASSET QUALITY
Asset quality is generally a function of our underwriting and ongoing management of our investment portfolio. As a business development company, our loans and equity investments are carried at market value or, in the absence of market value, at fair value as determined by our board of directors in good faith on a quarterly basis. As of March 31, 2005 and December 31, 2004, unrealized appreciation on investments totaled $259,758 and $0, respectively. For additional information on the change in unrealized depreciation on investments, see the section entitled "Reconciliation of Net Operating Income to Net Increase (Decrease) in Stockholders' Equity from Earnings".
We monitor loan concentrations in our portfolio, both on an individual loan basis and on a sector or industry basis, to manage overall portfolio performance due to specific customer issues or specific industry issues.
We monitor individual customer's financial trends in order to assess the appropriate course of action with respect to each customer and to evaluate overall portfolio quality. We closely monitor the status and performance of each individual investment on a quarterly and, in some cases, a monthly or more frequent basis. Because we are a provider of long-term privately negotiated investment capital to growth-oriented companies and we actively manage our investments through our contract structure, we do not believe that contract exceptions such as breaches of contractual covenants or late delivery of financial statements are necessarily an indication of deterioration in the credit quality or the need to pursue remedies or an active workout of a portfolio investment.
When a loan becomes 90 days or more past due, or if we otherwise do not expect the customer to be able to service its debt and other obligations, we will, as a general matter, place the loan on non-accrual status and cease recognizing interest income on that loan until all principal has been paid. However, we may make exceptions to this policy if the investment is well secured and in the process of collection.
As of March 31, 2005 and December 31, 2004, none of the loans to our other affiliates were on non-accrual status.
When principal and interest on a loan is not paid within the applicable grace period, we will contact the customer for collection. At that time, we will make a determination as to the extent of the problem, if any. We will then pursue a commitment for immediate payment and will begin to more actively monitor the investment. We will formulate strategies to optimize the resolution process and will begin the process of restructuring the investment to better reflect the current financial performance of the customer. Such a restructuring may involve deferring payments of principal and interest, adjusting interest rates or warrant positions, imposing additional fees, amending financial or operating covenants or converting debt to equity. In general, in order to compensate us for any enhanced risk, we receive appropriate compensation from the customer in connection with a restructuring. During the process of monitoring a loan that is out of compliance, we will in appropriate circumstances send a notice of non-compliance outlining the specific defaults that have occurred and preserving
our remedies, and initiate a review of the collateral. When a restructuring is not the most appropriate course of action, we may determine to pursue remedies available under our loan documents or at law to minimize any potential losses, including initiating foreclosure and/or liquidation proceedings.
OPERATING INCOME
Operating income includes interest income on commercial loans, advisory fees and other income. Interest income is comprised of commercial loan interest at contractual rates and upfront fees that are amortized into income over the life of the loan. Most of our loans contain lending features that adjust the rate margin based on the financial and operating performance of the borrower, which generally occurs quarterly.
The change in operating income from the nine months ended March 31, 2005 compared to the same period in 2004 is attributable to the following items: (Due to the conversion to a Business Development Company, effective December 23, 2005, the periods are not directly comparable.)
NINE MONTHS ENDED
MARCH 13, 2005
CHANGE DUE TO:
Asset growth $259,758
Increase in fee income 0
Interest and other income 8,881
Manufacturing income 0
--------
Total change in operating income $268,639
========
Total operating income for the nine months ended March 31, 2005 increased $268,639 to $308,284 from $39,645 for the nine months ended March 31, 2005. Operating income for the three months ended March 31, 2005 increased $841,381, to $154,063 from $(687,318) for the three months ended March 31, 2005.
OPERATING EXPENSES
Operating expenses include interest expense on borrowings, including amortization of deferred debt issuance costs, employee compensation, and general and administrative expenses.
The change in operating expenses from the nine months March 31, 2005 compared to the same period in 2004 is attributable to the following items:
NINE MONTHS ENDED
MARCH 31, 2005 VS. 2004
CHANGE DUE TO:
Advertising & Selling (0)
Interest Expense 88709
Depreciation & Amortization (-19)
Salaries and benefits 31,305
General and administrative expense (-420,952)
---------
Total change in operating expense $(300,957)
=========
Total operating expenses for the nine months ended March 31, 2005 decreased $300,957 to $800,192 from $1,101,149 for the nine months ended March 31, 2005. General and administrative expenses decreased $300,957 for the nine months ended March 31, 2005 as compared to the same period in 2004 primarily due to a decrease in the Company's reliance on outside consultants. Total operating expenses decreased $594,445 to $105,695 for the 3 months ended March 31, 2005, from $700,140 for the three months ended March 31, 2004.
NET OPERATING INCOME
Net operating income/loss before investment gains and losses (NOI) for the nine months ended March 31, 2005 totaled ($377,584) compared with a loss of $(1,084,895) for the nine months ended March 31, 2004.
NET INVESTMENT GAINS AND LOSSES
There were no realized gains or losses for the three and nine months ended March 31, 2005.
The net change in unrealized appreciation (depreciation) on investments of $259,758 for the nine months ended March 31, 2005 consisted of $259,758 of net appreciation less $0 advanced to controlled companies. The appreciation is related to additional equity interest granted an increase in the valuation of Kokopelli Franchise Company who commenced operations, and Fathom Business Systems, Inc., who continues to increase sales.
INCOME TAXES
We are taxed under Subchapter C of the Internal Revenue Code. We did not elect to be a regulated investment company under Subchapter M of the Internal Revenue Code with the filing of our federal corporate income tax return for 2004.
NET INCOME
Net income (loss) totaled $117,826 and $(619,919)for the three months and nine months ended March 31, 2005 compared to $(687,318) and ($1,084,895) for the three months and nine months ended March 31, 2005.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
CASH, CASH EQUIVALENTS AND CASH, SECURITIZATION ACCOUNTS
At March 31, 2005 and December 31, 2004, we had $15,836 and $2,213, respectively, in cash and cash equivalents. Our objective is to maintain sufficient cash on hand to cover current funding requirements and operations.
LIQUIDITY AND CAPITAL RESOURCES
We expect our cash on hand, future equity offerings, and cash generated from operations to be adequate to meet our cash needs at our current level of operations. We generally fund new originations using cash on hand, borrowings under our credit facilities and equity financings.
During the third quarter of 2005, the Company raised $165,500 by selling 8,573,231 shares of common stock issued under Regulation E.
BORROWINGS
At March 31, 2005, we had aggregate outstanding borrowings of $446,227.
At December 31, 2004, we had aggregate outstanding borrowings of $507,741.
See the Notes to the Financial Statements for further discussion of our borrowings.
CRITICAL ACCOUNTING POLICIES
The financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. We believe that the following are some of the more critical judgment areas in the application of our accounting policies that currently affect our financial condition and results of operations.
INCOME RECOGNITION
Interest on commercial loans is computed by methods that generally result in level rates of return on principal amounts outstanding. When a loan becomes 90 days or more past due, or if we otherwise do not expect the customer to be able to service its debt and other obligations, we will, as a general matter, place the loan on non-accrual status and cease recognizing interest income on that loan until all principal has been paid. However, we may make exceptions to this policy if the investment is well secured and in the process of collection.
In accordance with GAAP, we include in income certain amounts that we have not yet received in cash, such as contractual payment-in-kind (PIK) interest, which represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term. We currently do not have any interest income of this nature, but we may during future periods.
Loan origination fees are deferred and amortized as adjustments to the related loan's yield over the contractual life of the loan. In certain loan arrangements, warrants or other equity interests are received from the borrower as additional origination fees. The borrowers granting these interests are typically non-publicly traded companies. We record the financial instruments received at estimated fair value as determined by our board of directors. Fair values are determined using various valuation models which attempt to estimate the underlying value of the associated entity. These models are then applied to our ownership share considering any discounts for transfer restrictions or other terms which impact the value. Changes in these values are recorded through our statement of operations. Any resulting discount on the loan from recordation of warrant and other equity instruments are accreted into income over the term of the loan.
VALUATION OF INVESTMENTS
At March 31, 2005, approximately 98% of our total assets represented investments recorded at fair value. Value, as defined in Section 2(a)(41) of 1940 Act, is
(i) the market price for those securities for which a market quotation is readily available and (ii) for all other securities and assets, fair value is as determined in good faith by the board of directors. Since there is typically no readily ascertainable market value for the investments in our portfolio, we value substantially all of our investments at fair value as determined in good faith by the board of directors pursuant to a valuation policy and a consistent valuation process. Because of the inherent uncertainty of determining the fair value of investments that do not have a readily ascertainable market value, the fair value of our investments determined in good faith by the board of directors may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material.
There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment. Unlike banks, we are not permitted to provide a general reserve for anticipated loan losses. Instead, we must determine the fair value of each individual investment on a quarterly basis. We will record unrealized depreciation on investments when we believe that an investment has become impaired, including where collection of a loan or realization of an equity security is doubtful. Conversely, we will record unrealized appreciation if we believe that the underlying portfolio company has appreciated in value and, therefore, our investment has also appreciated in value, where appropriate.
As a business development company, we invest primarily in illiquid securities including debt and equity securities of private companies. The structure of each debt and equity security is specifically negotiated to enable us to protect our investment and maximize our returns. We generally include many terms governing interest rate, repayment terms, prepayment penalties, financial covenants, operating covenants, ownership parameters, dilution parameters, liquidation
preferences, voting rights, and put or call rights. Our investments are generally subject to some restrictions on resale and generally have no established trading market. Because of the type of investments that we make and the nature of our business, our valuation process requires an analysis of various factors. Our fair value methodology includes the examination of, among other things, the underlying investment performance, financial condition and market changing events that impact valuation.
AT DECEMBER 31, 2004, THE BOARD OF DIRECTORS ELECTED TO EMPLOY A VALUATION METHOD CONSISTING OF COST BASIS FOR THOSE PORTFOLIO COMPANIES THAT WERE NOT YET OPERATIONAL, AND A METHOD OF GROSS REVENUE, NET REVENE AND NET ASSETS FOR THOSE COMPANIES THAT ARE OPERATIONAL. THE COMPANY WILL EMPLOYE INDEPENDENT BUSINESS VALUATION CONSULTANTS TO PROVIDE A VALUATION OF OUR EXISTING PORTFOLIO COMPANIES AND CERTAIN OTHER INVESTMENTS FOR THE YEAR ENDED JUNE 30, 2005.
VALUATION OF LOANS AND DEBT SECURITIES
As a general rule, we do not value our loans or debt securities above cost, but loans and debt securities will be subject to fair value write-downs when the asset is considered impaired. In many cases, our loan agreements allow for increases in the spread to the base index rate if the financial or operational performance of the customer deteriorates or shows negative variances from the customer's business plan and, in some cases, allow for decreases in the spread if financial or operational performance improves or exceeds the customer's plan.
VALUATION OF EQUITY SECURITIES
With respect to private equity securities, each investment is valued using industry valuation benchmarks, and then the value is assigned a discount reflecting the illiquid nature of the investment, as well as our minority, non-control position. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing indicated by the external event will be used to corroborate our private equity valuation. Securities that are traded in the over-the-counter market or on a stock exchange generally will be valued at the prevailing bid price on the valuation date. However, restricted and unrestricted publicly traded securities may be valued at discounts from the public market value due to restrictions on sale, the size of our investment or market liquidity concerns.
RECENT DEVELOPMENT
Kokopelli Franchise Company, LLC, a portfolio company specializing in the franchising of fast, casual sonoran style food, opened its first franchised restaurant in April. As a result, our valuation of Kokopelli Franchise Company was based on the projected operations of the franchise. We anticipate receiving royalty fee income from this and each franchise location as they develop.
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3 cent stock FCCN just posted a net income of $117,826 on their 10Q. Here it is:
Form 10QSB for FRANCHISE CAPITAL CORP.
--------------------------------------------------------------------------------
18-May-2005
Quarterly Report
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained in this section should be read in conjunction with the Selected Consolidated Financial and Other Data, the Selected Operating Data and our Consolidated Financial Statements and notes thereto appearing elsewhere in this Quarterly Report. This Quarterly Report, including the Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs, and our assumptions. Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", and "estimates" and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements including without limitation (1) any future economic downturn could impair our customers' ability to repay our loans and increase our non-performing assets, (2)economic downturns can disproportionately impact certain sectors in which we concentrate, and any future economic downturn could disproportionately impact the industries in which we concentrate causing us to suffer losses in our portfolio and experience diminished demand for capital in these industry sectors, (3) a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities, (4) interest rate volatility could adversely affect our results, (5) the risks associated with the possible disruption in the Company's operations due to terrorism and (6) the risks, uncertainties and other factors we identify from time to time in our filings with the Securities and Exchange Commission, including our Form 10-Ks, Form 10-Qs and Form 8-Ks. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be incorrect. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report.
OVERVIEW
Franchise Capital Corporation. is a solutions-focused financial services company providing financing and advisory services to small and medium-sized companies throughout the United States primarily in the restaurant franchising industry. Effective December 23, 2004, we became an internally managed, non-diversified, closed-end investment company that elected to be treated as a business development company under the Investment Company Act of 1940. Franchise Capital Corporation will not elect to be treated for federal income tax purposes as a regulated investment company under the Internal Revenue Code with the filing of its federal corporate income tax return for 2004.
PORTFOLIO COMPOSITION AND ASSET QUALITY
Our primary business is lending to and investing in businesses, primarily in the restaurant franchising industry, through investments in senior debt, subordinated debt and equity-based investments, including warrants and equity appreciation rights. Though we intend to increase our level of subordinated debt and equity-based investments, we expect a substantial majority of our portfolio will continue to consist of investments in portfolio companies. The total fair value of investments in non-publicly traded securities was $602,480 and $315,709 at March 31, 2005 and December 31, 2004, respectively (exclusive of unearned income).
The following table summarizes Franchise Capital Corporation's assets held and income from Majority Owned Companies, Controlled Companies and Other Affiliates:
March 31, December 31,
2005 2004
------- -------
ASSETS HELD:
Majority Owned Companies (a):
Investments in and advances to 799,244 619,099
Controlled Companies (b):
Other Affiliates (c):
Loans at fair value 0 0
Equity Investments at fair value 0 0
Nine Months Ended March 31,
2005 2004
------- -------
INCOME RECOGNIZED:
From Majority Owned Companies (a):
Interest and fee income $ 0 $ 0
From Controlled Companies (b):
From Other Affiliates (c): 1
Interest and fee income 0 0
Net change in unrealized appreciation
(depreciation) on investments 286,771 0
Realized losses on investments -- --
----------
(a) Majority owned companies are generally defined under the Investment Company Act of 1940 as companies in which Franchise Capital Corporation owns more than 50% of the voting securities of the company.
(b) Controlled companies are generally defined under the Investment Company Act of 1940 as companies in which Franchise Capital Corporation owns more than 25% but not more than 50% of the voting securities of the company.
(c) Other affiliates are generally defined under the Investment Company Act of 1940 as companies in which Franchise Capital Corporation owns at least 5% but not more than 25% of the voting securities of the company.
ASSET QUALITY
Asset quality is generally a function of our underwriting and ongoing management of our investment portfolio. As a business development company, our loans and equity investments are carried at market value or, in the absence of market value, at fair value as determined by our board of directors in good faith on a quarterly basis. As of March 31, 2005 and December 31, 2004, unrealized appreciation on investments totaled $259,758 and $0, respectively. For additional information on the change in unrealized depreciation on investments, see the section entitled "Reconciliation of Net Operating Income to Net Increase (Decrease) in Stockholders' Equity from Earnings".
We monitor loan concentrations in our portfolio, both on an individual loan basis and on a sector or industry basis, to manage overall portfolio performance due to specific customer issues or specific industry issues.
We monitor individual customer's financial trends in order to assess the appropriate course of action with respect to each customer and to evaluate overall portfolio quality. We closely monitor the status and performance of each individual investment on a quarterly and, in some cases, a monthly or more frequent basis. Because we are a provider of long-term privately negotiated investment capital to growth-oriented companies and we actively manage our investments through our contract structure, we do not believe that contract exceptions such as breaches of contractual covenants or late delivery of financial statements are necessarily an indication of deterioration in the credit quality or the need to pursue remedies or an active workout of a portfolio investment.
When a loan becomes 90 days or more past due, or if we otherwise do not expect the customer to be able to service its debt and other obligations, we will, as a general matter, place the loan on non-accrual status and cease recognizing interest income on that loan until all principal has been paid. However, we may make exceptions to this policy if the investment is well secured and in the process of collection.
As of March 31, 2005 and December 31, 2004, none of the loans to our other affiliates were on non-accrual status.
When principal and interest on a loan is not paid within the applicable grace period, we will contact the customer for collection. At that time, we will make a determination as to the extent of the problem, if any. We will then pursue a commitment for immediate payment and will begin to more actively monitor the investment. We will formulate strategies to optimize the resolution process and will begin the process of restructuring the investment to better reflect the current financial performance of the customer. Such a restructuring may involve deferring payments of principal and interest, adjusting interest rates or warrant positions, imposing additional fees, amending financial or operating covenants or converting debt to equity. In general, in order to compensate us for any enhanced risk, we receive appropriate compensation from the customer in connection with a restructuring. During the process of monitoring a loan that is out of compliance, we will in appropriate circumstances send a notice of non-compliance outlining the specific defaults that have occurred and preserving
our remedies, and initiate a review of the collateral. When a restructuring is not the most appropriate course of action, we may determine to pursue remedies available under our loan documents or at law to minimize any potential losses, including initiating foreclosure and/or liquidation proceedings.
OPERATING INCOME
Operating income includes interest income on commercial loans, advisory fees and other income. Interest income is comprised of commercial loan interest at contractual rates and upfront fees that are amortized into income over the life of the loan. Most of our loans contain lending features that adjust the rate margin based on the financial and operating performance of the borrower, which generally occurs quarterly.
The change in operating income from the nine months ended March 31, 2005 compared to the same period in 2004 is attributable to the following items: (Due to the conversion to a Business Development Company, effective December 23, 2005, the periods are not directly comparable.)
NINE MONTHS ENDED
MARCH 13, 2005
CHANGE DUE TO:
Asset growth $259,758
Increase in fee income 0
Interest and other income 8,881
Manufacturing income 0
--------
Total change in operating income $268,639
========
Total operating income for the nine months ended March 31, 2005 increased $268,639 to $308,284 from $39,645 for the nine months ended March 31, 2005. Operating income for the three months ended March 31, 2005 increased $841,381, to $154,063 from $(687,318) for the three months ended March 31, 2005.
OPERATING EXPENSES
Operating expenses include interest expense on borrowings, including amortization of deferred debt issuance costs, employee compensation, and general and administrative expenses.
The change in operating expenses from the nine months March 31, 2005 compared to the same period in 2004 is attributable to the following items:
NINE MONTHS ENDED
MARCH 31, 2005 VS. 2004
CHANGE DUE TO:
Advertising & Selling (0)
Interest Expense 88709
Depreciation & Amortization (-19)
Salaries and benefits 31,305
General and administrative expense (-420,952)
---------
Total change in operating expense $(300,957)
=========
Total operating expenses for the nine months ended March 31, 2005 decreased $300,957 to $800,192 from $1,101,149 for the nine months ended March 31, 2005. General and administrative expenses decreased $300,957 for the nine months ended March 31, 2005 as compared to the same period in 2004 primarily due to a decrease in the Company's reliance on outside consultants. Total operating expenses decreased $594,445 to $105,695 for the 3 months ended March 31, 2005, from $700,140 for the three months ended March 31, 2004.
NET OPERATING INCOME
Net operating income/loss before investment gains and losses (NOI) for the nine months ended March 31, 2005 totaled ($377,584) compared with a loss of $(1,084,895) for the nine months ended March 31, 2004.
NET INVESTMENT GAINS AND LOSSES
There were no realized gains or losses for the three and nine months ended March 31, 2005.
The net change in unrealized appreciation (depreciation) on investments of $259,758 for the nine months ended March 31, 2005 consisted of $259,758 of net appreciation less $0 advanced to controlled companies. The appreciation is related to additional equity interest granted an increase in the valuation of Kokopelli Franchise Company who commenced operations, and Fathom Business Systems, Inc., who continues to increase sales.
INCOME TAXES
We are taxed under Subchapter C of the Internal Revenue Code. We did not elect to be a regulated investment company under Subchapter M of the Internal Revenue Code with the filing of our federal corporate income tax return for 2004.
NET INCOME
Net income (loss) totaled $117,826 and $(619,919)for the three months and nine months ended March 31, 2005 compared to $(687,318) and ($1,084,895) for the three months and nine months ended March 31, 2005.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
CASH, CASH EQUIVALENTS AND CASH, SECURITIZATION ACCOUNTS
At March 31, 2005 and December 31, 2004, we had $15,836 and $2,213, respectively, in cash and cash equivalents. Our objective is to maintain sufficient cash on hand to cover current funding requirements and operations.
LIQUIDITY AND CAPITAL RESOURCES
We expect our cash on hand, future equity offerings, and cash generated from operations to be adequate to meet our cash needs at our current level of operations. We generally fund new originations using cash on hand, borrowings under our credit facilities and equity financings.
During the third quarter of 2005, the Company raised $165,500 by selling 8,573,231 shares of common stock issued under Regulation E.
BORROWINGS
At March 31, 2005, we had aggregate outstanding borrowings of $446,227.
At December 31, 2004, we had aggregate outstanding borrowings of $507,741.
See the Notes to the Financial Statements for further discussion of our borrowings.
CRITICAL ACCOUNTING POLICIES
The financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. We believe that the following are some of the more critical judgment areas in the application of our accounting policies that currently affect our financial condition and results of operations.
INCOME RECOGNITION
Interest on commercial loans is computed by methods that generally result in level rates of return on principal amounts outstanding. When a loan becomes 90 days or more past due, or if we otherwise do not expect the customer to be able to service its debt and other obligations, we will, as a general matter, place the loan on non-accrual status and cease recognizing interest income on that loan until all principal has been paid. However, we may make exceptions to this policy if the investment is well secured and in the process of collection.
In accordance with GAAP, we include in income certain amounts that we have not yet received in cash, such as contractual payment-in-kind (PIK) interest, which represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term. We currently do not have any interest income of this nature, but we may during future periods.
Loan origination fees are deferred and amortized as adjustments to the related loan's yield over the contractual life of the loan. In certain loan arrangements, warrants or other equity interests are received from the borrower as additional origination fees. The borrowers granting these interests are typically non-publicly traded companies. We record the financial instruments received at estimated fair value as determined by our board of directors. Fair values are determined using various valuation models which attempt to estimate the underlying value of the associated entity. These models are then applied to our ownership share considering any discounts for transfer restrictions or other terms which impact the value. Changes in these values are recorded through our statement of operations. Any resulting discount on the loan from recordation of warrant and other equity instruments are accreted into income over the term of the loan.
VALUATION OF INVESTMENTS
At March 31, 2005, approximately 98% of our total assets represented investments recorded at fair value. Value, as defined in Section 2(a)(41) of 1940 Act, is
(i) the market price for those securities for which a market quotation is readily available and (ii) for all other securities and assets, fair value is as determined in good faith by the board of directors. Since there is typically no readily ascertainable market value for the investments in our portfolio, we value substantially all of our investments at fair value as determined in good faith by the board of directors pursuant to a valuation policy and a consistent valuation process. Because of the inherent uncertainty of determining the fair value of investments that do not have a readily ascertainable market value, the fair value of our investments determined in good faith by the board of directors may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material.
There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment. Unlike banks, we are not permitted to provide a general reserve for anticipated loan losses. Instead, we must determine the fair value of each individual investment on a quarterly basis. We will record unrealized depreciation on investments when we believe that an investment has become impaired, including where collection of a loan or realization of an equity security is doubtful. Conversely, we will record unrealized appreciation if we believe that the underlying portfolio company has appreciated in value and, therefore, our investment has also appreciated in value, where appropriate.
As a business development company, we invest primarily in illiquid securities including debt and equity securities of private companies. The structure of each debt and equity security is specifically negotiated to enable us to protect our investment and maximize our returns. We generally include many terms governing interest rate, repayment terms, prepayment penalties, financial covenants, operating covenants, ownership parameters, dilution parameters, liquidation
preferences, voting rights, and put or call rights. Our investments are generally subject to some restrictions on resale and generally have no established trading market. Because of the type of investments that we make and the nature of our business, our valuation process requires an analysis of various factors. Our fair value methodology includes the examination of, among other things, the underlying investment performance, financial condition and market changing events that impact valuation.
AT DECEMBER 31, 2004, THE BOARD OF DIRECTORS ELECTED TO EMPLOY A VALUATION METHOD CONSISTING OF COST BASIS FOR THOSE PORTFOLIO COMPANIES THAT WERE NOT YET OPERATIONAL, AND A METHOD OF GROSS REVENUE, NET REVENE AND NET ASSETS FOR THOSE COMPANIES THAT ARE OPERATIONAL. THE COMPANY WILL EMPLOYE INDEPENDENT BUSINESS VALUATION CONSULTANTS TO PROVIDE A VALUATION OF OUR EXISTING PORTFOLIO COMPANIES AND CERTAIN OTHER INVESTMENTS FOR THE YEAR ENDED JUNE 30, 2005.
VALUATION OF LOANS AND DEBT SECURITIES
As a general rule, we do not value our loans or debt securities above cost, but loans and debt securities will be subject to fair value write-downs when the asset is considered impaired. In many cases, our loan agreements allow for increases in the spread to the base index rate if the financial or operational performance of the customer deteriorates or shows negative variances from the customer's business plan and, in some cases, allow for decreases in the spread if financial or operational performance improves or exceeds the customer's plan.
VALUATION OF EQUITY SECURITIES
With respect to private equity securities, each investment is valued using industry valuation benchmarks, and then the value is assigned a discount reflecting the illiquid nature of the investment, as well as our minority, non-control position. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing indicated by the external event will be used to corroborate our private equity valuation. Securities that are traded in the over-the-counter market or on a stock exchange generally will be valued at the prevailing bid price on the valuation date. However, restricted and unrestricted publicly traded securities may be valued at discounts from the public market value due to restrictions on sale, the size of our investment or market liquidity concerns.
RECENT DEVELOPMENT
Kokopelli Franchise Company, LLC, a portfolio company specializing in the franchising of fast, casual sonoran style food, opened its first franchised restaurant in April. As a result, our valuation of Kokopelli Franchise Company was based on the projected operations of the franchise. We anticipate receiving royalty fee income from this and each franchise location as they develop.
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Could be some value here. FCCN just showed a net income of $117,826 on this morning's 10Q. This stock closed at .032 yesterday. Here's the 10Q:
Form 10QSB for FRANCHISE CAPITAL CORP.
--------------------------------------------------------------------------------
18-May-2005
Quarterly Report
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained in this section should be read in conjunction with the Selected Consolidated Financial and Other Data, the Selected Operating Data and our Consolidated Financial Statements and notes thereto appearing elsewhere in this Quarterly Report. This Quarterly Report, including the Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs, and our assumptions. Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", and "estimates" and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements including without limitation (1) any future economic downturn could impair our customers' ability to repay our loans and increase our non-performing assets, (2)economic downturns can disproportionately impact certain sectors in which we concentrate, and any future economic downturn could disproportionately impact the industries in which we concentrate causing us to suffer losses in our portfolio and experience diminished demand for capital in these industry sectors, (3) a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities, (4) interest rate volatility could adversely affect our results, (5) the risks associated with the possible disruption in the Company's operations due to terrorism and (6) the risks, uncertainties and other factors we identify from time to time in our filings with the Securities and Exchange Commission, including our Form 10-Ks, Form 10-Qs and Form 8-Ks. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be incorrect. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report.
OVERVIEW
Franchise Capital Corporation. is a solutions-focused financial services company providing financing and advisory services to small and medium-sized companies throughout the United States primarily in the restaurant franchising industry. Effective December 23, 2004, we became an internally managed, non-diversified, closed-end investment company that elected to be treated as a business development company under the Investment Company Act of 1940. Franchise Capital Corporation will not elect to be treated for federal income tax purposes as a regulated investment company under the Internal Revenue Code with the filing of its federal corporate income tax return for 2004.
PORTFOLIO COMPOSITION AND ASSET QUALITY
Our primary business is lending to and investing in businesses, primarily in the restaurant franchising industry, through investments in senior debt, subordinated debt and equity-based investments, including warrants and equity appreciation rights. Though we intend to increase our level of subordinated debt and equity-based investments, we expect a substantial majority of our portfolio will continue to consist of investments in portfolio companies. The total fair value of investments in non-publicly traded securities was $602,480 and $315,709 at March 31, 2005 and December 31, 2004, respectively (exclusive of unearned income).
The following table summarizes Franchise Capital Corporation's assets held and income from Majority Owned Companies, Controlled Companies and Other Affiliates:
March 31, December 31,
2005 2004
------- -------
ASSETS HELD:
Majority Owned Companies (a):
Investments in and advances to 799,244 619,099
Controlled Companies (b):
Other Affiliates (c):
Loans at fair value 0 0
Equity Investments at fair value 0 0
Nine Months Ended March 31,
2005 2004
------- -------
INCOME RECOGNIZED:
From Majority Owned Companies (a):
Interest and fee income $ 0 $ 0
From Controlled Companies (b):
From Other Affiliates (c): 1
Interest and fee income 0 0
Net change in unrealized appreciation
(depreciation) on investments 286,771 0
Realized losses on investments -- --
----------
(a) Majority owned companies are generally defined under the Investment Company Act of 1940 as companies in which Franchise Capital Corporation owns more than 50% of the voting securities of the company.
(b) Controlled companies are generally defined under the Investment Company Act of 1940 as companies in which Franchise Capital Corporation owns more than 25% but not more than 50% of the voting securities of the company.
(c) Other affiliates are generally defined under the Investment Company Act of 1940 as companies in which Franchise Capital Corporation owns at least 5% but not more than 25% of the voting securities of the company.
ASSET QUALITY
Asset quality is generally a function of our underwriting and ongoing management of our investment portfolio. As a business development company, our loans and equity investments are carried at market value or, in the absence of market value, at fair value as determined by our board of directors in good faith on a quarterly basis. As of March 31, 2005 and December 31, 2004, unrealized appreciation on investments totaled $259,758 and $0, respectively. For additional information on the change in unrealized depreciation on investments, see the section entitled "Reconciliation of Net Operating Income to Net Increase (Decrease) in Stockholders' Equity from Earnings".
We monitor loan concentrations in our portfolio, both on an individual loan basis and on a sector or industry basis, to manage overall portfolio performance due to specific customer issues or specific industry issues.
We monitor individual customer's financial trends in order to assess the appropriate course of action with respect to each customer and to evaluate overall portfolio quality. We closely monitor the status and performance of each individual investment on a quarterly and, in some cases, a monthly or more frequent basis. Because we are a provider of long-term privately negotiated investment capital to growth-oriented companies and we actively manage our investments through our contract structure, we do not believe that contract exceptions such as breaches of contractual covenants or late delivery of financial statements are necessarily an indication of deterioration in the credit quality or the need to pursue remedies or an active workout of a portfolio investment.
When a loan becomes 90 days or more past due, or if we otherwise do not expect the customer to be able to service its debt and other obligations, we will, as a general matter, place the loan on non-accrual status and cease recognizing interest income on that loan until all principal has been paid. However, we may make exceptions to this policy if the investment is well secured and in the process of collection.
As of March 31, 2005 and December 31, 2004, none of the loans to our other affiliates were on non-accrual status.
When principal and interest on a loan is not paid within the applicable grace period, we will contact the customer for collection. At that time, we will make a determination as to the extent of the problem, if any. We will then pursue a commitment for immediate payment and will begin to more actively monitor the investment. We will formulate strategies to optimize the resolution process and will begin the process of restructuring the investment to better reflect the current financial performance of the customer. Such a restructuring may involve deferring payments of principal and interest, adjusting interest rates or warrant positions, imposing additional fees, amending financial or operating covenants or converting debt to equity. In general, in order to compensate us for any enhanced risk, we receive appropriate compensation from the customer in connection with a restructuring. During the process of monitoring a loan that is out of compliance, we will in appropriate circumstances send a notice of non-compliance outlining the specific defaults that have occurred and preserving
our remedies, and initiate a review of the collateral. When a restructuring is not the most appropriate course of action, we may determine to pursue remedies available under our loan documents or at law to minimize any potential losses, including initiating foreclosure and/or liquidation proceedings.
OPERATING INCOME
Operating income includes interest income on commercial loans, advisory fees and other income. Interest income is comprised of commercial loan interest at contractual rates and upfront fees that are amortized into income over the life of the loan. Most of our loans contain lending features that adjust the rate margin based on the financial and operating performance of the borrower, which generally occurs quarterly.
The change in operating income from the nine months ended March 31, 2005 compared to the same period in 2004 is attributable to the following items: (Due to the conversion to a Business Development Company, effective December 23, 2005, the periods are not directly comparable.)
NINE MONTHS ENDED
MARCH 13, 2005
CHANGE DUE TO:
Asset growth $259,758
Increase in fee income 0
Interest and other income 8,881
Manufacturing income 0
--------
Total change in operating income $268,639
========
Total operating income for the nine months ended March 31, 2005 increased $268,639 to $308,284 from $39,645 for the nine months ended March 31, 2005. Operating income for the three months ended March 31, 2005 increased $841,381, to $154,063 from $(687,318) for the three months ended March 31, 2005.
OPERATING EXPENSES
Operating expenses include interest expense on borrowings, including amortization of deferred debt issuance costs, employee compensation, and general and administrative expenses.
The change in operating expenses from the nine months March 31, 2005 compared to the same period in 2004 is attributable to the following items:
NINE MONTHS ENDED
MARCH 31, 2005 VS. 2004
CHANGE DUE TO:
Advertising & Selling (0)
Interest Expense 88709
Depreciation & Amortization (-19)
Salaries and benefits 31,305
General and administrative expense (-420,952)
---------
Total change in operating expense $(300,957)
=========
Total operating expenses for the nine months ended March 31, 2005 decreased $300,957 to $800,192 from $1,101,149 for the nine months ended March 31, 2005. General and administrative expenses decreased $300,957 for the nine months ended March 31, 2005 as compared to the same period in 2004 primarily due to a decrease in the Company's reliance on outside consultants. Total operating expenses decreased $594,445 to $105,695 for the 3 months ended March 31, 2005, from $700,140 for the three months ended March 31, 2004.
NET OPERATING INCOME
Net operating income/loss before investment gains and losses (NOI) for the nine months ended March 31, 2005 totaled ($377,584) compared with a loss of $(1,084,895) for the nine months ended March 31, 2004.
NET INVESTMENT GAINS AND LOSSES
There were no realized gains or losses for the three and nine months ended March 31, 2005.
The net change in unrealized appreciation (depreciation) on investments of $259,758 for the nine months ended March 31, 2005 consisted of $259,758 of net appreciation less $0 advanced to controlled companies. The appreciation is related to additional equity interest granted an increase in the valuation of Kokopelli Franchise Company who commenced operations, and Fathom Business Systems, Inc., who continues to increase sales.
INCOME TAXES
We are taxed under Subchapter C of the Internal Revenue Code. We did not elect to be a regulated investment company under Subchapter M of the Internal Revenue Code with the filing of our federal corporate income tax return for 2004.
NET INCOME
Net income (loss) totaled $117,826 and $(619,919)for the three months and nine months ended March 31, 2005 compared to $(687,318) and ($1,084,895) for the three months and nine months ended March 31, 2005.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
CASH, CASH EQUIVALENTS AND CASH, SECURITIZATION ACCOUNTS
At March 31, 2005 and December 31, 2004, we had $15,836 and $2,213, respectively, in cash and cash equivalents. Our objective is to maintain sufficient cash on hand to cover current funding requirements and operations.
LIQUIDITY AND CAPITAL RESOURCES
We expect our cash on hand, future equity offerings, and cash generated from operations to be adequate to meet our cash needs at our current level of operations. We generally fund new originations using cash on hand, borrowings under our credit facilities and equity financings.
During the third quarter of 2005, the Company raised $165,500 by selling 8,573,231 shares of common stock issued under Regulation E.
BORROWINGS
At March 31, 2005, we had aggregate outstanding borrowings of $446,227.
At December 31, 2004, we had aggregate outstanding borrowings of $507,741.
See the Notes to the Financial Statements for further discussion of our borrowings.
CRITICAL ACCOUNTING POLICIES
The financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. We believe that the following are some of the more critical judgment areas in the application of our accounting policies that currently affect our financial condition and results of operations.
INCOME RECOGNITION
Interest on commercial loans is computed by methods that generally result in level rates of return on principal amounts outstanding. When a loan becomes 90 days or more past due, or if we otherwise do not expect the customer to be able to service its debt and other obligations, we will, as a general matter, place the loan on non-accrual status and cease recognizing interest income on that loan until all principal has been paid. However, we may make exceptions to this policy if the investment is well secured and in the process of collection.
In accordance with GAAP, we include in income certain amounts that we have not yet received in cash, such as contractual payment-in-kind (PIK) interest, which represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term. We currently do not have any interest income of this nature, but we may during future periods.
Loan origination fees are deferred and amortized as adjustments to the related loan's yield over the contractual life of the loan. In certain loan arrangements, warrants or other equity interests are received from the borrower as additional origination fees. The borrowers granting these interests are typically non-publicly traded companies. We record the financial instruments received at estimated fair value as determined by our board of directors. Fair values are determined using various valuation models which attempt to estimate the underlying value of the associated entity. These models are then applied to our ownership share considering any discounts for transfer restrictions or other terms which impact the value. Changes in these values are recorded through our statement of operations. Any resulting discount on the loan from recordation of warrant and other equity instruments are accreted into income over the term of the loan.
VALUATION OF INVESTMENTS
At March 31, 2005, approximately 98% of our total assets represented investments recorded at fair value. Value, as defined in Section 2(a)(41) of 1940 Act, is
(i) the market price for those securities for which a market quotation is readily available and (ii) for all other securities and assets, fair value is as determined in good faith by the board of directors. Since there is typically no readily ascertainable market value for the investments in our portfolio, we value substantially all of our investments at fair value as determined in good faith by the board of directors pursuant to a valuation policy and a consistent valuation process. Because of the inherent uncertainty of determining the fair value of investments that do not have a readily ascertainable market value, the fair value of our investments determined in good faith by the board of directors may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material.
There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment. Unlike banks, we are not permitted to provide a general reserve for anticipated loan losses. Instead, we must determine the fair value of each individual investment on a quarterly basis. We will record unrealized depreciation on investments when we believe that an investment has become impaired, including where collection of a loan or realization of an equity security is doubtful. Conversely, we will record unrealized appreciation if we believe that the underlying portfolio company has appreciated in value and, therefore, our investment has also appreciated in value, where appropriate.
As a business development company, we invest primarily in illiquid securities including debt and equity securities of private companies. The structure of each debt and equity security is specifically negotiated to enable us to protect our investment and maximize our returns. We generally include many terms governing interest rate, repayment terms, prepayment penalties, financial covenants, operating covenants, ownership parameters, dilution parameters, liquidation
preferences, voting rights, and put or call rights. Our investments are generally subject to some restrictions on resale and generally have no established trading market. Because of the type of investments that we make and the nature of our business, our valuation process requires an analysis of various factors. Our fair value methodology includes the examination of, among other things, the underlying investment performance, financial condition and market changing events that impact valuation.
AT DECEMBER 31, 2004, THE BOARD OF DIRECTORS ELECTED TO EMPLOY A VALUATION METHOD CONSISTING OF COST BASIS FOR THOSE PORTFOLIO COMPANIES THAT WERE NOT YET OPERATIONAL, AND A METHOD OF GROSS REVENUE, NET REVENE AND NET ASSETS FOR THOSE COMPANIES THAT ARE OPERATIONAL. THE COMPANY WILL EMPLOYE INDEPENDENT BUSINESS VALUATION CONSULTANTS TO PROVIDE A VALUATION OF OUR EXISTING PORTFOLIO COMPANIES AND CERTAIN OTHER INVESTMENTS FOR THE YEAR ENDED JUNE 30, 2005.
VALUATION OF LOANS AND DEBT SECURITIES
As a general rule, we do not value our loans or debt securities above cost, but loans and debt securities will be subject to fair value write-downs when the asset is considered impaired. In many cases, our loan agreements allow for increases in the spread to the base index rate if the financial or operational performance of the customer deteriorates or shows negative variances from the customer's business plan and, in some cases, allow for decreases in the spread if financial or operational performance improves or exceeds the customer's plan.
VALUATION OF EQUITY SECURITIES
With respect to private equity securities, each investment is valued using industry valuation benchmarks, and then the value is assigned a discount reflecting the illiquid nature of the investment, as well as our minority, non-control position. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing indicated by the external event will be used to corroborate our private equity valuation. Securities that are traded in the over-the-counter market or on a stock exchange generally will be valued at the prevailing bid price on the valuation date. However, restricted and unrestricted publicly traded securities may be valued at discounts from the public market value due to restrictions on sale, the size of our investment or market liquidity concerns.
RECENT DEVELOPMENT
Kokopelli Franchise Company, LLC, a portfolio company specializing in the franchising of fast, casual sonoran style food, opened its first franchised restaurant in April. As a result, our valuation of Kokopelli Franchise Company was based on the projected operations of the franchise. We anticipate receiving royalty fee income from this and each franchise location as they develop.
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It would seem so, although I'm not sure what the present share count is on SMTR.
You might want to take a look at FCCN today. It's doing well. 10Q is due soon. It must be a good one.
FCCN is running well today.
We just recently saw SMTR go from this level to around .26 before falling back. This may be a possibility with FCCN as well. I hope so. I have a bundle of shares.
FCCN is booshing today. Close yesterday at .023. High today is .045. Presently dipped to .036. There should soon be a 10Q. I thinking it may be a good one.
That's full of truth.
I've been in CPTC for about 4 yrs. now. I'm a huge believer in the company and what it's got to offer. I feel that we'll have news that will give us positive direction either this week or next. From what I've heard we should get a couple of contracts from large utilities that will not only provide revenues, but possibly open the floodgates for other utilities to deem the cable worthy for purchase, as well. I have been successful at swing trading small portions of my CPTC holdings(2000 shares or so) from time to time, but I'm holding 85 to 90% of my shares for what I believe to be much better days to come. I think we've got a 30 to 40 dollar stock here within 2 to 3 years. Good luck.
I tried to get some more TRBY yesterday at .053. I saw it wasn't gonna happen. I wound up buying more CPTC today at 1.90. Then, it appeared that I could have gotten the TRBY today at .053. Oh well, either one of those two bargains are good.
I agree with you on the CPTC bottom even more after today's touch of 1.81, then back over $2, and close at 1.98. Contract news should be real soon based on my take from conversation two days ago with IR.
I agree with you on the CPTC bottom even more after today's touch of 1.81, then back over $2, and close at 1.98. Contract news should be real soon based on my take from conversation two days ago with IR.
Very good bounce on CPTC today from 1.67 to 2.05, then close at 2.01. Congrats to those that played it well. I added to my position at 1.76 but did not sell.
You might want to consider CPTC as a bottom reversal at this point. It was over $6 in December and closed at $2 today. Shareholders are disgruntled over lack of recent news, however the company, I believe, is on the verge of a couple of significant contracts being completed. IMO, this one could go to 1.80 where I believe a firm bottom would be recognized. On the other hand it could go directly up from here. Good luck to all.
You might want to consider CPTC as a bounce play at this point. It was over $6 in December and closed at $2 today. Shareholders are disgruntled over lack of recent news, however the company, I believe, is on the verge of a couple of significant contracts being completed. IMO, this one could go to 1.80 where I believe a firm bottom would be recognized. On the other hand it could go directly up from here. Good luck to all.