10-Q 1 phoenix10q.htm Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-Q

(Mark One)
 
þ
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
for the quarterly period ended  March 31, 2009
 
o
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from _______________________ to ________________
 
Commission File Number 333-140257
 
Phoenix International Ventures, Inc.
(Exact name of registrant as specified in its charter)
 
Nevada
  
20-8018146
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)

61B Industrial PKWY
Carson City, NV 89706
(Address of principal executive offices)
 
(775) 882-9700
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes þ No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o 
 Accelerated filer o
Non-accelerated filer o 
(do not check if a smaller reporting company)
 Smaller reporting company þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No þ
 
The number of shares outstanding of the issuer’s common stock, as of May 14, 2009 was 8,046,718.
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Phoenix International Ventures, Inc.
 
TABLE OF CONTENTS
 
 
 
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PART I FINANCIAL INFORMATION
 
 
Item 1.
Financial Statements
 
Index to Financial Statements

 
-3-
Phoenix International Ventures, Inc.
  
Condensed Consolidated Balance Sheet as of
  
   
             
   
March 31,
    
December 31,
  
   
2009
    
2008
  
Assets
  
(Unaudited)
        
             
Current assets
            
Cash
 $
 45,254
   $
   225,767
  
Accounts receivable
  
582,580
    
367,074
  
Inventory
  
181,981
    
186,516
  
Prepaid and other current assets
  
88,424
    
17,650
  
             
Total current assets
  
898,239
    
797,007
  
             
Property and equipment, net
  
38,483
    
47,943
  
             
Other assets
  
4,200
    
   -
  
             
Total assets
$
 940,922
   $
   844,950
  
             
             
Current liabilities
            
Line of credit
 $
 49,057
   $
     48,340
  
Accounts payable
  
500,780
    
379,693
  
Other accrued expenses
  
299,097
    
236,060
  
Customer deposits
  
399,053
    
447,202
  
Notes payable
  
222,377
    
212,751
  
Legal settlement
  
384,000
    
384,000
  
Due related party
  
244,986
    
232,304
  
Officer loans
  
39,461
    
39,461
  
             
Total current liabilities
  
2,138,811
    
1,979,811
  
             
Long term liabilities
            
Notes payable
  
21,757
    
24,811
  
Officer advances
  
369,375
    
369,375
  
             
Commitments and Contingencies
  
   -
    
   -
  
             
Total liabilities
  
2,529,943
    
2,373,997
  
             
Stockholders' (deficit)
            
 Preferred stock - $0.001 par value; 1,000,000 shares
            
 authorized; zero shares issued and outstanding
  
   -
    
   -
  
Common stock - $0.001 par value; 50,000,000 shares
            
authorized; 8,046,000 shares issued and outstanding
  
8,046
    
8,046
  
Additional paid in capital
    
1,388,503
    
1,388,503
  
               
Accumulated Deficit
    
(2,985,570
 )  
(2,925,596
)
               
     
(1,589,021
 )  
(1,529,047
)
 
             
Total liabilities and stockholders' (deficit)
  
$
   940,922
   $
   844,950
  
               
The accompanying notes are an integral part of the financial statements
  


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Phoenix International Ventures, Inc.
  
Condensed Consolidated Income Statement
  
For The Three Months Ended March 31,
  
(Unaudited)
  
             
   
2009
    
2008
  
             
Sales
   $ 931,842     $ 471,166  
                 
Cost of sales
     661,067       245,396  
                 
Gross margin
     270,775       225,770  
                 
Operating expenses
                
General and administrative expenses
     309,600       227,749  
                 
Total operating expenses
     309,600       227,749  
                 
Loss from operations
     (38,825 )     (1,979 )
                 
Recovery of contingency
     -       566,154  
Interest expense
     (21,152 )     (5,203 )
                 
Net income  (loss) before taxes
     (59,977 )     558,972  
                 
Income taxes
     -       -  
                 
Net income (loss)
   $ (59,977 )   $ 558,972  
                 
                 
Net  income (loss) per common share:
                
Basic
   $ (0.01 )   $ 0.07  
Diluted
   $ (0.01 )   $ 0.06  
                 
Weighted average shares outstanding:
                
Basic
     8,046,718       7,746,143  
Diluted
     8,046,718       9,561,215  
                 
The accompanying notes are an integral part of the financial statements
  
 
-5-
Phoenix International Ventures, Inc.
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31,
(Unaudited)

     
2009
    
2008
  
Cash flows from operating activities
            
Net income (loss)
   $ (59,977 )   $ 558,972  
Adjustments to reconcile net income (loss) to net cash used in operating activates
                
 
Depreciation
     9,460       3,410  
 
Amortization of debt discount
     20,319       -  
 
Accrued interest
     -       (717 ) 
 
Change in accounts receivable
     (215,506 )     (166,441 )
 
Change in inventory
     4,535       40,101  
 
Changes in prepaid expenses
     (74,974 )     530  
 
Change in amounts due to related party
     12,682       19,095  
 
Change in customer deposits
     (48,149 )     115,367  
 
Change in accounts payable
     121,087       (55,355 )
 
Change in accrued expenses
     63,037       -  
 
Change in legal settlement
             (566,154 ) 
Net cash used in operating activities
     (167,486 )     (51,192 )
                   
Cash flows from financing activities
                
Proceeds from subscription receivable
     -       63,020  
Proceeds from notes payable
     -       5,295  
Proceeds from line of credit
     717       6,707  
Repayment of notes payable
     (4,682 )     (53,804 )
Repayments officer notes
     -       (8,295 )
                   
Net cash provided by financing activities
     (3,965 )     12,923  
                   
Foreign exchange rates effect on cash
     (9,062 )     -  
                   
Decrease in cash
     (180,513 )     (38,269 )
                   
Cash, beginning of year
   225,767       70,314  
                   
Cash, end of year
   $ 45,254     $ 32,045  
                   
Cash paid for
                
Interest
   $ 9,528     $ 4,000  
Income taxes
     -          
                   
                 
The accompanying notes are an integral part of the financial statements
  

 
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Phoenix International Ventures, Inc.
Notes to the Condensed Consolidated Financial Statements
 (Unaudited)

Note 1 - Summary of Significant Accounting Policies

Nature of Activities
 
Phoenix International Ventures, Inc. (“PIV” or the “Company”) was organized August 7, 2006 as a Nevada corporation to develop business in the market of defense and aerospace. The Company’s primary business is manufacturing, re-manufacturing and upgrading of Ground Support Equipment (“GSE”) used in military and commercial aircraft.
 
Basis of Presentation
 
The accompanying unaudited consolidated financial statements of the Company are presented in accordance with the requirements for Form 10-Q and Article 8-03 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP’) have been condensed or omitted pursuant to such SEC rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been made. The results for these interim periods are not necessarily indicative of the results for the entire year. The accompanying consolidated financial statements should be read in conjunction with the December 31, 2008 financial statements and the notes thereto included in the Company’s Report on Form 10-K filed with the SEC on March 31, 2009.
 
The consolidated financial statements include the accounts of the Company and its wholly owned US subsidiary Phoenix Aerospace, Inc. (“PAI”) and an Israeli subsidiary, Phoenix Europe Ventures, Ltd. (“PEV). Significant inter-company accounts and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in accordance with US GAAP.
 
Use of Estimates
 
The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect certain amounts reported and disclosed in our condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
 
Recent Accounting Pronouncements
 
In April 2009, the Financial Accounting Standards Board (“FASB”) issued three Staff Positions (“FSPs”) that are intended to provide additional application guidance and enhance disclosures about fair value measurements and impairments of securities. FSP FAS 157-4 clarifies the objective and method of fair value measurement even when there has been a significant decrease in market activity for the asset being measured. FSP FAS 115-2 and FAS 124-2 establish a new model for measuring other-than-temporary impairments for debt securities, including establishing criteria for when to recognize a write-down through earnings versus other comprehensive income. FSP FAS 107-1 and APB 28-1 expands the fair value disclosures required for all financial instruments within the scope of SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to interim periods. All of these FSPs are effective for the Company beginning April 1, 2009. The Company is assessing the potential impact that the adoption of FSP FAS 157-4 and FSP FAS 115-2 and FAS 124-2 may have on its financial statements. FSP FAS 107-1 and APB 28-1 will result in increased disclosures in the Company’s interim periods.
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Note 2 - Geographical Segments

Product revenues are attributed to regions based on the location of the customer. The following table summarizes the Company’s geographical customer concentration of total product revenue.

   
Three months ended March 31,
  
Region:
  
2009
      
2008
  
United States
    
85%
      
48%
  
Europe
    
15
      
52
  
                 
Total:
    
100%
      
100%
  

 Note 3 - Inventory

Inventory consists of used equipment that can be re-manufactured for re-sale and parts. At March 31, 2009 and December 31, 2008 , inventory consisted of the following:
 
   
March 31, 2009
    
December 31, 2008
  
Raw Materials
   $ 114,000     $ 114,000  
Work in Progress
     67,981       72,516  
    $ 181,981     $ 186,516  
 
Note 4 – Long Term Contracts

In September 2008, the Company received a long term contract to design and manufacture two types of aircraft engine trailers for the U.S. Air Force.  Cost and estimated earnings on this contract for the three months ended March 31, 2009:

   
2009
  
Costs incurred this period
   $ 140,564  
Estimated contract profit
     405,561  
Less: billings to date
     (491,501 )
Billings in excess of costs and recognized profit
   $ (85,950 )

The billings in excess of costs have been included in other accrued expenses for balance sheet purposes.

-8-
Note 5 - Notes Payable and Lines of Credit

The Company has a revolving line of credit from a financial institution totaling $35,000.  At March 31, 2009, the line of credit was fully extended and the Company is required to make monthly payments of interest at 6.5% above Prime Rate.  On October 18, 2009, the outstanding balance on the line of credit will convert to an installment note payable of equal installments of interest and principal until September 30, 2013.

The Company has a revolving line of credit from a foreign financial institution totaling $14,057.  At March 31, 2009, the line of credit bears a monthly interest ranging from 10%-13% based upon the amount extended.

In June, July, August and September 2008, the Company entered into promissory note agreements with five Israeli investors and two Israeli corporations for the aggregate amount of $236,536. Some of these notes were in New Israeli Shekels and some in U.S. Dollars. These notes are to be paid in full at various dates between June 22 and August 18, 2009 and bear 15% interest per annum. In addition, these notes were discounted by shares and warrants. In total the Company issued an aggregate of 13,575 shares, and warrants to purchase an aggregate of 33,950 shares at a price per shares that varies between $2.40 and $2.60 per share for 2 years. Some of these notes have been collateralized by a fixed number of shares of the Company’s common stock.

 At March 31, 2009, notes payable consist of the following:
   
Total
        
   
Amount
    
Current
  
Unsecured note payable to a financial institution in a foreign country; 12.4% per annum; monthly payments of $242
   $ 1,530     $ 1,530  
Secured note payable to a financial institution; 10% interest per annum;
     31,584       9,827  
monthly payments of $756 to 2012; collateralized by an automobile
                
Unsecured promissory note agreements, less unamortized discount of $36,344 in 2009; effective interest rates range approximately 2.99% - 6.24%
     200,192       200,192  
Unsecured note payable to an individual;  interest at  7%
     10,828       10,828  
    $ 244,134     $ 222,377  
 
Note 6 - Related Party Transactions

As of March 31, 2009, the Company owed an officer for his advances the total balance of $369,375, of which $39,461 is current. These advances are non-interest bearing and the officer has agreed not to demand payment of the long term portion during the next twelve months.

During the three months ended March 31, 2009, the Company accrued salaries to officers in the aggregate amount of $15,250.

On April 26, 2007, the Company entered into a consulting agreement with a related party to assist the Company with its business development.  Consulting fees under the agreement require a minimum annual payment of $120,000.  At March 31, 2009, the Company has accrued $50,311 due to the related party.
 
On February 2009, the Company purchased parts from a related party in the total sum of $211,954. As of March 31, 2009, the Company owed the related party $62,654 for these parts.
 
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Note 7 - Commitments and Contingencies

 Leases

The Company leases a 7,500 square foot operating facility under a non cancelable lease expiring September 30, 2009. The Company also leases another 10,300 square foot operating facility under a least term which commenced on March 1, 2009 and expires on February 28, 2011.  Minimum lease payments for both facilities total $166,066.  Lease expenses through March 31, 2009 were $13,570, compared to $9,000 for March 31, 2008.
 
Legal Settlement

On May 26, 2006, the Company entered into a settlement agreement whereby it agreed to issue purchase credits in the amount of $500,000 and make cash payments of $150,000. At March 31, 2009, the remaining balance of the legal settlement was $384,000 in trade credits.

-10-

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
FORWARD-LOOKING STATEMENTS
 
The information set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains certain “forward-looking statements”, including, among others (i) expected changes in the Company’s revenues and profitability, (ii) prospective business opportunities and (iii) the Company’s strategy for financing its business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes,” “anticipates,” “intends” or “expects.” These forward-looking statements relate to the plans, objectives and expectations of the Company for future operations. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of its knowledge of its business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this report should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved.
 
You should read the following discussion and analysis in conjunction with the Financial Statements and Notes attached hereto, and the other financial data appearing elsewhere in this quarterly report.
 
The Company’s revenues and results of operations could differ materially from those projected in the forward-looking statements as a result of numerous factors, including, but not limited to, the following: the risk of significant natural disaster, the inability of the Company to insure against certain risks, inflationary and deflationary conditions and cycles, currency exchange rates, changing government regulations domestically and internationally affecting our products and businesses.
 
OVERVIEW

Phoenix International Ventures, Inc. (“PIV” or the “Company”) was incorporated on August 7, 2006. The financial statements are consolidated with the Company’s wholly owned subsidiaries, Phoenix Aerospace, Inc. and Phoenix Europe Ventures, Ltd.
 
The Company manufactures support equipment for military aircraft which are used for maintaining, operating or testing aircraft sub-systems. We also remanufacture existing support equipment in order to extend usefulness and eliminate original product defects. We are ISO 9001/2000 certified, which is due for renewal on April 26, 2010. We have a licensing agreement with Lockheed Martin Aeronautics Company to re-manufacture several types of Support Equipment for P-3 Orion surveillance aircraft.
 
The main users of the equipment are the United States Air Force, US Navy and defense-aerospace companies.


-11-
Results of Operations
 
Financial Information - Percentage of Revenues
(Unaudited)
 
   
Three Months ended
  
   
March 31,
  
   
2009
    
2008
  
Revenues
     100 %     100 %
Cost of Goods Sold
     -71 %     -52 %
Gross Profit
     29 %     48 %
Operating Expenses:
                
General and Administrative
     -33 %     -48 %
Total Operating Expenses
     -33 %     -48 %
Other Income (Expenses)
     -0 %     120 %
Income (Loss) before Taxes
     -1 %     -1 %
Net income (loss)
     -1 %     119 %

Revenues. Revenues increased 98% to $931,842 for the three months ended March 31, 2009 compared to $471,166 for the three months ended March 31, 2008.  The increase in revenues is primarily attributable to an increase in sales order and deliveries.  For the three months ended March 31, 2009, 45% of revenues were from remanufacturing, 21% was manufacturing and design, 19% were study contracts, and 15% from parts trading.  This compares 34% of revenues from remanufacturing, 38% from study contracts, and 28% from parts trading during the three months ended March 31, 2008.

As of March 31, 2009, 85% of our revenues were derived from U.S. customers and 15% from European customers. As of March 31, 2008, 48% of our revenues were derived from U.S. customers and 52% from European customers.

US Navy and Air Force and U.S. Army represented 40% of the Company’s revenues for the three months ended March 31, 2009.  The remaining 60% of revenue is attributed to sales to aerospace companies and military contractors. Two customers represented 72% of the Company’s revenues for the three months ended March 31, 2009.

Each period, we deliver a few orders with relatively large dollar amounts which can cause fluctuations in our revenues, segments and costs of sales, depending on the delivery date of those orders.

Cost of Sales. Cost of revenues consists primarily of sub contractors and raw materials used in manufacturing along with other related charges. Cost of sales increased 169% to $661,067 for the three months ended March 31, 2009, compared to $245,396 for the three months ended March 31, 2008, representing 71% and 52% of the total revenues for three months ended March 31, 2009 and three months ended March 31, 2008, respectively. The increase in our cost of sales in the three months ended March 31, 2009 as a percentage of revenue is primarily attributable to large sales contracts which had lower margins.
-12-

General and Administrative Expenses. General and administrative expenses increased by 35% to $309,600 for the three months ended March 31, 2009 from $227,749 for the three months ended March 31, 2008.  The increases in general and administrative costs are primarily attributable to an increase of  salaries and audit fees in the three months ended March 31, 2009 as compared with the same period in 2008. As a percentage of revenues, general and administrative expenses decreased to 33% for the three months ended March 31, 2009, as compared to 48% for the three months ended March 31, 2008.

Net (loss) income. Net Loss for the three months ended March 31, 2009 amounted to $59,977 as compared to a net income of $558,972 for the same period during 2008.  The 2008 income was attributable to a one time recovery of a contingent loss in the amount of $556,154 in the three months ended March 31, 2008.

LIQUIDITY AND CAPITAL RESOURCES
 
Cash as of March 31, 2009 amounted to $45,254, as compared with $225,767 as of December 31, 2008, a decrease of $180,513. Net cash used in operating activities for the three months ended March 31, 2009, was $167,486. Net cash used in financing activities for the three months ended March 31, 2009 was $3,965 with a $9,062 currency change.
 
We lease a 7,500 square foot operating facility under a non cancelable lease expiring September 30, 2009. We also lease another 10,300 square foot operating facility under a lease term that commenced March 1, 2009 and expires February 28, 2011.  Minimum lease payments for both facilities total $166,066 through February 28, 2011.  Lease expenses through March 31, 2009 were $13,570, compared to $9,000 for the quarter ended March 31, 2008.  We relocated our headquarters in March 2009 to the larger facility in order to accommodate our increased production. While we still maintain our lease on our former facility , we have no intentions of continuing the lease beyond the expiration date of September 30, 2009.
 
We will continue to finance our operations mainly from the cash provided from operating activities. Management believes that we will execute significant portions of our backlog in fiscal year 2009 and proceeds from those sales are expected to fund our operations.   As of March 31, 2009, we had a backlog of approximately $5,390,318. One of the orders is for the design and manufacturing of new aircraft engine trailers for the approximate amount of $2,044,889. In addition, two of the orders are from two customers for the approximate amount of $656,391. These orders are for time, material and an agreed profit. We collect 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 our backlog, there is no need for us to finance materials and labor. Additionally, management is expecting, although there can be no assurance, that additional orders will come in. Since December 31, 2008 we have announced an additional $629,000 of new orders. These orders are expected to be delivered in 2009. The Company has promissory note arrangements in the amount of $236,536 which are due to mature between June 21 to August 19, 2009, management believes the Company has sufficient funds to repay these note arrangements.

We may consider raising additional capital through private and/or public placements to fund possible acquisitions and business development activities and for working capital.
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
Not applicable.
 
Item 4T.
Controls and Procedures
  
(a) Evaluation of Disclosure Controls and Procedures: As of the end of the period covered by this Quarterly Report on Form 10-Q , we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Disclosure controls and procedures are designed to ensure that information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosure of material information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to provide reasonable assurance of achieving these objectives. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are not effective to a reasonable assurance level of achieving such objectives.
 
(b) Changes in Internal Control over Financial Reporting: There were no changes in our internal control over financial reporting during the three months ended March 31, 2009  that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
-13-

 
 
Item 1.
Legal Proceedings.
  
Not applicable.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
 
Not applicable.
 
Item 3.
Default upon Senior Securities.
 
Not applicable.
 
Item 4.
Submission of Matters to a Vote of Security Holders.
 
Not applicable.
 
Item 5.
Other Information.
 
Not applicable.
 
Item 6.
Exhibits
 
No.
Exhibit
31.1
Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification by Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification by Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
-14-

SIGNATURES
 
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
Phoenix International Ventures, Inc.
  
 
(Registrant)
  
       
May 14, 2009
By:
/s/ Zahir Teja  
    Zahir Teja  
   
President and Chief Executive Officer
  
       
 
   
   
       
May 14, 2009
By:
/s/ Neev Nissenson  
    Neev Nissenson  
   
Chief Financial Officer
(principal financial and accounting officer)
  
       
 
 
-15-
INDEX TO EXHIBITS

No.
Exhibit
31.1
Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification by Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification by Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

-16-