This
prospectus relates to the resale of up to 3,768,750 shares of our common stock,
par value $.001 per share (“Common Stock”), by the selling stockholders named in
this prospectus. Our Common Stock is presently not traded on any market or
securities exchange. The shares offered by the selling stockholders will be
sold
at $.50 per share until our shares of common stock are quoted on the OTC
Bulletin Board and thereafter at prevailing market prices or privately
negotiated prices. This price was arbitrarily determined by the
Company.
The
selling stockholders, and any participating broker-dealers are "underwriters"
within the meaning of the Securities Act of 1933, as amended, and any
commissions or discounts given to any such broker-dealer may be regarded as
underwriting commissions or discounts under the Securities Act of 1933. The
selling stockholders have informed us that they do not have any agreement or
understanding, directly or indirectly, with any person to distribute their
common stock. We agree to pay the expenses of registering the foregoing shares
of our Common Stock; these expenses are estimated to be $42,701.63.
THE
PURCHASE OF THE SECURITIES OFFERED THROUGH THIS PROSPECTUS INVOLVES A HIGH
DEGREE OF RISK. SEE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE
4.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
You
should rely only on the information contained in this prospectus and the
information we have referred you to. We have not authorized any person to
provide you with any information that is different.
TABLE
OF CONTENTS
PAGE
PROSPECTUS
SUMMARY
1
RISK
FACTORS
4
SPECIAL
NOTE ABOUT FORWARD-LOOKING STATEMENTS
11
USE
OF PROCEEDS
11
DETERMINATION
OF OFFERING PRICE
11
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
12
DILUTION
13
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
14
BUSINESS
25
LEGAL
PROCEEDINGS
35
MANAGEMENT
36
EXECUTIVE
COMPENSATION
39
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
41
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
43
DESCRIPTION
OF SECURITIES
44
SELLING
STOCKHOLDERS
47
PLAN
OF DISTRIBUTION
51
EXPERTS
AND COUNSEL
53
ADDITIONAL
INFORMATION
53
FINANCIAL
STATEMENTS
54
PROSPECTUS
SUMMARY
The
following summary highlights some of the information in this prospectus. It
may
not contain all of the information that is important to you. To understand
this
offering fully, you should read the entire prospectus carefully, including
the
RISK FACTORS and our financial statements and the notes accompanying the
financial statements appearing elsewhere in this prospectus. Unless otherwise
specifically noted, the term “Company” includes Phoenix International Ventures,
Inc. (“PIV”) and PIV's two subsidiaries, Phoenix Aerospace, Inc. and Phoenix
Europe Ventures, Ltd.
Our
Company and its Business
Phoenix
International Ventures, Inc. was formed to invest and develop business in the
fields of aerospace and defense. We, through our wholly owned subsidiary,
Phoenix Aerospace, Inc., manufacture, upgrade and remanufacture electrical,
hydraulic and mechanical support equipment primarily for the United States
Air
Force and Navy and the United States defense-aerospace industry. Currently
our
support equipment is used to maintain or operate various aircrafts or aircraft
systems, such as the F-22 fighter and F16 fighter, which are in current
production and the P-3 surveillance plane, and various other `legacy' aircraft,
which are no longer in current production.
Some
of
the support equipment for a number of weapon systems in current production,
as
well as `legacy' weapon systems-such as the previously mentioned aircraft and
aircraft systems-is in need of overhaul or are obsolete and need to be replaced.
The Company remanufactures some of the existing support equipment, which is
in
need of overhaul or facing components obsolescence issues and also manufactures
new support equipment. However, frequently new support equipment is often either
not available, has long delivery lead times, or very expensive to purchase.
Upgrading and remanufacturing of existing support equipment thus becomes an
alternative. Our remanufacturing process for existing support equipment is
designed to respond to this market.
Our
remanufacturing process involves breaking down the support equipment for
analysis, replacing or refurbishing broken or defective components, rebuilding
the support equipment, and finally testing the support equipment so that it
has
the same form, fit and function of the original support equipment in accordance
with the original manufacturer's specifications. Our objective is to fill this
niche of providing newly manufactured or remanufactured support equipment and,
in the process, to capitalize on our established customer relationships to
pursue additional defense contract business.
Corporate
information
We
were
incorporated on August 7, 2006 under the laws of the State of Nevada. Phoenix
Aerospace, Inc. was incorporated on April 18, 2003 under the laws of the State
of Nevada. The Company, Zahir Teja, and Phoenix Aerospace, Inc. have entered
into a Share Exchange Agreement dated as of December 1, 2006. Under the Share
Exchange Agreement, Mr. Teja, the sole owner and principal of Phoenix Aerospace,
Inc. exchanged all the issued and outstanding shares of Phoenix Aerospace,
Inc.
common stock for 3,000,000 shares of the common stock of the Company. As a
result of this transaction, Phoenix Aerospace, Inc. became a wholly owned
subsidiary of the Company, and Mr. Teja became a principal stockholder of and
continued to be a principal of the Company. The effective date of this
transaction was January 1, 2007. The foregoing transaction has been treated
for
accounting purposes as a “reverse merger.”
The
principal business reason for the share exchange was to establish a holding
company structure. This structure, the Company believes, facilitates
future acquisitions and the opening up of new lines of business. Of
course, there can be no assurance that the Company will make any such
acquisitions or open up any such new lines of business.
Our
principal offices are located at 2201 Lockheed Way, Carson City, Nevada89706.
Our telephone number is (775) 882-9700.
-1-
The
Offering
Securities
Being Offered
Up
to 3,768,750 shares of common stock.
Initial
Offering Price
The
selling stockholders will sell our shares at $.50 per share until
our
shares are quoted on the OTCBB, and thereafter at prevailing market
prices
or privately negotiated prices. This price was arbitrarily determined
by
the Company.
Terms
of the Offering
The
selling stockholders will determine when and how they will sell the
common
stock offered in this prospectus.
Termination
of the Offering
The
offering will conclude when all of the 3,768,750 shares of common
stock
have been sold or we, in our sole discretion, decide to terminate
the
registration of the shares. We may decide to terminate the registration
if
it is no longer necessary due to the operation of the resale provisions
of
Rule 144 promulgated under the Securities Act of 1933. We may also
terminate the offering for no given reason whatsoever.
Risk
Factors
The
securities offered hereby involve a high degree of risk and should
not be
purchased by investors who cannot afford the loss of their entire
investment. See “RISK FACTORS.”
Common
Stock Issued Before Offering
6,996,000
shares of our common stock are issued and outstanding as of the date
of
this prospectus.
Common
Stock Issued
After
Offering
6,996,000
shares of our common stock will be issued and outstanding after the
offering. This number does not take into account options owned by
various
selling stockholders to purchase an aggregate of 1,490,000 shares
of the
Company's common stock. Giving effect to the exercise of these options,
the number of shares of common stock that will be issued after the
offering would be 8,486,000 shares of common stock.
Use
of Proceeds
We
will not receive any proceeds from the sale of the shares of common
stock
by the selling stockholders.
-2-
Summary
Financial Information
The
following tables set forth the summary financial information for the Company
Phoenix International Ventures, Inc. and its subsidiary Phoenix Aerospace,
Inc.
You should read this information together with the financial statements and
the
notes thereto appearing elsewhere in this prospectus and the information under
“Management's Discussion and Analysis of Financial Condition and Results of
Operations.”
Three
months ended March 31 (Consolidated with PIV)
2005
2006
2007
Cash
and cash equivalents
9,240
16,343
7,429
Total
current assets
118,423
258,485
190,199
Total
assets
146,375
283,649
215,711
Total
current liabilities
1,623,853
1,252,932
1,278,516
Total
liabilities
2,060,190
2,328,481
2,354,065
Total
Stockholders' equity (deficit)
(1,933,815)
(2,064,832)
(2,144,954)
Revenues
457,207
1,160,455
458,515
Cost
of sales
204,852
551,642
281,418
Gross
margin
252,355
608,813
177,097
Operating
expenses
926,512
661,190
227,317
Income
(loss) from operations
(674,157)
(52,377)
(50,220)
Net
income (loss)
(688,017)
(131,017)
(54,276)
-3-
RISK
FACTORS
An
investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information in this
prospectus before investing in our common stock. If any of the following risks
occur, our business, operating results and financial condition could be
seriously harmed. The trading price of our common stock could decline due to
any
of these risks, and you may lose part or all of your investment.
Risks
Related To Our Business
The
Company has a limited operating history.
The
Company is recently organized and the Company's principal operating subsidiary,
founded in April, 2003, has only a limited operating history upon which an
evaluation of the Company and its prospects can be based. The Company's
prospects for financial success must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in highly
competitive and evolving markets, such as the defense-aerospace industry
market.
The
Company has incurred losses and has a working capital
deficit.
For the
fiscal year ended December 31, 2005, Phoenix Aerospace, Inc. ("PAI") incurred
a
loss of 688,017, and for the fiscal year ended December 31, 2006, PAI
incurred a loss of $131,017. PAI incurred losses in the first
three months of fiscal 2007 of $54,276. As of March 31,2007, PAI had a working capital deficit of $890,317 and an accumulated
stockholders' deficit of $2,119,109. The Company's working capital
needs have been met by the cash flow from operations, salary deferral by one
of
the Company's principals, and loans. Certain creditors of the Company have
agreed, in lieu of cash, to accept payment in shares of the Company's common
stock based on a price per share of $.50 upon the effectiveness of the
registration statement of which this prospectus forms a part.
We
may fail to continue as a going concern, in which event you may lose your entire
investment in our shares.
Our
audited financial statements have been prepared on the assumption that we will
continue as a going concern. Our independent registered public accountants
have
indicated that in their respective reports relative to PAI's and Phoenix
International Ventures, Inc.'s (“PIV”) financial statements as of December 31,2006 that (a) as discussed in Note 1 to its financial statements, PIV has a
loss
from operations, has no working capital and has no revenue generating activities
and (b) as discussed in Note 2 to its financial statements, PAI has working
capital and stockholder deficits. These factors raise substantial doubt about
the Company's ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
If
we
fail to continue in business, you will lose your investment in the shares you
acquire in this offering.
The
Company may be unable to manage its growth or implement its business
strategy.
Although
the Company has experienced significant growth in a relatively short period
of
time, it cannot assure you that the growth the Company has experienced will
continue, nor can the Company assure you that it will be able to expand its
facilities, its client base and markets or implement the other features of
the
Company's business strategy at the rate or to the extent presently planned.
The
Company's rapid growth to date has placed, and in the future will continue
to
place, a significant strain on its administrative, operational and financial
resources.
Our
ability to generate revenue is dependent upon our success in obtaining awards
for a very narrow category of contracts.
Our
ability to generate all of our revenues is dependent upon our success in
obtaining awards for a very narrow category of aerospace and defense contracts.
If we are not successful in receiving contracts from the U.S. government and/or
U.S. defense industry contractors for any reason, including our failure to
meet
eligibility requirements, competition, our failure to perform under prior
contracts, and/or changes in government and/or defense industry contracting
policies, we would not generate sufficient revenue to continue in
business.
-4-
In
addition to the foregoing, we are subject to the following risks in connection
with government contracts:
·
the
frequent need to bid on programs prior to completing the necessary
design,
which may result in unforeseen technological difficulties and/or
cost
overruns;
·
the
difficulty in forecasting long-term costs and schedules and the potential
obsolescence of products related to long-term fixed-price
contracts;
·
the
risk of fluctuations or a decline in government expenditures due
to any
changes in the U.S. Department of Defense budget or appropriation
of
funds;
·
when
the Company acts as a subcontractor, the failure or inability of
the
primary contractor to perform its prime contract may result in an
inability to obtain payment of fees and contract
costs;
·
restriction
or potential prohibition on the export of products based on licensing
requirements; and
·
government
contract awards can be contested by other
contractors.
We
are dependent on major customers.
The
Company's business is also substantially dependent on a relatively small number
of customers and United States Department of Defense programs. In the twelve
months ended December 31, 2006, the Company's five largest customers in terms
of
sales, Lockheed Martin Corporation (41%), U.S. Air Force (25%), Northrop Grumman
Corporation (16%), Honeywell Aerospace GmbH (9%), and, ARINC (6%) accounted
for
an aggregate of 95% of total Company sales. The loss of any of the foregoing
businesses as a customer could have a material adverse effect on the Company's
results of operations or financial condition. In fiscal year 2005, the Company's
five largest customers accounted for an aggregate of 98% of its total sales
with
the largest customer in such year representing approximately 74% of total
Company's sales. See "BUSINESS-Customers".
As
of
March 31, 2007, the Company's backlog was approximately $2,152,000, represented
by large orders from 4 customers, namely- U.S. Navy $1,022,000) (47%); U.S.
Air
Force ($681,000) (32%); Kellstrom Defense Aerospace, Inc. ($374,000) (17%);
and
Honeywell Aerospace ($75,000) (3%). The loss or diminution of orders from any
large customer or group of customers could have a substantial adverse effect
on
the Company's business and prospects. See "BUSINESS-Backlog".
Demand
for our defense-related products depends on government
spending.
The
U.S.
military market is largely dependent upon government budgets, particularly
the
defense budget. The funding of government programs is subject to Congressional
appropriation. Although multi-year contracts may be authorized in connection
with major procurements, Congress generally appropriates funds on a fiscal
year
basis even though a program may be expected to continue for several years.
Consequently, programs are often only partially funded and additional funds
are
committed only as Congress makes further appropriations. We cannot assure you
that an increase in defense spending will be allocated to programs that would
benefit our business. A decrease in levels of defense spending or the
government's termination of, or failure to fully fund, one or more of the
contracts for the programs in which we participate could have a material adverse
effect on our financial position and results of operations.
-5-
The
risk
that governmental purchases of products may decline stems from the nature of
the
Company's business with the U.S. government, in which the U.S. government
may:
terminate,
reduce or modify contracts or subcontracts if its requirements or
budgetary constraints change;
·
cancel
multi-year contracts and related orders if funds become
unavailable;
·
shift
its spending priorities;
·
adjust
contract costs and fees on the basis of audits done by its agencies;
and
·
inquire
about and investigate business practices and audit compliance with
applicable rules and regulations.
Our
failure to obtain and maintain required certifications could impair our ability
to bid on aerospace and defense contracts.
We
are
required to maintain quality certification and to meet production standards
in
order to be eligible to bid on government contracts. If we fail to maintain
these certifications or any additional certification which may be required,
we
will be ineligible to bid for contracts which would impair our ability to
continue in business.
Because
many of our contracts provide for a fixed price, our failure to accurately
estimate costs could result in losses on the contracts.
In
bidding on fixed price contracts, we must accurately estimate the cost of
performance. To the extent that our costs exceed our estimate, we will lose
money on the contracts. Such cost overruns could result from a number of factors
including increases in costs of materials, an underestimation of the amount
of
labor required and design or production problems.
To
the extent that we subcontract work under our contracts, any failures by our
subcontractors could impair our relations with the contracting
agencies.
We
frequently use subcontractors to perform work or provide materials for our
contracts. We are dependent upon the subcontractors to meet the quality and
delivery requirements of the contracting agency. To the extent that the products
or services provided by the subcontractors do not meet the required
specifications or are delivered late, the contract may be terminated by the
U.S.
government for default. Such a default could result in our disqualification
from
bidding on contracts.
-6-
Product
malfunctions or breakdowns could expose us to liability, particularly in
connection with our remanufacturing of obsolete and old support
equipment.
The
risk
that the Company's support equipment may malfunction and cause loss of man
hours, damage to, or destruction of, equipment or delays is significant.
Consequently, the Company, as a manufacturer or remanufacturer of such support
equipment, may be subject to claims if such malfunctions or breakdowns occur.
In
remanufacturing activities, the Company deals with obsolete and old equipment
which increases the chance of product malfunctions or breakdowns. The Company
does not presently maintain product liability insurance. The Company is not
aware of any past or present claims against it.
Our
inability to attract and retain qualified engineering personnel could impair
our
ability to continue our business.
Our
business is dependent upon our engaging and retaining engineering personnel
with
experience in the aerospace and defense industries. To the extent that we are
unable to hire and retain these engineers, our ability to bid on and perform
contracts will be impaired.
We
rely on our senior executive officer, the loss of whom would materially impair
our operations.
We
are
dependent upon the continued employment of certain key employees, including
our
President and Chief Executive Officer, Zahir Teja. We have entered into an
employment agreement with Mr. Teja; however, the agreement does not assure
us
that he will continue to work for us since he may terminate his employment
agreement on 90 days' notice. The loss of Mr. Teja would materially impair
our
operations.
Because
of our small size and our relative lack of capital, we may have difficulty
competing for business.
We
compete for contract awards directly with a number of large and small domestic
and foreign defense contractors, including some of the largest national and
international defense companies, as well as a large number of smaller companies.
In addition, our relative lack of capital may continue to place us in a
competitive disadvantage.
A
default under the Kellstrom Settlement Agreement could have an adverse effect
on
our business.
As
described in more detail under the heading “LEGAL PROCEEDINGS”, the Company and
Mr. Teja have entered into a settlement agreement with Kellstrom Defense
Aerospace, Inc. This settlement agreement compromises a final judgment in the
amount of $1,173,913.25 entered into 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 agreed
to
make a number of installment payments to Kellstrom, issue Kellstrom a $500,000
purchase credit to be applied towards the purchase of materials and services
from the Company, and commit to making a further payment contingent upon the
Company being awarded a U.S. Air Force contract. If the Company fails to make
the required settlement payments, 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.
-7-
Risks
Relating To Our Common Stock
Any
additional funding we arrange through the sale of our common stock will result
in dilution to existing stockholders.
We
may
raise additional capital in order to effectuate our business plan. Our most
likely source of additional capital will be through the sale of additional
shares of common stock. Such stock issuances will cause stockholders' interests
in our company to be diluted. Such dilution will negatively affect the value
of
an investor's shares.
Because
of our small size, we may be exposed to potential risks resulting from new
requirements under Section 404 of the Sarbanes-Oxley Act of
2002.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, we will be required,
beginning with our fiscal year ending December 31, 2007, to include in our
annual report our assessment of the effectiveness of our internal control over
financial reporting as of the end of fiscal 2007. Furthermore, our independent
registered public accounting firm will be required to attest to whether our
assessment of the effectiveness of our internal control over financial reporting
is fairly stated in all material respects and separately report on whether
it
believes we have maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007. We have not yet
completed our assessment of the effectiveness of our internal control over
financial reporting. We expect to incur additional expenses and diversion of
management's time as a result of performing the system and process evaluation,
testing and remediation required in order to comply with the management
certification and auditor attestation requirements.
We
do not
have a sufficient number of employees to segregate responsibilities and may
be
unable to afford increasing our staff or engaging outside consultants or
professionals to overcome our lack of employees. During the course of our
testing, we may identify other deficiencies that we may not be able to remediate
in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance
with the requirements of Section 404. In addition, if we fail to achieve and
maintain the adequacy of our internal controls, as such standards are modified,
supplemented or amended from time to time, we may not be able to ensure that
we
can conclude on an ongoing basis that we have effective internal controls over
financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.
Moreover, effective internal controls, particularly those related to revenue
recognition, are necessary for us to produce reliable financial reports and
are
important to help prevent financial fraud. If we cannot provide reliable
financial reports or prevent fraud, our business and operating results could
be
harmed, investors could lose confidence in our reported financial information,
and the trading price of our common stock, if a market ever develops, could
drop
significantly.
Members
of the Teja family and the Nissenson family make and control corporate decisions
that may be disadvantageous to the minority stockholders.
Mr.
Zahir
Teja, our President, Chief Executive Officer and Director, and Neev Nissenson,
our Vice President, Secretary, and Director, directly or through their
respective members of their families, own an aggregate of approximately 75%
of
the outstanding shares of our common stock. Accordingly, they will have
significant influence in determining the outcome of all corporate transactions
or other matters, including the election of directors, mergers, consolidations
and the sale of all or substantially all of our assets, and a change in control.
The interests of Mr. Teja and/or Mr. Nissenson may differ from the interests
of
the other stockholders and thus result in corporate decisions that are
disadvantageous to other stockholders.
-8-
Currently,
there is no public market for our securities, and there can be no assurances
that any public market will ever develop.
Currently,
our stock is not listed or quoted on any public market, exchange, or quotation
system. Although we are taking steps to have our common stock publicly traded,
a
market for our common stock may never develop. We currently plan to apply for
quotation of our common stock on the OTCBB upon the effectiveness of the
registration statement of which this prospectus forms a part. However, our
shares may never be quoted on the OTCBB, or, if traded, a public market may
not
materialize. Even if we are successful in developing a public market, there
may
not be enough liquidity in such market to enable stockholders to sell their
stock. If our common stock is not quoted on the OTCBB or if a public market
for
our common stock does not develop, investors may not be able to re-sell the
shares of our common stock that they have purchased, rendering their shares
effectively worthless and resulting in a complete loss of their
investment.
We
are
planning to identify a market maker to file an application with the NASD on
our
behalf so as to be able to quote the shares of our common stock on the OTCBB
maintained by the NASD commencing upon the effectiveness of our registration
statement of which this prospectus is a part. There can be no assurance as
to
whether such market maker's application will be accepted by the NASD. We are
not
permitted to file such application on our own behalf. If the application is
accepted, there can be no assurances as to whether any market for our shares
will develop or the prices at which our common stock will trade. If the
application is accepted, we cannot predict the extent to which investor interest
in us will lead to the development of an active, liquid trading market. Active
trading markets generally result in lower price volatility and more efficient
execution of buy and sell orders for investors.
In
addition, our common stock is initially unlikely to be followed by any market
analysts, and there may be few institutions acting as market makers for the
common stock. Either of these factors could adversely affect the liquidity
and
trading price of our common stock. Until our common stock is fully distributed
and an orderly market develops in our common stock, if ever, the price at which
it trades is likely to fluctuate significantly. Prices for our common stock
will
be determined in the marketplace and may be influenced by many factors,
including the depth and liquidity of the market for shares of our common stock,
developments affecting our business, including the impact of the factors
referred to elsewhere in these Risk Factors, investor perception of our company,
and general economic and market conditions. No assurances can be given that
an
orderly or liquid market will ever develop for the shares of our common
stock.
Because
many of our shares are eligible for future sale, the selling of a substantial
amount might adversely affect the market price of the
shares
Sales
of
a substantial number of shares of common stock in the public market following
this offering could adversely affect the market price of such shares. Upon
the
consummation of this offering, the Company will have 6,996,000 shares of common
stock outstanding, of which the 3,768,750 shares of common stock offered hereby
by the selling stockholders will be freely tradeable without restriction or
further registration under the Securities Act. All of the remaining 3,227,250
shares of common stock outstanding are "restricted securities," as that term
is
defined under Rule 144 promulgated under the Securities Act, and in the future
may only be sold pursuant to a registration statement under the Securities
Act,
in compliance with the exemption revisions of Rule 144 (including, without
limitation, certain volume limitations and holding period requirements thereof)
or pursuant to another exemption under the Securities Act.
Because
we may be subject to “Penny Stock” Rules once our shares are quoted on the
OTCBB, the level of trading activity in our stock may be
reduced.
Broker-dealer
practices in connection with transactions in "penny stocks" are regulated by
penny stock rules adopted by the Securities and Exchange Commission. Penny
stocks generally are equity securities with a price of less than $5.00 (other
than securities registered on some national securities exchanges or quoted
on
Nasdaq). The penny stock rules require a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document that provides information about penny stocks and the
nature and level of risks in the penny stock market. The broker-dealer also
must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction,
and, if the broker-dealer is the sole market maker, the broker-dealer must
disclose this fact and the broker-dealer's presumed control over the market,
and
monthly account statements showing the market value of each penny stock held
in
the customer's account. In addition, broker-dealers who sell these securities
to
persons other than established customers and "accredited investors" must make
a
special written determination that the penny stock is a suitable investment
for
the purchaser and receive the purchaser's written agreement to the transaction.
Consequently, these requirements may have the effect of reducing the level
of
trading activity, if any, in the secondary market for a security subject to
the
penny stock rules, and investors in our common stock may find it difficult
to
sell their shares.
-9-
Our
stock price may be volatile because of factors beyond our control. As a result,
the value of your shares may decrease significantly.
Our
securities have not previously been publicly traded. The Company arbitrarily
valued its offering price. Following the offering, the market price of our
securities may decline substantially. In addition, the market price of our
securities may fluctuate significantly in response to a number of factors,
many
of which are beyond our control, including, but not limited to, the
following:
·
our
ability to obtain securities analyst coverage;
·
changes
in securities analysts' recommendations or estimates of our financial
performance;
·
changes
in market valuations of companies similar to us; and announcements
by us
or our competitors of significant contracts, new offerings, acquisitions,
commercial relationships, joint ventures or capital commitments;
and
·
the
failure to meet analysts' expectations regarding financial
performances.
Furthermore,
in the past, companies that have experienced volatility in the market price
of
their stock have been subject to securities class action litigation. A
securities class action lawsuit against us, regardless of its merit, could
result in substantial costs and divert the attention of our management from
other business concerns, which in turn could harm our business.
The
provisions of our charter documents and Nevada law may inhibit potential
acquisition bids that a stockholder may believe are desirable, and the market
price of our common stock may be lower as a result.
Our
articles of incorporation provides us with the ability to issue "blank check"
preferred stock enabling our Board of Directors to fix the price, rights,
preferences, privileges and restrictions of preferred stock without any further
action or vote by our stockholders. The issuance of preferred stock may delay
or
prevent a change in control transaction. As a result, the market price of our
common stock and the voting and other rights of our stockholders may be
adversely affected. The issuance of preferred stock may result in the loss
of
voting control to other stockholders.
The
Nevada Business Corporation Law contains a provision governing “Acquisition of
Controlling Interest.” This law provides generally that any person or entity
that acquires 20% or more of the outstanding voting shares of a publicly-held
Nevada corporation in the secondary public or private market may be denied
voting rights with respect to the acquired shares, unless a majority of the
disinterested stockholders of the corporation elects to restore such voting
rights in whole or in part. The provisions of the control share acquisition
act
may discourage companies or persons interested in acquiring a significant
interest in or control of the Company, regardless of whether such acquisition
may be in the interest of our stockholders.
-10-
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus and the documents incorporated by reference in this prospectus
contain certain forward-looking statements including statements as
to:
·
our
future operating results;
·
our
business prospects;
·
our
contractual arrangements and relationships with third
parties;
·
the
dependence of our future success on domestic defense
spending;
·
our
possible financings; and
·
the
adequacy of our cash resources and working
capital
are
based
on the beliefs of our management as well as assumptions made by and information
currently available to our management. Statements that are not based on
historical facts, which can be identified by the use of such words as “likely,”“will,”“suggests,”“target,”“may,”“would,”“could,”“anticipate,”“believe,”“estimate,”“expect,”“intend,”“plan,”“predict,” and similar expressions and
their variants, are forward-looking. Such statements reflect our judgment as
of
the date of this prospectus and they involve many risks and uncertainties,
including those described under the captions “RISK FACTORS” and “MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.” These
risks and uncertainties could cause actual results to differ materially from
those predicted in any forward-looking statements. Although we believe that
the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. Moreover, neither we nor any other person assumes responsibility
for the accuracy and completeness of these forward-looking statements. We
undertake no obligation to update forward-looking statements.
USE
OF PROCEEDS
We
will
not receive any proceeds from the sale of the common stock offered through
this
prospectus by the selling stockholders.
DETERMINATION
OF OFFERING PRICE
The
selling stockholders will sell our shares at $.50 per share until our shares
are
quoted on the OTCBB, and thereafter at prevailing market prices or privately
negotiated prices. This price was arbitrarily determined by us.
-11-
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
No
Public Market for Common Stock
There
is
presently no public market for our common stock. We anticipate applying for
quotation of our common stock on the OTCBB upon the effectiveness of the
registration statement of which this prospectus forms a part. However, we can
provide no assurance that our shares will be quoted on the OTCBB or, if quoted,
that a public market will materialize.
Holders
of Our Common Stock
As
of the
date of this registration statement, we have 74 stockholders of
record.
Rule
144 Shares
A
total
of 3,227,250 shares of our common stock will become available for resale to
the
public after one year from the date the registration statement of which this
prospectus forms a part is declared effective by the Securities and Exchange
Commission, subject to the volume and trading limitations of Rule 144, as
promulgated under the Securities Act of 1933. In general, under Rule 144 as
currently in effect, a person who has beneficially owned shares of a company's
common stock for at least one year is entitled to sell within any three month
period a number of shares that does not exceed the greater of:
·
1%
of the number of shares of the company's common stock then outstanding
which, in our case, will equal 69,960 shares as of the date of this
prospectus; or
·
the
average weekly trading volume of the company's common stock during
the
four calendar weeks preceding the filing of a notice on Form 144
with
respect to the sale.
Sales
under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about the
company.
Under
Rule 144(k), a person who is not one of the company's affiliates at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell shares
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144.
As
of the
date of this prospectus, persons who are our affiliates hold 4,303,000 of the
6,996,000 shares described above.
-12-
Stock
Option Grants
The
Company has granted Mr. Teja an option to purchase 660,000 shares of the
Company's common stock at a price per share of $.50. The option expires December31, 2010. The Company has granted Mr. Nissenson an option to purchase 330,000
shares of the Company's common stock at a price per share of $.50. The option
expires December 31, 2010. See “EXECUTIVE COMPENSATION-Employment Agreements.”The Company has granted Anney Business Corp., a British Virgin Island
corporation, an option to purchase 330,000 shares of the Company's common stock
at a price per share of $.50. See “EXECUTIVE COMPENSATION-Consulting Agreement.”
Each of the previously mentioned options was issued on April 26,2007. Under our retention agreement with Gersten Savage LLP, we
granted this Firm options to purchase 170,000 shares of common stock at an
option price of $1.00 per share. Aside from the forgoing, we have not granted
any stock options to date.
Registration
Rights
In
connection with three creditors signing debt conversion agreements with Phoenix
Aerospace, Inc., Phoenix Aerospace, Inc. has agreed to cause the Company to
grant each of them on one occasion at the Company's cost piggy back registration
rights. In this regard, the three creditors-Messrs. Kudlis, Moser, and
Shariff-are exercising their piggy back registration rights, and they are listed
under the heading “SELLING STOCKHOLDERS” in this prospectus. There is
no cash penalty under these registration rights agreements; however, if this
registration statement has not been declared effective within 12 months of
the
date of the applicable debt conversion agreement, the owner of the particular
shares of common stock has the right, on notice, to put such securities back
to
the Company. The put price for the shares is the amount of the debt. Aside
from
the foregoing, we have not granted registration rights to the selling
stockholders or to any other persons. See Note 3 to the Notes to the
Financial Statements for Phoenix International Ventures, Inc. for the year
end
December 31, 2006.
Dividends
and Dividend Policy
There
are
no restrictions in our articles of incorporation or by-laws that prevent us
from
declaring dividends. The Nevada Revised Statutes, however, do prohibit us from
declaring dividends where, after giving effect to the distribution of the
dividend:
·
we
would not be able to pay our debts as they become due in the usual
course
of business; or
·
our
total assets would be less than the sum of our total liabilities
plus the
amount that would be needed to satisfy the rights of stockholders
who have
preferential rights superior to those receiving the
distribution.
We
have
not paid any dividends on our common stock. We currently intend to retain any
earnings for use in our business, and therefore do not anticipate paying cash
dividends in the foreseeable future.
Securities
Authorized for Issuance under Equity Compensation Plans
We
have
no securities authorized for issuance under Equity Compensation
Plans.
DILUTION
The
common stock to be sold by the selling stockholders is common stock that is
currently issued and outstanding. Accordingly, there will be no dilution to
our
existing stockholders.
-13-
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
FORWARD-LOOKING
STATEMENTS
The
information set forth in Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") contains certain
"forward-looking statements", including, among others (i) expected changes
in
the Company's revenues and profitability, (ii) prospective business
opportunities and (iii) the Company's strategy for financing its business.
Forward-looking statements are statements other than historical information
or
statements of current condition. Some forward-looking statements may be
identified by use of terms such as "believes", "anticipates", "intends" or
"expects". These forward-looking statements relate to the plans, objectives
and
expectations of the Company for future operations. Although the Company believes
that its expectations with respect to the forward-looking statements are based
upon reasonable assumptions within the bounds of its knowledge of its business
and operations, in light of the risks and uncertainties inherent in all future
projections, the inclusion of forward-looking statements in this registration
statement 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 registration statement.
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 August7, 2006. PIV has no operations and operates as a holding company. The financial
statements are consolidated with the Company's Israeli subsidiary, Phoenix
Europe Ventures Ltd. PIV had no revenues for the year ended December 31,2006.
PIV's
General and Administrative costs for the year ended December 31, 2006 were
$42,793 and were primarily attributable to salaries and professional
expenses.
PIV's
net
loss for the year ended December 31, 2006 amounted to $42,845. The loss is
attributed to general and administrative expenses and lack of
income.
Phoenix Aerospace, Inc (PAI) was incorporated on April 18, 2003. The Company,
Zahir Teja, and Phoenix Aerospace, Inc. entered into a Share Exchange Agreement
dated as of December 1, 2006. As a result of this transaction, PAI became a
wholly owned subsidiary of the Company. The effective date of this transaction
was January 1, 2007. The foregoing transaction has been treated for accounting
purposes as a “reverse merger.”
The
principal business reason for the share exchange was to establish a holding
company structure. This structure, the Company believes, facilitates
future acquisitions and the opening up of new lines of business. Of
course, there can be no assurance that the Company will make any such
acquisitions or open up any such new lines of business.
PAI
manufactures support equipment for military aircraft which are used for
maintaining, operating or testing aircraft sub-systems. It manufactures 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.
PAI
is
ISO 9001/2000 certified. The Company has recently renewed the process and
extended its ISO 9001/2000 certificate until April 26, 2010. PAI has a licensing
agreement with Lockheed Martin Aeronautics Company to re-manufacture several
types of Support Equipment for P-3 Orion surveillance aircraft. PAI has a
marketing, sales and manufacturing agreement with Honeywell Aerospace GmbH
for
Air Start Cart, RST-184 which is used on various aircraft.
-14-
The
main
users of the equipment are the United States Air Force, US Navy and
defense-aerospace companies.
Financial
Information - Percentage of Revenues (PIV - Unaudited)
Revenues.
Revenues increased 385% to $458,515 for the three months ended March 31, 2007
compared to $94,558 for the three months ended March 31, 2006. Revenues were
geographically generated within the US. The increase in revenues is primarily
attributable to the procurement of new orders and programs by the
Company. Revenues attributable to repeat orders for the three month
period ended March 31, 2007 were approximately $137,300. For the
three months ended March 31, 2007, 70% of the revenues derived from product
sales, 25% study contracts and 5% from remanufacturing in comparison to the
three months ended March 31, 2006 in which 100% of its revenues were derived
from remanufacturing orders. The increase in product sales is due to a large
order from a customer, while the revenues from the study contracts in the three
months ended March 31, 2007 are connected to remanufacturing
activities.
For
the
three months ended March 31, 2007, three customers represented 100% of our
revenues. As of March 31, 2007, all of our revenues were derived from our
operations in the US.
Cost
of Sales. Cost of revenues consists primarily of sub contractors and
raw materials used in the manufacturing along with other related charges. Cost
of sales increased 346% to $281,418 for the three months ended March 31, 2007,
compared to $63,162 for the three months ended March 31, 2006, representing
61%
and 67% of the total revenues for three months ended March 31, 2007 and March31, 2006, respectively. This decrease in the percentage of cost of sales
relative to sales is due to economies of scale from the increase in sales as
the
fixed overhead costs were absorbed by a larger sales base of $458,515 for three
months ended March 31, 2007, compared to sales of $94,558 for the three months
ended March 31, 2006.
General
and Administrative Expenses. General and administrative expenses
increased by 66% to $227,317 for the three months ended March 31, 2007 from
$137,248 for the three months ended March 31, 2006. Te increase in
general and administrative costs are primarily attributable to additional
expenses related to the going public process. As a percentage of revenues,
general and administrative expenses decreased to 50% for the three months ended
March 31, 2007, as compared to 145% for three months ended March 31, 2006.
The
decrease in our general and administrative expenses as a percentage of sales
is
mainly attributable to economies of scale as the Company’s sales volume
increased while the fixed costs remained relatively constant.
-15-
Financing
Expenses. Financing expenses, net, increased to $4,047 for the three
months ended March 31, 2007 as compared to $3,048 for the three months ended
March 31, 2006.
(Loss)
before Taxes. Net loss before taxes for the three months ended March31, 2007 amounted to $54,267, as compared to a net loss of $109,260, for the
three months ended March 31, 2006.
Taxes
on Income PIV had immaterial tax liability from the Israeli subsidiary
for the three months ended March 31, 2007 as it had no income before
taxes.
Net
(Loss). Net loss for the three months ended March 31, 2007 was $54,276
as compared to a net loss of $109,260 for the same period in the year 2006.
The
decrease in loss is attributable primarily to an increase in sales of 385%
to
$458,515 for the three months ended March 31, 2007compared to $94,558 for the
three months ended March 31, 2007.
(Loss)
Per Share. The earning per share of common stock of Phoenix
International Ventures, Inc for three months ended March 31, 2007 was $0.01
(basic and diluted shares 6,600,000 issued and outstanding shares). The loss
per
share of common stock of Phoenix Aerospace, Inc, for the three months ended
March 31, 2007was $5.46 (basic and diluted shares 20,000 issued and outstanding
shares).
Current
Assets. Current assets amounted to $190,199 as of March 31, 2007 as
compared with $258,485 as of December 31, 2006. The decrease is primarily
attributable to decrease in accounts receivable.
Fixed
Assets. Fixed assets after accumulated depreciation amounted to $25,512
as of March 31, 2007, as compared with $25,164 as of December 31,2006.
Current
Liabilities. As of March 31, 2007, current liabilities decreased to
$1,080,516 as compared with $1,252,932 as of December 31, 2006.
Long-term
Liabilities. Long term liabilities were $1,075,549 as of March 31, 2007
were unchanged in comparison to December 31, 2006.
Officer
Advances. The Company had advances from a shareholder, Mr. Zahir Teja
who is also our CEO, of $569,363 as of March 31, 2007. $59,988 of these advances
are due on demand and $509,375 of these advances are non-interest bearing and
are payable to the shareholder on September 30, 2008.
Revenues.
Revenues increased 189% to $1,160,455 for the twelve months ended December31,2006, compared to $457,207 for the twelve months ended December 31, 2005. The
increase in revenues is primarily attributable to repeat orders totaling
$697,358 and new orders totaling $453,902 resulting from new contracts and
programs that the Company procured. For the twelve months ended December 31,2006, remanufacturing accounted for 55% of our revenues, manufacturing 11%,
study contracts 29% and product sales 5% in comparison to 91% remanufacturing,
2% manufacturing, 0% study contracts and 5% product sales for
the twelve months ended December 31, 2005. The decrease in the
percentage of remanufacturing is due to an increase in study contracts and
manufacturing orders. The significant increase in study contracts is a result
of
new contracts and programs the Company procured.
For
the
twelve months ended December 31, 2006, two customers represented 61% of our
revenues. As of December 31, 2006, all of our revenues were derived from our
operations in the US.
Cost
of Sales. Cost of revenues consists primarily of sub contractors and
raw materials used in the manufacturing process, along with other related
charges. Cost of sales increased 169% to $551,642 for the twelve months ended
December 31, 2006, compared to $204,852 for the twelve months ended December31,2005, representing 48% and 45% of the total revenues for the twelve months
ended
December 31, 2006 and December 31, 2005 respectively. The increase in costs
of
sales is due to a 189% increase in revenues.
General
and Administrative Expenses. General and administrative expenses
decreased by 29% to $657,902 for the twelve months ended December 31, 2006,
from
$923,274 for the twelve months ended December 31, 2005. As a percentage of
revenues, general and administrative expenses decreased to 57% for the twelve
months ended December 31, 2006, as compared to 203% for the twelve months ended
December 31, 2005. The decrease in our general and administrative expenses
is
mainly attributable to a legal judgment of $154,638 and professional legal
fees
in the twelve months ended December 31, 2005. The legal expenses for the twelve
months ended December 31, 2006 totaled $19,604 in comparison to $141,893 for
the
twelve months ended December 31, 2005.These legal and professional expenses
related to the specific legal action and did not recur in the twelve months
ended December 31, 2006.
Interest
Expense. Interest expense increased to $85,640 for the twelve months
ended December 31, 2006, as compared to $13,860 for the twelve months ended
December 31, 2005. The increase in our interest expense is mainly due to $42,261
in accrued interest on a legal settlement liability.
Income
before Taxes. Net loss before taxes for the twelve months ended
December 31, 2006 amounted to $131,017, as compared to a net loss of $688,017
for the twelve months ended December 31, 2005. The decrease in our net loss
is
primarily attributed to an increase in sales and a decrease in general and
administrative expenses.
Taxes
on IncomeThe Company had no tax liabilities for the twelve months
ended December 31, 2006 or 2005 since it incurred net losses in both
years.
Net
Income. Net loss for the twelve months ended December 31, 2006 was
$131,017 as compared to a net loss of $688,017 for the prior year. The decrease
in our loss is primarily attributed to an increase in sales and a decrease
in
general and administrative costs.
Earnings
(Loss) Per Share. The loss per share of common stock for the twelve
months ended December 31, 2006 was ($6.55) (basic and diluted shares). The
loss
per share of common stock for the twelve months ended December 31, 2005 was
($34.40) (basic and diluted shares).
Current
Assets. Current assets amounted to $258,485 as of December 31, 2006 as
compared with $118,423 as of December 31, 2005. This increase in our current
assets is mainly attributable to an increase in our accounts receivable caused
by an increase in sales for the year ended December 31, 2006.
Fixed
Assets. Fixed assets after accumulated depreciation decreased to
$25,164 as of December 31, 2006, as compared with $27,952 as of December 31,2005.
Current
Liabilities. As of December 31, 2006, current liabilities decreased to
$1,252,932 as compared with $1,623,853 as of December 31, 2005. This decrease
in
our current liabilities is mainly attributable to a conversion of a part of
a
major creditor's debt from short-term debt to long-term debt.
Long-term
Liabilities. Long term liabilities increased to $1,075,549 as of
December 31, 2006 compared to $436,337 as of December 31, 2005. This increase
in
liabilities is primarily due to an increase in officer advances of $167,628
and
conversion of $566,174 of a liability associated with a legal settlement to
long-term debt.
Officer
Advances. The Company had advances from a shareholder, Mr. Zahir Teja
who is also our CEO, of $573,965 as of December 31, 2006. These advances are
non-interest bearing. Of the outstanding balance, $64,590 is due on demand,
and
$509,375 is due September 30, 2008.
LIQUIDITY
AND CAPITAL RESOURCES
Cash
as of March 31, 2007, amounted to $7,429 as compared with $16,343 as of December31, 2006, a decrease of $8,914. Net cash used in operating activities for the
three months ended March 31, 2007, was $16,627. Net cash used
in financing activities for the three months ended March 31, 2007 was
$27,675.
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
-18-
The
Company leases its 10,000 square foot operating facility under a lease expiring
September 30, 2007. The lease contains two, three-year renewal options. Minimum
lease payments through September 30, 2007 are $61,869.
We
shall
continue to finance our operations mainly from the cash provided from operating
activities. As of March 31, 2007, the Company had a backlog of approximately
$2,152,000. Two of the orders are from two customers for the approximate amount
of $1,685,000 these orders are for time, material and agreed profit. The Company
collects a significant amount of these revenues on a monthly basis and progress
towards milestone billing. For these types of orders, which make up most of
the
Company's backlog, there is no need for the Company to finance materials and
labor. Additionally, management is expecting, although there can be no
assurance, that additional orders will come in. The senior management is also
willing to defer salary payments if necessary. As a result, the Company believes
it will have enough funds from its operations to support its operations for
the
Year 2007.
On
December 1, 2006, the Company entered into an agreement with Phoenix
International Ventures, Inc. ("PIV") wherein Phoenix Aerospace, Inc. would
become a wholly owned subsidiary of PIV. The effective date of this transaction
was January 1, 2007. In this arrangement, Phoenix International Ventures, Inc.
assumed the debt of three creditors totaling $198,000 and settled such
liabilities by issuing 396,000 ordinary shares, par value of $ 0.001 of PIV
for
the value of $ 0.50 per share.
We
may
consider raising additional capital through private and/or public placements
to
fund possible acquisitions and business development activities and for working
capital.
SEGMENTS
The
Company is active only in the segment of manufacturing, upgrading and
remanufacturing electrical, hydraulic and mechanical support equipment primarily
for the United States Air Force and Navy and the United States defense-aerospace
industry.
IMPACT
OF INFLATION AND CURRENCY FLUCTUATIONS
All
of
the Company's business is done in the US dollar and as such, the Company does
not have any issues with currency fluctuations. Costs of sales are mainly in
US
dollars.
Inflation
in the US where we operate would affect our operational results if we are not
able to match our revenues with growing expenses caused by
inflation.
-19-
If
the
rate of inflation causes a rise in salaries or other expenses and the market
conditions don't allow us to raise prices proportionally, it will have a
negative effect on the value of our assets and on our potential
profitability.
Recent
Accounting Pronouncements
In
June
2003, the Securities and Exchange Commission (“SEC”) adopted final rules under
Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Commencing with
our annual report for the year ended December 31, 2007, we will be required
to
include a report of management on our internal control over financial reporting.
The internal control report must include a statement.
·
of
management's responsibility for establishing and maintaining adequate
internal control over our financial
reporting;
·
of
management's assessment of the effectiveness of our internal
control over
financial reporting as of year
end;
·
of
the framework used by management to evaluate the effectiveness of
our
internal control over financial reporting;
and
·
that
our independent accounting firm has issued an attestation report
on
management's assessment of our internal control over financial reporting,
which report is also required to be
filed
In
December 2005 the SEC's advisory committee on small business recommended that
the SEC allow most companies with market values of less than $700 million to
avoid having their internal controls certified by auditors. The advisory
committee recommended that most companies with market capitalizations under
$100
million be exempted totally. It further recommended that companies with market
capitalizations of $100 million to $700 million not face audits of internal
controls. Some companies with large revenues but low market values would still
be required to comply with the act. There can be no assurances that these
proposals or similar proposals will be adopted.
In
November 2004, the Financial Accounting Standards Board (FASB) issued SFAS151
"Inventory Costs". This Statement amends the guidance in ARB No. 43, Chapter
4,
"Inventory Pricing”, to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage).
In
addition, this Statement requires that allocation of fixed production overhead
to the costs of conversion be based on the normal capacity of the production
facilities. The provisions of this Statement will be effective for the Company
beginning with its fiscal year ending December 31, 2007. The Company is
currently evaluating the impact this new Standard will have on its operations,
but believes that it will not have a material impact on the Company's financial
position, results of operations or cash flows.
-20-
In
December 2004, the FASB issued SFAS 153 "Exchanges of Non monetary Assets -
an
amendment of APB Opinion No. 29". This Statement amended APB pinion 29 to
eliminate the exception for non monetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of non monetary assets
that do not have commercial substance. A non monetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The adoption of this Standard is
not
expected to have any material impact on the Company's financial position,
results of operations or cash flows.
In
December 2004, the FASB issued SFAS No. 123(R), “Share-based Payment”. SFAS 123
(R) requires compensation costs related to share-based payment transactions
to
be recognized in the financial statements. With limited exceptions, the amount
of compensation cost will be measured based on the grant-date fair value of
the
equity or liability instruments issued. In addition, liability awards will
be
re-measured each reporting period. Compensation cost will be recognized over
the
period that an employee provides service in exchange for the award. FASB 123
(R)
replaces FASB 123, Accounting for Stock-Based Compensation and supersedes APB
option No. 25, Accounting for Stock Issued to Employees. This guidance is
effective as of the first interim or annual reporting period after December15,2005 for Small Business filers.
In
March
2005, the Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin No.107 (SAB 107) which provides guidance regarding the interaction
of
SFAS 123(R) and certain SEC rules and regulations. The new guidance includes
the
SEC's view on the valuation of share-based payment arrangements for public
companies and may simplify some of SFAS 123(R)'s implementation challenges
for
registrants and enhance the information investors receive.
In
August
2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections”. This
statement applies to all voluntary changes in accounting principle and to
changes required by an accounting pronouncement if the pronouncement does not
include specific transition provisions, and it changes the requirements for
accounting for and reporting them. Unless it is impractical, the statement
requires retrospective application of the changes to prior periods' financial
statements. This statement is effective for accounting changes and correction
of
errors made in fiscal years beginning after December 15, 2005.
In
February 2006, the FASB issued SFAS 155, “Accounting for Certain Hybrid
Financial Instruments.” This Statement amends FASB Statements No. 133,
Accounting for Derivative Instruments and Hedging Activities, and No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. This Statement resolves issues addressed in Statement 133
Implementation Issue No. D1, “Application of Statement 133 to Beneficial
Interests in Securitized Financial Assets.” This Statement:
a)
Permits
fair value remeasurement for any hybrid financial instrument that
contains
an embedded derivative that otherwise would require
bifurcation.
b)
Clarifies
which interest-only strips and principal-only strips are not subject
to
the requirements of Statement 133.
c)
Establishes
a requirement to evaluate interests in securitized financial assets
to
identify interests that are freestanding derivatives or that are
hybrid
financial instruments that contain an embedded derivative requiring
bifurcation.
d)
Clarifies
that concentrations of credit risk in the form of subordination are
not
embedded derivatives.
e)
Amends
Statement 140 to eliminate the prohibition on a qualifying special-purpose
entity from holding a derivative financial instrument that pertains
to a
beneficial interest other than another derivative financial
instrument.
-21-
The
fair
value election provided for in paragraph 4(c) of this Statement may also be
applied upon adoption of this Statement for hybrid financial instruments that
had been bifurcated under paragraph 12 of Statement 133 prior to the adoption
of
this Statement. Earlier adoption is permitted as of the beginning of our fiscal
year, provided we have not yet issued financial statements, including financial
statements for any interim period, for that fiscal year. Provisions of this
Statement may be applied to instruments that we hold at the date of adoption
on
an instrument-by-instrument basis.
Adoption
of this Statement is required as of the beginning of the first fiscal year
that
begins after September 15, 2006. The adoption of this statement is not expected
to have a material impact on the Company's financial statements.
In
March
2006, the FASB issued SFAS 156, “Accounting for Servicing of Financial Assets.”
This Statement amends FASB Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, with respect
to the accounting for separately recognized servicing assets and servicing
liabilities. This Statement:
a)
Requires
an entity to recognize a servicing asset or servicing liability each
time
it undertakes an obligation to service a financial asset by entering
into
a servicing contract in certain
situations.
b)
Requires
all separately recognized servicing assets and servicing liabilities
to be
initially measured at fair value, if
practicable.
c)
Permits
an entity to choose either the amortization method or the fair value
measurement method for each class of separately recognized servicing
assets and servicing liabilities.
d)
At
its initial adoption, permits a one-time reclassification of
available-for-sale securities to trading securities by entities with
recognized servicing rights, without calling into question the treatment
of other available-for-sale securities under Statement 115, provided
that
the available-for-sale securities are identified in some manner as
offsetting the entity's exposure to changes in fair value of servicing
assets or servicing liabilities that a servicer elects to subsequently
measure at fair value.
e)
Requires
separate presentation of servicing assets and servicing liabilities
subsequently measured at fair value in the statement of financial
position
and additional disclosures for all separately recognized servicing
assets
and servicing liabilities.
Adoption
of this Statement is required as of the beginning of the first fiscal year
that
begins after September 15, 2006. The adoption of this statement is not expected
to have a material impact on the Company's financial statements.
In
September 2006, the FASB issued Statement No. 157, "Fair Value Measurements".
This Statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosure about
fair value measurement. The implementation of this guidance is not expected
to
have any impact on the Company's financial statements.
In
September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 158, "Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements
No. 87, 106, and 132(R)" ("SFAS No. 158"). SFAS No. 158 requires companies
to
recognize a net liability or asset and an offsetting adjustment to accumulated
other comprehensive income to report the funded status of defined benefit
pension and other postretirement benefit plans. SFAS No. 158 requires
prospective application, recognition and disclosure requirements effective
for
the Company's fiscal year ending December 31, 2007. Additionally, SFAS No.
158
requires companies to measure plan assets and obligations at their year-end
balance sheet date. This requirement is effective for the Company's fiscal
year
ending December 31, 2009. The Company is currently evaluating the impact of
the
adoption of SFAS No. 158 and does not expect that it will have a material impact
on its financial statements.
-22-
In
September 2006, the United States Securities and Exchange Commission ("SEC"),
adopted SAB No. 108, "Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements." This SAB
provides guidance on the consideration of the effects of prior year
misstatements in quantifying current year misstatements for the purpose of
a
materiality assessment. SAB 108 establishes an approach that requires
quantification of financial statement errors based on the effects of each of
the
company's balance sheet and statement of operations financial statements and
the
related financial statement disclosures. The SAB permits existing public
companies to record the cumulative effect of initially applying this approach
in
the first year ending after November 15, 2006 by recording the necessary
correcting adjustments to the carrying values of assets and liabilities as
of
the beginning of that year with the offsetting adjustment recorded to the
opening balance of retained earnings. Additionally, the use of the cumulative
effect transition method requires detailed disclosure of the nature and amount
of each individual error being corrected through the cumulative adjustment
and
how and when it arose. The Company is currently evaluating the impact, if any,
that SAB 108 may have on the Company's results of operations or financial
position.
In
July
2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty
in
Income Taxes-an interpretation of FASB Statement No. 109." This Interpretation
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to
be
taken in a tax return. This Interpretation also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. The Interpretation is effective for fiscal
years beginning after December 15, 2006 and the Company is currently evaluating
the impact, if any, that FASB No. 48 may have on the Company's results of
operations or financial position.
Critical
Accounting Policies
The
preparation of financial statements and related notes requires us to make
judgments, estimates, and assumptions that affect the reported amounts of
assets, liabilities, revenue and expenses, and related disclosure of contingent
assets and liabilities. An accounting policy is considered to be critical if
it
requires an accounting estimate to be made based on assumptions about matters
that are highly uncertain at the time the estimate is made, and if different
estimates that reasonably could have been used, or changes in the accounting
estimates that are reasonably likely to occur periodically, could materially
impact the financial statements.
Financial
Reporting Release No. 60 requires all companies to include a discussion of
critical accounting policies or methods used in the preparation of financial
statements. Note 1 to the financial
statements, included elsewhere in this prospectus, includes a summary of the
significant accounting policies and methods used in the preparation of our
financial statements. The following is a brief discussion of the more
significant accounting policies and methods used by us.
Financial
Instruments
The
carrying value of certain financial instruments approximated their fair values.
These financial instruments include cash, accounts receivable, accounts payable
and accrued expenses, and notes payable. Fair values are assumed to approximate
carrying values for these financial instruments because they are short term
in
nature, or are receivable or payable on demand, and their carrying amounts
approximate fair value. The carrying value of the Company's notes payable
approximates fair values of similar debt instruments.
Impairment
of Long-Lived Assets
The
Company periodically reviews the carrying amount of long lived assets to
determine whether current events or circumstances warrant adjustments to such
carrying amounts. If an impairment adjustment is deemed necessary, such loss
is
measured by the amount that the carrying value of such assets exceeds their
fair
value. Considerable management judgment is necessary to estimate the fair value
of assets; accordingly, actual results could vary significantly from such
estimates. Assets to be disposed of are carried at the lower of their financial
statement carrying amount or fair value less costs to sell.
-23-
Revenue
Recognition
Revenue
from product sales is recognized when delivery has occurred, persuasive evidence
of an agreement exists, the vendor fee is fixed or determinable, and no further
obligation exists and collectability is probable. Generally, title passes on
the
date of shipment or delivery, depending on the terms of sale. Cost of goods
sold
consists of the cost of raw materials and labor related to the corresponding
sales transaction. Revenue from services is recognized when the service is
completed.
The
Company has the same revenue recognition policy for manufacturing,
re-manufacturing and upgrading activities. In the event that equipment is
supplied (and not owned or bought by the Company) by the customer for
re-manufacturing and upgrading activity the Company bills only for the net
agreed fixed price for upgrade and remanufacturing and correspondingly
recognizes that revenue.
In
a
certain study contract, the Company bills the customer for time, material and
agreed profit on a monthly basis (as income earned); revenue is recognized
when
the Company invoices the customer. In other study contractthe Company bills
the
client on progress towards milestone basis (as income earned). In such
occurrences the Company reports its progress to the customer and invoices it.
Revenue is recognized when the customer is invoiced.
Net
(Loss) per Common Share
The
Company follows SFAS 128, “Earnings per Share”. Basic earnings (loss) per common
share calculations are determined by dividing net income (loss) by the weighted
average number of shares of common stock outstanding during the year. Diluted
earnings (loss) per common share calculations are determined by dividing net
income (loss) by the weighted average number of common shares and dilutive
common share equivalents outstanding. During the periods when they are
anti-dilutive, common stock equivalents, if any, are not considered in the
computation.
-24-
BUSINESS
General
Phoenix
International Ventures, Inc. was formed to invest and develop business in the
fields of aerospace and defense. We, through our wholly owned subsidiary,
Phoenix Aerospace, Inc., manufacture, upgrade and remanufacture electrical,
hydraulic and mechanical support equipment primarily for the United States
Air
Force and Navy and the United States defense-aerospace industry. Currently
our
support equipment is used to maintain or operate various aircrafts or aircraft
systems, such as the F-22 fighter and F16 fighter, which are in current
production and the P-3 surveillance plane, and various other `legacy' aircraft,
which are no longer in current production.
Some
of
the support equipment for a number of weapon systems in current production,
as
well as `legacy' weapon systems-such as the previously mentioned aircraft and
aircraft systems-is in need of overhaul or are obsolete and need to be replaced.
The Company remanufactures some of the existing support equipment, which is
in
need of overhaul or facing components obsolescence issues and also manufactures
new support equipment. However, frequently new support equipment is often either
not available, has long delivery lead times, or very expensive to purchase.
Upgrading and remanufacturing of existing support equipment thus becomes an
alternative. Our remanufacturing process for existing support equipment is
designed to respond to this market.
Our
remanufacturing process involves breaking down the support equipment for
analysis, replacing or refurbishing broken or defective components, rebuilding
the support equipment, and finally testing the support equipment so that it
has
the same form, fit and function of the original support equipment in accordance
with the original manufacturer's specifications.
The
Military Market
The
U.S. military market which we contract with and seek to contract with includes
two branches of the U.S. military-the U.S. Air Force and the U.S. Navy-and
a
number of contractors who have extensive business relationships with branches
of
the U.S. military.
The
U.S.
military market is largely dependent upon government budgets, particularly
the
defense budget. The funding of government programs is subject to Congressional
appropriation. While U.S. defense contractors have benefited from an upward
trend in overall defense spending in the last few years, the ultimate size
of
future defense budgets remains uncertain, current indications are that the
total
defense budget will increase over the next few years. However, Department of
Defense programs in which we participate, or in which we may seek to participate
in the future, must compete with other programs for consideration during our
nation's budget formulation and appropriation processes. Budget decisions made
in this environment may have long-term consequences for our size and structure
and that of the defense industry. While we believe that our programs are a
high
priority for national defense, there remains the possibility that one or more
of
our programs will be reduced, extended, or terminated. Reductions in our
existing programs, unless offset by other programs and opportunities, could
adversely affect our ability to grow our revenues and profitability. Although
multi-year contracts may be authorized in connection with major procurements,
Congress generally appropriates funds on a fiscal year basis even though a
program may be expected to continue for several years. Consequently, programs
are often only partially funded and additional funds are committed only as
Congress makes further appropriations.
The
U.S. Government and U.S. Defense Contractors Contracting
Process
The
Company's U.S. government contracts are obtained through the Department of
Defense procurement process as governed by the Federal Acquisition Regulations
and related regulations and agency supplements, and are historically fixed-price
contracts. This means that the price is agreed upon before the contract is
awarded and we assume complete responsibility for any difference between
estimated and actual costs. For the fiscal year ended December 31, 2005, all
of
our revenues were derived from fixed-price contracts. Subsequent to September30, 2006, the Company has entered into several cost plus contracts. This means
that under the applicable agreement, the Company is entitled to be reimbursed
for its costs and is entitled to be paid a fixed rate of return. What
constitutes reimbursable costs and the prescribed rate of return is ordinarily
subject to negotiation.
-25-
Under
the
Truth in Negotiations Act of 1962 (the “Negotiations Act”), the U.S. government
has the right for three years after final payment on certain negotiated
contracts, subcontracts and modifications, to determine whether the Company
furnished the U.S. government with complete, accurate and current cost or
pricing data as defined by the Negotiations Act. If the Company fails to satisfy
this requirement, the U.S. government has the right to adjust a contract or
subcontract price by the amount of any overstatement as defined by the
Negotiations Act.
U.S.
government contracts permit the U.S. government to unilaterally terminate these
contracts at its convenience. In the event of such termination, we are entitled
to reimbursement for certain expenditures and overhead as provided for in
applicable U.S. government procurement regulations. Generally, this results
in
the contractor being reasonably compensated for work actually done, but not
for
anticipated profits. The U.S. government also may terminate contracts for cause
if the Company fails to perform in strict accordance with contract terms.
Termination of, or elimination of appropriation for, a significant government
contract could have a material adverse effect on our business, financial
condition and results of operations in subsequent periods. Similarly, U.S.
government contracts typically permit the U.S. government to change, alter
or
modify the contract at its discretion. If the U.S. government were to exercise
this right, the Company could be entitled to reimbursement of all allowable
and
allocable costs incurred in making the change plus a reasonable
profit.
Depending
on the size, complexity, and duration of the particular agreement, the U.S.
government may either pay for the manufactured or remanufactured product upon
delivery and acceptance thereof or pay for the manufactured or remanufactured
product in installments upon the accomplishment of specified
milestones.
Ordinarily,
a prospective vendor looking to do business with the U.S. Department of Defense
or with U.S. defense contractors has to prepare the company to be ISO
(International Standard Organization) certified. This means that it has to
have
proper written management procedures on all facets of its business including
but
not limited to, quoting to a customer, receiving purchase orders, issuing
purchase orders, issuing work orders, tracking work orders, quality control
for
incoming materials and outgoing finished goods and inspections and acceptance,
etc. and that the vendor is operating its business following these
procedures.
Once
a
vendor has these management procedures in place, it has to engage the services
of an independent certified company that is qualified to audit these procedures
and confirm that the vendor is following them in its day-to-day operations.
This
will result in a vendor being ISO certified. This certification does not mean
that the vendor has technical capabilities or the ability to perform on a
contract. This certification informs a potential customer that the company
has
written procedures and that it follows them to conduct its day-to-day
business.
To
obtain
this certification is burdensome and time consuming because the vendor has
to
have a full complement of personnel in different departments who are able to
perform tasks per the written procedures; all the while no revenues are
generated. The Company has already received this certification in 2003, which
certification was recently renewed, effective April 26, 2007, for an additional
three year period.
Once
a
vendor is ISO certified, a vendor is in a position to solicit business from
a
defense contractor (customer), who frequently has its own quality assurance
program. Typically, for the first contract/purchase order, if the customer
decides it wants to procure goods and services from a vendor, then the customer
prior to issuing a contract/purchase order would schedule to send (generally
at
its own expense), an inspector or team of inspectors to go to the vendor
facility and determine for itself, using its own criteria: the technical
capabilities, facilities, quality assurance procedures etc. Once satisfied,
then
and only then they will issue a purchase order. This is done at the expense
of
the customer and the customer will only spend money for this expense, if it
determines that the vendor has the possibility to supply goods and services
that
is beneficial to the customer.
This
appraisal of the vendor by a customer prior to issuing a contract/purchase
order
to the vendor gives the customer reasonable assurance that the goods and
services it is procuring from a vendor will be delivered to them in the manner
prescribed in the contract/purchase order. Especially in the current acquisition
method where goods and services are purchased with just-in-time-delivery,
whereby the customers wants to receive the goods and services just when it
needs
to deliver to its clients, instead of tying up resources and putting them in
inventory.
-26-
Products
and Services
Our
support equipment is used to maintain or operate various aircrafts or aircraft
systems, such as the F-22 fighter and F16 fighter, each of which is in current
production and the P-3 surveillance plane and various other `legacy' aircraft
which are no longer in current production.
We
have
remanufactured or are currently remanufacturing (a) for the U.S. Navy, BR-61
electrical/electronic Test Sets, used to test aircraft environmental systems
for
the P-3 surveillance plane, (b) for Lockheed Martin, MJ1A Weapons loaders
(multi-platform) for use by the U.S. Air Force, and (c) for Lockheed Martin,
A/M32A-95 Air Start Carts (multi-platform) for the U. S. Air Force's F-22
fighter . With respect to each of the previously
described programs, we break down the support equipment for analysis, replacing
or refurbishing broken or defective components, rebuilding the support
equipment, and finally testing the support equipment so that it has the same
form, fit and function of the original support equipment in accordance with
the
original manufacturer's specifications.
We
are
currently manufacturing (a) for Northrop Grumman Corporation, new RST-184 Air
Start Carts (multi-platform), (b) for the U.S. Navy, new test set adaptors
(Time
Domain Reflectometer Adaptors), and (c) for the U.S. Air Force, new Pitot
Adaptor Sets, used to check air speed systems.
On
occasion, the Company has been engaged by a branch of the U.S. military, to
perform a feasibility study for various different items of support equipment
to
address obsolescence issues and recommend solutions to extend service life
for
the item of support equipment analyzed. Once the recommended solution is
approved by the branch of the U.S. military, then the Company would be requested
to manufacture several units of each item as proof of concept.
One
of
the outgrowths of such a study is the potential to be awarded a contract to
implement the study's recommendations.
Market
Opportunity and Strategy
Management
believes that the scope of the market opportunity for manufacturing and
remanufacturing/refurbishing support equipment for the U.S. military market
is
viable. The viability of the business opportunity is supported by the following
market characteristics:
·
the
aging support equipment in the field at large;
·
the
growing demand for U.S. military preparedness given the current global
political climate;
·
the
surge in defense spending from a little over $300 billion before
the
September 11, 2001 attacks on the United States to over $400 billion
annually; and
·
the
U.S. military's insistence that defense contractors operate efficiently
and timely to deliver the much needed military
equipment.
-27-
It
is difficult to determine what portion of the above referenced defense spending
will be allocated to manufacturing, remanufacturing, and refurbishing of support
equipment. Moreover, there is no assurance that the previously set forth market
characteristics will not change. See “RISK
FACTORS- Demand for our defense-related
products depends on government spending” and “BUSINESS-U.S. Military
Market” .
The
military market is currently dominated by major players such as Lockheed Martin
Corporation, Honeywell International Inc., Northrop Grumman Corporation, and
DRS, Inc. The Company has no intention to compete with these large defense
contractors, rather it seeks to establish approved contractor, licensing, and
teaming relationships with defense contractors such as Lockheed Martin and
Honeywell. Management believes that these contractual relationships, coupled
with the Company being designated a U.S. Navy and U.S. Air Force “Prime
Contractor” and a U.S. Navy Designated Repair Depot for certain support
equipment, will facilitate the Company's ability to successfully bid on and
timely complete contracts with branches of the U.S. military.
Customization
Customization
of our products is not a material aspect of our business.
Supply
and Manufacturing
The
Company's design, engineering and assembly facilities are located in its Carson
City, Nevada headquarters. These facilities comply with certain U.S. military
requirements necessary for the manufacture and assembly of products supplied
to
it and the Company has qualified its facility in order to meet the quality
management and assurance standards (ISO-9001)/2000) of the International
Organization for Standardization, an international rating
organization.
In
the course of its remanufacturing process for a particular product, the Company
must obtain replacement parts for worn out or defective components. In this
circumstance, we may seek to purchase the replacement component from the
original manufacturer or a distributor. Except as described below, we are not
ordinarily a party to any formal written contract regarding the deliveries
of
supplies and components or their fabrication. The Company usually purchases
such
items pursuant to written purchase orders of both individual and blanket
variety. Blanket purchase orders usually entail the purchase of a larger amount
of items at fixed prices for delivery and payment on specific
dates.
The
Company relies on suppliers located in the United States and Europe. Certain
components used in its products are obtained from sole sources. We have
occasionally experienced delays in deliveries of components and may experience
similar problems in the future. In an attempt to minimize such problems when
the
Company secures a contract, which involves parts that are generally more
difficult to obtain, the Company may obtain the parts and keep them in
inventory. However, any interruption, suspension or termination of component
deliveries from the Company's suppliers could have a material adverse effect
on
its business.
Ordinarily,
the Company will not agree to remanufacture a particular support unit unless
Management believes that there are readily available sources of supply. Although
Management believes that in nearly every case alternate sources of supply can
be
located, inevitably a certain amount of time would be required to find
substitutes. During any such interruption in supplies, the Company may have
to
curtail the production and sale of the affected products for an indefinite
period.
The
Company entered into an arrangement with a defense equipment manufacturer in
October, 2003 concerning licensing such manufacturer's technical data in
connection with the repair/refurbishment of P-3 support equipment for sale to
the U.S. government. This agreement is a non-transferable, non-exclusive royalty
bearing license. Royalties related to sales of the support equipment are to
be
paid by the Company to the particular licensor for a term of five years. The
respective parties' performance is subject to other terms, conditions and
restrictions, including, without limitation, the maintenance of certain quality
standards.
-28-
The
Company entered into a purchase agreement and related license and technical
assistance agreements dated June, 2005 with a defense equipment manufacturer
concerning the assembly and sale of a ground power unit comprised of a cart,
a
control panel, a turbine engine, an electrical generator, and other components.
Under the agreement, the Company is the designated supplier of this ground
power
unit for North America and for any other foreign military sales customer
requirements through North American defense contractors. The defense
manufacturer is required to provide kits comprised of specified components
and
the Company procures certain other components of the ground power units. The
term of the agreement is three years subject to the Company's compliance with
various terms and conditions.
Warranty
and Customer Service
The
Company usually provides one-year warranties on all its products covering both
parts and labor although extended warranties may be purchased by customers.
At
its option, the Company repairs or replaces products that are defective during
the warranty period if the proper usage and preventive maintenance procedures
have been followed by its customers. Repairs that are necessitated by misuse
of
such products or are required beyond the warranty period are not covered by
its
normal warranty.
In
cases
of defective products, the customer typically returns them to the Company's
Carson City, Nevada facility. Its service personnel then replace or repair
the
defective items and ship them back to the customer. Generally, all servicing
is
done at the Company's plant, and it charges its customers a fee for those
service items that are not covered by warranty. Except for its extended
warranties, it does not offer its customers any formal written service
contracts.
Marketing
and Sales
The
Company markets its products and services through direct contact with officials
of branches of the U.S. military and officials of various major defense
contractors. In addition the Company promotes its products and services through
the dissemination of product literature to potential customers and the
attendance and exhibition at trade shows and seminars. The Company does not
have
an internal sales force specifically dedicated to the sales and marketing of
the
Company's products and services. The Company does not advertise in trade
periodicals. Management believes that most of the Company's sales leads are
generated by word-of-mouth referrals.
In
the
military market, the sales cycle for the Company's products usually entails
a
number of complicated steps and can take from six months to two years. The
sales
cycle in the commercial markets is generally not as complex or time consuming,
but still may take as long as two years. Sales to the military and government
markets are greatly influenced by special budgetary and spending factors
pertinent to these organizations.
Customers
The
Company sells its products, directly or indirectly, primarily to the U.S.
military market and large aerospace and military contractors supplying the
U.S.
military market.
-29-
The
following chart sets forth for the fiscal period indicated the names of the
Company's five largest customers and their respective percentages of the
Company's total sales
Name
Fiscal
Period
%
of Total Sales
Twelve
Months Ended:
2006
Lockheed
Martin
36
U.S.
Air Force
24
Kellstrom
11
U.S.
Navy
10
Honeywell
Aerospace
6
2005
Honeywell
Aerospace
58
U.S.
Navy
22
Honeywell
GmbH
16
U.S.
Air Force
2
The
loss
of any of these customers could have a material adverse impact on the Company's
business.
-30-
Competition
The
Company competes in its market against other concerns, most of which are larger
and have greater financial, technical, marketing, distribution and other
resources than the Company. It competes on the basis of service, performance,
reliability, price, and deliveries.
The
Company encounters competition from Lockheed Martin Corporation, Boeing
Corporation, Honeywell Aerospace GmbH, United Technologies Corporation, Northrop
Grumman Corporation, and DRS, Inc. as well as from Engineered Support Systems,
Inc. and Logistical Support, Inc. See "RISK
FACTORS-Competition".
In
the
military and government markets, the Company will often be engaged, directly
or
indirectly, in the process of seeking competitive bid or negotiated contracts
with government departments and agencies. These government contracts are subject
to the Federal Acquisition Regulations with which the Company may have
difficulty complying. However, the Company is often one of only a few companies
whose products meet the required specifications designated by such
customers.
Management
believes that there are a number of barriers to entry into the military market.
A would-be entrant would ordinarily, first need to obtain ISO9000 or applicable
ISO certification. Then, customers in the U.S. defense industry and U.S.
government departments would then certify such entrant's facilities, technical
capabilities, and quality assurance program before such entrant can qualify
to
do business. The startup costs, Management believes, to get certified and to
become an approved vendor are substantial. In addition, the would-be entrant
must become familiar with and be willing to accept the risks of the U.S.
government military procurement system described elsewhere in this prospectus.
See “BUSINESS-The U.S. Government and U.S. Defense Contractors Contracting
Process” above and “BUSINESS-Government Regulations and Contracts; Compliance
with Government Regulation” below.
Management
believes that the Company has the following competitive advantages over would-be
entrants into the U.S. military markets. It is a:
·
Lockheed
Martin Aeronautics Company Licensee;
·
Lockheed
Martin Aeronautics Company approved vendor;
·
Lockheed
Martin Simulation, Training and Support approved
vendor;
·
Lockheed
Martin Air Logistics Center approved vendor;
·
U.S.
Navy Prime Contractor;
·
U.S.
Navy Designated Depot Repair Center for Certain Support
Equipment;
-31-
·
U.S.
Air Force Prime Contractor;
·
Honeywell
Aerospace GmbH approved vendor;
·
Honeywell
Aerospace GmbH Licensee;
·
Northrop
Grumman approved vendor;
·
ISO
9001/2000 Certified; and
·
Experienced
with the U.S. government contracting
process.
Backlog
As
of
March 31, 2007, the Company's backlog was $2,152,000 as compared with backlog
of
$511,000 as of March 31, 2006. Four customers accounted for approximately 47%,
32%, 17%, and 3% of such backlog as of March 31, 2007. The Company presently
expects to manufacture and deliver most of the products in backlog within the
next 12 months.
Substantially
all the Company's backlog figures are based on written purchase orders or
contracts executed by the customer and involve product deliveries. All orders
are subject to cancellation. However, in that event, the Company is generally
entitled to reimbursement of its cost and negotiated profits; provided that
such
contract would have been profitable.
Research
and Development Activities
The
Company does not devote a material amount of time to separate research and
development activities.
Intellectual
Property
To
date,
Company generated proprietary information and know-how are an important aspect
to the Company's commercial success. Although the Company does not have a
separate research and development department, the Company nevertheless obtains
important proprietary information and know-how in connection with the
fulfillment of its obligations under its agreements with the U.S government
and
defense contractors. The Company has entered into two licensing arrangements
whereby the specified U.S. defense contractor has agreed to share its technical
data under licensing agreements concerning the sale of particular support
equipment to a branch of the U.S. military. The Company holds no patents or
copyrights and does not have trademark protection for the Phoenix International
Ventures or Phoenix Aerospace names. The Company requires each of its employees
to sign confidential information agreements. There can be no assurance that
others will not either develop independently the same or similar information
or
obtain and use proprietary information used by the Company.
-32-
Management
believes that its products do not infringe the proprietary rights of third
parties. In this regard, the Company seeks to obtain representations and
warranties of non-infringement from persons with respect to whom the Company
enters into technical data licensing agreements. There can be no assurance,
however, that third parties will not assert infringement claims against it
in
the future or be successful in asserting such claims.
The
Company has two wholly owned subsidiaries: Phoenix Aerospace, Inc., a Nevada
corporation, and Phoenix Europe Ventures, Ltd., an Israeli
corporation.
Government
Regulations and Contracts; Compliance with Government
Regulation
Due
to
the nature of the products designed, manufactured and sold by the Company for
military applications, it is subject to certain U.S. Department of Defense
regulations. In addition, commercial enterprises engaged primarily in supplying
equipment and services, directly or indirectly, to the United States government
are subject to special risks such as dependence on government appropriations,
termination without cause, contract renegotiation and competition for the
available Department of Defense business. The Company has no material Department
of Defense contracts, however that are subject to renegotiation in the
foreseeable future and is not aware of any proceeding to terminate material
Department of Defense contracts in which it may be indirectly involved. In
addition, many of the Company's contracts provide for the right to audit its
cost records and are subject to regulations providing for price reductions
if
inaccurate cost information was submitted by the Company.
Government
contracts governing the Company's products are often subject to termination,
negotiation or modification in the event of changes in the government's
requirements or budgetary constraints. A majority of the products sold by the
Company for government applications are sold to companies acting as contractors
or subcontractors and not directly to government entities. Agreements with
such
contractors or subcontractors generally are not conditioned upon completion
of
the contract by the prime contractor. To the extent that such contracts are
so
conditioned, a failure of completion may have a material adverse effect on
the
Company's business. Currently, it does not have any contracts so
conditioned.
The
contracts for sale of its products are generally fixed-priced contracts. This
means that the price is set in advance and generally may not be varied. Such
contracts require the Company to properly estimate its costs and other factors
prior to commitment in order to achieve profitability and compliance. The
Company's failure to do so may result in unreimbursable cost overruns, late
deliveries or other events of non-compliance.
Under
certain circumstances, the Company is also subject to certain U.S. State
Department and U.S. Department of Commerce requirements involving prior
clearance of foreign sales. Such export control laws and regulations either
ban
the sale of certain equipment to specified countries or require U.S.
manufacturers and others to obtain necessary federal government approvals and
licenses prior to export. As a part of this process, the Company, in the event
it engages foreign distributors, would generally require such foreign
distributors to provide documents which indicate that the equipment is not
being
transferred to, or used by, unauthorized parties abroad.
The
Company and its agents are also governed by the restrictions of the Foreign
Corrupt Practices Act of 1977, as amended, ("FCPA") which prohibits the promise
or payments of any money, remuneration or other items of value to foreign
government officials, public office holder, political parties and others with
regard to the obtaining or preserving commercial contracts or orders. The
Company has required its foreign distributors to comply with the requirements
of
FCPA All these restrictions may hamper the Company in its marketing efforts
abroad.
-33-
The
Company's manufacturing operations are subject to various federal, state and
local laws, including those restricting or regulating the discharge of materials
into the environment, or otherwise relating to the protection of the
environment. The Company is not involved in any pending or threatened
proceedings which would require curtailment of, or otherwise restrict its
operations because of such regulations, and compliance with applicable
environmental laws has not had a material effect upon its capital expenditures,
financial condition or results of operations.
Management
believes that although compliance with applicable federal laws and regulations
involves certain additional procedures by the Company that would not otherwise
be required, such compliance has not generally inhibited or limited the
Company's ability to enter into material contracts.
Employees
As
of
June 1, 2007, the Company had five full time employees, including two officers,
and also had two part time employees, including one officer. Five of these
employees were engaged in operations and two were engaged in administration,
marketing, and business development.
None
of
its employees are covered by a collective bargaining agreement or are
represented by a labor union. The Company considers its relationship with its
employees to be satisfactory.
The
design and manufacture of the Company's equipment requires substantial technical
capabilities in many disparate disciplines from engineering, mechanics and
electronics. While management believes that the capability and experience of
its
technical employees compares favorably with other similar manufacturers, there
can be no assurance that it can retain existing employees or attract and hire
the highly capable technical employees necessary in the future on terms deemed
favorable to it, if at all. See "RISK FACTORS-Our inability to attract and
retain qualified engineering personnel could impair our ability to continue
our
business."
Properties
and Facilities
The
Company leases a 10,000 square foot facility located at 2201 Lockheed Way,
Carson City, Nevada, which is used as its principal corporate headquarters
and
manufacturing plant. This facility, which is considered adequate for present
and
anticipated future needs, is a one story, brick building in a
commercial-industrial area. The lease on this space terminates on September30,2007. At the Company's option, the lease may be extended for two successive
three-year terms, so long as the Company is not in default under the lease.
The
lease provides for a fixed monthly rent of (a) $4,024 for the twelve month
period from October 1, 2004 through September 30, 2005; (b) $4,527 for the
twelve month period from October 1, 2005 through September 30, 2006; and (c)
$5,030 for the twelve month period from October 1, 2006 through September 30,2007. The Company pays for its own utilities and is responsible to maintain
liability insurance covering the premises as well as to pay the real and
personal property taxes assessed on the premises. Management believes that
this
facility will meet its operational needs for the foreseeable
future.
-34-
LEGAL
PROCEEEDINGS
The
Company and Mr. Teja 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
Kellstom $50,000. The Company has also paid the first three of four installment
of $25,000. The remaining one installment of $25,000 is due on July 1, 2007.
The
Company has also issued Kellstrom a $500,000 purchase credit to be applied
towards the purchase of materials and services from the Company. Upon the
Company's making of the previously described payment 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. Effective October 1, 2006, the Company has also assumed
Kellstrom's obligation as tenant under a lease for the Carson City, Nevada
facility. See “Properties and Facilities.” The settlement agreement contains
other terms and conditions. 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.
Under
a
Stipulation for Entry of Judgment, effective December 1, 2004, Mike Davidov
d/b/a Mike Davidov Investments, obtained a judgment in Superior Court of
California, County of Los Angeles, Central District in the aggregate amount
of
$91,343 against Phoenix Aerospace, Inc. and Mr. Teja. In the underlying action,
Mr. Davidov sought to collect on a promissory note issued by Phoenix Aerospace,
Inc. and Mr. Teja in the original principal amount of $84,617 and accrued
interest thereon of $25,385. The Stipulation provided for monthly payments
of
$10,000 each before the tenth day of the applicable month until the outstanding
balance is paid in full. Upon a payment default, Mr. Davidov has the right
to
seek a Writ of Execution. As of the date of this registration statement, Phoenix
Aerospace, Inc. and Mr. Teja have not fulfilled all of their payment obligations
under the Stipulation in accordance with the terms thereof. As of March 31,2007, the balance of the promissory note referenced in the Stipulation for
Entry
of Judgment, plus interest, was $90,437. The Company has recently
received notice that Mr. Davidov has filed a Notice of Foreign Judgment in
the
Second Judicial District of the State of Nevada, County of Washoe.
The
Company knows of no other material litigation or proceeding, pending or
threatened, to which it is or may become a party. Our address for service of
process in Nevada is 1802 N. Carson Street, Suite 212, Carson City, Nevada,
89701.
-35-
MANAGEMENT
Our
officers and directors and further information concerning them are as
follows:
Zahir
Teja, age 53, has served as the Company's President and Chief Executive Officer
since the Company's inception. He holds this position at the pleasure of the
Board of Directors. He has also been a member of the Board of Directors since
the Company's inception. His term as a board member is one year until the next
meeting of stockholders and until his successor has been duly elected and
qualified. From April, 2003 to the present, Mr. Teja, was the founder and sole
owner of Phoenix Aerospace, Inc., a company engaged in the business of design,
modifications and manufacturing of support equipment of military aircraft.
Prior
to that engagement, Mr. Teja was engaged from June, 2000 to March, 2003 as
a
consultant with American Valley Aviation, Inc., a manufacturer and
remanufacturer of ground support equipment. His primary responsibilities were
in
the areas of marketing and sales and business development in ground support
equipment.
Under
a
consulting agreement dated October 2, 2006 as amended, among the Company, Mr.
Teja, and Anney Business Corp., a British Virgin Islands corporation, the
parties agreed, among other things, to vote their shares to nominate Zahir
Teja
and Neev Nissenson as directors and appoint Mr. Teja as President and Mr.
Nissenson as Vice President. See “Consulting Agreement.”
Neev
Nissenson, age 28, has served as the Company's Vice President since the
Company's inception. He holds this position at the pleasure of the Board of
Directors. He has also been a member of the Board of Directors since the
Company's inception. His term as a board member is one year until the next
meeting of stockholders and until his successor has been duly elected and
qualified.
Mr.
Nissenson is also responsible for the day to day operations of Phoenix Europe
Ventures, Ltd., the Company's wholly owned Israeli subsidiary. For more than
the
past five years, he has been engaged by Dionysos Investments Ltd., a consulting
company; he was responsible for numerous business development projects for
private and public companies. Mr. Nissenson is an armored platoon commander
in
the Israeli Defense Forces (Reserve) Armored Corps with a rank of Captain.
He
holds a bachelor of the arts degree in General History and Political Science
from Tel Aviv University and is currently studying for Executive Master's degree
in Business Administration specializing in Integrative Management at the Hebrew
University of Jerusalem.
Under
a
consulting agreement dated October 2, 2006 as amended, among the Company, Mr.
Teja, and Anney Business Corp., the parties agreed, among other things, to
vote
their shares to nominate Zahir Teja and Neev Nissenson as directors and appoint
Mr. Teja as President and Mr. Nissenson as Vice President. See “Consulting
Agreement.”
Teja
N.
Shariff, age 52, has served as the Company's Chief Financial Officer and Chief
Accounting Officer since the Company's inception. He holds this position at
the
pleasure of the Board of Directors. Mr. Shariff is the principal owner of the
Teja N. Shariff, CPA accounting firm. He has held this position for more than
the past five years. Mr. Shariff received a B.Sc. in Accounting from the
California State University at Long Beach.
Mr.
Teja
and Mr. Shariff are brothers. Aside from the foregoing, there are no family
relationships among our directors, executive officers, or persons nominated
or
chosen by us to become directors or executive officers.
-36-
Committees
of the Board of Directors
The
Company does not have a nominating, compensation or audit
committee.
Director
Independence
Using
the
independence requirements of the American Stock Exchange, the Company has
determined that none of its directors can be deemed to be
independent.
Compensation
of the Board of Directors
Directors
are not paid any fees or compensation for services as members of our board
of
directors or any committee thereof.
Code
of Ethics
We
have
adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-B.
This Code of Ethics applies to our principal executive officer, our principal
financial officer and principal accounting officer, as well as all other
employees, and is filed herewith. If we make substantive amendments to this
Code
of Ethics or grant any waiver, including any implicit waiver, we will disclose
the nature of such amendment or waiver on our website or in a report on Form
8-K
within four business days of such amendment or waiver.
Limitation
on Liability and Indemnification of Directors and Officers
Section
78.7502 of the Nevada Revised Statutes, as amended (the “Nevada Statute”),
provides that, in general, a Nevada corporation may indemnify any person who
was
or is a party or is threatened to be made a party to any threatened, pending
or
completed action, suit or proceeding, whether civil, criminal, administrative
or
investigative, except an action by or in the right of the corporation, by reason
of the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, including attorneys'
fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with the action, suit or proceeding if he is not liable
pursuant to Section 78.138 of the Nevada Statute or acted in good faith and
in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful.
Section
78.7502 provides that the termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or
its
equivalent, does not, of itself, create a presumption that the person is liable
pursuant to Section 78.138 of the Nevada Statute or did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the
best
interests of the corporation, or that, with respect to any criminal action
or
proceeding, he had reasonable cause to believe that his conduct was
unlawful.
-37-
Section
78.7502 further provides that indemnification may not be made for any claim,
issue or matter as to which such a person has been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be liable
to the corporation or for amounts paid in settlement to the corporation, unless
and only to the extent that the court in which the action or suit was brought
or
other court of competent jurisdiction determines upon application that in view
of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
Section
78.7502 of the Nevada Statute further provides that to the extent that a
director, officer, employee or agent of a corporation has been successful on
the
merits or otherwise in defense of any action, suit or proceeding referred to
in
subsections (1) and (2) of Section 78.7502, or in defense of any claim, issue
or
matter therein, the corporation shall indemnify him against expenses, including
attorneys' fees, actually and reasonably incurred by him in connection with
the
defense.
Our
articles of incorporation provide that we shall indemnify our directors to
the
full extent permitted by applicable corporate law now or hereafter in force.
However, such indemnity shall not apply if the director did not (a) act in
good faith and in a manner the director reasonably believed to be in or not
opposed to the best interests of the corporation, and (b) with respect to
any criminal action or proceeding, have reasonable cause to believe the
director's conduct was unlawful. We shall advance expenses for such persons
pursuant to the terms set forth in our by-laws, or in a separate Board
resolution or contract.
Our
by-laws provide for the indemnification of officers and directors to the fullest
extent possible under Nevada Law, against expenses (including attorney's fees),
judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding, arising by reason of the fact that
such person is or was an agent of us. We are also granted the power, to the
maximum extent and in the manner permitted by the Nevada Revised Statutes,
to
indemnify each of our employees and agents (other than directors and officers)
against expenses (including attorneys' fees), judgments, fines, settlements
and
other amounts actually and reasonably incurred in connection with any
proceeding, arising by reason of the fact that such person is or was our
agent.
Insofar
as indemnification for liabilities under the Securities Act of 1933, as amended,
may be permitted to our directors, officers and controlling persons pursuant
to
the provisions described above, or otherwise, we have been advised that in
the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933, as amended,
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by us of expenses incurred
or
paid by our director, officer or controlling person in the successful defense
of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, we will,
unless in the opinion of our counsel the matter as been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, as amended, and will be governed by the final
adjudication of such issue.
-38-
EXECUTIVE
COMPENSATION
The
following chart sets forth the base salary, bonus and other compensation,
including any awards of stock options for the indicated named
executive:
Summary
Compensation Table
Name
and Principal Position
Year
Salary
($)
Bonus
($)
Stock
Awards
($)
Options
Awards
($)
Change
in Pension Value and Non-
qualified
Deferred Compensation Earnings
Total
Zahir
Teja
Cheif
Executive Officer President(1)
2006
2005
120,000
120,000
-0-
-0-
-0-
-0-
-0-
-0-
(4)
$
$
120,000
120,000
Neev
Nissenson
Vice
President/Secretary(2)
2006
2005
-0-
-0-
-0-
-0-
-0-
-0-
(5)
-0-
-0-
Teja
N. Shariff
Chief
Financial
Officer(3)
2006
2005
-0-
-0-
-0-
-0-
-0-
-0-
(1) Mr.
Teja's employment agreement with the Company described above has
recently
been declared effective. As per his employment agreement with Phoenix
Aerospace, Inc., Mr. Teja is due an annual salary of $120,000 per
year. In
2006, Mr. Teja, in order to free up cashflow for operations has agreed
to
defer all of his annual salary.
(2) Mr.
Nissenson's employment agreement with the Company described above
has
recently been declared effective.
(3) Mr.
Shariff's employment agreement with the Company described above has
been
recently declared effective.
(4) Under
the employment agreement, the Company has granted Mr. Teja an option
to
purchase 660,000 shares of the Company's common stock for an exercise
price of $.50 per share. The option terminates December 31,2010.
(5) Under
the employment agreement, the Company has granted Mr. Nissenson an
option
to purchase 330,000 shares of the Company's common stock for an exercise
price of $.50 per share. The option terminates December 31,2010.
Employment
Agreements
The
Company has entered into an employment agreement with Zahir Teja to serve as
the
Company's Chief Executive Officer and President. The term of the Agreement
is 36
months commencing on April 26, 2007.(the “Effective Date”) The term shall be
automatically extended for additional one year periods, unless either party
notifies the other in writing at least 90 days prior to the expiration of the
then existing term of its intention not to extend the term.
-39-
Mr.
Teja's base compensation is $120,000 for the first 12 months, $180,000 for
the
second 12 months, and no less than $180,000 for the third 12 months during
the
term. Mr. Teja shall be entitled to receive annually a bonus and success fee
calculated as follows: the product of (A) one percent (1%) and (B) all revenues
from the Company's operations in excess of $4,000,000. The foregoing bonus
and
success fee shall not exceed $130,000 during any twelve month period. Mr. Teja
is also entitled to certain fringe benefits and reimbursement of expenses.
The
employment agreement may be terminated by the Company for “Cause” and may be
terminated by Mr. Teja for “Good Reason” or on 90 days' notice.
Under
the
employment agreement, the Company has granted Mr. Teja an option to purchase
660,000 shares of the Company's common stock for an exercise price of $.50
per
share. The option terminates December 31, 2010.
The
Company has entered into an employment agreement with Neev Nissenson to serve
as
the Company's Vice President. The term of the Agreement is 36 months commencing
on the Effective Date. The term shall be automatically extended for additional
one year periods, unless either party notifies the other in writing at least
90
days prior to the expiration of the then existing term of its intention not
to
extend the term.
Mr.
Nissenson's base compensation is $75,000 for the first 12 months, $126,000
for
the second 12 months, and no less than $126,000 for the third 12 months during
the term. Mr. Nissenson is also entitled to certain fringe benefits and
reimbursement of expenses. The employment agreement may be terminated by the
Company for “Cause” and may be terminated by Mr. Nissenson for “Good Reason” or
on 90 days' notice.
Under
the
employment agreement, the Company has granted Mr. Nissenson an option to
purchase 330,000 shares of the Company's common stock at an exercise price
of
$.50 per share. The option terminates December 31, 2010.
The
Company has entered into an employment agreement with Teja N. Shariff to serve
as the Company's Chief Financial Officer. The term of the Agreement is 24 months
commencing on the Effective Date. The term shall be automatically extended
for
additional one year periods, unless either party notifies the other in writing
at least 90 days prior to the expiration of the then existing term of its
intention not to extend the term.
Mr.
Shariff's base compensation is $5,000 per month during the term. Mr. Shariff
is
also entitled to certain fringe benefits and reimbursement of expenses. The
employment agreement may be terminated by the Company for “Cause” and may be
terminated by Mr. Shariff for “Good Reason” or on 90 days' notice.
Consulting
Agreement
The
Company has entered into a Consulting Agreement dated October 2, 2006 with
Mr.
Teja, and Anney Business Corp., a British Virgin Islands company (“Anney”),
which is wholly owned and controlled by the Nissenson family. Haim Nissenson,
who is the father of Neev Nissenson our Vice President, is the Chairman of
Anney. The term of the Agreement shall run so long as Mr. Teja and the Nissenson
family are stockholders of the Company. The Agreement's effective date was
April26, 2007 (“Effective Date”). Under the Agreement, Anney has agreed to provide
consulting services to the Company. For providing these services, Anney will
receive a fee of $10,000 per month. Anney is also entitled to receive annually
a
bonus and success fee calculated as follows: the product of (A) one percent
(1%)
and (B) all revenues from the Company's operations in excess of $4,000,000.
The
foregoing bonus and success fee shall not exceed $130,000 during any twelve
month period. The Company has granted Anney an option to purchase 330,000 shares
of the Company's common stock at an exercise price of $.50 per share. The option
terminates December 31, 2010.
The
parties have also agreed to vote their shares to nominate Zahir Teja and Neev
Nissenson as directors and to appoint Mr. Teja as President and Mr. Nissenson
as
Vice President. Until this registration statement has been declared effective,
the Company has agreed not to issue any additional shares of its capital stock
without the approval of Anney. Each of Mr. Teja and Anney has further agreed
to
give the other the right of first refusal if he wants to sell any of his shares.
The Agreement contains other terms and conditions. Haim Nissenson is the father
of Neev Nissenson.
-40-
SECURITY
OWNERSHIP Of CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table provides the names and addresses of each person known to us
to
own more than 5% of our outstanding common stock as of the date of this
prospectus, and by the officers and directors, individually and as a group.
Except as otherwise indicated, all shares are owned directly.
All
Officers and Directors as a group that consists of 3
persons
7,374,000
92%
______________________________
(1)
Unless otherwise indicated, the address is care of Phoenix International
Ventures, Inc., 2201 Lockheed Way, Carson City, Nevada89706.
(2)
Pursuant to the rules and regulations of the Securities and Exchange Commission,
shares of common stock that an individual or group has a right to acquire within
60 days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purposes of computing the percentage ownership of such
individual or group, but are not deemed to be outstanding for the purposes
of
computing the percentage ownership of any other person shown in the
table.
(3)
Mr.
Teja's share holdings consist of 3,150,000 shares of the Company's common stock
beneficially owned by him. Under his employment agreement, Mr. Teja owns an
option to purchase up to 660,000 shares of the Company's common stock at an
exercise price of $.50 per share. This option expires December 31, 2010. Under
irrevocable proxies signed by the holders of 2,538,000 shares of the Company's
common stock, Mr. Teja and Neev Nissenson have been appointed, jointly and
severally, as attorneys-in-fact to vote such holders' shares for a period of
seven years. Under the Consulting Agreement among the Company, Anney Business
Corp. and Mr. Teja, Mr. Teja and Anney have an understanding to vote their
shares at shareholders meetings; accordingly, Mr. Teja may be deemed to be
the
beneficial owner of the 457,000 shares of the Company's common stock
beneficially owned by Anney. Mr. Teja and Mr. Shariff are brothers.
-41-
(4)
Neev
Nissenson's share holdings consist of 395,000 shares of the Company's common
stock beneficially owned by him and 5,000 shares of the Company's common stock
beneficially owned by his wife. Mr. Nissenson disclaims beneficial ownership
of
the shares owned by his wife. Under his employment agreement, Mr. Nissenson
owns
an option to purchase up to 330,000 shares of the Company's common stock at
an
exercise price of $.50 per share. This option expires December 31, 2010. Under
irrevocable proxies signed by the holders of 2,538,000 shares of the Company's
common stock, Mr. Teja and Mr. Nissenson have been appointed, jointly and
severally, as attorneys-in-fact to vote such holders' shares for a period of
seven years.
(5)
Mr.
Shariff's share holdings consist of 200,000 shares of the Company's common
stock
beneficially owned by him. Under a Debt Conversion Agreement, Mr. Shariff was
issued 96,000 shares of the Company's common stock in consideration of the
cancellation of the Company's Note in the outstanding principal amount of
$48,000. Mr. Shariff and Mr. Teja are brothers.
(6)
Anney
Business Corp.'s share holdings consist of 457,000 shares of the Company's
common stock beneficially owned by it. Under its consulting agreement with
the
Company, Anney owns an option to purchase up to 330,000 shares of the Company's
common stock at an exercise price of $.50 per share. This option expires
December 31, 2010. Under the same consulting agreement, Anney and Mr. Teja
have
an understanding to vote their shares at shareholders meetings; accordingly,
Anney may be deemed to be the beneficial owner of the 3,150,000 shares of the
Company's common stock beneficially owned by Mr. Teja and the 2,538,000 shares
of the Company's common stock with respect to which Mr. Teja has been appointed
an attorney-in-fact.
The
percent of class is based on 6,996,000 shares of common stock issued and
outstanding as of the date of this prospectus.
-42-
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Except
as
described below, none of the following parties has, since our date of
incorporation, had any material interest, direct or indirect, in any transaction
with us or in any presently proposed transaction that has or will materially
affect us:
· any
of
our directors or officers;
· any
person proposed as a nominee for election as a
director;
· any
person who beneficially owns, directly or indirectly, shares carrying
more
than 10% of the voting rights attached to our outstanding shares
of common
stock;
· any
of
our promoters; and
· any
relative or spouse of any of the foregoing persons who has the same
house
as such person.
The
Company and Phoenix Aerospace, Inc. have entered into a Share Exchange Agreement
dated as of December 1, 2006. Under the Share Exchange Agreement, Zahir Teja,
the sole owner and principal of Phoenix Aerospace, Inc. will exchange all the
issued and outstanding shares of Phoenix Aerospace, Inc. common stock for
3,000,000 shares of the common stock of the Company. As a result of this
transaction, Phoenix Aerospace, Inc. became a wholly owned subsidiary of the
Company, and Mr. Teja became a principal stockholder of and continued to be
a
principal of the Company. The effective date of this transaction was January1,2007.
In
December, 2006, Phoenix Aerospace, Inc. entered into a Debt Conversion Agreement
with Teja N. Shariff, the Company's CFO and a creditor. Under this agreement,
Phoenix Aerospace, Inc. agreed to cause the Company to issue to Mr. Shariff
96,000 shares of the Company's common stock in consideration of the cancellation
of a Note in the outstanding principal amount of $48,000. We also agreed to
provide Mr. Shariff with piggy back registration rights for one occasion. If
the
registration statement relative to the common stock being issued to Mr. Shariff
has not been declared effective within 12 months of the date of the agreement,
then Mr. Shariff may, on 30 days' notice to the Company, require the Company
to
repurchase the common stock for a purchase price of $48,000. Mr. Shariff
represented in the agreement that the common stock was purchased for investment
and that he was an accredited investor under Regulation D. These shares of
common stock are restricted shares as defined in the Securities
Act.
As
described in more detail above under “Employment Agreements” and “Consulting
Agreement”, the Company has entered into employment agreements with its three
executive officers and has entered into a consulting agreement with Anney
Business Corp. and Mr. Teja.
The
parents of the Company are Zahir Teja, Neev Nissenson, and Anney Business Corp.
The respective amounts of voting securities owned by each parent are set forth
under the heading “SECURITY OWNERSHIP Of CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT”.
-43-
DESCRIPTION
OF SECURITIES
General
The
Company's authorized capital stock consists of 50,000,000 shares of common
stock, par value $0.001 per share, and 1,000,000 shares of `blank check'
preferred stock, par value $0.001 per share.
All
of
the shares of our authorized capital stock, when issued for such consideration
as our board of directors may determine, shall be fully paid and
non-assessable.
Common
Stock
As
of
date of this prospectus, there were 6,996,000 shares of our common stock issued
and outstanding that are held by 74 stockholders of record.
Holders
of our common stock are entitled to one vote for each share on all matters
submitted to a stockholder vote. Holders of common stock do not have cumulative
voting rights. Therefore, holders of a majority of the shares of common stock
voting for the election of directors can elect all of the directors. Holders
of
our common stock representing a majority of the voting power of our capital
stock issued, outstanding and entitled to vote, represented in person or by
proxy, are necessary to constitute a quorum at any meeting of our stockholders.
A vote by the holders of a majority of our outstanding shares is required to
effectuate certain fundamental corporate changes such as liquidation, merger
or
an amendment to our articles of incorporation.
Holders
of common stock are entitled to share in all dividends that the board of
directors, in its discretion, declares from legally available funds. In the
event of a liquidation, dissolution or winding up, each outstanding share
entitles its holder to participate pro rata in all assets that remain after
payment of liabilities and after providing for each class of stock, if any,
having preference over the common stock. Holders of our common stock have no
pre-emptive rights, no conversion rights and there are no redemption provisions
applicable to our common stock.
Preferred
Stock
The
board
of directors is expressly authorized to issue shares of preferred stock in
one
or more series, to fix the number of shares in each such series and to fix
the
designations and the powers and preferences of each such series.
The
board
of directors with respect to each such series may determine the following:
(a)
the number of shares constituting the series and the designation of the series;
(b) the dividend rate on the shares of the series, the conditions and dates
upon
which dividends on such shares shall be payable, the extent, if any, to which
dividends on such shares shall be cumulative, and the relative rights of
preference, if any, of payment of dividends on such shares; (c) whether or
not
the shares of the series are redeemable and, if redeemable, the time or times
during which they shall be redeemable and the amount per share payable on
redemption of such shares, which amount may, but need not, vary according to
the
time and circumstances of such redemption; (d) the amount payable in respect
of
the shares of the series, in the event of our liquidation, dissolution or
winding up, which amount may, but need not, vary according to the time or
circumstances of such action, and the relative rights of preference, if any,
of
payment of such amount; (e) any requirement as to a sinking fund for the shares
of the series, or any requirement as to the redemption, purchase or other
retirement by us of the shares of the series; (f) the right, if any, to exchange
or convert shares of the series into other securities or property, and the
rate
or basis, time, manner and condition of exchange or conversion; (g) the voting
rights, if any, to which the holders of shares of the series shall be entitled
in addition to the voting rights provided by law; and (h) any other terms,
conditions or provisions with respect to the series not inconsistent with our
articles of incorporation, as amended. No holder of shares of our preferred
stock will, by reason of such holding have any preemptive right to subscribe
to
any additional issue of any stock of any class or series nor to any security
convertible into such stock.
-44-
Convertible
Securities
We
have
not issued and do not have outstanding any securities convertible into shares
of
our common stock or any rights convertible or exchangeable into shares of our
common stock.
Transfer
Agent
We
do not
currently have a transfer agent. We are currently in the process of identifying
potential transfer agents and plan to select one prior to going
effective.
Nevada
Laws
The
Nevada Business Corporation Law contains a provision governing “Acquisition of
Controlling Interest.” This law provides generally that any person or entity
that acquires 20% or more of the outstanding voting shares of a publicly-held
Nevada corporation in the secondary public or private market may be denied
voting rights with respect to the acquired shares, unless a majority of the
disinterested stockholders of the corporation elects to restore such voting
rights in whole or in part. The control share acquisition act provides that
a
person or entity acquires “control shares” whenever it acquires shares that, but
for the operation of the control share acquisition act, would bring its voting
power within any of the following three ranges:
1.
20
to 33 1/3%,
2.
33
1/3 to 50%, or
3.
more
than 50%.
A
“control share acquisition” is generally defined as the direct or indirect
acquisition of either ownership or voting power associated with issued and
outstanding control shares. The stockholders or board of directors of a
corporation may elect to exempt the stock of the corporation from the provisions
of the control share acquisition act through adoption of a provision to that
effect in the articles of incorporation or by-laws of the corporation. Our
articles of incorporation and by-laws do not exempt our common stock from the
control share acquisition act.
The
control share acquisition act is applicable only to shares of “Issuing
Corporations” as defined by the act. An Issuing Corporation is a Nevada
corporation, which;
1.
has
200 or more stockholders, with at least 100 of such stockholders
being
both stockholders of record and residents of Nevada;
and
2.
does
business in Nevada directly or through an affiliated
corporation.
-45-
At
this
time, we do not have 100 stockholders of record resident of Nevada. Therefore,
the provisions of the control share acquisition act do not apply to acquisitions
of our shares and will not until such time as these requirements have been
met.
At such time as they may apply to us, the provisions of the control share
acquisition act may discourage companies or persons interested in acquiring
a
significant interest in or control of the Company, regardless of whether such
acquisition may be in the interest of our stockholders.
The
Nevada “Combination with Interested Stockholders Statute” may also have an
effect of delaying or making it more difficult to effect a change in control
of
the Company. This statute prevents an “interested stockholder” and a resident
domestic Nevada corporation from entering into a “combination,” unless certain
conditions are met. The statute defines “combination” to include any merger or
consolidation with an “interested stockholder,” or any sale, lease, exchange,
mortgage, pledge, transfer or other disposition, in one transaction or a series
of transactions with an “interested stockholder” having;
1.
an
aggregate market value equal to 5 percent or more of the aggregate
market
value of the assets of the
corporation;
2.
an
aggregate market value equal to 5 percent or more of the aggregate
market
value of all outstanding shares of the corporation;
or
3.
representing
10 percent or more of the earning power or net income of the
corporation.
An
“interested stockholder” means the beneficial owner of 10 percent or more of the
voting shares of a resident domestic corporation, or an affiliate or associate
thereof. A corporation affected by the statute may not engage in a “combination”
within three years after the interested stockholder acquires its shares unless
the combination or purchase is approved by the board of directors before the
interested stockholder acquired such shares. If approval is not obtained, then
after the expiration of the three-year period, the business combination may
be
consummated with the approval of the board of directors or a majority of the
voting power held by disinterested stockholders, or if the consideration to
be
paid by the interested stockholder is at least equal to the highest
of;
1.
the
highest price per share paid by the interested stockholder within
the
three years immediately preceding the date of the announcement of
the
combination or in the transaction in which he became an interested
stockholder, whichever is higher;
2.
the
market value per common share on the date of announcement of the
combination or the date the interested stockholder acquired the shares,
whichever is higher; or
3.
if
higher for the holders of preferred stock, the highest liquidation
value
of the preferred stock.
-46-
SELLING
STOCKHOLDERS
We
agreed
to register for resale shares of common stock by the selling stockholders listed
below. Most of the selling stockholders obtained their shares of common stock
in
connection with the organization of the Company. Messrs. Kudlis, Moser, and
Shariff obtained their shares of common stock under their respective debt
conversion agreements entered into with the Company. Messrs. Kaplowitz, Marcus,
and Riley indirectly obtained their shares of common stock under the retention
agreement entered into by Gersten Savage LLP and the Company. Mr. Teja obtained
a portion of his shares in connection with the Share Exchange. The selling
stockholders may from time to time offer and sell any or all of their shares
that are registered under this prospectus. All expenses incurred with respect
to
the registration of the common stock will be borne by us, but we will not be
obligated to pay any underwriting fees, discounts, commissions or other expenses
incurred by the selling stockholders in connection with the sale of such
shares.
The
following table sets forth information with respect to the maximum number of
shares of common stock beneficially owned by the selling stockholders named
below and as adjusted to give effect to the sale of the shares offered hereby.
The shares beneficially owned have been determined in accordance with rules
promulgated by the SEC, and the information is not necessarily indicative of
beneficial ownership for any other purpose. The information in the table below
is current as of the date of this prospectus. All information contained in
the
table below is based upon information provided to us by the selling stockholders
and we have not independently verified this information. The selling
stockholders are not making any representation that any shares covered by the
prospectus will be offered for sale. The selling stockholders may from time
to
time offer and sell pursuant to this prospectus any or all of the common stock
being registered.
Except
as
indicated below, none of the selling stockholders has held any position or
office with us, nor are any of the selling stockholders associates or affiliates
of any of our officers or directors. Except as indicated below, no selling
stockholder is the beneficial owner of any additional shares of common stock
or
other equity securities issued by us or any securities convertible into, or
exercisable or exchangeable for, our equity securities. No selling stockholder
is a registered broker-dealer or an affiliate of a broker-dealer. In addition,
the selling stockholders purchased the stock from us in the ordinary course
of
business. As the time of the purchase of the stock to be resold, none of the
selling stockholders had any agreements or understandings with us, directly
or
indirectly, with any person to distribute the stock.
For
purposes of this table, beneficial ownership is determined in accordance with
SEC rules, and includes voting power and investment power with respect to shares
and shares owned pursuant to warrants exercisable within 60 days. The "Number
of
Shares Beneficially Owned after the Offering” column assumes the sale of all
shares offered.
As
explained below under “Plan of Distribution,” we have agreed with the selling
stockholders to bear certain expenses (other than broker discounts and
commissions, if any) in connection with the registration statement, which
includes this prospectus.
-47-
Name
of Selling Stockholder
Shares
Beneficially Owned
Prior
to This Offering(1)
Total
Number of Shares to be
Offered
for Selling
Stockholders
Account
Total
Shares to be
Beneficially
Owned upon
Completion
of This Offering
Percentage
of Shares
Beneficially
owned upon
Completion
of This Offering
Yona
Admon
5,000
5,000
-0-
-0-
A.F.I.K. Holdings
SPRL(2)
25,000
25,000
-0-
-0-
Itzhak
Agar
500
500
-0-
-0-
Ami
Amir
5,000
5,000
-0-
-0-
Anney
Business Corp.(3)
787,000
114,250
672,750
8%
Zvi
Bar-nes
50,000
50,000
-0-
-0-
Amit
Barzelai
110,000
110,000
-0-
-0-
Sharon
Barzelai
20,000
20,000
-0-
-0-
Hadas
Beker
500
500
-0-
-0-
Daissons
Computers(4)
100,000
100,000
-0-
-0-
Rinat
Daniely Pere
500
500
-0-
-0-
Yuval
Eckhaus
500
500
-0-
-0-
Sara
Ehrmann
15,000
15,000
-0-
-0-
Amnon
Elbee
4,000
4,000
-0-
-0-
Amir
Feldman
5,000
5,000
-0-
-0-
Yael
Gabo
500
500
-0-
-0-
Sofia
Gado
1,000
1,000
-0-
-0-
Izhak
Gado
1,000
1,000
-0-
-0-
Wolfgang
Genzsch
50,000
50,000
-0-
-0-
Ori
Goldberg
500
500
-0-
-0-
Rachel
Goldblat
1,000
1,000
-0-
-0-
Ariel
Gordon
20,000
20,000
-0-
-0-
Inex
Ventures Inc.(5)
40,000
40,000
-0-
-0-
Jay
Kaplowitz(6)
153,000
76,500
76,500-
<1%-
Abraham
Keinan
5,000
5,000
-0-
-0-
David
Kenig
500
500
-0-
-0-
Margreet
Kloosterziel
290,000
290,000
-0-
-0-
Dan
Lalluz
5,000
5,000
-0-
-0-
Hagai
Langstadter
10,000
10,000
-0-
-0-
Moshe
Lusky
10,000
10,000
-0-
-0-
Arthur
S. Marcus(7)
153,000
76,500
76,500
<1%
-48-
Maayan
Marzan
10,000
10,000
-0-
-0-
Ziv
Meir
500
500
-0-
-0-
Nir
Meir
500
500
-0-
-0-
Daniel
Misiuk
50,000
50,000
-0-
-0-
Fernando
Misiuk
1,000
1,000
-0-
-0-
Gregorio
Misiuk
1,000
1,000
-0-
-0-
Meir
Nissensohn
5,000
5,000
-0-
-0-
Amir
Nissensohn
500
500
-0-
-0-
Neev
Nissenson(8)
725,000
95,000
630,000
8%
Tal
Nissenson
200,000
200,000
-0-
-0-
Guy
Nissenson
195,000
195,000
-0-
-0-
Haim
Nissenson
100,000
100,000
-0-
-0-
Bilha
Nissenson
100,000
100,000
-0-
-0-
Michel
Nissenson
5,000
5,000
-0-
-0-
Michal
Gado Nissenson
5,000
5,000
-0-
-0-
Yarn
Olami
500
500
-0-
-0-
Eyal
Oran
50,000
50,000
-0-
-0-
Roy
Oron
10,000
10,000
-0-
-0-
Mordechai
Perera
10,000
10,000
-0-
-0-
Yaron
Perera
500
500
-0-
-0-
Provest
Securities Ltd.(9)
20,000
20,000
-0-
-0-
Mordechai
Ravid
10,000
10,000
-0-
-0-
Dalia
Ravnof
5,000
5,000
-0-
-0-
Alon
Reisser
3,000
3,000
-0-
-0-
John
H. Riley(10)
34,000
17,000
17,000
<1%
Alicia
Rotbard
10,000
10,000
-0-
-0-
David
Segev
500
500
-0-
-0-
Teja
Shariff
296,000
74,000
222,000
3%
Limor
Shiposh
5,000
5,000
-0-
-0-
Larisa
Shtendik
1,000
1,000
-0-
-0-
David
Spector
1,000
1,000
-0-
-0-
Zahir
Teja(11)
3,810,000
787,500
3,022,500
36%
Tamiza
Teja
150,000
150,000
-0-
-0-
Dorothy
W. Teja
150,000
150,000
-0-
-0-
Ella
Tuito
5,000
5,000
-0-
-0-
Tali
Tzuia
2,000
2,000
-0-
-0-
Henk
Vos
235,000
235,000
-0-
-0-
Uri
Wittenberg
50,000
50,000
-0-
-0-
Del
White
50,000
50,000
-0-
-0-
Gabi
Zafran
10,000
10,000
-0-
-0-
Israel
Singer
500
500
-0-
-0-
LeRoy
Moser
150,000
150,000
-0-
-0-
Erik
Kudlis
150,000
150,000
-0-
-0-
Total
8,486,000
3,768,750
4,717,250
56%
______________________
(1)
Unless otherwise indicated, the selling stockholders have sole voting and
investment power with respect to their shares of common stock. The inclusion
of
any shares in this table does not constitute an admission of beneficial
ownership for the selling stockholders. The total of 8,486,000 shares
beneficially owned prior to this offering consists of 6,996,000 share
beneficially owned by the selling stockholders plus options owned by various
selling stockholders to purchase an aggregate of 1,490,000 shares of the
Company's common stock.
-49-
We
have
been notified by the selling stockholders that they are not broker-dealers
or
affiliates of broker-dealers and that they believe they are not required to
be
broker-dealers.
(2)
The
name of the natural person who holds voting and investment power over the
securities held by the selling stockholder is Yoram Ben Porat.
(3)
The
name of the natural person who holds voting and investment power over the
securities held by the selling stockholder is Haim Nissenson. The total includes
an option to purchase up to 330,000 shares of the Company's common stock at
an
exercise price of $.50 per share. This option expires December 31,2010.
(4)
The
name of the natural person who holds voting and investment power over the
securities held by the selling stockholder is Soula Charilaou.
(5)
The
name of the natural person who holds voting and investment power over the
securities held by the selling stockholder is Daniel Misiuk.
(6)
The
total includes an option to purchase up to 76,500 shares of the Company's common
stock at an exercise price of $1.00 per share.
(7)
The
total includes an option to purchase up to 76,500 shares of the Company's common
stock at an exercise price of $1.00 per share.
(8)
The
total includes an option to purchase up to 330,000 shares of the Company's
common stock at an exercise price of $.50 per share. This option expires
December 31, 2010.
(9)
The
name of the natural person who holds voting and investment power over the
securities held by the selling stockholder is Shlom Talitman.
(10)
The
total includes an option to purchase up to 17,000 shares of the Company's common
stock at an exercise price of $1.00 per share.
(11)
The
total includes an option to purchase up to 660,000 shares of the Company's
common stock at an exercise price of $.50 per share. This option expires
December 31, 2010.
Except
as
indicated below, none of the selling stockholders, has had any position, office,
or other material relationship with the Company or any of the Company's
predecessors or affiliates within the past three years.
·
Zahir
Teja is the Company's President and CEO and is a member of the Company's
board of directors; his brother Teja N. Shariff, is the Company's
CFO.
·
Neev
Nissenson is the Company's Vice President and Secretary and is a
member of
the Company's board of directors; his father, Haim Nissenson, is
the
principal of Anney Business Corp., the company that has entered into
a
consulting agreement with the
Company.
·
Each
of Neev Nissenson and Zahir Teja is an attorney-in-fact under irrevocable
proxies entered into with a number of the Company's
stockholders.
See
“SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.”
-50-
PLAN
OF DISTRIBUTION
The
selling stockholders will initially sell our shares at $.50 per share until
such
time as our shares are quoted on the OTCBB, and thereafter at prevailing market
prices or privately negotiated prices.
Subject
to the foregoing, the selling stockholders and any of their respective pledgees,
donees, assignees, and other successors-in-interest may, from time to time,
sell
any or all of their shares of common stock on any stock exchange, market or
trading facility on which the shares are traded or in private transactions.
These sales may be at fixed or negotiated prices. The selling stockholders
may
use any one or more of the following methods when selling shares:
· ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
· block
trades in which the broker-dealer will attempt to sell the shares
as
agent, but may position and resell a portion of the block as principal
to
facilitate the transaction;
· purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
· an
exchange distribution in accordance with the rules of the applicable
exchange;
· privately
negotiated transactions;
· short
sales after this registration statement becomes
effective;
· broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per
share;
· through
the writing of options on the
shares;
· a
combination of any such methods of sale;
and
· any
other method permitted pursuant to applicable
law.
The
selling stockholders may also sell shares under Rule 144 under the Securities
Act of 1933, as amended, if available, rather than under this prospectus. The
selling stockholders will have the sole and absolute discretion not to accept
any purchase offer or make any sale of shares if they deem the purchase price
to
be unsatisfactory at any particular time.
-51-
The
selling stockholders may also engage in short sales against the box after this
registration statement becomes effective, puts and calls and other transactions
in our securities or derivatives of our securities and may sell or deliver
shares in connection with these trades.
The
selling stockholders or their respective pledgees, donees, transferees or other
successors in interest, may also sell the shares directly to market makers
acting as principals and/or broker-dealers acting as agents for themselves
or
their customers. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling stockholders and/or
the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and
at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. The
selling stockholders cannot assure that all or any of the shares offered in
this
prospectus will be issued to, or sold by, the selling stockholders. The selling
stockholders and any brokers, dealers or agents, upon effecting the sale of
any
of the shares offered in this prospectus, may be deemed to be "underwriters"
as
that term is defined under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or the rules and regulations under
such acts. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities
Act.
Discounts,
concessions, commissions and similar selling expenses, if any, attributable
to
the sale of shares will be borne by a selling stockholder. The selling
stockholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares if liabilities are
imposed on that person under the Securities Act of 1933, as
amended.
The
selling stockholders may from time to time pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgee or secured parties
may offer and sell the shares of common stock from time to time under this
prospectus after we have filed an amendment to this prospectus under Rule
424(b)(3) or any other applicable provision of the Securities Act of 1933,
as
amended, amending the list of selling stockholders to include the pledgee,
transferee or other successors in interest as selling stockholders under this
prospectus.
The
selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors
in
interest will be the selling beneficial owners for purposes of this prospectus
and may sell the shares of common stock from time to time under this prospectus
after we have filed an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933, as amended, amending
the list of selling stockholders to include the pledgee, transferee or other
successors in interest as selling stockholders under this
prospectus.
We
are
required to pay all fees and expenses incident to the registration of the shares
of common stock. We have agreed to indemnify the selling stockholders against
certain losses, claims, damages and liabilities, including liabilities under
the
Securities Act of 1933, as amended.
Each
of
the selling stockholders acquired the securities offered hereby in the ordinary
course of business and have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares of common stock, nor is there
an underwriter or coordinating broker acting in connection with a proposed
sale
of shares of common stock by any selling stockholder. If we are notified by
any
selling stockholder that any material arrangement has been entered into with
a
broker-dealer for the sale of shares of common stock, if required, we will
file
a supplement to this prospectus. If the selling stockholders use this prospectus
for any sale of the shares of common stock, they will be subject to the
prospectus delivery requirements of the Securities Act of 1933, as
amended.
The
anti-manipulation rules of Regulation M under the Securities Exchange Act of
1934, as amended, may apply to sales of our common stock and activities of
the
selling stockholders.
-52-
EXPERTS
AND COUNSEL
No
expert
or counsel named in this prospectus as having prepared or certified any part
of
this prospectus or having given an opinion upon the validity of the securities
being registered or upon other legal matters in connection with the registration
or offering of the common stock was employed on a contingency basis, or had,
or
is to receive, in connection with the offering, a substantial interest, direct
or indirect, in the registrant or any of its parents or subsidiaries. Nor was
any such person connected with the registrant or any of its parents or
subsidiaries as a promoter, managing or principal underwriter, voting trustee,
director, officer, or employee.
The
legality of the common stock offered by this prospectus and certain legal
matters in connection with the offering will be passed upon for us by Gersten
Savage LLP, New York, New York.
The
financial statements included in this prospectus and the registration statement
have been audited by Stark Winter Schenkein & Co., LLP, Denver, Colorado, to
the extent and for the periods set forth in their report appearing elsewhere
in
this document and in the registration statement filed with the SEC, and are
included in reliance upon such report given upon the authority of said firm
as
experts in auditing and accounting.
ADDITIONAL
INFORMATION
We
have
filed a registration statement on form SB-2 under the Securities Act of 1933
with the Securities and Exchange Commission with respect to the shares of our
common stock offered through this prospectus. This prospectus is filed as a
part
of that registration statement, but does not contain all of the information
contained in the registration statement and exhibits. Statements made in the
registration statement are summaries of the material terms of the referenced
contracts, agreements or documents of the Company. We refer you to our
registration statement and each exhibit attached to it for a more detailed
description of matters involving the Company, and the statements we have made
in
this prospectus are qualified in their entirety by reference to these additional
materials. You may inspect the registration statement, exhibits and schedules
filed with the Securities and Exchange Commission at the Commission's principal
office in Washington, D.C. Copies of all or any part of the registration
statement may be obtained from the Public Reference Section of the Securities
and Exchange Commission, 100 F Street, N.E., Washington, D.C. 20549. Please
call
the Commission at 1-800-SEC-0330 for further information on the operation of
the
public reference rooms. The Securities and Exchange Commission also maintains
a
web site at http://www.sec.gov that contains reports, proxy statements and
information regarding registrants that file electronically with the Commission.
Our registration statement and the referenced exhibits can also be found on
this
site.
For
further information with respect to us and the securities being offered hereby,
reference is hereby made to the registration statement, including the exhibits
thereto and the financial statements, notes, and schedules filed as a part
thereof.
Until
90
days after the date this registration statement is declared effective, all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is
in addition to the dealers' obligation to deliver a prospectus when acting
as
underwriters and with respect to their unsold allotments or
subscriptions.
(a) Independent
Auditors Report; (b) Balance Sheet; (c) Statement of Operations;
(d) Statement of Stockholder's (Deficit); (d) Statements of Cash
Flows; and (e) Notes to Financial
Statements.
2.
Consolidated
Financial Statements of Phoenix International Ventures, Inc. as of
December 31, 2006
(a) Independent
Auditors Report; (b) Balance Sheet; (c) Statement of Operations;
(d) Statement of Stockholder's (Deficit); (d) Statements of Cash
Flows; and (e) Notes to Financial
Statements.
3.
Consolidated
Financial Statements of Phoenix International Ventures, Inc. (unaudited)
for the three months ended
March 31, 2007
(a)
Balance Sheet; (b) Statement of Operations; (c) Statements of Cash
Flows;
(d) Notes to Financial Statements.
4.
Consolidated
Proforma Financial Statements of Phoenix International Ventures,
Inc. as
of December 31, 2006
(a) Balance
Sheet; and (b) Statement of
Operations.
-54-
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholder
and Board of Directors
Phoenix
Aerospace, Inc.
We
have
audited the accompanying balance sheet of Phoenix Aerospace, Inc. as of December31, 2006, and the related statements of operations, stockholder’s (deficit), and
cash flows for the years ended December 31, 2006 and 2005 (as restated). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Phoenix Aerospace, Inc. as of
December 31, 2006, and the results of its operations, and its cash flows for
the
years ended December 31, 2006 and 2005 in conformity with accounting principles
generally accepted in the United States of America.
As
discussed in Note 12 to the financial statements, the Company restated the
financial statements to reflect a change in method of accounting for goodwill
and record the effects of a legal settlement.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has working capital and stockholder deficits as of
December 31, 2006. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
Note
1 - Summary of Significant Accounting Policies
Nature
of Activities
Phoenix
Aerospace, Inc. was organized April 18, 2003 as a Nevada Corporation that
specializes in manufacturing, re-manufacturing and upgrading of Ground
Support Equipment (GSE) used in military and commercial aircraft.
Basis
of Presentation
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplates continuation of the Company as a going concern.
Cash
and Cash Equivalents
The
Company considers cash in banks, deposits in transit, and highly liquid debt
instruments purchased with original maturities of three months or less to be
cash and cash equivalents.
Segments
The
Company is active only in the segment of manufacturing, re-manufacturing and
upgrading of Ground Support Equipment (GSE) used in military and commercial
aircraft.
Use
of Estimates
The
preparation of financial statements in conformity with the generally accepted
accounting principles requires management to make estimates and assumptions
that
affect certain amounts of assets, liabilities, revenues and expenses during
the
period. Actual results could differ from those estimates.
Accounts
Receivable
Accounts
receivable are recorded at net realizable value consisting of the carrying
amount less an allowance for uncollectible accounts if applicable.
The
Company uses the allowance method to account for uncollectible accounts
receivable balances. Under the allowance method, estimate of uncollectible
customer balances is made using factors such as the credit quality of the
customer and the economic conditions in the market. Accounts are considered
past
due once the unpaid balance is 90 days or more outstanding, unless payment
terms
are extended. When an account balance is past due and attempts have been made
to
collect the receivable through legal or other means, the amount is considered
uncollectible and is written off against the allowance balance.
As
of
December 31, 2006, management believes that all accounts receivable are
collectible, and thus the amount of the allowance for doubtful accounts was
zero. There was no bad debt expense for the years ended December 31, 2006 or
2005.
F-6
Inventory
Inventory
is stated at the lower of cost or market, based on the specific identification
method of inventory valuation.
Depreciation
Property
and equipment are stated at cost, less accumulated depreciation. Acquisitions
of
property and equipment in excess of $500 are capitalized. Depreciation is
calculated using the straight-line method over estimated useful lives.
Maintenance, repairs and renewals that do not materially prolong the useful
life
of an asset are expensed when incurred.
The
estimated useful lives are as follows:
Equipment
5-10
years
Furniture
and fixtures
10 years
Computer
software
5-10
years
Income
Taxes
The
Company accounts for income taxes under SFAS 109, “Accounting for Income Taxes”.
Temporary differences are differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements that will
result in taxable or deductible amounts in future years.
Advertising
The
Company expenses all advertising costs are they are incurred. Advertising costs
totaled $0 and $3,530 in 2006 and 2005, respectively.
At
December 31, 2006, the carrying value of certain financial instruments
approximated their fair values. These financial instruments include cash,
accounts receivable, accounts payable and accrued expenses, and notes payable.
Fair values are assumed to approximate carrying values for these financial
instruments because they are short term in nature, or are receivable or payable
on demand, and their carrying amounts approximate fair value. The carrying
value
of the Company’s notes payable approximates fair values of similar debt
instruments.
Impairment
of Long-Lived Assets
The
Company periodically reviews the carrying amount of long lived assets to
determine whether current events or circumstances warrant adjustments to such
carrying amounts. If an impairment adjustment is deemed necessary, such loss
is
measured by the amount that the carrying value of such assets exceeds their
fair
value. Considerable management judgment is necessary to estimate the fair value
of assets; accordingly, actual results could vary significantly from such
estimates. Assets to be disposed of are carried at the lower of their financial
statement carrying amount or fair value less costs to sell. Management believes
that there is no impairment at December 31, 2006 or 2005.
F-7
Revenue
Recognition
Revenue
from product sales and fixed price contracts is recognized when delivery has
occurred, persuasive evidence of an agreement exists, the vendor fee is fixed
or
determinable, and no further obligation exists and collectability is probable.
Generally, title passes on the date of shipment or delivery, depending on the
terms of sale. Cost of goods sold consists of the cost of raw materials and
labor related to the corresponding sales transaction. A typical fixed price
contract takes between three to four months to complete. Revenue from services
is recognized when the service is completed.
The
Company has the same revenue recognition policy for manufacturing,
re-manufacturing and upgrading activities. In the event that equipment is
supplied (and not owned or bought by the Company) by the customer for
re-manufacturing and upgrading activity the Company bills only for the net
agreed fixed price for upgrade and remanufacturing and correspondingly
recognizes that revenue.
In
a
certain study contract, the Company bills the customer for time, material and
agreed profit on a monthly basis (as income earned); revenue is recognized
when
the Company invoices the customer. In another study contract, the Company bills
the customer on progress towards milestone basis (as income earned). In such
occurrences the Company reports its progress to the customer and invoices it.
Revenue is recognized when the customer is invoiced.
Net
Earnings per Common Share
The
Company follows Statement of Financial Accounting Standard (SFAS) 128, “Earnings
per Share”. Basic earnings per common share calculations are determined by
dividing net income by the weighted average number of shares of common stock
outstanding during the year. Diluted earnings per common share calculations
are
determined by dividing net income by the weighted average number of common
shares and dilutive common share equivalents outstanding. During the periods
when they are anti-dilutive, common stock equivalents, if any, are not
considered in the computation.
Recent
Issued Accounting Pronouncements
In
November 2004, the Financial Accounting Standards Board (FASB) issued SFAS151
"Inventory Costs". This Statement amends the guidance in ARB No. 43, Chapter
4,
"Inventory Pricing”, to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage).
In
addition, this Statement requires that allocation of fixed production overhead
to the costs of conversion be based on the normal capacity of the production
facilities. The provisions of this Statement will be effective for the Company
beginning with its fiscal year ending December 31, 2007. The Company is
currently evaluating the impact this new Standard will have on its operations,
but believes that it will not have a material impact on the Company's financial
position, results of operations or cash flows.
In
December 2004, the FASB issued SFAS 153 "Exchanges of Non monetary Assets -
an
amendment of APB Opinion No. 29". This Statement amended APB Opinion 29 to
eliminate the exception for non monetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of non monetary assets
that do not have commercial substance. A non monetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The adoption of this Standard is
not
expected to have any material impact on the Company's financial position,
results of operations or cash flows.
In
December 2004, the FASB issued SFAS No. 123(R), “Share-based Payment”. SFAS 123
(R) requires compensation costs related to share-based payment transactions
to
be recognized in the financial statements. With limited exceptions, the amount
of compensation cost will be measured based on the grant-date fair value of
the
equity or liability instruments issued. In addition, liability awards will
be
re-measured each reporting period. Compensation cost will be recognized over
the
period that an employee provides service in exchange for the award. FASB 123
(R)
replaces FASB 123, Accounting for Stock-Based Compensation and supersedes APB
option No. 25, Accounting for Stock Issued to Employees. This guidance is
effective as of the first interim or annual reporting period after December15,2005 for Small Business filers.
In
March
2005, the Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin No.107 (SAB 107) which provides guidance regarding the interaction
of
SFAS 123(R) and certain SEC rules and regulations. The new guidance includes
the
SEC's view on the valuation of share-based payment arrangements for public
companies and may simplify some of SFAS 123(R)'s implementation challenges
for
registrants and enhance the information investors receive.
F-8
In
August
2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections”. This
statement applies to all voluntary changes in accounting principle and to
changes required by an accounting pronouncement if the pronouncement does not
include specific transition provisions, and it changes the requirements for
accounting for and reporting them. Unless it is impractical, the statement
requires retrospective application of the changes to prior periods' financial
statements. This statement is effective for accounting changes and correction
of
errors made in fiscal years beginning after December 15, 2005.
In
February 2006, the FASB issued SFAS 155, “Accounting for Certain Hybrid
Financial Instruments.” This Statement amends FASB Statements No. 133,
Accounting for Derivative Instruments and Hedging Activities, and No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. This Statement resolves issues addressed in Statement 133
Implementation Issue No. D1, “Application of Statement 133 to Beneficial
Interests in Securitized Financial Assets.” This Statement:
a)
Permits
fair value remeasurement for any hybrid financial instrument that
contains
an embedded derivative that otherwise would require
bifurcation
b)
Clarifies
which interest-only strips and principal-only strips are not subject
to
the requirements of Statement 133
c)
Establishes
a requirement to evaluate interests in securitized financial assets
to
identify interests that are freestanding derivatives or that are
hybrid
financial instruments that contain an embedded derivative requiring
bifurcation
d)
Clarifies
that concentrations of credit risk in the form of subordination are
not
embedded derivatives
e)
Amends
Statement 140 to eliminate the prohibition on a qualifying special-purpose
entity from holding a derivative financial instrument that pertains
to a
beneficial interest other than another derivative financial
instrument.
The
fair
value election provided for in paragraph 4(c) of this Statement may also be
applied upon adoption of this Statement for hybrid financial instruments that
had been bifurcated under paragraph 12 of Statement 133 prior to the adoption
of
this Statement. Earlier adoption is permitted as of the beginning of our fiscal
year, provided we have not yet issued financial statements, including financial
statements for any interim period, for that fiscal year. Provisions of this
Statement may be applied to instruments that we hold at the date of adoption
on
an instrument-by-instrument basis.
Adoption
of this Statement is required as of the beginning of the first fiscal year
that
begins after September 15, 2006. The adoption of this statement is not expected
to have a material impact on the Company’s financial statements.
In
March
2006, the FASB issued SFAS 156, “Accounting for Servicing of Financial Assets.”
This Statement amends FASB Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, with respect
to the accounting for separately recognized servicing assets and servicing
liabilities. This Statement:
a)
Requires
an entity to recognize a servicing asset or servicing liability each
time
it undertakes an obligation to service a financial asset by entering
into
a servicing contract in certain
situations.
b)
Requires
all separately recognized servicing assets and servicing liabilities
to be
initially measured at fair value, if
practicable.
c)
Permits
an entity to choose either the amortization method or the fair value
measurement method for each class of separately recognized servicing
assets and servicing liabilities.
d)
At
its initial adoption, permits a one-time reclassification of
available-for-sale securities to trading securities by entities with
recognized servicing rights, without calling into question the treatment
of other available-for-sale securities under Statement 115, provided
that
the available-for-sale securities are identified in some manner as
offsetting the entity’s exposure to changes in fair value of servicing
assets or servicing liabilities that a servicer elects to subsequently
measure at fair value.
e)
Requires
separate presentation of servicing assets and servicing liabilities
subsequently measured at fair value in the statement of financial
position
and additional disclosures for all separately recognized servicing
assets
and servicing liabilities.
F-9
Adoption
of this Statement is required as of the beginning of the first fiscal year
that
begins after September 15, 2006. The adoption of this statement is not expected
to have a material impact on the Company’s financial statements.
In
September 2006, the FASB issued Statement No. 157, "Fair Value Measurements".
This Statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosure about
fair value measurement. The implementation of this guidance is not expected
to
have any impact on the Company's financial statements.
In
September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 158, "Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements
No. 87, 106, and 132(R)" ("SFAS No. 158"). SFAS No. 158 requires companies
to
recognize a net liability or asset and an offsetting adjustment to accumulated
other comprehensive income to report the funded status of defined benefit
pension and other postretirement benefit plans. SFAS No. 158 requires
prospective application, recognition and disclosure requirements effective
for
the Company's fiscal year ending September 30, 2007. Additionally, SFAS No.
158
requires companies to measure plan assets and obligations at their year-end
balance sheet date. This requirement is effective for the Company's fiscal
year
ending September 30, 2009. The Company is currently evaluating the impact of
the
adoption of SFAS No. 158 and does not expect that it will have a material impact
on its financial statements.
In
September 2006, the United States Securities and Exchange Commission ("SEC"),
adopted SAB No. 108, "Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements." This SAB
provides guidance on the consideration of the effects of prior year
misstatements in quantifying current year misstatements for the purpose of
a
materiality assessment. SAB 108 establishes an approach that requires
quantification of financial statement errors based on the effects of each of
the
company's balance sheet and statement of operations financial statements and
the
related financial statement disclosures. The SAB permits existing public
companies to record the cumulative effect of initially applying this approach
in
the first year ending after November 15, 2006 by recording the necessary
correcting adjustments to the carrying values of assets and liabilities as
of
the beginning of that year with the offsetting adjustment recorded to the
opening balance of retained earnings. Additionally, the use of the cumulative
effect transition method requires detailed disclosure of the nature and amount
of each individual error being corrected through the cumulative adjustment
and
how and when it arose. The Company is currently evaluating the impact, if any,
that SAB 108 may have on the Company's results of operations or financial
position.
In
July
2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty
in
Income Taxes-an interpretation of FASB Statement No. 109." This Interpretation
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to
be
taken in a tax return. This Interpretation also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. The Interpretation is effective for fiscal
years beginning after December 15, 2006 and the Company is currently evaluating
the impact, if any, that FASB No. 48 may have on the Company's results of
operations or financial position.
Note
2 - Financial Condition, Liquidity, and Going Concern
At
December 31, 2006, the Company has a working capital deficit of $994,447 and
accumulated deficit of $2,064,832. 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.
On
December 1, 2006, the Company agreed to merge with Phoenix International
Ventures, Inc. (PIV), a related entity. Management believes that the merger
with
PIV will allow access to future financing. The merger is effective January1,2007.
The
ability of the Company to achieve its goals is dependent upon future capital
raising efforts, including the merger with PIV, 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
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.
F-10
Note
3 - Inventory
Inventory
consists of used equipment that can be re-manufactured for re-sale and spare
parts. At December 31, inventory consisted of the following:
2006
Raw
materials
$
114,000
Work
in process
0
$
114,000
Note
4 - Property and Equipment
At
December 31, property and equipment consisted of the following:
2006
Office
equipment
$
14,705
Trailer
2,500
Software
system
19,381
36,586
Less
accumulated depreciation
11,422
$
25,164
Depreciation
for the years ended December 31, 2006 and 2005 was $3,288 and $3,238,
respectively.
Note
5 - Notes Payable
At
December 31, notes payable consist of the following:
2006
Note
payable in the amount of $65,000, plus interest of $6,500, secured
by
certain accounts receivable. The note was due September 1,2005.
$
75,000
Non-interest
bearing demand note payable.
75,000
Note
payable in the amount of $84,517 plus interest of $26,095. The note
was
due December 18, 2003. On January 21, 2005, a judgment of $91,343
was
filed against the Company. The not is currently accruing interest
at
10%.
90,438
Note
payable with interest at the prime rate, due upon demand.
On
June10, 2004, the Company entered into a business arrangement 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.
Under the provisions of the Termination Agreement, the Company paid a sum of
$168,000 in December 2004 and was in default for the balance of $1,019,275.
As a
result, the dispute went to arbitration, and an award of $1,173,913 plus
interest at the statutory rate was ordered against the Company on December26,2005. During the year ended December 31, 2005, the Company recorded an increase
in the legal settlement of $154,638, being the difference between the balance
owed under the termination agreement and arbitration award. During the year
ended December 31, 2006, the Company recorded $42,261 of interest expense in
connection with the arbitration award.
On
May26, 2006, the Company entered into a settlement agreement whereby it agreed
to
make cash payments of $150,000 plus purchase credits of $500,000 to be applied
towards materials and services from the Company. Furthermore, the Company agreed
to pay an additional sum of $566,174, in the event that (a) the Company
defaulted in making the cash payments or providing purchase credits or (b)
if
the Company is awarded a one-time specific contract from a specific customer
within two years of the May 26, 2006 settlement agreement. Through the audit
report date, the Company has met its obligations under the May 26, 2006
settlement agreement and has made cash payments of $75,000 and applied $126,020
in purchase credits.
Note
7 - Related Party Transactions
During
2006, the Company made advances to a related entity in the amount of $19,500.
In
addition, the related entity agreed to reimburse the Company the amount of
$5,000 of salary expense for it chief executive officer.
An
officer has made periodic advances to the Company which totaled $573,965 at
December 31, 2006, respectively. These advances are non-interest bearing and
the
officer has agreed not to demand payment of the long term portion during
2007.
Note
8 - Leases
The
Company leases its 10,000 square foot operating facility under a lease expiring
September 30, 2007. The lease contains two, three-year renewal options. Rent
expense for the years ended December 31, 2006 and 2005 was $60,253 and $49,797,
respectively. Minimum lease payments through September 30, 2007 total
$61,869.
Note
9- Share Capital
The
Company is authorized to issue 1,000,000 shares of common stock with a par
value
of $1. During 2003, 20,000 shares of common stock were issued for proceeds
of
$20,000.
Note
10- Income Taxes
At
December 31, 2006, the Company has available approximately $2,000,000 in net
operating loss carry forwards expiring at various dates through 2025, resulting
in a deferred tax asset of $680,000. The Company believes that it is not likely
that the deferred tax asset will be realized, and thus has provided for a full
valuation allowance.
Note
11 - Commitments
On
December 1, 2006, the Company entered into an agreement with Phoenix
International Ventures, Inc. (PIV) wherein Phoenix Aerospace, Inc. (PAI) would
become a wholly-owned subsidiary of PIV. In this arrangement, Phoenix
International Ventures, Inc. assumes the debt of three creditors totaling
$198,000. The agreement has an effective date of January 1, 2007. Should
registration of shares not be effective by December 2007, the original principal
amount, without penalty, shall be returned to the creditors via the repurchase
of the stock.
Note
12 – Restatement
The
financial statements for the year ended December 31, 2005 have been restated
to
record the effects of a legal settlement. The financial statements
have been adjusted as follows:
Amount
Reported
Restated
Amount
Total
assets
$
1,333,650
$
146,375
Net
income (loss)
$
250,401
$
(688,017)
Earnings
(loss) per share
$
12.52
$
(34.40)
F-12
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders
and Board of Directors
Phoenix
International Ventures, Inc.
We
have
audited the accompanying consolidated balance sheet of Phoenix International
Ventures, Inc. (a Development Stage Company) as of December 31, 2006 and the
related consolidated statements of operations, shareholders’ deficit, and cash
flows for the period August 7, 2006 (inception) to December 31, 2006. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on
our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Phoenix International Ventures,
Inc. (a Development Stage Company) as of December 31, 2006, and the results
of
its operations, and its cash flows for the period August 7, 2006 (inception)
to
December 31, 2006 in conformity with accounting principles generally accepted
in
the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has a loss from operations and has no revenue generating
activities. These factors raise substantial doubt about the Company’s ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Note
1 - Summary of Significant Accounting Policies
Nature
of Activities
Phoenix
International Ventures, Inc. was organized August 7, 2006 as a Nevada
Corporation. The Company was formed to invest in the field of aerospace
defense.
The
Company’s fiscal year is from January 1 to December 31.
Basis
of Consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly owned Israeli subsidiary, Phoenix Europe Ventures, Ltd. The expenditures
of Phoenix Europe Ventures are generally incurred in New Israeli Shekels (NIS).
Significant intercompany accounts and transactions have been eliminated in
consolidation.
Basis
of Presentation
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplates continuation of the Company as a going concern.
The
Company incurred a net loss of $42,845 for the period August 7 through December31, 2006, and has no revenue generating activities. At December 31, 2006, the
Company had working capital and stockholders’ deficits of $39,245. These
conditions raise substantial doubt about the Company's ability to continue
as a
going concern.
The
Company has entered into an agreement to acquire Phoenix Aerospace, Inc. in
a
reverse merger (see Note 3). The ability of the Company to achieve its operating
goals and thus positive cash flows from operations is dependent upon its ability
to consummate the acquisition and to achieve profitable operations.
The
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.
Cash
and
Cash Equivalents
The
Company considers cash in banks, deposits in transit, and highly liquid debt
instruments purchased with original maturities of three months or less to be
cash and cash equivalents.
Segments
The
Company is only active in the segment of manufacturing, re-manufacturing and
upgrading of Ground Support Equipment (GSE) used in military and commercial
aircraft.
F-18
Use
of Estimates
The
preparation of financial statements in conformity with the Generally Accepted
Accounting Principles requires management to make estimates and assumptions
that
affect certain amounts of assets, liabilities, revenues and expenses during
the
period. Actual results could differ from those estimates.
Income
Taxes
The
Company accounts for income taxes under Statement of Financial Accounting
Standards (SFAS) 109, “Accounting for Income Taxes”. Temporary differences are
differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements that will result in taxable or deductible
amounts in future years.
Financial
Instruments
At
December 31, 2006, the carrying value of certain financial instruments
approximated their fair values. Fair values are assumed to approximate carrying
values for these financial instruments because they are short term in nature,
or
are payable on demand, and their carrying amounts approximate fair
value.
Impairment
of Long-Lived Assets
The
Company periodically reviews the carrying amount of long lived assets to
determine whether current events or circumstances warrant adjustments to such
carrying amounts. If an impairment adjustment is deemed necessary, such loss
is
measured by the amount that the carrying value of such assets exceeds their
fair
value. Considerable management judgment is necessary to estimate the fair value
of assets; accordingly, actual results could vary significantly from such
estimates. Assets to be disposed of are carried at the lower of their financial
statement carrying amount or fair value less costs to sell.
Revenue
Recognition
Revenue
from product sales is recognized when delivery has occurred, persuasive evidence
of an agreement exists, the vendor fee is fixed or determinable, and no further
obligation exists and collectability is probable. Generally, title passes on
the
date of shipment or delivery, depending on the terms of sale. Cost of goods
sold
consists of the cost of raw materials and labor related to the corresponding
sales transaction. Revenue from services is recognized when then service is
completed.
Net
(Loss) per Common Share
The
Company follows SFAS 128, “Earnings per Share”. Basic earnings (loss) per common
share calculations are determined by dividing net income (loss) by the weighted
average number of shares of common stock outstanding during the year. Diluted
earnings (loss) per common share calculations are determined by dividing net
income (loss) by the weighted average number of common shares and dilutive
common share equivalents outstanding. During the periods when they are
anti-dilutive, common stock equivalents, if any, are not considered in the
computation.
Recently
Issued Accounting Pronouncements
In
November 2004, the Financial Accounting Standards Board (FASB) issued SFAS151
"Inventory Costs". This Statement amends the guidance in ARB No. 43, Chapter
4,
"Inventory Pricing”, to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage).
In
addition, this Statement requires that allocation of fixed production overhead
to the costs of conversion be based on the normal capacity of the production
facilities. The provisions of this Statement will be effective for the Company
beginning with its fiscal year ending December 31, 2007. The Company is
currently evaluating the impact this new Standard will have on its operations,
but believes that it will not have a material impact on the Company's financial
position, results of operations or cash flows.
F-19
In
December 2004, the FASB issued SFAS 153 "Exchanges of Non monetary Assets -
an
amendment of APB Opinion No. 29". This Statement amended APB Opinion 29 to
eliminate the exception for non monetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of non monetary assets
that do not have commercial substance. A non monetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The adoption of this Standard is
not
expected to have any material impact on the Company's financial position,
results of operations or cash flows.
In
December 2004, the FASB issued SFAS No. 123(R), “Share-based Payment”. SFAS 123
(R) requires compensation costs related to share-based payment transactions
to
be recognized in the financial statements. With limited exceptions, the amount
of compensation cost will be measured based on the grant-date fair value of
the
equity or liability instruments issued. In addition, liability awards will
be
re-measured each reporting period. Compensation cost will be recognized over
the
period that an employee provides service in exchange for the award. FASB 123
(R)
replaces FASB 123, Accounting for Stock-Based Compensation and supersedes APB
option No. 25, Accounting for Stock Issued to Employees. This guidance is
effective as of the first interim or annual reporting period after December15,2005 for Small Business filers.
In
March
2005, the Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin No.107 (SAB 107) which provides guidance regarding the interaction
of
SFAS 123(R) and certain SEC rules and regulations. The new guidance includes
the
SEC's view on the valuation of share-based payment arrangements for public
companies and may simplify some of SFAS 123(R)'s implementation challenges
for
registrants and enhance the information investors receive.
In
August
2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections”. This
statement applies to all voluntary changes in accounting principle and to
changes required by an accounting pronouncement if the pronouncement does not
include specific transition provisions, and it changes the requirements for
accounting for and reporting them. Unless it is impractical, the statement
requires retrospective application of the changes to prior periods' financial
statements. This statement is effective for accounting changes and correction
of
errors made in fiscal years beginning after December 15, 2005.
In
February 2006, the FASB issued SFAS 155, “Accounting for Certain Hybrid
Financial Instruments.” This Statement amends FASB Statements No. 133,
Accounting for Derivative Instruments and Hedging Activities, and No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. This Statement resolves issues addressed in Statement 133
Implementation Issue No. D1, “Application of Statement 133 to Beneficial
Interests in Securitized Financial Assets.” This Statement:
f)
Permits
fair value remeasurement for any hybrid financial instrument that
contains
an embedded derivative that otherwise would require
bifurcation
g)
Clarifies
which interest-only strips and principal-only strips are not subject
to
the requirements of Statement 133
h)
Establishes
a requirement to evaluate interests in securitized financial assets
to
identify interests that are freestanding derivatives or that are
hybrid
financial instruments that contain an embedded derivative requiring
bifurcation
i)
Clarifies
that concentrations of credit risk in the form of subordination are
not
embedded derivatives
j)
Amends
Statement 140 to eliminate the prohibition on a qualifying special-purpose
entity from holding a derivative financial instrument that pertains
to a
beneficial interest other than another derivative financial
instrument.
The
fair
value election provided for in paragraph 4(c) of this Statement may also be
applied upon adoption of this Statement for hybrid financial instruments that
had been bifurcated under paragraph 12 of Statement 133 prior to the adoption
of
this Statement. Earlier adoption is permitted as of the beginning of our fiscal
year, provided we have not yet issued financial statements, including financial
statements for any interim period, for that fiscal year. Provisions of this
Statement may be applied to instruments that we hold at the date of adoption
on
an instrument-by-instrument basis.
F-20
Adoption
of this Statement is required as of the beginning of the first fiscal year
that
begins after September 15, 2006. The adoption of this statement is not expected
to have a material impact on the Company’s financial statements.
In
March
2006, the FASB issued SFAS 156, “Accounting for Servicing of Financial Assets.”
This Statement amends FASB Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, with respect
to the accounting for separately recognized servicing assets and servicing
liabilities. This Statement:
f)
Requires
an entity to recognize a servicing asset or servicing liability each
time
it undertakes an obligation to service a financial asset by entering
into
a servicing contract in certain
situations.
g)
Requires
all separately recognized servicing assets and servicing liabilities
to be
initially measured at fair value, if
practicable.
h)
Permits
an entity to choose either the amortization method or the fair value
measurement method for each class of separately recognized servicing
assets and servicing liabilities.
i)
At
its initial adoption, permits a one-time reclassification of
available-for-sale securities to trading securities by entities with
recognized servicing rights, without calling into question the treatment
of other available-for-sale securities under Statement 115, provided
that
the available-for-sale securities are identified in some manner as
offsetting the entity’s exposure to changes in fair value of servicing
assets or servicing liabilities that a servicer elects to subsequently
measure at fair value.
j)
Requires
separate presentation of servicing assets and servicing liabilities
subsequently measured at fair value in the statement of financial
position
and additional disclosures for all separately recognized servicing
assets
and servicing liabilities.
Adoption
of this Statement is required as of the beginning of the first fiscal year
that
begins after September 15, 2006. The adoption of this statement is not expected
to have a material impact on the Company’s financial statements.
In
September 2006, the FASB issued Statement No. 157, "Fair Value Measurements".
This Statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosure about
fair value measurement. The implementation of this guidance is not expected
to
have any impact on the Company's financial statements.
In
September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 158, "Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements
No. 87, 106, and 132(R)" ("SFAS No. 158"). SFAS No. 158 requires companies
to
recognize a net liability or asset and an offsetting adjustment to accumulated
other comprehensive income to report the funded status of defined benefit
pension and other postretirement benefit plans. SFAS No. 158 requires
prospective application, recognition and disclosure requirements effective
for
the Company's fiscal year ending September 30, 2007. Additionally, SFAS No.
158
requires companies to measure plan assets and obligations at their year-end
balance sheet date. This requirement is effective for the Company's fiscal
year
ending September 30, 2009. The Company is currently evaluating the impact of
the
adoption of SFAS No. 158 and does not expect that it will have a material impact
on its financial statements.
In
September 2006, the United States Securities and Exchange Commission ("SEC"),
adopted SAB No. 108, "Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements." This SAB
provides guidance on the consideration of the effects of prior year
misstatements in quantifying current year misstatements for the purpose of
a
materiality assessment. SAB 108 establishes an approach that requires
quantification of financial statement errors based on the effects of each of
the
company's balance sheet and statement of operations financial statements and
the
related financial statement disclosures. The SAB permits existing public
companies to record the cumulative effect of initially applying this approach
in
the first year ending after November 15, 2006 by recording the necessary
correcting adjustments to the carrying values of assets and liabilities as
of
the beginning of that year with the offsetting adjustment recorded to the
opening balance of retained earnings. Additionally, the use of the cumulative
effect transition method requires detailed disclosure of the nature and amount
of each individual error being corrected through the cumulative adjustment
and
how and when it arose. The Company is currently evaluating the impact, if any,
that SAB 108 may have on the Company's results of operations or financial
position.
In
July
2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty
in
Income Taxes-an interpretation of FASB Statement No. 109." This Interpretation
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to
be
taken in a tax return. This Interpretation also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. The Interpretation is effective for fiscal
years beginning after December 15, 2006 and the Company is currently evaluating
the impact, if any, that FASB No. 48 may have on the Company's results of
operations or financial position.
F-21
Note
2 - Share Capital
The
Company is authorized to issue 1,000,000 shares of $0.001 preferred stock and
50,000,000 shares of $0.001 par value common stock.
On
August7, 2006, the Company entered into subscription agreements for 3,600,000 shares
of common stock at a price of $.001 per share, or $3,600. These shares were
issued in December 2006.
Note
3 - Commitments
On
December 1, 2006, the Company entered into an agreement with Phoenix Aerospace,
Inc. (“PAI”) wherein PAI would become a wholly-owned subsidiary of the Company.
In this arrangement, Phoenix International Ventures, Inc. would assume the
debt
of three creditors of PAI totaling $198,000 in exchange for 396,000 shares
of
common stock. The agreement has an effective date of January 1, 2007. Should
registration of shares not be effective by December 2007, the original principal
amount, without penalty, shall be returned to the creditors via the repurchase
of the stock.
On
December 12, 2006, the Company entered into employment agreements with three
key
officers. In connection with these agreements, the Company agreed to issue
990,000 options to purchase common stock at a price of $0.50 per share. The
employment agreements became effective on April 26, 2007. The above mentioned
options have been issued accordingly on April 26, 2007.
On
December 12, 2006, the Company entered into a consulting agreement with a
related party. In connection with this agreement, the Company agreed to issue
330,000 options to purchase common stock at a price of $0.50 per share. The
consulting agreement became effective on April 26, 2007. The above mentioned
options have been issued accordingly on April 26, 2007.
On
July27, 2006, the Company entered into a retention agreement with a law firm. As
part of this agreement, the Company agreed to issue warrants to purchase 170,000
shares of common stock at $1.00 per share. The warrants are to be issued
immediately prior to the effective date of the SB-2 registration statement
filed
with the Securities and Exchange Commission.
Note
4 - Income Taxes
The
components of net (loss) before taxes for the Company’s domestic and foreign
operations were as follows:
Domestic
$
(42,935
)
Foreign
142
Net
(loss) before taxes
$
(42,793
)
Income
taxes represent amounts due to the Government of Israel in connection with
income reported by Phoenix Europe Ventures, Ltd.
Note
1 - Summary of Significant Accounting Policies
Organization
and Nature of Activities
Phoenix
International Ventures, Inc. (PIV) was organized August 7, 2006 as a Nevada
Corporation. The Company was formed to invest in the field of aerospace defense.
Phoenix Aerospace, Inc. (PAI) was organized April 18, 2003 as a Nevada
Corporation that specializes in manufacturing, re-manufacturing and upgrading
of
Ground Support Equipment (GSE) used in military and commercial
aircraft.
Effective
January 1, 2007, Phoenix International Ventures issued 3,000,000 shares of
its
common stock to the shareholder of Phoenix Aerospace, Inc. in exchange for
all
the issued and outstanding common Stock of PAI pursuant to a Share Exchange
Agreement. As a result of the transaction, the Company’s CEO and certain of his
family members under his voting control possess a majority of the Company’s
issued and outstanding common stock. The CEO owns the largest minority interest.
PIV’s CEO was the sole shareholder, officer and director of PAI prior to the
transaction and will continue to be the CEO of PIV. The transaction is
considered in substance a capital transaction, and has been accounted for
as a
reverse acquisition, thus no goodwill or other intangible assets were
recorded. On this basis, the historical financial statements as of
and prior to the acquisition date represent the operations of PAI.
Basis
of Consolidation
The
consolidated financial statements include the accounts of the Company, its
wholly owned USA subsidiary, Phoenix Aerospace, Inc., and its wholly owned
Israeli subsidiary, Phoenix Europe Ventures, Ltd. The expenditures of Phoenix
Europe Ventures are generally incurred in New Israeli Shekels (NIS). Significant
intercompany accounts and transactions have been eliminated in
consolidation.
Basis
of Presentation
The
interim consolidated financial statements included herein have been prepared
by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") pursuant to Item 310 of Regulation
S-B. 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 of financial position as of March 31, 2007, results
of
operations and cash flows for the three months ended March 31, 2007 and 2006,
as
applicable, have been made. The results for these interim periods are not
necessarily indicative of the results for the entire year. The
accompanying financial statements should be read in conjunction with the
December 31, 2006 financial statements and the notes thereto included in the
Company's Form SB-2, as amended.
Net
(Loss) per Common Share
The
Company follows SFAS 128, "Earnings per Share". Basic earnings (loss) per common
share calculations are determined by dividing net income (loss) by the weighted
average number of shares of common stock outstanding during the year. Diluted
earnings (loss) per common share calculations are determined by dividing net
income (loss) by the weighted average number of common shares and dilutive
common share equivalents outstanding. During the periods when they are
anti-dilutive, common stock equivalents, if any, are not considered in the
computation.
Note
2 - Financial Condition, Liquidity, and Going Concern
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplates continuation of the Company as a going concern.
The
Company incurred a net loss of $54,276 for the period ended March 31, 2007.
At
March 31, 2007, the Company had a working capital deficit of $890,317 and a
stockholders' deficit of $1,940,354. These conditions raise substantial doubt
about the Company's ability to continue as a going concern.
The
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.
Through
December 31, 2006, the Company was in the development stage. Effective January
l, 2007, the Company completed a reverse merger with Phoenix Aerospace, Inc.
To
date, the Company has been dependent upon officer advances to finance
operations. Management believes that the merger will allow access to future
financing.
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.
Note
3 – Inventory
Inventory
consists of used equipment that can be re-manufactured for re-sale and spare
parts. At March 31, 2007, inventory consisted of the following:
Raw
Materials
$
114,000
Work
in process
864
$
114,864
Note
4 - Property and Equipment
At
March31, 2007, property and equipment consisted of the following:
At
March31, 2007, notes payable consist of the following:
Note
payable in the amount of $84,517 plus interest of $26,095. The note
was
due December 18, 2003. On January 21, 2005 a judgment was filed against
the company. The note is currently accruing interest at
10%
On
June10, 2004, the Company entered into a business arrangement which contained a
covenant not to compete, confidentiality provision, and restrictions to do
business in the Ground Support Equipment industry 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. Under the provisions of the Termination Agreement, the Company
paid
a sum of $168,000 in December 2004 and was in default for the balance of
$1,019,275. As a result, the dispute went to arbitration, and an award of
$1,173,913 plus interest at the statutory rate was ordered against the Company
on December 26, 2005.
On
May26, 2006, the Company entered into a settlement agreement whereby it agreed
to
make cash payments of $150,000 plus purchase credits of $500,000 to be applied
towards materials and services from the Company. Furthermore, the Company agreed
to pay an additional sum of $566,174, in the event that (a) the Company
defaulted in making the cash payments or providing purchase credits or (b)
if
the Company is awarded a one-time specific contract from a specific customer
within two years of the May 26, 2006 settlement agreement. Through the audit
report date, the Company has met its obligations under the May 26, 2006
settlement agreement and has made cash payments of $100,000 and applied $126,020
in purchase credits.
Note
7 - Related Party Transactions
An
officer has made periodic advances to the Company which totaled $569,363, of
which $59,988 is the current portion at March 31, 2007. 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.
The
Company leases its 10,000 square foot operating facility under a lease expiring
September 30, 2007. The lease contains two, three-year renewal options. Rent
expense for the period ended March 31, 2007 and 2006 was $16,096 and $22,375,
respectively.
Note
9 - Share Capital
The
Company is authorized to issue 1,000,000 shares of $0.001 preferred stock and
50,000,000 shares of $0.001 par value common stock.
On
January l, 2007, the Company issued 3,000,000 shares of common stock in exchange
for all of the issued and outstanding stock of Phoenix Aerospace, Inc. as part
of a reverse merger.
On
January 1, 2007, the Company issued 396,000 shares of common stock in exchange
for notes payable in the amount of $198,000. Should registration of shares
not
be effective by December 2007, the original principal amount, without penalty,
shall be returned to the creditors via the repurchase of the stock. This
transaction falls within the scope of SFAS 151, the repurchase feature is
accounted for as a liability under "shares subject to mandatory redemption".
As
a result these shares are not accounted for in the Company's outstanding shares
and weighted average shares for earning per share.
Note
10 – Commitments
On
December 14, 2006, the Company entered into employment agreements with three
key
officers. In connection with these agreements, the Company agreed to issue
990,000 options to purchase common stock at a price of $0.50 per share. The
employment agreements became effective on April 26, 2007. The above mentioned
options have been issued accordingly on April 26, 2007.
On
October 2, 2006, the Company entered into a consulting agreement with a related
party. In connection with this agreement, the Company agreed to issue 330,000
options to purchase common stock at a price of $0.50 per share. The consulting
agreement became effective on April 26, 2007. The above mentioned options have
been issued accordingly on April 26, 2007.
On
July27, 2006, the Company entered into a retention agreement with a law firm. As
part of this agreement, the Company agreed to issue warrants to purchase 170,000
shares of common stock at $1.00 per share. The warrants are to be issued
immediately prior to the effective date of the SB-2 registration statement
filed
with the Securities and Exchange Commission.
The
accompanying pro forma financial statements give effect to the combination
of
Phoenix International Ventures, Inc. (PIV) and Phoenix Aerospace, Inc (PAI).
PIV
and PAI entered into a share exchange agreement signed on December 1, 2006.
Under this agreement, Mr. Teja, the sole owner of and prinicipal of PAI will
exchange all the issued and outstanding shares of PAI for 3,000,000 shares
of
common stock of PIV. This agreement became effective January 1,2007.
The
statements presented include the pro forma balance sheet as of December 31,2006
and the pro forma income statements for the period ended December 31,2006.
Pro
forma
basic earnings (loss) per share is computed using the number of common shares
of
the Company outstanding for the periods presented, including the shares issued
to effect the acquisition.
A.
To
record 3,000,000 shares of the Company’s $0.001 par value common stock
issued pursuant to the acquisition of Phoenix Aerospace,
Inc.
B.
To
record issuance of 396,000 shares of $0.001 par value common stock
in
exchange for notes payable in the amount of
$198,000.
C.
To
eliminate Phoenix Aerospace, Inc. equity in
consolidation.
D.
Record
equity in reverse merger.
E.
Eliminate
inter company transactions.
F-32
Dates Referenced Herein and Documents Incorporated by Reference
