Neon Bloom, Inc. - Quarter Report: 2008 June (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
(Mark
One)
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þ
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Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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for
the quarterly period ended June 30,
2008
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o
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Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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For
the transition period from _______________________ to
________________
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Commission
File Number 333-140257
Phoenix
International Ventures, Inc.
(Exact
name of registrant as specified in its charter)
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Nevada
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20-8018146
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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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.
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Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer o
(do not
check if a smaller reporting company)
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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 August 13, 2008
was 7,756,468.
-1-
Phoenix
International Ventures, Inc.
TABLE
OF CONTENTS
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Page
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PART
I FINANCIAL INFORMATION
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Item
1. Financial
Statements
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4
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11
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14
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Item
4T. Controls and
Procedures
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14
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PART
II. OTHER INFORMATION
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Item
1. Legal
Proceedings
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16
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Item
1A.
Risk Factors
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16
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16
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Item
3. Defaults upon
Senior Securities
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16
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16
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Item
5. Other
Information
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16
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Item
6. Exhibits
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16
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17
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-2-
PART
I FINANCIAL INFORMATION
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Item
1.
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Financial
Statements
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Index
to Financial Statements
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Page
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4
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5
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6
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7
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-3-
Phoenix
International Ventures, Inc.
Condensed Consolidated Balance
SheetAs
of
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June
30, 2008
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December
31, 2007
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|||||||
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(unaudited)
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||||||||
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ASSETS
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||||||||
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Current
Assets
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||||||||
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Cash
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45,147 | 70,314 | ||||||
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Accounts
receivable
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243,292 | 86,929 | ||||||
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Inventory
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137,271 | 164,248 | ||||||
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Lease
Deposits
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4,000 | 4,000 | ||||||
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Prepaid
expenses
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26,632 | 530 | ||||||
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Total
current assets
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456,342 | 326,021 | ||||||
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Property
and equipment, net
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54,762 | 61,581 | ||||||
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TOTAL ASSETS
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511,104 | 387,602 | ||||||
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LIABILITIES
AND STOCKHOLDERS’ (DEFICIT)
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||||||||
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Current
Liabilities
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||||||||
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Line
of credit
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51,315 | 35,000 | ||||||
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Accounts
payable and accrued expenses
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483,510 | 508,243 | ||||||
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Customer
deposits
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405,103 | 307,106 | ||||||
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Notes
payable
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73,017 | 87,526 | ||||||
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Legal
settlement
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384,000 | 950,154 | ||||||
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Due
related party
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283,935 | 240,875 | ||||||
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Officer
advances
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46,185 | 48,610 | ||||||
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Total Current
Liabilities
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1,727,065 | 2,177,514 | ||||||
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Long-Term
Liabilities
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||||||||
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Notes
payable
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29,611 | 36,960 | ||||||
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Officer
advances
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369,375 | 369,375 | ||||||
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Total
Liabilities
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2,126,051 | 2,583,849 | ||||||
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Commitments
and Contingencies
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– | – | ||||||
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Stockholders’
(Deficit)
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||||||||
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Preferred
stock - $0.001 par value; 1,000,000 shares authorized; zero shares issued
and outstanding
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– | – | ||||||
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Common
stock - $0.001 par value; 50,000,000 shares
authorized; 7,749,893 shares issued and
outstanding
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7,750 | 7,746 | ||||||
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Paid
in capital
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1,175,510 | 1,145,397 | ||||||
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Subscription
receivable
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– | (63,020 | ) | |||||
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Income
(loss) for the period
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(2,798,207 | ) | (3,286,370 | ) | ||||
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Total Stockholders’
(Deficit)
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(1,614,947 | ) | (2,196,247 | ) | ||||
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TOTAL LIABILITIES AND
STOCKHOLDERS’ (DEFICIT)
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511,104 | 387,602 | ||||||
-4-
Phoenix
International Ventures, Inc.
Condensed Consolidated Statements of Operations(Unaudited)
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Three
Months Ended
June
30,
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Six
Months Ended
June
30,
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|||||||||||||||
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2008
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2007
(Restated)
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2008
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2007
(Restated)
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Sales
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461,540 | 253,975 | 932,706 | 712,490 | ||||||||||||
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Cost
of sales
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307,820 | 153,254 | 553,216 | 511,338 | ||||||||||||
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Gross
margin
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153,720 | 100,721 | 379,490 | 201,152 | ||||||||||||
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Operating
Expenses
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General
and administrative expenses
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217,058 | 564,953 | 444,807 | 715,604 | ||||||||||||
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Total Operating
Expenses
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217,058 | 564,953 | 444,807 | 715,604 | ||||||||||||
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Income
(Loss) from Operations
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(63,338 | ) | (464,232 | ) | (65,317 | ) | (514,452 | ) | ||||||||
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Recovery
of contingency
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– | – | 566,154 | – | ||||||||||||
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Interest
expense
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(8,131 | ) | (4,694 | ) | (13,334 | ) | (8,741 | ) | ||||||||
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Net
(Loss) before Taxes
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(71,469 | ) | (468,926 | ) | 487,503 | (523,193 | ) | |||||||||
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Income
taxes
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– | – | – | (9 | ) | |||||||||||
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Net
Income (Loss)
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(71,469 | ) | (468,926 | ) | 487,503 | (523,202 | ) | |||||||||
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Net Income per Common
Share:
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||||||||||||||||
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Basic
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(0.01 | ) | (0.07 | ) | 0.06 | (0.07 | ) | |||||||||
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Diluted
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(0.01 | ) | (0.07 | ) | 0.05 | (0.07 | ) | |||||||||
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Weighted Average
Shares Outstanding:
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||||||||||||||||
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Basic
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7,746,473
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6,600,000 |
7,746,309
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6,600,000 | ||||||||||||
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Diluted
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7,746,473
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6,600,000 | 9,562,044 | 6,600,000 | ||||||||||||
-5-
Phoenix
International Ventures, Inc.
Condensed
Consolidated Statements of Cash Flows
for
the Six Months Ended June 30,
(Unaudited)
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2008
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2007
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Net
cash used in operating activities
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$ | (111,300 | ) | $ | (9,382 | ) | ||
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Cash
Flows from Investing Activities
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||||||||
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Cash
purchased in acquisition of subsidiary
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– | 3,334 | ||||||
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Purchase
of fixed assets
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– | (1,200 | ) | |||||
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Net
Cash Provided from Investing Activities
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– | $ | 2,134 | |||||
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Cash
Flows from Financing Activities
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Proceeds
from subscription receivables
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63,020 | – | ||||||
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Proceeds
of line of credit
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16,315 | 12,144 | ||||||
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Proceeds
of notes payable
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95,211 | – | ||||||
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Repayment
of notes payable
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(85,988 | ) | (6,637 | ) | ||||
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Proceeds
(Repayments) of officer note, net
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(2,425 | ) | (14,602 | ) | ||||
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Net
Cash Provided by Financing Activities
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$ | 86,133 | $ | (9,095 | ) | |||
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Increase
(decrease) in cash
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(25,827 | ) | (16,343 | ) | ||||
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Cash,
beginning of year
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70,314 | 16,343 | ||||||
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Cash,
end of period
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$ | 45,147 | – | |||||
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Cash Paid
for
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||||||||
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Interest
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$ | 4,247 | $ | 4,038 | ||||
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Income
taxes
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– | – | ||||||
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Non Cash Investing and
Financing Activities
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Issuance
of 396,000 shares of common stock in exchange for debt
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– | 198,000 | ||||||
-6-
Phoenix
International Ventures, Inc.
Notes
to the Condensed Consolidated Financial Statements
June
30, 2008
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.
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.
-7-
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 believes that is fully
in compliance with this pronouncement.
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 APB No. 14-1 –Accounting for Convertible Debt Instruments
That May be Settled in Cash upon Conversion (including Partial Cash Settlement).
This Financial Staff Position requires 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
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 six months ended June 30, 2007 were understated in its Quarterly
Report on Form 10-QSB that was filed with the SEC on August 24, 2007 for the
period ended June 30, 2007, as amended on August 28, 2008 (the “June 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 include in the June 30, 2007
10-QSB.
The fair
value of the options issued in the six months ended June 30, 2007 was restated
to be $282,518 more than what was stated in the June 30, 2007 10-QSB. This
restatement had caused net loss per share to be restated to (0.05) from (0.04)
in the June 30, 2007 10-QSB. These restatements had no effect on the cash flows
statement for the period ended June 30, 2007.
Note
3 – Reclassifications
The
Company reviewed the classification of its operating expenses and other income
items for the period ended June 30, 2007. As a result of the review, certain
amounts have been reclassified 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.
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Six
Months Ended June 30, 2007
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||||||||||||
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As
Reported
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Amount
Reclassified
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As
Reclassified
|
||||||||||
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Reclassified
items:
|
||||||||||||
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Cost
of Sales
|
$ | 365,797 | $ | 145,541 | $ | 511,338 | ||||||
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General
and Administrative
(as
restated)
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861,145 | (145,541 | ) | 715,604 | ||||||||
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Net
effect of reclassifications
|
– | |||||||||||
Note
4 - Financial Condition, Liquidity, and Going Concern
At June
30, 2008, the Company has a working capital deficit of $1,271,382 and an
accumulated deficit of $2,798,867. 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 potential 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.
-8-
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.
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:
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Six
Months Ended
June
30,
|
||||||||
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2008
|
2007
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|||||||
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Region
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||||||||
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United
States
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53 | % | 97 | % | ||||
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Europe
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47 | % | 3 | % | ||||
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Total
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100 | % | 100 | % | ||||
Note
6 - Inventory
Inventory
consists of used equipment that can be re-manufactured for re-sale and parts. At
June 30, 2008, inventory consisted of the following:
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Six
Months Ended June 30, 2008
|
||||
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Raw
materials
|
$ | 120,680 | ||
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Work
in process
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16,591 | |||
| $ | 137,271 | |||
Note
7 - Notes Payable
The
Company has a revolving line of credit from a financial institution totaling
$35,000. At June 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 October 18, 2009, the outstanding balance on the line of
credit converts to an installment 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 $16,315. At June 30, 2008 the line of credit was fully
extended to the Company. The line of credit bears a monthly interest ranging
from10%-13% based upon the amount extended.
In
June 2008, the Company entered into a promissory note agreement with an Israeli
investor and an Israeli corporation for the aggregate amount of $75,000. This
note is to be paid in full by June 22, 2009 and bears 15% interest per annum. In
addition these notes were discounted by incentive shares and warrants, as
follows: investors received an aggregate of 3,750 shares and a warrant to
purchase an aggregate of 15,000 shares at $2.47 per share for 2 years. This note
is collateralized by a fixed number of shares of the Company’s common
stock.
-9-
At June
30, 2008 notes payable consist of the following:
|
As
of June 30, 2008
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||||||||
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Total
amount
|
Current
|
|||||||
|
Note
payable to a financial institution in a foreign country; 12.4% per annum;
monthly payments of $242
|
4,149 | $ | 3,944 | |||||
|
Note
payable to a financial institution; 0% interest per annum; monthly
payments of $756 to 2012; collateralized by an automobile.
|
39,233 | 9,827 | ||||||
|
Promissory
note agreement at 15% per annum
|
45,130 | 45,130 | ||||||
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Note
payable to an individual; interest at 7%
|
14,116 | 14,116 | ||||||
| 102,628 | $ | 73,017 | ||||||
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 June 30, 2008, the remaining
balance of the legal settlement was $384,000 in trade credits.
Note
9 - Related Party Transactions
As of
June 30, 2008 the Company owed an officer for his advances of an aggregate of
$415,560, of which $46,185 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 six months ended June 30,
2008, the Company received $5,870 advance from the officer.
During
the six months ended June 30, 2008 the Company accrued salaries to officers in
the aggregate amount of $24,999. The amount of $3,489 was a non interest bearing
advance from a related party and $7,000 was unpaid expenses to an
officer.
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
June 30, 2008, the Company has accrued $127,311 due to the related
party.
Note
10 - Leases
The
Company leases a 7,500 square feet operating facility under a non cancelable
lease expiring September 30, 2008. The lease contains a one-year renewal
option. Minimum lease payments through September 30, 2008 are $9,000. Lease
expenses for the six months ended June 30, 2008 and 2007 totaled $18,000 and
$32,192 respectively.
Note
11 - Income Taxes
At
December 31, 2007, a temporary difference for a loss on a contingent liability
related to a legal settlement was reported. At June 30, 2008, it was determined
that the contingency was less than probable and a recovery of this loss was
recorded. The temporary difference was thus eliminated with a corresponding
change that reduced the deferred tax item by $183,000 and thus reduced the
deffred tax valuation analysis by the same amount. There is therefore, no
current period tax expense pertaining to this item.
Note
12 - Subsequent Events
In July
and August 2008, the Company entered into promissory note agreements with three
Israeli investors and an Israeli corporation for the approximate amount of
$120,000. Some of these notes were in New Israeli Shekels and some in U.S.
Dollars. These notes are to be paid in full by the end of July and
August 2009, respectively, and bear a 15% interest per annum. In
addition these notes were discounted by incentive shares and warrants, as
follows: investors received as incentive an approximate aggregate of 6,500
shares and warrants to purchase an approximate aggregate of 9,000 shares at a
price per share ranging between $2.40 to 2.60 per share for 2 years. Some of
these notes were collateralized by a fixed number of shares of the Company’s
common stock.
-10-
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
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. It remanufactures some
of the existing support equipment which is in need of overhaul or facing
maintainability and components obsolescence issues and it also manufactures new
support equipment. 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.
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 managements most difficult, subjective, or complex
judgments.
Stock
Based Compensation.
The
Company accounts for stock option grants in accordance with SFAS
No. 123(R), Share-Based
Payment. The Company records 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. In
the event that the Company does not have sufficient trading history to estimate
its volatility the company uses a surgate in order to calculate implied
volatility. In the event that there is insufficient history regarding exercise
practice of the employees the Company applies the “plain vanilla” expected term
as allowed by SEC Staff Accounting Bulletin No. 107. If an equity award is
modified after the grant date, incremental compensation cost will be recognized
in an amount equal to the excess of the fair value of the modified award, if
any, over the fair value of the original award.
-11-
Revenue
Recognition
The
Company accounts 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, the Company has not experienced
any costs for warranty claims. As such, the warranty reserve was zero
at the end of 2007.
Results
of Operations
Financial
Information - Percentage of Revenues
(Unaudited)
|
Six
Months Ended
June
30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Revenues
|
100 | % | 100 | % | ||||
|
Cost
of Goods Sold
|
(59 | )% | (72 | )% | ||||
|
Gross
Profit
|
41 | % | 28 | % | ||||
|
Operating
Expenses:
|
||||||||
|
General
and Administrative
|
(48 | )% | (100 | )% | ||||
|
Total
Operating Expenses
|
(48 | )% | (100 | )% | ||||
|
Other
Income (Expenses)
|
59 | % | (1 | )% | ||||
|
Income
(Loss) before Taxes
|
52 | % | (72 | )% | ||||
|
Net
income (loss)
|
52 | % | (72 | )% | ||||
Comparison
of the Six Months Ended June 30, 2008 and June 30, 2007
Revenues
Revenues
increased 31% to $932,706 for the six months ended June 30, 2008 compared to
$712,490 for six months ended June 30, 2007. For the six months ended
June 30, 2008, 43% of the revenues were derived from manufacturing and product
sales, 38% were derived from study contracts and 19% were derived from
remanufacturing orders. These results were consistent with our
revenues during the six months ended June 30, 2007, in which 48% of revenues
were derived from manufacturing and product sales, 39% were derived from study
contracts and 13% were derived from remanufacturing.
For the
six months ended June 30, 2008, two customers represented 71% of our revenues.
As of June 30, 2008, 53% of our revenues were derived from U.S. customers and
47% 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 sub contractors and raw materials used in
manufacturing along with other related charges. Cost of sales increased 8% to
$553,216 for the six months ended June 30, 2008, compared to $511,338 for six
months ended June 30, 2007, representing 59% and 72% of the total revenues for
six months ended June 30, 2008 and June 30, 2007, respectively. The decrease in
our cost of sales as percentage of our revenues in the six months ended June 30,
2008 is primarily attributable to the increase in our total study contract
orders during the six months ended June 30, 2008, which tend to have higher
margins and require less cost of sales than product sales orders.
-12-
General
and Administrative Expenses
General
and administrative expenses decreased by 37% to $444,807 for the six months
ended June 30, 2008 from $715,604 for the six months ended June 30,
2007. The decrease in general and administrative costs is primarily
attributable to a $388,118 option expense during the six months ended June 30,
2007 which did not re-occur during the six months ended June 30, 2008. As a
percentage of revenues, general and administrative expenses decreased to 48% for
the six months ended June 30, 2008, as compared to 100% for the six months ended
June 30, 2007.
Other
income
We had
other income of $552,820 during the six months ended June 30, 2008, which is 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 six months ended June 30, 2008 amounted to $487,503
as compared to a net loss before taxes of $523,193 for the six months ended June
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
Taxes
on income
We do not
expect to pay any income tax on its profit due to carry forward of losses from
prior years.
Net
(loss) income
Net
income for the six months ended June 30, 2008 amounted to $487,503 as compared
to a net loss of $523,202 for the six months ended June 30, 2007. The increase
in net income is primarily due to a non recurring recovery of contingency
income in the amount of $566,154
Comparison
of the Three Months Ended June 30, 2008 and June 30, 2007
Revenues
Revenues
increased 82% to $461,540 for the three months ended June 30, 2008 compared to
$253,975 for three months ended June 30, 2007 due to increased product sales and
deliveries during the quarter ended June 30, 2008. For the three months
ended June 30, 2008, 58% of the revenues were derived from manufacturing and
product sales, 38% were derived from study contracts and 4% were derived from
remanufacturing orders, as compared with the three months ended June 30, 2007,
in which 9% of revenues were derived from product sales, 58% were derived from
study contracts and 33% were derived from remanufacturing.
For the
three months ended June 30, 2008, two customers represented 86% of our revenues.
As of June 30, 2008, 59% of our revenues were derived from U.S. customers and
41% from European customers. Management believes that revenue from European
customers will continue to be a significant portion of our sales.
-13-
Cost
of Sales
Cost of
revenues consists primarily of sub contractors and raw materials used in
manufacturing along with other related charges. Cost of sales increased 101% to
$307,820 for three months ended June 30, 2008, compared to $153,254 for three
months ended June 30, 2007, representing 67% and 60% of the total revenues for
three months ended June 30, 2008 and June 30, 2007, respectively. The increase
in our cost of sales as percentage of our revenues in the three months ended
June 30, 2008 is primarily attributable to the increase in manufacturing and
product sales orders during the three months ended June 30, 2008, which tend to
have lower margins and require more cost of sales than remanufacturing and study
sales orders.
General
and Administrative Expenses
General
and administrative expenses decreased by 62% to $217,058 for the three months
ended June 30, 2008 from $564,953 for the three months ended June 30,
2007. The decrease in general and administrative costs is primarily
attributable to a $388,118 option expense during the three months ended June 30,
2007, which did not re-occur during the three months ended June 30, 2008. As a
percentage of revenues, general and administrative expenses decreased to 47% for
the three months ended June 30, 2008, as compared to 223% for the three months
ended June 30, 2007.
Net
Loss
Net loss
for the three months ended June 30, 2008 amounted to $71,469 as compared to a
net loss of $468,926 for the three months ended June 30, 2007.
Liquidity
and Capital Resources
Cash as
of June 30, 2008, amounted to $45,147 as compared with $70,314 as of December
31, 2007, a decrease of $25,167. Net cash used in operating activities for the
six months ended June 30, 2008, was $111,300. Net cash provided by financing
activities for the six months ended June 30, 2008 was $86,133.
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,
2008. The lease contains a one-year renewal option. Minimum lease payments
through September 30, 2008 are $9,000.
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
June 30, 2008, we had a backlog of approximately 3,842,094. Two of the orders
are study contracts from two customers for the approximate amount of
$1,070,316. These orders are 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 $1,271,382 at June 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 in
the process of raising funds for working capital purposes through the issuance
of debt, and we may consider raising additional capital through private and/or
public placements in order 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.
Not
applicable.
|
Item
4T.
|
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, 2008. 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.
-14-
|
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 June 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
|
On June
22, 2008, the Company entered into a promissory note arrangement with two
Israeli investors, pursuant to which the Company issued promissory notes for an
aggregate of $75,000 in principal amount received. The notes mature
in June 22, 2009 and bear 15% interest per annum. In connection with
the issuance of the promissory notes, the Company issued to the investors an
aggregate of 3,750 shares of its common stock, as well as warrants to purchase
an aggregate of 15,000 shares at $2.40 per share for 2 years.
The
offering of the promissory notes, the shares of common stock and the warrants
was 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.
|
Item
3.
|
Defaults
upon Senior Securities
|
None.
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
Not
applicable.
|
Item
5.
|
Other
Information
|
None.
|
Item
6.
|
Exhibits
|
|
No.
|
Exhibit
|
|
31.1
|
|
|
31.2
|
|
|
32.1
|
|
|
32.2
|
-15-
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)
|
||
|
August
14, 2008
|
By:
|
/s/
Zahir Teja
|
|
Zahir
Teja
|
||
|
President
and Chief Executive Officer
|
||
|
August
14, 2008
|
By:
|
/s/
Teja N. Shariff
|
|
Teja
N. Shariff
|
||
|
Chief
Financial Officer and Chief Accounting
Officer
|
||
-16-
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.
|
-17-