Neon Bloom, Inc. - Quarter Report: 2010 March (Form 10-Q)
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 March 31, 2010.
|
||
|
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.)
|
61B Industrial PKWY
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o 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 May 17, 2010 was 8,137,947.
-1-
Phoenix International Ventures, Inc.
TABLE OF CONTENTS
|
Page
|
|
|
PART I FINANCIAL INFORMATION
|
|
|
Item 1. Financial Statements
|
|
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
1 |
|
Item 3. Quantitative and Qualitative Disclosures about Market Risk
|
12 |
|
Item 4T. Controls and Procedures
|
16 |
| 16 | |
|
PART II. OTHER INFORMATION
|
|
|
Item 1. Legal Proceedings
|
|
|
Item 1A. Risk Factors
|
17 |
|
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
17 |
|
Item 3. Defaults upon Senior Securities
Item 4. (Removed and Reserved.)
|
17
17
|
|
Item 5. Other Information
|
17 |
|
Item 6. Exhibits
|
17 |
-2-
|
Item 1.
|
Financial Statements
|
Index to Financial Statements
|
Page
|
|
|
Condensed Consolidated Balance Sheets as of March 31, 2010 (Unaudited) and December 31, 2009
|
4 |
|
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2010 and 2009 (Unaudited)
|
5 |
|
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March, 31 2010 and 2009 (Unaudited)
|
6 |
|
Notes to Condensed Consolidated Financial Statement (Unaudited)
|
7 |
-3-
Phoenix International Ventures, Inc
|
March 31, 2010
|
December 31,
|
|||||||
|
(Unaudited)
|
2009 (Audited)
|
|||||||
| Assets | ||||||||
|
Current assets
|
||||||||
|
Cash
|
$ | 198,305 | $ | 148,478 | ||||
|
Accounts receivable, net
|
17,885 | 61,329 | ||||||
|
Cost in excess of billings
|
473,642 | 277,519 | ||||||
|
Inventory
|
137,445 | 437,595 | ||||||
|
Prepaid and other current assets
|
6,906 | 7,306 | ||||||
|
Total current assets
|
834,183 | 932,227 | ||||||
|
Property and equipment, net
|
70,282 | 73,514 | ||||||
|
Other assets
|
141,562 | 118,200 | ||||||
|
Total assets
|
1,046,027 | 1,123,941 | ||||||
| Liabilities and Stockholders' (Deficit) | ||||||||
|
Current liabilities
|
||||||||
|
Line of credit
|
$ | 13,780 | $ | 13,087 | ||||
|
Accounts payable
|
801,949 | 599,167 | ||||||
|
Other accrued expenses
|
213,335 | 146,979 | ||||||
|
Customer deposits
|
288,908 | 450,835 | ||||||
|
Notes payable, current portion net of discounts
|
246,213 | 253,721 | ||||||
|
Legal settlement
|
384,000 | 384,000 | ||||||
|
Due to related party
|
473,095 | 536,280 | ||||||
|
Officer loans
|
39,461 | 39,461 | ||||||
|
Total current liabilities
|
$ | 2,460,741 | $ | 2,423,530 | ||||
|
Long term liabilities
|
||||||||
|
Notes payable
|
237,465 | 67,849 | ||||||
|
Officer advances
|
369,375 | 369,375 | ||||||
|
Total long term liabilities
|
$ | 606,840 | $ | 437,224 | ||||
|
Total liabilities
|
3,067,581 | 2,860,754 | ||||||
|
Commitment and Contingencies
|
- | - | ||||||
|
Stockholders' (deficit)
|
||||||||
|
Preferred stock - $0.001 par value; 1,000,000 shares authorized; zero shares issued and outstanding at
|
||||||||
|
March 31, 2010 and December 31, 2009
|
- | - | ||||||
|
|
||||||||
|
Common stock - $0.001 par value; 50,000,000 shares authorized; and
|
||||||||
|
8,137,947 and 8,113,307 shares issued and outstanding at March 31, 2010 and December 31, 2009
|
8,138 | 8,113 | ||||||
|
.
|
||||||||
|
Additional paid in capital
|
1,451,918 | 1,427,160 | ||||||
|
|
- | |||||||
|
Accumulated deficit
|
(3,481,610 | ) | (3,172,086 | ) | ||||
|
Total stockholders' deficit
|
(2,021,554 | ) | (1,736,813 | ) | ||||
|
Total liabilities and stockholders' (deficit)
|
$ | 1,046,027 | $ | 1,123,941 | ||||
-4-
Phoenix International Ventures, Inc
For Three Months Ended March 31, (Unaudited)
|
2010 (unaudited)
|
2009 (as restated)
|
|||||||
|
Sales
|
$ | 1,131,103 | $ | 511,842 | ||||
|
Cost of sales
|
1,006,194 | 363,208 | ||||||
|
Gross margin
|
$ | 124,909 | $ | 148,634 | ||||
|
Operating expenses
|
||||||||
|
General and administrative expenses
|
$ | 293,582 | $ | 309,600 | ||||
|
Total operating expenses
|
$ | 293,582 | $ | 309,600 | ||||
|
Income (Loss) from operations
|
$ | (168,673 | ) | $ | (160,966 | ) | ||
|
Other Income (loss)
|
(122,000 | ) | - | |||||
|
Interest expense
|
(18,850 | ) | (21,152 | ) | ||||
|
Net (loss) before taxes
|
$ | (309,523 | ) | $ | (182,118 | ) | ||
|
Income taxes
|
- | - | ||||||
|
Net income (loss)
|
$ | (309,523 | ) | $ | (182,118 | ) | ||
|
Net income (loss) per common share:
|
||||||||
|
Basic
|
$ | (0.04 | ) | $ | (0.02 | ) | ||
|
Diluted
|
$ | (0.04 | ) | $ | (0.02 | ) | ||
|
Weighted average shares outstanding:
|
||||||||
|
Basic and diluted
|
8,117,081 | 8,046,718 | ||||||
|
Diluted
|
8,117,081 | 8,046,718 | ||||||
-5-
Phoenix International Ventures, Inc.
For the Three Months Ended March 31,
(Unaudited)
|
2010 (unaudited)
|
2009 (as restated)
|
|||||
|
Cash flows from operating activities
|
||||||
|
Net income (loss)
|
$
|
(309,523)
|
$
|
(182,118)
|
||
|
Adjustments to reconcile net income (loss) to net cash used in operating activities
|
||||||
|
Depreciation
|
5,250
|
9,460
|
||||
|
Amortization of debt discount
|
20,319
|
|||||
|
Recovery of contingent liability
|
-
|
-
|
||||
|
Accrued interest
|
5,186
|
-
|
||||
|
Change in accounts receivable
|
43,444
|
36,494
|
||||
|
Cost in excess of billings
|
(196,123)
|
-
|
||||
|
Change in inventory
|
300,150
|
(293,324)
|
||||
|
Change in prepaid expenses
|
400
|
(74,974)
|
||||
|
Change in other assets
|
(23,362)
|
-
|
||||
|
Change in customer deposits
|
(161,927)
|
119,851
|
||||
|
Change in accounts payable
|
202,782
|
121,087
|
||||
|
Change in accrued expenses
|
66,356
|
63,037
|
||||
|
Change in related party payable
|
(63,185)
|
12,682
|
||||
|
Net cash used in operating activities
|
(130,552)
|
(167,486)
|
||||
|
Cash flows from investing activities
|
||||||
|
Purchase of property and equipment
|
(2,018)
|
-
|
||||
|
Net cash used in investing activities
|
(2,018)
|
-
|
||||
|
Cash flows from financing activities
|
||||||
|
Proceeds from subscription receivable
|
-
|
-
|
||||
|
Proceeds from notes payable
|
175,000
|
-
|
||||
|
Repayments on notes payable
|
(17,961)
|
(13,744)
|
||||
|
Repayments on related party notes
|
-
|
-
|
||||
|
Issuance of common stock
|
24,665
|
-
|
||||
|
Proceeds from (payments on) line of credit
|
693
|
717
|
||||
|
Net cash provided by (used in) financing activities
|
182,397
|
(13,027)
|
||||
|
Increase in cash
|
49,827
|
(180,513)
|
||||
|
Cash, beginning of year
|
148,478
|
225,767
|
||||
|
Cash, end of period
|
$
|
198,305
|
$
|
45,254
|
||
|
Cash paid for
|
||||||
|
Interest
|
$
|
8,919
|
$
|
9,528
|
||
|
Income taxes
|
-
|
-
|
||||
-6-
Phoenix International Ventures, Inc.
(Unaudited)
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. The Company’s 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 8-03 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, 2009 financial statements and the notes thereto included in the Company’s Report on Form 10-K filed with the SEC on March 31, 2010.
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.
Use of Estimates
Management uses estimates and assumptions in preparing consolidated financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates.
Depreciation
Depreciation is computed by using the straight-line methods for financial reporting purposes and the modified accelerated cost recovery method and the accelerated cost recovery method for federal income tax purposes.
Cash and Cash Equivalents
The Company deposits the majority of its cash in commercial bank accounts. From time to time, the cash balances in these accounts exceed the Federal Deposit Insurance Corporation insured limits. To date, the Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on its cash. For purposes of preparing the statement of cash flows, money market funds are considered to be cash equivalents.
Concentration of Credit Risk
The Company maintains cash in accounts with a federally insured bank located in Nevada. The balances are insured by the Federal Deposit Insurance Corporation up to $250,000. At times, the balances in these accounts may be in excess of the federally insured limits. As of March 31, 2010, the Company had no cash balance above the uninsured limit.
-7-
Major Customers
The Company provides services to multiple customers, but mainly provides services to two major customers. The major customers accounted for approximately 42% of total Company revenue during the quarter. The Company has not experienced any collection problems with these customers and the customers comprise approximately 0% of the accounts receivable balance at March 31, 2010.
Recent Accounting Pronouncements
None
Note 2 - Financial Condition, Liquidity, and Going Concern
At March 31, 2010, the Company assessed its ability to continue as a going concern. The Company has a working capital deficit of $1,626,558 and accumulated deficit of $3,481,610, along with a net loss for the twelve months ended December 31, 2009 of $246,490 and a net loss of $309,523 for the three months ended March 31, 2010. Various other factors support the Company’s viability as a going concern including the procurement of new contracts and sales orders. The Company has developed a plan to address its financial situation and believes it can finance most of its operations through monetizing its current backlog. The plan is based on the Company’s current financial assets, backlog and expectations regarding revenues and operating costs.
The Company may need to depend on additional capital raising efforts, in addition to 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. However, management believes that the Company is viable for the next twelve months.
Note 3 –Quarterly Financial Information
During the preparation of the financial statements for the twelve months ended December 31, 2009, the Company discovered certain errors related to revenue recognized in the three months ended March 31, 2009 that should have been deferred to the three months ended June 30, 2009.
The Company discovered that revenue totaling $420,000 recognized during the three months ended March 31, 2009 should not have been recognized until the subsequent quarterly period due to the products not being shipped until early April 2009. The impacts of the correction of the error in the interim financial information as reported on Forms 10-Q for the three months ended March 31, 2009 are reflected in the following table:
|
Three months ended March 31, 2009
|
||||||||||||
|
As Reported
|
Change
|
As Restated
|
||||||||||
|
Sales
|
$
|
931,842
|
(420,000)
|
511,842
|
||||||||
|
Cost of sales
|
661,067
|
(297,859)
|
363,208
|
|||||||||
|
Gross margin
|
270,775
|
(122,141)
|
148,634
|
|||||||||
|
Loss from operations
|
(38,825)
|
(122,141)
|
(160,966)
|
|||||||||
|
Net loss
|
(59,977)
|
(122,141)
|
(182,118)
|
|||||||||
|
Net (loss) per common share:
|
||||||||||||
|
Basic and diluted
|
(0.01)
|
(0.02)
|
(0.03)
|
|||||||||
-8-
Note 4 - Geographical Segments
Product revenues are attributed to regions based on the location of the customer. The following table summarizes the Company’s geographical customer concentration of total product revenue.
|
Three months ended
|
||||
|
March 31,
|
||||
|
2010
|
2009
|
|||
|
United States
|
86%
|
86%
|
||
|
Europe
|
14%
|
14%
|
||
|
Total
|
100%
|
100%
|
||
Note 5 - Inventory
Inventory consists of parts and equipment that can be manufactured or re-manufactured for re-sale. Non-current inventory consists of parts with limited current demand that are of limited supply. At March 31, 2010 and March 31, 2009, inventory consisted of the following:
|
2010
|
2009
|
|||||
|
Raw materials
|
$
|
136,589
|
$
|
114,000
|
||
|
Work in process
|
114,856
|
67,981
|
||||
|
Total
|
$
|
251,445
|
$
|
181,981
|
||
|
Non-current(classified as other asset)
|
114,000
|
-
|
||||
|
Inventory, current
|
$
|
137,445
|
$
|
181,981
|
||
Note 6 – Long Term Contracts
The Company has certain long-term contracts to design and manufacture equipment. The Company reevaluated its costs estimate in connection with one of its long term contracts and has estimated that the future costs exceed previous estimates. The change in estimate has caused a loss on prior periods of $122,000 which is presented as “other income (loss)” on the statement of operations. Costs and estimated earnings on these contracts for the three months ended March 31, 2010 are as follows:
|
Costs incurred on contracts this period
|
$ | 1,415,141 | ||
|
Estimated contracts profit
|
172,642 | |||
|
Less: billings to date
|
(1,114,142 | ) | ||
|
Contract costs and related estimated profits in excess of billings
|
$ | 473,641 |
-9-
The costs in excess of billings have been included in assets for balance sheet purposes.
Note 7 - Notes Payable and Lines of Credit
The Company has a revolving line of credit from a foreign financial institution totaling $13,780 which was fully extended at March 31, 2010. The line of credit bears a monthly interest ranging from 10%-13% based upon the amount extended. As of March 31, 2010, the interest was at 13%. This item has been classified as a line of credit.
The Company had a revolving line of credit from a financial institution totaling $35,000. In October 2009, the line of credit converted to an installment note payable in equal installments of $883 per month which includes interest at 9.75% and principal until September 30, 2013. As of March 31, 2010, the Company owed $31,319 on this note payable.
In July and August 2009, two investors extended their promissory note arrangements that were entered into in the previous year in the aggregate principal amount of $89,474 for an additional one year bearing interest of 15%per annum. These notes will mature in the fiscal quarter ending September 30, 2010. As an incentive for the extension, the lenders were issued shares of the Company’s common stock equal to 5% of the principal amount of the notes. The Company issued an aggregate of 4,110 shares in connection with these notes.
In June and August 2009, the Company entered into three promissory note agreements with related parties (one note with an Israeli individual and two notes with Cyprus corporation), in the aggregate amount of $125,000. These notes are to be paid in full at various dates between June 18, 2010 and August 23, 2010 and bear interest at 15% per annum. In addition, the lenders were issued shares of the Company’s common stock equal to 5% of the principal amount of the notes upon execution. In total, the Company issued an aggregate of 6,479 shares in connection with these notes.
In February and March 2010, the Company entered into promissory note agreements with related parties in the aggregate amount of $175,000. These notes are to be paid in full at various dates between February and March of 2012 and bear interest at 11% per annum. In addition, the lenders were issued shares of the Company’s common stock equal to 14% of the principal amount of the notes. In total, the Company issued an aggregate of 24,640 shares in connection with this discount.
At March 31, 2010, notes payable consist of the following:
|
Total
|
||||||||
|
Amount
|
Current
|
|||||||
|
Unsecured note payable to a financial institution in a foreign country; 12.4% per annum
|
$ | 5,332 | $ | 5,332 | ||||
|
Secured note payable to a financial institution; monthly payments of $756 until 2012; collateralized by an automobile
|
23,435 | 9,827 | ||||||
|
Unsecured promissory note agreements; effective interest rates are approximately 15%
|
217,826 | 217,826 | ||||||
|
Unsecured promissory note agreements; effective interest rates are approximately 11%
|
175,000 | - | ||||||
|
Secured note payable to a financial institution; monthly payments of $671 until 2014; interest at 7.99%; collateralized by an automobile
|
30,766 | 5,524 | ||||||
|
Unsecured note payable to a financial institution; 9.75% per annum; monthly payments of $883 until 2013
|
31,319 | 7,704 | ||||||
| $ | 483,678 | $ | 246,213 | |||||
-10-
Note 8 - Related Party Transactions
As of March 31, 2010, the Company owed a total of $473,095 to related parties of which $179,779 was deferred and accrued salaries to its officers. $63,529 was vacation payable to the officers. $79,811 was fees owed in relation to a consulting agreement entered into with a related party on April 26, 2007. $148,000 was for parts and inventory the Company regularly purchases from a related party.
In addition to this amount, the Company owed an officer for his advances totaling $408,836, of which $39,461 is due in the current year. As of March 31, 2010, there was no arrangement to pay out this sum and the officer agreed to consider the Company’s cash reserves in collecting this advance. These advances are non-interest bearing and the officer has agreed not to demand payment of the long term portion during the current fiscal year.
Note 9 - Commitments and Contingencies
The Company leases a 10,300 square foot operating facility under a lease term which commenced on March 1, 2009 and expires on February 28, 2011. Minimum lease payments remaining for the facility total $45,320. Lease expense through March 31, 2010 was $12,360 compared to $13,750 in March 31, 2009.
On May 26, 2006, the Company entered into a settlement agreement relating to a legal dispute with Kellstrom totaling $1,173,913 plus interest. As part of the settlement, the Company was required to provide $500,000 in trade credits and a $566,154 payment contingent upon the event the Company was awarded an Air Start Cart development contract prior to May 26, 2008 in the minimum amount of $10,000,000. This settlement was then reflected in the Company’s financial statements. The contingent payment was directly tied to the contract award. The contract was not received by May 26, 2008 but all other terms of the settlement, except for the provision of trade credits, were satisfied. Since the contingency expired without being met, the Company recovered the previously recognized contingent liability in the amount of $566,154. The remaining trade credits of $500,000 were granted to Kellstrom towards the purchase of materials, repairs, maintenance, and overhaul services. The credits were due upon receipt of a purchase order from Kellstrom but the Settlement Agreement did not provide a specific termination date in lieu of full satisfaction. While there is no specific requirement to pay Kellstrom cash in lieu of the trade credits if they fail to execute a purchase order, Kellstrom has reserved the right to pursue any remaining settlement amounts in the event the Company fails to honor the remaining trade credit obligation. As of March 31, 2010 a balance of $384,000 remained outstanding on the trade credits.
Note 10 – Subsequent events:
Subsequent events were evaluated through May 14, 2010.
On May 1, 2010, the Company entered into a new promissory note agreement in the amount of $40,000. This note is to be paid in full on April 30 2011 and bears interest at 11% per annum. In addition, the lender was issued shares of the Company’s common stock equal to 7% of the principal amount of the note upon execution. In total the Company will issue 2,943 shares of common stock in connection with the execution of this note.
-11-
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.
We manufacture support equipment for military aircraft which is 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. The Company is ISO 9001/2000 certified, which is due to expire on June 11, 2011.
The main users of the equipment are the United States Air Force, US Navy and defense-aerospace companies.
Results of Operations
-12-
Financial Information - Percentage of Revenues
(Unaudited)
|
Three Months ended
|
||||||||
|
March 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Revenues
|
100
|
%
|
100
|
%
|
||||
|
Cost of Goods Sold
|
-89
|
%
|
-70
|
%
|
||||
|
Gross Profit
|
11
|
%
|
30
|
%
|
||||
|
Operating Expenses:
|
||||||||
|
General and Administrative
|
-26
|
%
|
-34
|
%
|
||||
|
Total Operating Expenses
|
-26
|
%
|
-34
|
%
|
||||
|
Other Income (Expenses)
|
-1
|
%
|
-3
|
%
|
||||
|
Income (Loss) before Taxes
|
-27
|
%
|
-6
|
%
|
||||
|
Net income (loss)
|
-27
|
%
|
-6
|
%
|
||||
Results of Operations-Fiscal Summary
Revenues. Revenues increased 120% to $1,131,103 for the three months ended March 31, 2010, compared to $511,842 for the three months ended March 31, 2009. Revenue increased in remanufacturing streams, decreased in the study and parts trading, and slightly decreased in the manufacturing stream during three months ended March 31, 2010.
For the three months ended March 31, 2010, remanufacturing contracts accounted for 56% of total revenues, manufacturing and design accounted for 28%, parts trading accounted for 14%, and study contracts accounted for 1% of revenues. This compares to remanufacturing of 43%, manufacturing and design of 32%, study contracts of 13% and parts trading of 12% of revenues for the three months ended March 31, 2009.
There was a notable increase in remanufacturing revenue as a result of increased demand for the remanufactured Air Start Carts. These units are typically of high dollar volume. Management believes, although there can be no assurance, that demand for these items will continue during the remainder of the year ended December 31, 2010.
Manufacturing and design was the second highest revenue producing stream primarily due to a large manufacturing and design contract. Management believes this order will comprise a significant portion of future revenues. This order also contains an option for the customer to order additional units which, if exercised, will lead to additional revenues.
Parts trading revenue decreased in the three months ended March 31, 2010 compared to March 31, 2009, as a result of decreased demand. Management expects, although there can be no assurance, that this revenue stream will decrease during the remainder of the year ended December 31, 2010.
Revenue from study orders decreased during the final stages of performance on existing contracts during the quarter. The Company did not receive additional study type orders during the three months ended March 31, 2010 and management believes that revenue from this stream will decrease in the future. Management believes, although there can be no assurance, that completed study orders may spawn additional orders to remanufacture and/or manufacture the equipment studied thereby, increasing manufacturing and remanufacturing revenue in the future.
-13-
The Company has diverse contracts with large customers which make up significant portions of revenue. The United States Air Force and Navy represented 28% of the Company’s revenues for the three months ended March 31, 2010. The remaining 72% of revenues were to aerospace companies and military contractors. Two customers represented 42% of the Company’s revenues for the three months ended March 31, 2010. Management feels that similar trends will continue in the near future.
Cost of Sales. Cost of sales consists primarily of sub-contractors and raw materials used in the manufacturing and remanufacturing processes, along with labor and allocations of indirect labor and overhead. Cost of sales increased to $1,006,194 for the three months ended March 31, 2010, compared to $363,208 for the three months ended March 31, 2009, representing 89% and 70% of total revenues for the three months ended for each period respectively. Cost of sales as a percentage of revenue increased primarily due to a long term design contract with a smaller gross profit percentage which was adjusted to reflect higher costs than originally estimated. In addition, the mix of revenue for the three months ended March 31, 2009 was comprised of more study type contract revenues than the three months ended March 31, 2010, which tend to have higher gross profit margins than other types of revenues.
General and Administrative Expenses. General and administrative expenses decreased 5% in the three months ended March 31, 2010 to $293,582 in comparison to $309,600 during the three months ended March 31, 2009. Management expects, although there can be no assurance, General and Administrative expenses will continue at these levels in the near future.
As a percentage of revenues, general and administrative expenses decreased to 26% of total revenue for the three months ended March 31, 2010, as compared to 34% of total revenue for the three months ended March 31, 2009. Management further believes, although there can be no assurance, that the current general and administrative infrastructure can accommodate significantly higher revenue volume.
Interest Expense and Other Income. Interest expense decreased by 11% to $18,850 for the three months ended March 31, 2010, from $21,152 for the three months ended March 31, 2009. Notes entered into in 2009 which mature in 2010 carry interest at 15% per annum and include shares of common stock equal to 5% of the principal amount of the notes. Notes entered into in 2010 carry interest at 11% per annum and include shares of common stock equal to 7% of the principal amount of the notes. We expect total interest expenses to increase during the remainder of the year ended December 31, 2010.
At March 31, 2010 we made a loss adjustment relating to a long term contract. We currently anticipate we will have more costs associated with this contract than previously estimated. Due to this change in estimate, we had a loss on prior periods.
Taxes on Income. We had no tax liabilities for either of the three months ended March 31, 2009 and March 31, 2010.
Net Loss. Net loss for the three months ended March 31, 2010 amounted to ($309,523) compared to a net loss of ($182,118) for the three months ended March 31, 2009.
Summary of Liquidity
At March 31, 2010, we assessed our ability to continue as a going concern. We have a working capital deficit of $1,626,558 and accumulated deficit of $3,481,610, along with a net loss for the twelve months ended December 31, 2009 of $246,490 and a net loss of $309,523 for the three months ended March 31 2010. Various other factors support our viability as a going concern including the procurement of new contracts and sales orders. We have developed a plan to address its financial situation and believes it can finance most of its operations through monetizing our current backlog. The plan is based on our current financial assets, backlog and expectations regarding revenues and operating costs.
We may need to depend on additional capital raising efforts, in addition to obtaining and maintaining favorable contracts, and the ability to achieve future operating efficiencies anticipated with increased production levels. There can be no assurance that our future efforts and anticipated operating improvements will be successful. However, we believe that the Company is viable for the next twelve months.
-14-
Although we experienced improved financial results during 2009 and still plan to finance most of our operations through revenues, we are burdened by a significant working capital deficit. We found it necessary during the first quarter of 2010 to extend and issue new debt through promissory notes to replace previous note arrangements and raise additional operating capital. However, the significant liabilities accrued in this period and in past periods will continue to burden the Company’s future cash flow.
We currently have $473,642 of costs in excess of billings which we expect to collect in the near future. We have diverse customer payment arrangements regarding some of our contracts. Certain contracts require payments upon delivery and have a net 30 payment schedule while other contracts allow for advances or milestone billing which enables the Company to obtain financing for the production process which is typical in all of our revenue streams. Occasionally, there are large outlays for materials and engineering costs that have caused delays in payments to vendors.
Cash Flows (Operating, Investing, and Financing)
Cash as of March 31, 2010, amounted to $198,305 compared to $148,478 as of December 31, 2009 which is an increase of $49,827.
Cash used in operating activities increased by $49,827 to ($130,552) for the three months ended March 31, 2010 from ($180,513) for the three months ended March 31, 2009. Inventory and work in process decreased significantly and increased cash as delivery of certain products were made in the first quarter 2010. The change in the cost in excess of billings decreased cash flow due to incurring costs on a long term contract. In summary cash increased during the three months ended March 31, 2010 primarily due to the delivery of inventory and subsequent payments.
As our products consist of large items of equipment, changes in the cash flow items period to period are subject to significant fluctuations which might not be attributable to a trend but rather to specific circumstances of a delivery and cutoff date.
Net cash provided by financing activities for the three months ended March 31, 2010 was $154,903, which is related to the issuance of two promissory notes during the quarter. These notes also included an obligation to issue shares of common stock.
Capital Expenditures and Other Obligations
Management believes there is no need for material additional capital investments in order to execute the current order backlog. Our capital investments are primarily for the purchase of equipment for the services and products that we provide or intend to provide. This equipment includes vehicles, shop tools, and shop machinery. Although this may change, we currently do not expect to make material capital investments during the next twelve months.
On January 29, 2009, we entered into an agreement to lease a new production facility starting March 1, 2009 until February 28, 2011 at a monthly rent of $4,120. Minimum payments on this lease for the next 12 months will be $49,440.
Sources of Liquidity
We shall continue to finance most of our operations through monetizing our current backlog, supplemented by financing activities through the issuances of debt and / or equity instruments as necessary.
As of March 31, 2010, we had backlog of orders of approximately $7.2 Million compared to a backlog of $5.8 Million for March 31, 2009. Management believes a significant portion of our revenue will be delivered during the year ended December 31, 2010. Additionally, management is expecting, although there can be no assurance, that additional orders will materialize during that time. Included in our 2010 backlog, $4,800,000 consists of a Department of Defense program designated to Phoenix Aerospace projects. In this program we will supply the Department of Defense with various remanufactured and newly manufactured ground support equipment. We expect, although there can be no assurance, to see significant revenue from this program in 2010.
Debt and Capital
-15-
We may consider raising additional capital through private and/or public placements to fund possible acquisitions and other business development activities and for working capital.
We have issued promissory note arrangements in the amount of $214,474 in 2009 that mature in 2010. Management believes, although there can be no assurance, that we will be able to repay or extend these notes or enter into new note arrangements at terms that favorable to the Company.
In February and March 2010, we entered into long term promissory note agreements with related parties in the aggregate amount of $175,000. These notes are to be paid in full at various dates between February and March of 2012 and bear interest at 11% per annum. In addition, the lenders were issued shares of the Company’s common stock equal to 7% of the principal amount of the notes. In total, we issued an aggregate of 24,640 shares in connection with these notes.
On May 1, 2010, the Company entered into a new promissory note agreement in the amount of $40,000. This note is to be paid in full on April 30 2011 and bears interest at 11% per annum. In addition, the lender was issued shares of the Company’s common stock equal to 7% of the principal amount of the note upon execution. In total the Company will issue an aggregate 2,943 shares in connection with this note.
Not applicable.
|
Item 4T.
|
Controls and Procedures
|
(a) Evaluation of Disclosure Controls and Procedures: As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Disclosure controls and procedures are designed to ensure that information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosure of material information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to provide reasonable assurance of achieving these objectives. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are not effective.
(b) Changes in Internal Control over Financial Reporting: During the three months ended March 31, 2010, we implemented new procedures, including updated procedures relating to accounting which include greater scrutiny over cutoff day issues, work in process and revenue recognition. Although we believe that these new controls and procedures are reasonably expected to improve our internal control over financial reporting we have not yet sufficient reporting cycles to test these new controls, and so we cannot yet attest to their effectiveness.
-16-
|
Item 1.
|
Legal Proceedings.
|
Not applicable.
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds.
|
In February and March 2010, the Company entered into promissory note agreements with related parties in the aggregate amount of $175,000. These notes are to be paid in full at various dates between February and March of 2012 and bear interest at 11% per annum. In addition, the lenders were issued shares of the Company’s common stock equal to 7% of the principal amount of the note. In total the Company issued an aggregate of 24,640 shares in connection with these notes.
On May 1, 2010, the Company entered into a promissory note agreement in the amount of $40,000. This note is to be paid in full on April 30 2011 and bears interest at 11% per annum. In addition, the lender was issued shares of the Company’s common stock equal to 7% of the principal amount of the note upon execution. In total the Company will issue 2,943 shares of common stock in connection with the execution of this note.
The offering of the promissory notes and the shares of common stock were not registered under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon 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 and there was no underwriter and no general solicitation related to the offering.
|
Item 3.
|
Default upon Senior Securities.
|
Not applicable.
|
Item 4.
|
(Removed and Reserved.)
|
|
Item 5.
|
Other Information.
|
None.
|
Item 6.
|
Exhibits
|
|
No.
|
Exhibit
|
|
4.1
|
Form of uncollateralized promissory note (2 year)
|
|
4.2
|
Form of uncollateralized promissory note (1 year)
|
|
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-
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
Phoenix International Ventures, Inc.
|
|||
|
(Registrant)
|
|||
|
May 17, 2010
|
By:
|
/s/ Zahir Teja
|
|
|
Zahir Teja
|
|||
|
President and Chief Executive Officer
|
|||
|
May 17, 2010
|
By:
|
/s/ Neev Nissenson
|
|
|
Neev Nissenson
|
|||
|
Chief Financial Officer
(principal financial and accounting officer)
|
|||
-18-
INDEX TO EXHIBITS
|
No.
|
Exhibit
|
|
4.1
|
Form of uncollateralized promissory note (2 year)
|
|
4.2
|
Form of uncollateralized promissory note (1 year)
|
|
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.
|
-19-