UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
þ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the quarterly period ended September 30, 2008 |
o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from _______________________ to ________________ |
Commission File Number 333-140257
Phoenix International Ventures, Inc.
(Exact name of registrant as specified in its charter)
Nevada | 20-8018146 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
42 Carry Way
Carson City, NV 89706
(Address of principal executive offices)
(775) 882-9700
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer o (do not check if a smaller reporting company) | Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No þ
The number of shares outstanding of the issuer’s common stock, as of November 14, 2008 was 8,046,718.
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Phoenix International Ventures, Inc.
TABLE OF CONTENTS
Page | |
PART I FINANCIAL INFORMATION | |
3 | |
14 | |
18 | |
18 | |
PART II. OTHER INFORMATION | |
19 | |
19 | |
19 | |
19 | |
20 | |
20 | |
20 |
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PART I FINANCIAL INFORMATION
Item 1. | Financial Statements |
Index to Financial Statements
Page | |
4 | |
5 | |
6 | |
7 |
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Phoenix International Ventures, Inc.
Condensed Consolidated Balance Sheet
As of
September 30, 2008 (Unaudited) | December 31, 2007 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash | 59,543 | 70,314 | ||||||
Accounts receivable | 337,986 | 86,929 | ||||||
Inventory | 200,449 | 164,248 | ||||||
Lease deposits | 4,000 | 4,000 | ||||||
Prepaid expenses | 1,300 | 530 | ||||||
Total current assets | 603,278 | 326,021 | ||||||
Property and equipment, net | 51,353 | 61,581 | ||||||
Total assets | 654,631 | 387,602 | ||||||
Liabilities and Stockholders' (Deficit) | ||||||||
Current liabilities | ||||||||
Line of credit | 50,708 | 35,000 | ||||||
Accounts payable and accrued expenses | 595,702 | 508,243 | ||||||
Customer deposits | 223,462 | 307,106 | ||||||
Notes payable | 204,959 | 87,526 | ||||||
Legal settlement | 384,000 | 950,154 | ||||||
Due related party | 211,567 | 240,875 | ||||||
Officer advances | 38,961 | 48,610 | ||||||
Total current liabilities | 1,709,359 | 2,177,514 | ||||||
Long term liabilities | ||||||||
Notes payable | 27,093 | 36,960 | ||||||
Officer advances | 369,375 | 369,375 | ||||||
Total liabilities | 2,105,827 | 2,583,849 | ||||||
Stockholders' (deficit) | ||||||||
Preferred stock - $0.001 par value; 1,000,000 shares | ||||||||
authorized; zero shares issued and outstanding | - | - | ||||||
Common stock - $0.001 par value; 50,000,000 shares | ||||||||
authorized; 8,035,618 shares issued and outstanding | 8,035 | 7,746 | ||||||
Paid in capital | 1,365,450 | 1,145,397 | ||||||
Subscription receivable | - | (63,020 | ) | |||||
Income (loss) for the period | (2,824,681 | ) | (3,286,370 | ) | ||||
(1,451,196 | ) | (2,196,247 | ) | |||||
Total liabilities and stockholders' (deficit) | 654,631 | 387,602 | ||||||
The accompanying notes are an integral part of the financial statements |
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Phoenix International Ventures, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2007 | 2007 | |||||||||||||||
2008 | (Restated) | 2008 | (Restated) | |||||||||||||
Sales | 746,137 | 77,192 | 1,678,843 | 789,682 | ||||||||||||
Cost of sales | 461,202 | 88,616 | 1,014,418 | 583,283 | ||||||||||||
Gross margin | 284,935 | (11,424 | ) | 664,425 | 206,399 | |||||||||||
Operating expenses | ||||||||||||||||
General and administrative expenses | 282,315 | 293,812 | 727,122 | 1,026,078 | ||||||||||||
Total operating expenses | 282,315 | 293,812 | 727,122 | 1,026,078 | ||||||||||||
Income (Loss) from operations | 2,620 | (305,236 | ) | (62,697 | ) | (819,679 | ) | |||||||||
Recovery of Contingency | - | - | 566,154 | - | ||||||||||||
Interest expense | (28,434 | ) | (4,548 | ) | (41,768 | ) | (13,289 | ) | ||||||||
Net (loss) before taxes | (25,814 | ) | (309,784 | ) | 461,689 | (832,968 | ) | |||||||||
Income taxes | - | - | - | (9 | ) | |||||||||||
Net income (loss) | (25,814 | ) | (309,784 | ) | 461,689 | (832,977 | ) | |||||||||
Net Income (loss) per common share: | ||||||||||||||||
Basic | (0.00 | ) | (0.04 | ) | 0.06 | (0.12 | ) | |||||||||
Diluted | (0.00 | ) | (0.04 | ) | 0.05 | (0.12 | ) | |||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 8,035,618 | 7,096,000 | 7,749,439 | 7,096,000 | ||||||||||||
Diluted | 8,035,618 | 7,096,000 | 9,861,346 | 7,096,000 | ||||||||||||
The accompanying notes are an integral part of the financial statements |
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Phoenix International Ventures, Inc.
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30,
(Unaudited)
2008 | 2007 | |||||||
Net cash used in operating activities | $ | (244,066 | ) | 110,495 | ||||
Cash flows from investing activities | ||||||||
Cash purchased in acquisition of subsidiary | 3,334 | |||||||
Purchase of fixed assets | (1,200 | ) | ||||||
Net cash provided from investing activities | - | 2,134 | ||||||
Cash flows from financing activities | ||||||||
Proceeds from subscription receivables | 63,020 | - | ||||||
Proceeds from line of credit | 15,708 | 10,404 | ||||||
Proceeds from notes payable | 236,536 | - | ||||||
Repayment of notes payable | (132,444 | ) | (6,637 | ) | ||||
Issuance of common shares | 1,900 | - | ||||||
Proceeds of officer advances | 48,575 | (8,980 | ) | |||||
Net cash provided by financing activities | 233,295 | (5,213 | ) | |||||
Increase (Decrease) in cash | (10,771 | ) | 107,416 | |||||
Cash, beginning of year | 70,314 | 16,343 | ||||||
Cash, end of period | $ | 59,543 | 123,759 | |||||
Cash paid for | ||||||||
Interest | $ | 6,828 | 5,928 | |||||
Income taxes | $ | - | - | |||||
Non-cash investing and financing activities: | ||||||||
Issuance of 396,000 shares of common stock in exchange for debt | - | 198,000 | ||||||
Issuance of 274,000 shares of common stock in redemption of accrued expenses | 137,000 | |||||||
The accompanying notes are an integral part of the financial statements |
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Phoenix International Ventures, Inc.
Notes to the Condensed Consolidated Financial Statements
September 30, 2008
Note 1 - Summary of Significant Accounting Policies
Nature of Activities
Phoenix International Ventures, Inc. (“PIV” or the “Company”) was organized August 7, 2006 as a Nevada corporation to develop business in the market of defense and aerospace. Our primary business is manufacturing, re-manufacturing and upgrading of Ground Support Equipment (“GSE”) used in military and commercial aircraft.
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company are presented in accordance with the requirements for Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP’) have been condensed or omitted pursuant to such SEC rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been made. The results for these interim periods are not necessarily indicative of the results for the entire year. The accompanying consolidated financial statements should be read in conjunction with the December 31, 2007 financial statements and the notes thereto included in the Company’s Report on Form 10-KSB filed with the SEC on April 2, 2008.
The consolidated financial statements include the accounts of the Company and its wholly owned US subsidiary Phoenix Aerospace, Inc. (“PAI”) and an Israeli subsidiary, Phoenix Europe Ventures, Ltd. (“PEV). Significant inter-company accounts and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in accordance with US GAAP.
Use of Estimates
The preparation of the consolidated financial statements in conformity with the generally accepted accounting principles requires management to make estimates and assumptions that affect certain amounts reported and disclosed in our condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Net Income per Common Share
Basic income/earnings per share is based on the weighted effect of all common shares issued and outstanding and is calculated by dividing net income/ (loss) by the weighted average shares outstanding during the period. Diluted earnings per share is calculated by dividing net income / (loss) by the weighted average number of common shares used in the basic earnings per share calculation plus the number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares outstanding. The Company excludes equity instruments from the calculation of diluted weighted average shares outstanding if the effect of including such instruments is anti-dilutive to earnings per share.
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Phoenix International Ventures, Inc.
Notes to the Condensed Consolidated Financial Statements
September 30, 2008
Recent Accounting Pronouncements
In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging Activities- an amendment of FASB Statement No. 133. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 25, 2008, with early application encouraged. This statement changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s position, financial performance, and cash flows. The Company is currently evaluating the impact this statement may have on its future financial statements.
In May 2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted Accounting Principles. This statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. This statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). The FASB believes that the GAAP hierarchy should be directed to entities because it is the entity (not its auditor) that is responsible for selecting accounting principles for its financial statements that are presented in conformity with GAAP. The Company does not expect SFAS 162 to have a material impact on its consolidated financial statements.
In May 2008, the FASB issued SFAS 163, Accounting for Financial Guarantee Insurance Contract - an interpretation of FASB Statement No. 60. This Statement is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years, except for some disclosures about the insurance enterprise’s risk-management activities. This Statement requires expanded disclosures about financial guarantee insurance contracts. The Company is currently evaluating the impact this statement may have on its future financial statements.
In May, 2008, the FASB issued FSP Accounting Principles Board ("APB") 14-1 –Accounting for Convertible Debt Instruments That May be Settled in Cash upon Conversion (including Partial Cash Settlement) ("FSP APB 14-1"). FSP APB 14-1requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. The Company is currently evaluating the potential impact this statement may have on its future financial statements.
Note 2 – Restatement
During the preparation of the financial statements for the twelve months ended December 31, 2007, the Company discovered that the fair value of the options it issued during that nine months ended September 30, 2007 were understated in its Quarterly Report on Form 10-QSB that was filed with the SEC on November 14, 2007 for the period ended September 30, 2007 (the “September 30, 2007 10-QSB”). Due to the fact that the financial statements for the year ended December 31, 2007 reflect the correct fair value, it was decided that there was no need to restate the financial statements included in the September 30, 2007 10-QSB.
The fair value of the options issued in the nine months ended September 30, 2007 was restated to be $315,157 more than what was stated in the September 30, 2007 10-QSB. This restatement had caused net loss per share to be restated to (0.12) from (0.07) in the September 30, 2007 10-QSB. These restatements had no effect on the cash flows statement for the period ended September 30, 2007.
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Phoenix International Ventures, Inc.
Notes to the Condensed Consolidated Financial Statements
September 30, 2008
Note 3 – Reclassifications
The Company reviewed the classification of its operating expenses and other income items for the period ended September 30, 2007. As a result of the review, certain amounts have been reclassified to cost of sales to conform to the current presentation. The reason for the reclassifications was the reallocation of certain departmental expenses. The reclassifications were all contained in the operating expense classification of the Consolidated Statement of Operations and the results of the reclassifications did not impact previously reported financial position, cash flows, or results of operations.
Nine Months Ended September 30, 2008 | ||||||||||||
As | Amount | As | ||||||||||
Reported | Reclassified | Reclassified | ||||||||||
Reclassified items: | ||||||||||||
Cost of Sales | $ | 418,504 | $ | 164,779 | $ | 583,283 | ||||||
General and Administrative | ||||||||||||
(as restated) | 861,299 | (164,779 | ) | 1,026,078 | ||||||||
Net effect of reclassification | - | - | - |
Note 4 - Financial Condition, Liquidity, and Going Concern
At September 30, 2008, the Company has a working capital deficit of $1,106,081 and an accumulated deficit of $2,824,681. These conditions raise substantial doubt about the Company's ability to continue as a going concern. To date, the Company has been dependent upon officer advances to finance operations. The Company has developed a plan to address its precarious financial situation. The plan is based primarily on the Company’s current financial assets, backlog and expectations regarding revenues and operating costs and is further supplemented by the Company’s capital raising efforts through the issuance of debt and equity. The Company believes it can meet the financial requirements of the current plan for year ended 2008 without raising additional funds although it is currently in the process of raising capital through the issuance of debt.
The ability of the Company to achieve its goals is dependent upon future capital raising efforts, obtaining and maintaining favorable contracts, and the ability to achieve future operating efficiencies anticipated with increased production levels. There can be no assurance that the Company’s future efforts and anticipated operating improvements will be successful.
The condensed consolidated unaudited financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
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Phoenix International Ventures, Inc.
Notes to the Condensed Consolidated Financial Statements
September 30, 2008
Note 5 - Geographical Segments
Product revenues are attributed to regions based upon the location of the customer. The following table summarizes the Company’s geographical customer concentration of total product revenue:
Nine months ended September 30, | ||||||||
Region: | 2008 | 2007 | ||||||
United States | 64 | % | 100 | % | ||||
Europe | 36 | % | ||||||
Total: | 100 | % | 100 | % |
Note 6 - Inventory
Inventory consists of used equipment that can be re-manufactured for re-sale and parts. At September 30, 2008, inventory consisted of the following:
September 30, 2008 | December 31, 2007 | |||||||
Raw materials | $ | 160,545 | 114,000 | |||||
Work in process | 39,904 | 50,248 | ||||||
$ | 200,449 | 164,248 |
Note 7 - Notes Payable
The Company has a revolving line of credit from a financial institution totaling $35,000. At September 30, 2008, the line of credit was fully extended and the Company has required monthly payments of interest at 6.5% above Prime Rate. On September 30 the interest rate for this loan was 11.5%.. On October 18, 2009, the outstanding balance on the line of credit converts to a note payable of equal installments of interest and principal until September 30, 2013.
The Company has a revolving line of credit from a foreign financial institution totaling $15,708. At September 30, 2008 the line of credit was fully extended to the Company. The line of credit bears a monthly interest ranging from 10%-13% based upon the amount extended.
In June, July, August and September 2008, the Company entered into promissory note agreements with five Israeli investors and two Israeli corporations for the aggregate amount of $236,000. Some of these notes were in New Israeli Shekels and some in U.S. Dollars. These notes are to be paid in full at various dates between June 22 and August 18, 2009 and bear 15% interest per annum. In addition, these notes were discounted by shares and warrants. In total the Company issued an aggregate of 13,575 shares, and warrants to purchase an aggregate of 33,950 shares at a price per shares that varies between $2.40 and $2.60 per share for 2 years. Some of these notes have been collateralized by a fixed number of shares of the Company’s common stock.
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Phoenix International Ventures, Inc.
Notes to the Condensed Consolidated Financial Statements
September 30, 2008
At September 30, 2008 notes payable consist of the following:
Total amount | Current | |||||||
Note payable to a financial institution in a foreign country; 12.4% per annum; monthly payments of $242 | $ | 2,934 | $ | 2,934 | ||||
Note payable to a financial institution; 0% interest per annum; monthly payments of $756 to 2012; collateralized by an automobile. | 36,920 | 9,827 | ||||||
Promissory note agreements at 15% per annum | 178,082 | 178,082 | ||||||
Note payable to an individual; interest at 7% | 14,116 | 14,116 | ||||||
$ | 232,052 | $ | 204,959 |
Note 8 - Legal Settlement
On June 10, 2004, the Company entered into a business arrangement with Kellstrom Defense Aerospace, Inc. which contained a covenant not to compete, confidentiality provision, and restrictions to do business in the Ground Support Equipment with its clients. This business arrangement failed and a Termination Agreement was signed by the Company on December 8, 2004 wherein the Company was obligated to pay a sum of $1,187,275.
On May 26, 2006, the Company entered into a settlement agreement whereby it agreed to issue purchase credits in the amount of $500,000 and make cash payments of $150,000. In addition, the Company agreed to pay an additional sum of $566,154, in the event that (a) the Company defaulted on purchase credits or (b) if the Company is awarded a one-time specific contract from a specific customer before May 26, 2008. This one-time specific contract was not received. If the Company does not default on the remaining purchase credits, no further obligation will be due. Therefore, the contingency sum of $566,154 has been recovered and recorded as a recovery of contingency. At September 30, 2008, the remaining balance of the legal settlement was $384,000 in trade credits.
Note 9 - Related Party Transactions
As of September 30, 2008 the Company owed an officer for his advances of an aggregate of $408,336, of which $38,961 is currently due. These advances are non-interest bearing and the officer has agreed not to demand payment of the long term portion during the next twelve months. During the nine months ended September 30, 2008, the Company repaid $9,649 of previously accrued officer advances.
During the nine months ended September 30, 2008 the Company accrued salaries to officers in the aggregate amount of $52,859. At September 30, 2008, the total accrued officer salaries were $196,730. $4,526 was owed to other related parties as of September 30, 2008.
On April 26, 2007, the Company entered into a consulting agreement with a related party to assist the Company with its business development. Consulting fees under the agreement require a minimum annual payment of $120,000. At September 30, 2008 the Consultant exercised an option to purchase 274,000 shares of the Company’s common stock for $137,000. This transaction has reduced the accrued fees to $10,311.
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Phoenix International Ventures, Inc.
Notes to the Condensed Consolidated Financial Statements
September 30, 2008
Note 10 - Leases
The Company leases a 7,500 square foot operating facility under a non-cancelable lease expiring September 30, 2009. The lease contains a one-year renewal option. Minimum lease payments through September 30, 2009 are $37,800. Lease expenses for the nine months ended September 30, 2008 and 2007 totaled $27,000 and $48,288 respectively.
Note 11 – Share Capital
As of September 30, 2008, the Company had 8,035,618 shares outstanding.
The Company is authorized to issue 1,000,000 shares of $0.001 preferred stock and 50,000,000 shares of $0.001 par value common stock.
In June, July, August and September 2008, the Company issued an aggregate of 13,575 shares, and warrants to purchase an aggregate of 33,950 shares at prices per share ranging from $2.40 to $2.60 per share for a period of 2 years, as part of a note agreement.
In September 30, 2008, a consultant to the Company, exercised an option to purchase 274,000 shares in redemption of $137,000 of accrued expenses in accordance with a consulting agreement.
In September 30, 2008, an investor exercised an option to purchase 1,900 shares for $1,900 in accordance with a subscription agreement.
The following table summarizes the outstanding warrants as of September 30, 2008:
Price | Number | Weighted Average Remaining Life | Weighted Average Exercise Price |
$1.00 | 325,072 | 1.0 years | $1.00 |
2.47 | 15,000 | 1.75 years | 2.47 |
2.58 | 4,800 | 1.75 years | 2.58 |
2.60 | 10,000 | 1.83 years | 2.60 |
2.40 | 4,150 | 1.83 years | 2.40 |
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Phoenix International Ventures, Inc.
Notes to the Condensed Consolidated Financial Statements
September 30, 2008
The following table summarizes the outstanding options as of September 30, 2008:
Range price ($) | Number of Options | Weighted Average Remaining Life | Weighted Average Exercise Price |
$0.50 | 1,046,000 | 2.25 years | $0.50 |
$1.00 | 170,000 | 1.95 Years | $1.00 |
Note 12 - Income Taxes
At December 31, 2007, a temporary difference for a loss on a contingent liability related to a legal settlement was reported. At September 30, 2008, the contingency was not met and a recovery of this loss was recorded. The recovery did not have a net effect on the Company’s deferred tax items as these items continue to carry a full valuation allowance. Further, the contingent loss recovery did not affect the Company’s taxable income for the nine months ended September 30, 2008.
Note 13 - Subsequent Events
On October 27, 2008, the Company issued three individuals related to its legal counsel an aggregate of 9,000 shares of common stock in redemption of accrued fees in the amount of $20,000. The transaction was done at market price.
On October 27, 2008, an investor exercised a warrant to purchase 2,100 shares for $1.00 per share based on a subscription agreement.
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
FORWARD-LOOKING STATEMENTS
The information set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains certain “forward-looking statements,” including, among others (i) expected changes in the Company’s revenues and profitability, (ii) prospective business opportunities and (iii) the Company’s strategy for financing its business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes,” “anticipates,” “intends” or “expects.” These forward-looking statements relate to the plans, objectives and expectations of the Company for future operations. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of its knowledge of its business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this report should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved.
You should read the following discussion and analysis in conjunction with the financial statements and notes attached hereto, and the other financial data appearing elsewhere in this quarterly report.
The Company’s revenues and results of operations could differ materially from those projected in the forward-looking statements as a result of numerous factors, including, but not limited to, the following: the risk of significant natural disaster, the inability of the Company to insure against certain risks, inflationary and deflationary conditions and cycles, currency exchange rates, changing government regulations domestically and internationally affecting our products and businesses.
Overview
Phoenix International Ventures, Inc. (“PIV” or the “Company”) was incorporated on August 7, 2006. The financial statements are consolidated with the Company’s wholly owned subsidiaries, Phoenix Aerospace, Inc. and Phoenix Europe Ventures, Ltd.
The Company manufactures support equipment for military aircraft which are used for maintaining, operating or testing aircraft sub-systems. We also remanufacture existing support equipment in order to extend usefulness and eliminate original product defects. We are ISO 9001/2000 certified, which is due for renewal on April 26, 2010. We have a licensing agreement with Lockheed Martin Aeronautics Company to re-manufacture several types of Support Equipment for P-3 Orion surveillance aircraft.
The main users of the equipment are the United States Air Force, US Navy and defense-aerospace companies.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operation are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Since these estimates are inherently uncertain, actual results may materially differ.
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The following is a discussion of our accounting policies that are both most important to the portrayal of our financial condition and results, and that require management’s most difficult, subjective, or complex judgments.
Stock Based Compensation.
We account for stock option grants in accordance with SFAS No. 123(R), Share-Based Payment. We record the cost of employee and non-employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. The grant-date fair value of employee share options and similar instruments is estimated using a Black-Scholes option-pricing model. We currently do not have sufficient trading history to estimate expected volatility, therefore, we use a surrogate in order to calculate volatility. Further, we use the “plain vanilla” method to estimate the expected term of options issued to officers and employees. Under this method, the expected term is calculated as the average of the vesting period and the contractual life of the option.
Revenue Recognition
We account for sales derived from long-term study and production contracts in conformity with the American Institute of Certified Public Accountants (AICPA) Statement of Position No. 81-1 (SOP 81-1), Accounting for the Performance of Construction-Type and Certain Production-Type Contracts. Sales are recognized using various measures of progress, as allowed by SOP 81-1, depending on the contractual terms and scope of work of the contract.
Revenue that is not derived from long-term contracts is recognized when persuasive evidence of a final agreement exists, delivery has occurred, the selling price is fixed or determinable and payment from the customer is reasonably assured. The majority of customer sales terms are F.O.B. origin, where revenue is recognized upon shipment.
Sales are subject to a limited warranty that provides for repair or replacement of defective parts. In accordance with SFAS 48, Revenue Recognition When Right of Return Exists management has evaluated the Company’s experience with sales returns. Historically, we have not experienced any costs for warranty claims. As such, the warranty reserve was zero at September 30, 2008.
Results of Operations
Financial Information - Percentage of Revenues
(Unaudited)
Nine Months ended | ||||||||
September 30, | ||||||||
2008 | 2007 | |||||||
Revenues | 100 | % | 100 | % | ||||
Cost of sales | -60 | % | -74 | % | ||||
Gross margin | 40 | % | 26 | % | ||||
Operating expenses: | ||||||||
General and administrative | -43 | % | -130 | % | ||||
Total operating expenses | -43 | % | -130 | % | ||||
Other income (expenses) | 31 | % | -2 | % | ||||
Net (loss) before taxes | 28 | % | -105 | % | ||||
Net income (loss) | 28 | % | -105 | % |
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Comparison of the Nine Months Ended September 30, 2008 and September 30, 2007
Revenues
Revenues increased 113% to $1,678,843 for the nine months ended September 30, 2008 compared to $789,682 for nine months ended September 30, 2007. For the nine months ended September 30, 2008, 60% of the revenues were derived from manufacturing and product sales, 28% were derived from study contracts and 11% were derived from remanufacturing orders. These results were consistent with our revenues during the nine months ended September 30, 2007, in which 49% of revenues were derived from manufacturing and product sales, 39% were derived from study contracts and 12% were derived from remanufacturing.
For the nine months ended September 30, 2008, three customers represented 69% of our revenues. As of September 30, 2008, 64% of our revenues were derived from U.S. customers and 36% from European customers. Management believes that revenue from European customers will continue to be a significant portion of our sales.
Cost of Sales
Cost of revenues consists primarily of subcontractors and raw materials used in manufacturing along with other related charges. Cost of sales increased 74% to $1,014,418 for the nine months ended September 30, 2008, compared to $583,283 for nine months ended September 30, 2007, representing 60% and 74% of the total revenues for nine months ended September 30, 2008 and September 30, 2007, respectively. The decrease in our cost of sales as percentage of our revenues in the nine months ended September 30, 2008 is primarily attributable to the increase in high margin orders being delivered during the nine months ended September 30, 2008; management may or may not be able in the future to deliver such high margin products.
General and Administrative Expenses
General and administrative expenses decreased by 29% to $727,122 for the nine months ended September 30, 2008 from $1,026,078 for the nine months ended September 30, 2007. The decrease in general and administrative costs is primarily attributable to an approximate $460,000 option expense during the nine months ended September 30, 2007 which did not re-occur during the nine months ended September 30, 2008. As a percentage of revenues, general and administrative expenses decreased to 43% for the nine months ended September 30, 2008, as compared to 130% for the nine months ended September 30, 2007.
Other income
We had other income of $524,386 during the nine months ended September 30, 2008, which is primarily due to our recovery of a $566,154 contingency related to a legal settlement. This is non-recurring income.
Income (loss) before Taxes
Net income before taxes for the nine months ended September 30, 2008 amounted to $461,689 as compared to a net loss before taxes of $832,968 for the nine months ended September 30, 2007. The increase in net income before taxes is primarily due to a non-recurring recovery of contingency income in the amount of $566,154
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Taxes on income
We do not expect to pay any income tax on profit due to carry forward of losses from prior years.
Comparison of the Three Months Ended September 30, 2008 and September 30, 2007
Revenues
Revenues increased 867% to $746,137 for the three months ended September 30, 2008 compared to $77,192 for three months ended September 30, 2007 due to increased product sales and deliveries during the quarter ended September 30, 2008 in comparison to a low delivery volume in the three months which was primarily attributable to the Company’s relocation during the three months ended September 30, 2007. For the three months ended September 30, 2008, 82% of the revenues were derived from manufacturing and product sales, 16% were derived from study contracts and 2% were derived from remanufacturing orders, as compared with the three months ended September 30, 2007, in which 53% of revenues were derived from product sales, 47% were derived from study contracts and 0% were derived from remanufacturing.
For the three months ended September 30, 2008, two customers represented 70% of our revenues. As of September 30, 2008, 77% of our revenues were derived from U.S. customers and 23% from European customers. Management believes that revenue from European customers will continue to be a significant portion of our sales.
Cost of Sales
Cost of revenues consists primarily of subcontractors and raw materials used in manufacturing along with other related charges. Cost of sales increased 420% to $461,202 for three months ended September 30, 2008, compared to $88,616 for three months ended September 30, 2007, representing 62% and 115% of the total revenues for three months ended September 30, 2008 and September 30, 2007, respectively. The decrease in our cost of sales as percentage of our revenues in the three months ended September 30, 2008 is primarily attributable to the increased volume, as well as delivery, of higher margin orders during the three months ended September 30, 2008; management may or may not be able in the future to deliver such high margin products.
General and Administrative Expenses
General and administrative expenses decreased by 4% to $282,315 for the three months ended September 30, 2008 from $293,812 for the three months ended September 30, 2007. As a percentage of revenues, general and administrative expenses decreased to 38% for the three months ended September 30, 2008, as compared to 381% for the three months ended September 30, 2007.
Liquidity and Capital Resources
Cash as of September 30, 2008, amounted to $59,543 as compared with $70,314 as of December 31, 2007, a decrease of $10,771. Net cash used in operating activities for the nine months ended September 30, 2008, was $244,066. Net cash provided by financing activities for the nine months ended September 30, 2008 was $233,295.
Our capital investments are primarily for the purchase of equipment for services that we provide or intend to provide. This equipment includes truck, shop tools, and shop machinery.
We lease our 7,500 square foot operating facility under a lease expiring September 30, 2009. Minimum lease payments through September 30, 2008 are $37,800.
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We will continue to finance our operations primarily from the cash provided from operating activities. Management believes that we will execute significant portions of our backlog in the next twelve months, and expect to fund our operations over the next twelve months from the proceeds from these sales. As of September 30, 2008, we had a backlog of approximately 5,674,758. One order is for the design and manufacture of new age ground support equipment for $2,450,450, and we expect to execute significant portions of this contract in 2009, Successful execution of this contract may lead to significant new orders although management cannot be certain that this will indeed be the outcome. Two of the orders are study contracts from two customers for the approximate amount of $948,770. These orders are partly for time, material and agreed profit. We collect a significant amount of these revenues on a monthly basis and for progress towards milestone billing. For these types of orders, which make up more than a quarter of our backlog, there is no need for us to finance materials and labor. Additionally, management is expecting, although there can be no assurance, that additional orders will come in. Working capital deficit decreased to $1,105,414 at September 30, 2008 from $1,851,493 in December 31, 2007 mainly due to a recovery of a contingency. Our senior management is also willing to defer salary payments, if necessary. As a result, we believe that we will have enough funds from our operations to support our operations during the next twelve months.
We are considering raising funds for working capital purposes through the issuance of equity and/or debt, to fund possible acquisitions and business development activities and for working capital. There can be no assurances that any such fund-raising efforts will be successful.
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
Not applicable.
Item 4T. | Controls and Procedures |
In accordance with SEC final rule release nos. 33-8760 and 33-8934, due to the transition period available to newly public companies, the Company is not required to include its management’s assessment on the Company’s internal control over its financial reporting until it files its annual report on Form 10-K for the fiscal year ended December 31, 2008, or its auditor’s attestation report until it files its annual report on Form 10-K for the fiscal year ended December 31, 2009. As a result, the Company’s annual report on Form 10-KSB for the fiscal year ended December 31, 2007 did not contain management’s assessment or its auditor’s attestations on the Company’s internal control over its financial reporting.
(a) Evaluation of Disclosure Controls and Procedures: We strive to maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods and that such information is accumulated and communicated to management to allow timely decisions on required disclosure. We have concluded that our disclosure controls and procedures regarding information required to be included in SEC reports were not adequate.
(b) Changes in Internal Control over Financial Reporting: In light of the above, the Company performed additional analysis and other post-closing procedures to ensure the consolidated financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, management believes the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
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PART II. OTHER INFORMATION
Item 1. | Legal Proceedings |
The Company and Mr. Zahir Teja, CEO have entered into a settlement agreement with Kellstrom Defense Aerospace, Inc. This settlement agreement compromises a final judgment in the amount of $1,173,913 entered in connection with an action brought by Kellstrom against the Company in the United States District Court for the Southern District of Florida. Under this agreement, the Company has paid Kellstrom $150,000 in cash. The Company has also issued Kellstrom a $500,000 purchase credit to be applied towards the purchase of materials and services from the Company. As of September 30, 2008 the remaining balance of the trade credits is approximately $384,000. Upon the Company’s payment of the above-described $150,000 and Kellstrom’s utilization of the previously described purchase credit, Kellstrom will forgive certain of the Company’s obligations under an agreement previously entered into between the Company and Kellstrom. If the Company fails to make the required settlement payments, then Kellstrom may seek to collect the total unpaid balance of the final judgment. The Company does not currently have the financial resources to pay off the total unpaid balance of the final judgment.
Item 1A. | Risk Factors |
Not applicable.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
In June, July, August and September 2008, the Company entered into promissory note agreements with five Israeli investors and two Israeli corporations for the aggregate amount of $236,000. Some of these notes were in New Israeli Shekels and some in U.S. Dollars. These notes are to be paid in full at various dates between June 22 and August 18, 2009 and bear 15% interest per annum. In addition these notes were discounted by incentive shares and several note holders received warrants, as follows: investors received an aggregate of 13,575 shares and warrants to purchase an aggregate of 33,950 shares at a price per shares that varies between $2.40 and $2.60 per share for 2 years. Some of these notes have been collateralized by a fixed number of shares of the Company’s common stock.
The offering of the promissory notes, the shares of common stock and the warrants were not registered under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon the exemptions from the registration requirements of the Securities Act set forth in Section 4(2) thereof as a transaction by the Company not involving any public offering, the investors met the “accredited investor” criteria required by the rules and regulations promulgated under the Securities Act, there was no underwriter and no general solicitation related to the offering.
In September 30, 2008 Anney Business Corp, a consultant to the company, exercised an option to purchase 274,000 shares in redemption of $137,000 of accrued expenses in accordance with a consulting agreement.
In September 30, 2008, an investor exercised an option to purchase 1,900 shares for $1,900 in accordance with a subscription agreement.
Item 3. | Defaults upon Senior Securities |
None.
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Item 4. | Submission of Matters to a Vote of Security Holders |
On July 28, 2008, Phoenix International Ventures, Inc (the “Company”) held its 2008 Annual Stockholders Meeting in Carson City, Nevada to consider and vote upon two proposals; (i) to re-elect Zahir Teja and Neev Nissenson as the Company’s directors to serve until the next annual stockholders meeting, and (ii) to ratify the Company’s Board of Director’s selection of Mark Bailey & Company, Ltd. as the Company’s independent auditors for the fiscal year ended December 31, 2008. During the Annual Stockholders Meeting, the Company approved the following proposals; (i) the re-election of Zahir Teja and Neev Nissenson as the Company’s directors, to serve until the next annual stockholders meeting, and (ii) the ratification of the Board’s appointment of Mark Bailey & Company, Ltd. as the Company’s independent auditors for the fiscal year ended December 31, 2008.
Following is a summary of the votes cast at the meeting:
Votes For | Votes Against | Abstain | ||||
Election of Zahir Teja | 4,547,750 | 0 | 0 | |||
Election of Neev Nissenson | 4,547,750 | 0 | 0 | |||
Ratification of Mark Bailey & Company, Ltd. | 4,547,750 | 0 | 0 |
Item 5. | Other Information |
None.
Item 6. | Exhibits |
No. | Exhibit |
31.1 | Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | Certification by Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 | Certification by Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Phoenix International Ventures, Inc. (Registrant) | ||
November 14, 2008 | By: | /s/ Zahir Teja |
Zahir Teja | ||
President and Chief Executive Officer | ||
November 14, 2008 | By: | /s/ Teja N. Shariff |
Teja N. Shariff | ||
Chief Financial Officer and Chief Accounting Officer |
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INDEX TO EXHIBITS
No. | Exhibit |
31.1 | Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | Certification by Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 | Certification by Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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